SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

               |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 1997

                                       OR

               o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
             For the transition period from ________ to ___________

                         Commission file number: 0-21479

                              ALLSTAR SYSTEMS, INC.
             (Exact name of Registrant as specified in its charter)

                      Delaware                          76-0515249
              (State of Incorporation)     (I.R.S. Employer Identification No.)
               6401 Southwest Freeway
                     Houston, TX                         77074
               (Address of principal executive offices) (Zip code)

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

           Securities registered pursuant to Section 12(b) of the Act:
                                      None

           Securities registered pursuant to section 12(g) of the Act:

                          COMMON STOCK, $.01 Par Value
                                (Title of Class)
         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes __x__ No ____
         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not 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-K or any
amendment to this Form 10-K. |X|

         The aggregate  market value of the voting stock held by  non-affiliates
of the registrant, based upon the closing price of the Common Stock on March 24,
1998,  as  reported  on  NASDAQ  National  Market  System,   was   approximately
$11,591,000.

         The number of shares of Common Stock, $.01 Par Value, outstanding as of
March 24, 1997 was 4,454,411.

                       DOCUMENTS INCORPORATED BY REFERENCE
         Portions of Registrant's definitive Proxy Statement for the 1998 Annual
Meeting of Shareholders  are  incorporated by reference into Part III, Items 10,
11, 12, and 13.
<PAGE>

PART I

Item 1.  Business

Special Notice Regarding Forward-Looking Statements

THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING  STATEMENTS RELATING TO
FUTURE EVENTS OR THE FUTURE FINANIAL  PERFORMANCE OF THE COMPANY,  INCLUDING BUT
NOT LIMITED TO  STATEMENTS  CONTAINED IN ITEM 1 - "FACTORS  WHICH AFFECT  FUTURE
OPERATING  RESULTS," "ITEM 7.  MANAGEMENTS  DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS,"  "PROPERTIES" AND "BUSINESS."  READERS ARE
CAUTIONED  THAT SUCH  STATEMENTS,  WHICH MAY BE  IDENTIFIED  BY WORDS  INCLUDING
"ANTICIPATES,"  "BELIEVES," "INTENDS,"  "ESTIMATES," "EXPECTS" "PLANS" AND OTHER
SIMILAR  EXPRESSIONS,  ARE ONLY  PREDICTIONS OR  ESTIMATIONS  AND ARE SUBJECT TO
KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES,  OVER WHICH THE COMPANY HAS LITTLE OR
NO CONTROL.  IN EVALUATING SUCH STATEMENTS,  READERS SHOULD CONSIDER THE VARIOUS
FACTORS  IDENTIFIED  IN THIS ANNUAL REPORT ON FORM 10-K,  INCLUDING  MATTERS SET
FORTH IN "FACTORS WHICH MAY AFFECT THE FUTURE  OPERATING  RESULTS,"  WHICH COULD
CAUSE ACTUAL  EVENTS,  PERFORMANCE  OR RESULTS TO DIFFER  MATERIALLY  FROM THOSE
INDICATED BY SUCH STATEMENTS.

GENERAL

         Allstar  Systems,  Inc.  (the  "Company")  is a  regional  provider  of
computer  and  telecommunications  hardware  and  software  products and related
services.  The Company primarily markets its products and services in Texas from
five  locations  in  the  Houston,   Dallas-Fort   Worth,  El  Paso  and  Austin
metropolitan  areas and  through a small,  recently  opened  office in  McAllen,
Texas.  During 1997, the Company's customer base of approximately 2,700 accounts
was comprised  primarily of mid-sized  customers and regional  offices of larger
customers in  commercial,  educational  and  governmental  sectors.  The Company
positions itself to provide its customers with single-source  solutions for both
their  computer  and  telecommunications  needs  by  offering  a broad  range of
products  and  services and by  providing  the  expertise to support  integrated
computer and telecommunications applications.

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

         The Company was  incorporated  in 1983 as a Texas  corporation  and was
reincorporated  in 1996  as a  Delaware  corporation.  The  Company's  executive
offices  are located at 6401  Southwest  Freeway,  Houston,  Texas 77074 and its
telephone number is (713) 795-2000.

         The  market  for  computer   products  and  services  has   experienced
significant  growth in recent  years and the use of such  products  and services
within  organizations  has been  impacted  by  several  concurrent  trends.  The
introduction of LANs and WANs has allowed organizations to supplement or replace
expensive,  centralized  mainframe  computer  systems  with  more  flexible  and
affordable PC-based  client/server  platforms.  The emergence of widely accepted
industry  standards for hardware and software has  increased  the  acceptance of
open  architecture  LANs and WANs which can and  frequently do contain  products
from numerous manufacturers and suppliers.  Rapid technological  improvements in

<PAGE>

computer  hardware and the introduction of new software  operating  systems have
also created the need to expand or upgrade existing networks and systems. At the
same time,  price decreases have made such networks and systems  affordable to a
larger  number of  organizations.  The Company  believes  that these trends have
increased  the general  demand for  computer  products  and related  information
technology services.

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

         The advent of open  architecture  networks has also impacted the market
for information  technology services.  Wider use of complex networks involving a
variety of manufacturer's equipment, operating systems and applications software
has made it  increasingly  difficult  to  diagnose  problems  and  maintain  the
technical knowledge and repair parts necessary to provide support services.  The
Company  believes  that  increased  outsourcing  of more  sophisticated  support
services by business and institutional customers has resulted from the technical
complexities  created by  multi-manufacturer  and supplier  network  systems and
rapid  technological  change.   Increasingly,   organizations  seeking  computer
products often require  prospective vendors not only to offer products from many
manufacturers  and  suppliers,  but to have  available  and  proficient  service
expertise to assist them in product selection,  system design,  installation and
post-installation  assistance and service. The Company believes that the ability
to offer  customers a  comprehensive  solution to their  information  technology
needs,   including  the  ability  to  work  within  its   customers'   corporate
environments as integral members of their management  information  system staff,
are increasingly important in the marketplace.

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

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

BUSINESS STRATEGY

         The   Company's   goals   include   continuing   the   growth   of  its
regionally-based  business  while  preparing  the  Company  to become a national
provider of computer and  telephone  hardware and software  products and related
services.  To achieve its  objectives,  the Company  intends to pursue these key
strategies:

Expand  Geographically.  The Company intends to open  additional  offices within
Texas  and  in new  regions  to  service  existing  customers  and  attract  new
customers.  The Company opened new offices in Austin, Texas in the third quarter
of 1997 and in McAllen  and El Paso late in 1997.  The  Company  intends to open
other  offices in Texas and other  regions as  opportunities  and  circumstances
warrant.

Increase Telecom Systems And CTI Software Businesses. The Company began offering
Telecom  Systems  in 1994 in its  Houston  office  and CTI  Software  in 1995 to
capitalize on the growing  trend in CTI. The Company  expanded  Telecom  Systems
operations  to the  Dallas-Fort  Worth  market in the second  half of 1997.  The
Company  intends  to expand its  Telecom  Systems  operations  to (i) all of its
offices,  (ii) pursue  acquisitions of regional  telephone system resellers with
established  customer bases in targeted markets,  and (iii) increase the variety
and capabilities of its CTI Software  products through internal  development and
acquisitions of complementary software products.

Implement  Internet-Based  National  Marketing  Program.  The Company intends to
implement a new method of marketing its Computer Products on a nationwide basis.
By accessing an Internet home page currently  under  development,  the Company's
sales  representatives  and customers will be able to obtain product pricing and
availability  data,  enter or change orders and access  customer  account status
information.  The Company plans to employ  experienced sales  representatives in
selected  metropolitan  markets who will be supported by the new  Internet-based
system and by a national  sales support call center  performing  order entry and
customer service functions.

         After utilizing the  Internet-based  system to support its direct sales
force the Company  expects to establish  customer  relationships  in new markets
under the trade name "800 PC  Deals."  The  Company  then  intends to  establish
branch offices in certain of these markets.  Implementation of this strategy was
anticipated  to  begin  in the  second  half  of  1997  but  has  been  deferred
indefinitely until the Company can better ascertain the potential  profitability
of this program and further develop its Internet based marketing systems.  There
can be no  assurance  that the Company  will  complete  the  development  of the
Internet  system  and if  developed  whether  the  Company  will  implement  the
marketing program.

PRODUCTS AND SERVICES

         The Company's  revenues are derived from the marketing of technological
information  systems.  Management of the Company believes that such revenues are
reliant upon the ability to offer related  services (which comprise less than 10
% of revenues) on those products. For the convenience of the reader the products
offered and the related services have been provided below.

COMPUTER PRODUCTS

         The Company  offers its  customers a wide variety of computer  hardware
and software products  available from over 600 manufacturers and suppliers.  The
Company's products include desktop and laptop computers,  monitors, printers and
other peripheral  devices,  operating system and application  software,  network
products and mid-range host and server systems  including the IBM RS6000 and DEC
Alpha systems.  The Company is an authorized  reseller of products from a number
of  leading   manufacturers  of  computer  hardware,   software  and  networking
equipment,  including  Compaq,  Hewlett-Packard,   IBM,  Microsoft  and  Novell.
Products  manufactured  by  Compaq,  Hewlett-Packard  and  IBM in the  aggregate
accounted for  approximately  53.7%,  58.9%, and 56.8%, for 1995, 1996 and 1997,
respectively,  of the  Company's  total  inventory  purchases.  There  can be no
assurance that the Company will continue to resell such manufacturers'  products
in the future;  however, the Company believes that its relations with all of its
major product manufacturers and distributors are satisfactory.
<PAGE>

IT SERVICES

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

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

Contract  Systems  Engineer,  Technician  And Programmer  Staffing.  The Company
provides  short-term  supplemental  technical  staffing,  including hardware and
software  technicians,  help desk personnel,  systems and network  engineers and
programming staff.

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

Information   Technology  Project  Management.   The  Company  provides  project
management  services for major hardware and software  upgrades and  conversions,
roll-outs of major new hardware and  software  installations  and large  network
installations, including multiple city WAN implementations.

Telecommunications And Data Systems Cabling. The Company provides networking and
telecommunications   cabling   services   required  for  all  major   networking
topologies,  including  fiber optic  cabling.  The Company  also offers  cabling
services for adding to, moving or changing existing network systems.

Contract Programming Services. Recently, the Company has begun to offer contract
programming   services,   primarily   related   to  SQL   database   design  and
implementation, client server applications and Internet site development.

IT Staffing  Services.  In January  1997 the Company,  through its  wholly-owned
subsidiary IT Staffing,  Inc., began providing technical personnel for temporary
and  permanent  positions  to it  customers.  The  Company  recruits  and places
personnel  for a wide  variety of technical  positions  related  principally  to
computing hardware and software skill sets.

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

<PAGE>
TELECOM SYSTEMS

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

         Prior to 1997,  the  Company  marketed  Telecom  Systems  only from its
Houston  office.  During the second half of 1997, the Company  expanded  Telecom
Systems sales to its Dallas office.  The Company intends to expand the marketing
of its Telecom  Systems  products into each new office as they are  established.
The Company also intends to expand its Telecom Systems products, particularly in
the area of CTI products, as suitable new products become available for resale.

CTI SOFTWARE

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

Stratadial. StrataDial is a predictive dialer software product for outbound call
center  applications  such as sales and promotion,  collections,  surveys,  lead
generation and announcements that require personal contact.  StrataDial features
inbound/outbound  call blending without requiring an automated call distribution
feature  ("ACD")  of the PBX  telephone  system.  StrataDial  collects  campaign
specific  data during the  telephone  call and  provides  comprehensive  on line
reporting  and  statistical  analysis  of the  campaign  data.  StrataDial  also
features open  architecture  which allows easy  interaction  with the customer's
other database applications. Dialing parameters and campaign characteristics can
be changed without shutting down the dialer,  as is required with many competing
products. During 1997, the Company sold and installed 48 StrataDial systems.

Stratavoice. StrataVoice is an outbound dialing product designed for high volume
applications  that do not require human  interaction.  StrataVoice  applications
include  appointment  confirmation and setting,  court appearance  notification,
surveys,   community   notification   such  as  school  closings  and  emergency
evacuation, employee updates, absenteeism notification, telemarketing and market
research. A telephone system utilizing  StrataVoice dials a computerized list of
numbers  and can ask the  contacted  person a  number  of  questions,  including
branching to other questions and statements based on responses. StrataVoice also
allows the contacted person to leave messages. Scripting tools are included that
allow the user to develop campaigns.  The system builds a database of respondent
data and has comprehensive  response  reporting  capabilities.  During 1997, the
Company sold and installed 122 StrataVoice systems.

Strata-Interactive.  Strata-Interactive is an interactive voice response ("IVR")
software product which allows telephone calls to access computer  information at
any time using a simple  touch-tone  telephone.  Applications for IVR technology
vary and include insurance coverage  verification and claims reporting,  utility
company account  information and outage reporting,  bank account information and
on-line  transactions,  and  shipment  verification  and  tracking  information.
Strata-Interactive  is based upon open architecture and is designed to work with
networked  computers.  The first beta version of the product was  delivered to a
customer  in  June  1996.   In  1997,   the  Company   began   integrating   the
Strata-Interactive  components into the Strata-Dial and  Strata-Voice  products.
The Company  expects  the  majority of the  Strata-Interactive  product  will be
marketed as a component of Strata-Dial.
<PAGE>
SALES AND MARKETING

DIRECT SALES

         The Company markets its products and services  primarily through direct
sales  representatives.  Direct sales  representatives  are teamed with in-house
customer service representatives and are assigned to specific customer accounts.
The Company  believes that direct sales lead to better account  penetration  and
management,   better   communications  and  long-term   relationships  with  its
customers.  The  Company's  sales  personnel,  including  account  managers  and
customer service representatives,  are partially compensated,  and in some cases
fully  compensated,  on the  profitability of accounts which they participate in
developing.  The Company believes that its past and future growth will depend in
large   measure  on  its   ability  to  attract  and  retain   qualified   sales
representatives  and  sales  management  personnel.  The  Company  promotes  its
products and services  through general and trade  advertising,  participation in
trade shows and telemarketing campaigns. The Company believes that a significant
portion of new  customers  of its Computer  Products and IT Services  businesses
originates through word-of-mouth  referrals from existing customers and industry
members, such as manufacturer's representatives.  Additionally,  Telecom Systems
sales personnel seek to capitalize on the many customer relationships  developed
by the Company's Computer Products and IT Services personnel. By virtue of their
computer business  contacts,  Computer Products and IT Services  personnel often
learn at a relatively early stage that their customers may soon be in the market
for  telecommunications  equipment and services.  Sales leads  developed by this
synergy are then  jointly  pursued.  CTI  Software  is marketed by direct  sales
representatives to organizations using telemarketing, call centers or other high
volume  telecommunications  functions.  In  addition,  StrataVoice  is  marketed
through resale arrangements between the Company and a VAR.

INTERNET-BASED SALES SUPPORT SYSTEM

         The Company has been developing an Internet-based  sales support system
that will be used by its entire sales force, however the Company does not intend
to activate the sales support until additional  development  occurs.  The system
will allow sales  representatives  to access  information on product pricing and
availability,  enter and track  specific  orders and  monitor  customer  account
information.  Sales representatives will be able to access the system from their
desktop computers at the Company's  offices or on the Internet.  The system will
also allow selected customers to enter and manage their own orders on-line.  The
Company  believes that when  implemented  this sales support system will enhance
the  productivity  and  flexibility  of its sales force and improve its customer
service.

800 PC DEALS

         The Company  intends to use its proposed  Internet-based  sales support
system to cost-effectively expand its marketing efforts for Computer Products on
a national  level under the trade name 800 PC Deals.  Specifically,  the Company
intends to employ  sales  representatives  with  local  experience  in  targeted
metropolitan  markets to  establish  customer  relationships  utilizing  the new
system.  The Company also plans to operate a national  sales support call center
to serve sales representatives and customers.  Initially, the Company intends to
fulfill a large portion of orders in these new markets by drop shipping  product
directly from suppliers to customers. Once sufficient customer relationships are
established and market knowledge is developed, the Company may seek to establish
a branch office in a market. No definitive schedule has been established for the
commencement of operations as 800 PC Deals.

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

         The Company  focuses its marketing  efforts on mid-sized  customers and
regional offices of larger customers  located in or near the metropolitan  areas
in Texas in which  the  Company  maintains  offices.  The  Company  occasionally
provides Computer Products and IT Services in markets where the Company does not
have an office,  typically  to branch  operations  of  customers  with which the
Company has an  established  relationship.  The  Company's  customer base is not
concentrated in any industry group. Over 2,700 customers  purchased  products or
services from the Company  during 1997.  In 1997,  the largest  single  customer
constituted 4.8% of total revenues, however in prior years the Company's largest
customer has constituted as high as 11.2% of revenues.

         The  Company  has only a small  amount  of  backlog  relative  to total
revenues  because the Company  has no  long-term  commitments  by  customers  to
purchase products or services from the Company. Although the Company has service
contracts  with  many  of  its  large  customers,  such  service  contracts  are
project-based  and/or  terminable  upon relatively  short notice.  A significant
reduction in orders from any of the  Company's  largest  customers  could have a
material  adverse  effect on the  Company's  financial  condition and results of
operations.

SUPPLY AND DISTRIBUTION

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

         The  Company's  largest  supplier  of Computer  Products  is Inacom,  a
leading computer products  aggregator.  Inacom markets and distributes  computer
products and provides various services on a wholesale basis through a network of
franchisees  and resellers and also markets its products  directly to end-users.
During 1995,  1996 and 1997,  the Company  purchased  from Inacom  approximately
36.6%,  57.0% and 51.4%,  respectively,  of its total inventory  purchases.  The
Company purchases Computer Products and obtains drop shipping and other services
from Inacom  pursuant to an  agreement  entered into in August 1996 (the "Inacom
Agreement").  Under the Inacom Agreement, the Company is required to purchase at
least 80% of its Computer Products from Inacom, but only to the extent that such
products are made  available  within a reasonable  period of time at  reasonably
competitive  pricing.  Pricing from Inacom is generally  based on Inacom's  cost
plus a negotiated markup.  With certain  exceptions,  the Company is entitled to
volume discounts at agreed upon levels. The term of the Inacom agreement expires
on December 31, 2001, and  automatically  renews for successive one year periods
unless  notice of  non-renewal  is given 60 days prior to the end of the renewal
period.  A  cancellation  fee of $570,500  will be payable by the Company in the
event of  non-renewal  or early  termination  of the Inacom  Agreement by either
party.

         The Company's second largest  supplier of computer  products is Ingram.
The Company  also  purchases  its Computer  Products  from Ingram on a cost-plus
basis.   During  1995,  1996  and  1997,  the  Company   purchased  from  Ingram
approximately  20.6%,  14.7% and  20.0%  respectively,  of its  total  inventory
purchases.  The Company's agreement with Ingram provides for volume discounts at
agreed upon levels.  The agreement with Ingram may be terminated by either party
upon 30 days prior written notice.


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

         The Company maintains standard  authorized  dealership  agreements from
many  leading  manufacturers  of computer  and  telecommunications  hardware and
software. Under the terms of these authorized dealership agreements, the Company
is entitled to resell  associated  products to end-users and to provide warranty
service.  The Company's status as an authorized reseller of key product lines is
essential to the operation of the Company's business. In general, the authorized
dealer  agreements  do not require  minimum  purchases  and include  termination
provisions ranging from immediate  termination to termination upon 90 days prior
written notice. Some of such agreements are conditioned upon the continuation of
the  Company's  supply  arrangement  with  Inacom or  another  major  wholesaler
acceptable to the manufacturer.

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

         During  1995,  the Company  began an  initiative  to drop ship a higher
percentage  of its orders  directly  from the  supplier  to customer in order to
lower its distribution  costs and freight costs. This initiative has resulted in
the  percentage  of drop  shipped  orders  (measured  by the cost of goods  drop
shipped as a  percentage  of total cost of goods)  growing from 5. 1% during the
six months ended June 30, 1995 to 18.1% during 1996 and 23.9% in 1997. While the
Company  does not  believe  that it is in its  best  interest  to drop  ship all
orders,  it does  intend  to  continue  to move  more of its  Computer  Products
distribution toward drop shipments.

MANAGEMENT INFORMATION SYSTEMS

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

         During the first quarter of 1998 the Company  commenced a conversion of
its MIS to a more powerful  computing  platform  which will allow the Company to
improve and enhance its MIS.  The new system will allow the Company to expand it
uses and more fully  integrate its  operations  with the MIS.  While the Company
expects the system conversion to be fully implemented with only normal debugging
and reprogramming, a failure to fully implement the conversion with only minimal
disruption  of its  operation  could  have an  adverse  effect on the  Company's
results of operations and financial condition.


<PAGE>
         The system  conversion was  implemented  as a general  upgrading of the
Company's MIS and was not for the purpose of achieving Year 2000 compliance. The
Company  believes  its prior MIS was,  and its new MIS is, Year 2000  compliant.
Accordingly,  the Company does not believe that Year 2000 compliance will have a
material adverse effect on its results of operations or financial condition.  It
is possible that the Company could be impacted if its  significant  suppliers or
customers  do not  successfully  and timely  achieve Year 2000  compliance  with
respect to their own computer systems. The Company has inquired of its two major
suppliers  as to the status of their Year 2000  compliance  and has been advised
that they expect to achieve Year 2000 compliance.  If, contrary to the Company's
expectations, it or the significant suppliers and customers fail to achieve Year
2000  compliance in a timely  manner,  the Company's  results of operations  and
financial condition could be materially and adversely effected.

EMPLOYEES

         As of  December  31,  1997,  the  company  employed  approximately  363
individuals.  Of these,  approximately 81 were employed in sales,  marketing and
customer service,  153 were employed in engineering and technical  positions and
129 were employed in administration,  finance and MIS. The Company believes that
its ability to recruit and retain  highly  skilled  and  experienced  technical,
sales and management  personnel has been,  and will continue to be,  critical to
its ability to execute its business plans.  None of the Company's  employees are
represented  by  a  labor  union  or  are  subject  to a  collective  bargaining
agreement. The Company believes that its relations with its employees are good.

COMPETITION

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

         As the  markets in which the Company  competes  have  matured,  product
price  competition has intensified and is likely to continue to intensify.  Such
price competition could adversely affect the Company's  financial  condition and
results of  operations.  There can be no assurance that the Company will be able
to continue to compete successfully with existing or new competitors.
<PAGE>
HISTORY AND REINCORPORATION

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

FACTORS WHICH MAY AFFECT FUTURE RESULTS OF OPERATION

Risk Of Low Margin Business

         The  Company's  past growth in net income has been fueled  primarily by
sales growth rather than increased gross profit  margins.  Given the significant
levels of competition  that  characterize the computer  reseller  market,  it is
unlikely that the Company will be able to increase  gross profit  margins in its
core business of reselling  computer  products which accounted for approximately
86% of the Company's  total revenue in 1997.  Moreover,  in order to attract and
retain many of its larger customers, the Company frequently must agree to volume
discounts and maximum allowable markups that serve to limit the profitability of
sales to such customers.  Accordingly, to the extent that the Company's sales to
such customers increase,  the Company's gross profit margins may be reduced and,
therefore,  any  future  increases  in net income  will have to be derived  from
continued  sales growth or effective  expansion  into higher margin  businesses,
neither  of  which  can  be  assured.  Furthermore,  low  margins  increase  the
sensitivity  of the  Company's  results of  operations to increases in operating
expenses,  including costs of financing.  Any failure by the Company to maintain
or increase  its gross  profit  margins and sales  levels  could have a material
adverse effect on the Company's financial condition and results of operations.

<PAGE>
Dependence On Availability Of Credit; Interest Rate

         The Company's  business  activities  are capital  intensive in that the
Company is required to finance  accounts  receivable and inventory.  In order to
obtain  necessary  working  capital,  the Company  relies  primarily on lines of
credit under which the  available  credit and credit limits are dependent on the
amount and quality of the Company's  accounts  receivable  and  inventory.  As a
result,  the amount of credit available to the Company may be adversely affected
by factors such as delays in collection or  deterioration  in the quality of the
Company's accounts receivable,  inventory  obsolescence,  economic trends in the
computer  industry,  interest rate  fluctuations and the lending policies of the
Company's lenders.  Many of these factors are beyond the Company's control.  Any
decrease  or  material  limitation  on the  amount of capital  available  to the
Company under its credit lines and other financing  arrangements would limit the
ability of the Company to fill  existing  sales  orders,  purchase  inventory or
expand its sales levels and, therefore,  would have a material adverse effect on
the Company's  financial condition and results of operations.  In addition,  any
significant  increases in interest  rates will increase the cost of financing to
the  Company  and  would  have an  adverse  effect  on the  Company's  financial
condition  and  results of  operations.  The  inability  of the  Company to have
continuous  access to such  financing at reasonable  costs would  materially and
adversely  impact the Company's  financial  condition and results of operations.
(See Item 7  Management's  Discussion  and Analysis of Financial  Condition  and
Results of Operations).

Highly Competitive Business

         The  Company is  engaged  in  business  activities  that are  intensely
competitive  and rapidly  changing.  The  Company  believes  that the  principal
competitive  factors in the business in which it operates are relative price and
performance,  product availability,  technical expertise,  adherence to industry
standards,   financial   stability,   service  support  and  reputation.   Price
competition has intensified, particularly in the Company's Computer Products and
IT  Services  businesses,  and is likely to continue  to  intensify.  Such price
competition could materially  adversely affect the Company's financial condition
and results of  operations.  The Company's  competitors  include major  computer
products and telephone  equipment  manufacturers,  aggregators and distributors,
including  certain  manufacturers,  aggregators  and  distributors  which supply
products  to  the  Company.  Other  competitors  include  established  national,
regional and local resellers,  systems  integrators,  telephone systems dealers,
computer-telephony VARs and other CTI software suppliers.  Some of the Company's
current and potential competitors have longer operating histories and financial,
sales,   marketing,   technical  and  other  competitive   resources  which  are
substantially  greater than those of the  Company.  As a result,  the  Company's
competitors may be able to adapt more quickly to changes in customer needs or to
devote greater  resources than the Company to sales and service of its products.
Such competitors  could also attempt to increase their presence in the Company's
markets by forming  strategic  alliances with other  competitors of the Company,
offer new or improved  products  and  services  to the  Company's  customers  or
increase  their  efforts to gain and retain  market  share  through  competitive
pricing.

Management Of Growth; Regional Concentration

         The Company has experienced  rapid growth which has and may continue to
put strains on the Company's management and operational resources. The Company's
ability to manage  growth  effectively  will require it to continue to implement
and improve its operational,  financial and sales systems, to develop the skills
of its  managers and  supervisors  and to hire,  train,  motivate and manage its
employees.  The  Company's  future  growth,  if any,  is expected to require the
addition of new management personnel and the development of additional expertise
by  existing  management  personnel.  The  failure  to  do so  could  materially
adversely  affect the  Company's  financial  position and results of  operation.
Within the next 12 months, the Company intends to open new offices.  The Company
also  plans  to  relocate  its   Dallas-Fort   Worth   office  and   consolidate
substantially   all  of  its  warehouse  and  distribution   operations  in  the
Dallas-Fort Worth metropolitan area. The Company  anticipates that it will incur
substantial  costs in  connection  with  these new  office  openings,  including
expenditures for furniture,  fixtures and equipment.  Additional  burdens on the
Company's  working  capital are also expected in connection with the start-up of
such  operations.  Any  significant  disruption  or  unanticipated  expenses  in
connection  with these  plans could also have a material  adverse  effect on the
Company's  financial  condition and results of operations.  For the  foreseeable
future,  the Company  expects that it will  continue to derive most of its total
revenue from  customers  located in or near the  metropolitan  areas in Texas in
which the Company maintains offices. Accordingly, an economic downturn in any of
those  metropolitan  areas,  or in the region in  general,  would  likely have a
material  adverse  effect on the  Company's  financial  condition and results of
operations.
<PAGE>
Dependence On Key Personnel

         The  success of the  Company  for the  foreseeable  future  will depend
largely  on  the  continued  services  of key  members  of  management,  leading
salespersons and technical personnel. The Company is particularly dependent upon
James H. Long,  founder,  Chairman of the Board,  President and Chief  Executive
Officer of the Company,  because of his knowledge of the  Company's  operations,
industry  knowledge,  marketing skills and relationships  with major vendors and
customers.

         The Company does not maintain key  personnel  life  insurance on any of
its  executive  officers or  salespersons  other than Mr.  Long.  The  Company's
success also depends in part on its ability to attract,  hire,  train and retain
qualified  managerial,   technical  and  sales  and  marketing  personnel  at  a
reasonable cost,  particularly those involved in providing systems  integration,
support  services and training.  Competition for such personnel is intense.  The
Company's  financial  condition  and results of  operations  could be materially
adversely affected if the Company were unable to attract, hire, train and retain
qualified personnel.

Dependence On Continued Authorization To Resell And Provide Manufacturer-
Authorized Services

         The Company's future success in both product sales and services depends
largely on its continued  status as an  authorized  reseller of products and its
continued  authorization  as a service  provider.  With respect to the Company's
computer hardware and software product sales and service,  the Company maintains
sales  and  service  authorizations  with many  industry-leading  manufacturers,
including Compaq, Hewlett-Packard,  IBM, Microsoft, NEC and Novell. In addition,
some  of  such  agreements  are  based  upon  the  Company's   continued  supply
relationship with Inacom or another  aggregator or distributor  approved by such
manufacturers.  With respect to the  Company's  Telecom  Systems  business,  the
Company  maintains  sales  and  service   authorizations  with  industry-leading
manufacturers,  including Active Voice, AVT, NEC,  Inter-tel and Mitel.  Without
such sales and service  authorizations,  the Company  would be unable to provide
the  range of  products  and  services  currently  offered  by the  Company.  In
addition,  loss of  manufacturer  authorizations  for  products  that  have been
financed under the Company's credit  facilities  constitutes an event of default
under such credit facilities. In general, the agreements between the Company and
its products  manufacturers either provide for fixed terms or for termination on
30 days prior written notice. Failure to maintain such authorizations could have
a material adverse effect on the Company's financial position and its results of
operations.

Dependence On Suppliers

         The Company's  business  depends upon its ability to obtain an adequate
supply of products and parts at competitive  prices and on reasonable terms. The
Company's  suppliers  are not  obligated  to have  product  on hand  for  timely
delivery  to  the  Company  nor  can  they  guarantee  product  availability  in
sufficient  quantities to meet the  Company's  demands.  The Company  procures a
majority of computers,  computer  systems,  components and parts  primarily from
Inacom  and  Ingram in order to obtain  competitive  pricing,  maximize  product
availability  and  maintain  quality  control.  Any material  disruption  in the
Company's  supply  of  products  would  have a  material  adverse  effect on the
Company's financial condition and results of operations.

Rapid Technological Change

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

         The Company's  top ten customers  (which have varied from year to year)
accounted for 27.9%,  33.2% and 21.2% of the Company's revenue during 1995, 1996
and 1997, respectively. Based upon historical results and existing relationships
with  customers,  the Company  believes that a substantial  portion of its total
revenue  and gross  profit will  continue  to be derived  from sales to existing
customers.  There are no  long-term  commitments  by such  customers to purchase
products  or  services  from  the  Company.  Product  sales by the  Company  are
typically made on a purchase order basis. A significant reduction in orders from
any of the Company's  largest  customers could have a material adverse effect on
the Company's financial condition and results of operations. Similarly, the loss
of any one of the Company's  largest customers or the failure of any one of such
customers to pay on a timely basis could have a material  adverse  effect on the
Company's  financial  condition  and  results  of  operations.  There  can be no
assurance  that the Company's  largest  customers  will continue to place orders
with the  Company  or that  orders  by such  customers  will  continue  at their
previous levels.  There can be no assurance that the Company's service customers
will continue to enter into service  contracts with the Company or that existing
contracts will not be terminated.

Reliance On Management Information Systems

         The Company's success is largely dependent on the accuracy, quality and
utilization  of  the   information   generated  by  its  customized   management
information systems, which affects its ability to manage its sales,  accounting,
inventory  and  distribution  systems.  The  Company  anticipates  that  it will
continually need to refine and enhance its management information systems as the
Company  grows and the needs of its business  evolves.  In view of the Company's
reliance on information and telephone communication systems, any interruption or
errors in these  systems could have a material  adverse  effect on the Company's
financial  condition  and  results  of  operations.   (See  Item  1  -  Business
"Management Information Systems").

Acquisition Risk

         The Company intends to pursue  potential  acquisitions of complementary
businesses.  The success of this  strategy  depends not only upon the  Company's
ability to acquire complementary  businesses on a cost-effective basis, but also
upon  its  ability  to  integrate  acquired  operations  into  its  organization
effectively,  to retain and motivate key  personnel  and to retain  customers of
acquired firms. No specific  acquisitions  are being negotiated or planned as of
the date of this annual  report and there can be no  assurance  that the Company
will be able  to  find  suitable  acquisition  candidates  or be  successful  in
acquiring or integrating such businesses. Furthermore, there can be no assurance
that  financing  required  for  any  such  transactions  will  be  available  on
satisfactory terms.

Control By Existing Stockholders

         James H. Long,  founder,  Chairman  of the Board,  President  and Chief
Executive Officer of the Company owns 47.6% of the outstanding  Common Stock and
Mr.  Long will have the  ability to control  the  election  of a majority of the
members of the  Company's  Board of  Directors,  prevent the approval of certain
matters  requiring the approval of at least  two-thirds of all  stockholders and
exert significant influence over the affairs of the Company.


Anti-Takeover Considerations

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

Absence Of Dividends


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

                                 GLOSSARY OF NAMES AND TECHNICAL TERMS

COMPANY NAMES

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

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

TECHNICAL TERMS

Aggregator...................  A company that purchases directly from
                               manufacturers in large quantities, maintains
                               inventory, breaks bulk and resells to
                               distributors, resellers and value-added resellers
Configuration................  The customization of equipment to a customer's
                               specifications which may include the loading of
                               software, adding of memory or combining
                               different manufacturers' equipment in such a
                               way that it will be compatible as an integrated
                               system
CTI..........................  Computer and telephone integration
IVR..........................  Interactive voice response
LAN..........................  Local-area network
MIS..........................  Management information systems
Open architecture networks...  Networks based on industry standard technical
                               specifications  that enable
                               the system to operate  with
                               hardware and software  from
                               different     manufacturers
                               meeting those standards
PBX..........................  Private branch exchange
PC...........................  Personal computer
Price protection.............  A voluntary policy by a manufacturer that when
                               a decrease in the price of its product is
                               instituted, the manufacturer will rebate the
                               Company for the difference between the new
                               price and the price paid by the Company for
                               product in its inventory
Roll-out.....................  Single sale involving a large volume of similar
                               products to be delivered on a pre-specified
                               timetable
SQL..........................  Structured query language
VAR (Value-added reseller)...  A company that purchases equipment or software
                               from a manufacturer, aggregator or distributor,
                               provides value added   services  to  their
                               clients  including  network management,
                               configuration systems integration and
                               training  and  subsequently resells the
                               enhanced product
WAN..........................  Wide-area network
<PAGE>
Item 2.  Properties

FACILITIES

         The Company does not own any real property and currently  leases all of
its existing  facilities.  The Company  subleases its  headquarters  and Houston
office  which are housed in a free  standing  building of  approximately  48,000
square feet.  The Houston  office  sublease  expires on December  31, 1998.  The
Company  expects to enter into a new leasing  arrangement  for the same facility
during 1998. The Company's  Dallas office is housed in a free-standing  building
of  approximately  20,000  square feet.  The Dallas  facility  lease  expired on
September 30, 1997 and has been extended to June 30, 1998.  The Company  expects
to either renew the existing lease for an additional  term of more than one year
or to relocate to different facilities within the Dallas-Ft.  Worth metropolitan
area. The Company also leases a storage facility of  approximately  7,000 square
feet in Houston.  The lease on this warehouse  expires on April 14, 1998 and the
Company intends to extend such lease on a month-to-month  basis after expiration
of the lease.  The Company added offices in Austin,  McAllen and El Paso,  Texas
during  1997.  The Company has leased  interim  offices in each of those  cities
under leases  expiring in less than one year. The Company intends to lease other
facilities in these cities as its business  expands.  The Company  believes that
suitable facilities will be available as needed.

INTELLECTUAL PROPERTY

         The Company's success depends in part upon its proprietary  technology,
including its Stratasoft software. The Company relies primarily on trade secrecy
and  confidentiality  agreements  to  establish  and  protect  its rights in its
proprietary technology.  Additionally,  the Company filed and received copyright
protection for StrataDial and StrataVoice. The Company also applied and received
registration of Stratasoft, StrataDial, StrataVoice as trademarks and intends to
apply for registration of 800 PC Deals as a trademark. There can be no assurance
that the  Company's  present  protective  measures  will be  adequate to prevent
unauthorized  use or disclosure of its  technology  or  independent  third party
development of the same or similar technology.  While the Company's  competitive
position could be affected by its ability to protect its  proprietary  and trade
secret  information,  the Company believes other factors,  such as the technical
expertise and knowledge of the Company's  management and technical personnel and
the timeliness and quality of support  services  provided by the Company,  to be
more significant in maintaining the Company's competitive position.

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


Item 3.  Legal Proceedings

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


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


Item 4.  Submission of Matters to a Vote of Security Holders

         No matters were submitted  during the fourth quarter of the fiscal year
covered by this report to a vote of security  holders,  through the solicitation
of proxies or otherwise.


Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters

         On July 7, 1997 the Company completed its initial public offering of it
Common  Stock.  The shares are traded on the Nasdaq  National  Market  under the
symbol "ALLS".

                                                          High         Low

Fiscal 1997
     Third quarter (Commencing July 7, 1997)              8            6
     Fourth quarter                                       7 1/2        3 15/16

         As of March 13,  1998 there were 15 holders of record of the  Company's
common stock.  The Company has never  declared or paid any cash dividends on its
Common Stock. The Company currently anticipates that it will retain all earnings
for use in its business operations. The payment of dividends is prohibited under
the Company's credit agreements, unless approved by the lenders.

<PAGE>
Item 6.  Selected Financial Data

SELECTED FINANCIAL DATA

         The following  sets forth the selected data of the Company for the five
years ended December 31, 1997.
<TABLE>
<CAPTION>

                                                                                     Year ended December 31
                                                        (In Thousands except share and per share amounts)
<S>                                                  <C>           <C>           <C>           <C>           <C> 
                                                     1993          1994          1995          1996          1997
Operating Data:
Total revenue                                         $49,536       $64,076       $91,085      $120,359      $129,167
Cost of sales and services                             42,289        55,541        79,857       104,302       111,126
                                                      -------       -------       -------       -------       -------
    Gross Profit                                        7,247         8,535        11,228        16,057        18,041
Selling, general and administrative expenses            6,060         7,448         9,149        12,284        14,386
                                                      -------       -------       -------       -------       -------
    Operating income                                    1,187         1,087         2,079         3,773         3,655
Interest expense (net of other income)                    644           764         1,218         1,183           685
                                                      -------       -------       -------       -------       -------
    Income before provision for income taxes              543           323           861         2,590         2,970
Provision for income taxes                                229           140           342           987         1,126
                                                      -------       -------       -------       -------       -------
    Net Income                                       $    314      $    183      $    519     $   1,603     $   1,844
                                                     ========      ========      ========     =========     =========
Supplemental Data:
Net income per share:
     Basic                                            $  0.15       $  0.07       $  0.19     $    0.60     $    0.52
     Diluted....................................      $  0.15       $  0.07       $  0.19     $    0.60     $    0.52
Weighted average shares outstanding.............    2,120,242     2,554,808     2,675,000     2,675,000     3,519,821
</TABLE>
<TABLE>

<CAPTION>
                                                                        As of December 31
<S>                                                  <C>           <C>           <C>           <C>           <C> 
                                                     1993          1994          1995          1996          1997

Balance Sheet Data:
Working  Capital.................................      $1,307        $1,363        $1,732        $2,291       $12,824
Total  Assets....................................      17,431        19,077        24,266        24,720        33,183
Short-term borrowings(1)........................        6,896         8,972         9,912         9,975         1,572
Long-term debt..................................           43           -0-           -0-           -0-           -0-
Stockholders' equity............................        2,022         2,205         2,724         4,327        14,723
</TABLE>

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

Item 7.  Management's  Discussion  and Analysis of Financial  Condition and
Results of Operation

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

       The  following  discussion is qualified in its entirety by, and should be
read in  conjunction  with,  the Company's  Consolidated  Financial  Statements,
including the Notes  thereto,  included  elsewhere in this Annual Report on Form
10-K.

Overview

       The  Company was formed in 1983 to engage in the  business  of  reselling
computer hardware and software products and providing related services. To date,
most of its revenue has been derived from Computer  Products sales. In addition,
the Company derives revenue from providing IT Services to purchasers of Computer
Products  and other  customers.  The Company  operated  from a single  office in
Houston,  Texas until 1992 when it opened a branch office in Dallas,  Texas.  In
1994, the Company began offering  Telecom Systems in its Houston office.  In the
fourth quarter of 1995, the Company  acquired and began  marketing CTI Software.
During 1997 the Company opened offices in Austin,  McAllen and El Paso, Texas to
expand, initially, its Computer Products and IT Services divisions.


<PAGE>
       The  Company's  gross  margin  varies  substantially  between each of its
businesses.  The Company's  Computer Products sales have produced a gross margin
ranging from 10.4% to 10.7% over the three year period ended  December 31, 1997,
reflecting  the  commodity  nature of the Computer  Products  market.  The gross
margin for IT Services, which reflects direct labor costs, has ranged from 30.4%
to 37.6% over the same period.  This variation is primarily  attributable to the
pricing  and the mix of  services  provided,  and the  level of  utilization  of
billable  technical staff. The gross margin for Telecom Systems,  which includes
both product sales and services,  has varied  between 23.0% and 35.5% during the
last three years. This variation reflects the different mix of product sales and
the amount of  services-related  revenue  from period to period and  competitive
pricing of Telecom products. The gross margin for CTI Software was 40.2% in 1996
versus  43.0% in 1997,  primarily  due to the amount  expended by the Company to
acquire and develop the software relative to the level of revenue produced.  CTI
Software  accounted for  approximately  1.1% of the  Company's  revenues in 1996
compared to 1.7% in 1997.

       In order to reduce freight costs and selling,  general and administrative
expenses  associated  with product  handling,  the Company began in 1995 to drop
ship a higher percentage of orders directly from its suppliers to its customers.
This initiative has resulted in the percentage of drop shipped orders  (measured
by the cost of goods  dropped  shipped as a  percentage  of total cost of goods)
growing  from  9.0% in 1995 to 18.1% in 1996  and to  23.9% in 1997.  While  the
Company  does not  believe  that it is in its  best  interest  to drop  ship all
orders,  it does intend to  increase  the volume of drop  shipments  in Computer
Products  with  the  expectation  of  reducing  its  freight,  distribution  and
administrative costs related to these revenues.

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

       Manufacturers of many of the computer products resold by the Company have
consistently  reduced unit prices near the end of a product's  life cycle,  most
frequently  following the introduction of newer, more advanced models. While the
major  manufacturers  of  computer  products  have a policy of  providing  price
protection to resellers when prices are reduced,  on occasion,  and particularly
during  1994,  manufacturers  introduced  new models of their  products and then
reduced  the  price  of,  or  discontinued,   the  older  models  without  price
protection.  In these  instances,  the Company  often sells the older  models at
reduced   prices,   which   adversely   affects  gross   margin.   Additionally,
manufacturers have developed  specialized marketing programs designed to improve
or protect the  manufacturer's  market share.  These  programs often involve the
granting of rebates to  resellers  to  subsidize  sales of computer  products at
reduced  prices.  While these  programs  generally  enhance  revenues  they also
generally  result in lower margins being  realized by the reseller.  The Company
has participated in a number of these programs in recent years.

       Inacom is the largest supplier of products sold by the Company. Purchases
from Inacom accounted for approximately  36.6%, 57.0% and 51.4% of the Company's
total product  purchases in 1995, 1996 and 1997,  respectively.  In August 1996,
the Company renewed its long-term  supply  arrangement with Inacom and agreed to
purchase at least 80% of its  Computer  Products  from  Inacom,  but only to the
extent that such products are made available within a reasonable  period of time
at reasonably  competitive pricing.  Inacom does not carry certain product lines
sold by the  Company  and  Inacom  may be  unable  to offer  reasonable  product
availability  and  reasonably  competitive  pricing  from  time to time on those
product  lines that it carries.  The Company  thus expects that less than 80% of
its total purchases will be made from Inacom,  and that any increase or decrease
over  historical  levels in the  percentage of products it purchases from Inacom
under  the new  Inacom  agreement  will  not  have any  material  impact  on the
Company's results of operations.


<PAGE>
Results of Operations

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

<CAPTION>
                                                            Year ended December 31,
                                    -----------------------------------------------------------------------
<S>                                          <C>                     <C>                       <C> 
                                             1995                    1996                      1997
                                    ----------------------    ---------------------    --------------------
                                          Amount        %          Amount        %         Amount        %
                                                               (Dollars in thousands)
Operating Data(1):
Revenue
   Computer Products..............         $81,654    89.6        $107,251     89.1       $111,145     86.0
   IT Services....................           7,900     8.7           7,996      6.6         10,474      8.1
   Telecom Systems................           1,458     1.6           3,824      3.2          5,403      4.2
   CTI Software...................              73                   1,288      1.1          2,145      1.7
                                          --------    ----        --------     ----        -------     ----
                                                       0.1
      Total revenue...............          91,085   100.0         120,359    100.0        129,167    100.0
Gross Profit(1)
   Computer Products..............           8,466    10.4          11,172     10.4         11,832     10.7
   IT Services....................           2,404    30.4           3,008     37.6          3,875     37.0
   Telecom Systems................             335    23.0           1,359     35.5          1,412     26.1
   CTI Software...................              23    31.5             518     40.2            922     43.0
                                          --------    ----        --------     ----        -------     ----
     Total Gross Profit...........          11,228    12.3          16,057     13.3         18,041     13.9
Selling, general and
   administrative expenses........           9,149    10.0          12,284     10.2         14,386     11.1
                                          --------    ----        --------     ----        -------     ----
   Operating income...............           2,079     2.3           3,773      3.1          3,655      2.8
Interest expense (net of
   other income)..................           1,218     1.3           1,183      1.0            685       .5
                                          --------    ----        --------     ----        -------     ----
   Income before provision
     for income taxes.............             861     1.0           2,590      0.8          2,970      2.3
Provision for income taxes........             342     0.4             987      0.8          1,126      0.9
                                          --------    ----        --------     ----        -------     ----
   Net income.....................             519     0.6           1,603      1.3          1,844      1.4
                                          ========    ====        ========     ====        =======     ====

Per Office Data(1)(2):
   Houston Office:
     Revenue......................          53,095    58.3          57,929     48.1         65,614     50.8
     Gross profit.................           6,880    13.0           9,470     16.4          9,356     14.3
   Dallas Office:
     Revenue......................          37,990    41.7          62,430     51.9         61,698     47.8
     Gross profit.................           4,348    11.5           6,587     10.6          8,518     13.8
   Austin Office:
     Revenue......................                                                           1,855      1.4
     Gross profit.................                                                             167      9.0
</TABLE>

(1)  Percentages  shown are  percentages of total  revenue,  except gross profit
     percentage  which  represent  gross  profit by each  product  category as a
     percentage of revenue for each such category.
(2)  Revenue  realized  in the  McAllen  and El Paso  offices  during  1997 were
     insignificant.
<PAGE>
Year Ended December 31, 1997 Compared to the Year Ended December 31, 1996

       Total Revenue. Total revenue increased by $8.8 million (7.3%) from $120.4
million in 1996 to $129.2 million in 1997. Revenue from Computer Products, which
comprised 86.0% of total revenue, increased by $3.9 million (3.6%). The increase
in Computer  Products  revenue was generally  attributable to increased sales to
new and  existing  customers.  Revenue  in  Computer  Products  did not  grow as
expected in 1997  principally due to insufficient  capital  resources during the
first half of 1997 and the  inability  of the newly  added  sales  personnel  to
attain the level of  revenue  production  normally  expected  of new  personnel.
Revenue from IT Services  increased by $2.5 million (31.0%) from $8.0 million in
1996 to $10.5  million in 1997.  The increase was due  primarily to sales to new
customers and increases in services  provided to existing  customers as a result
of customers'  increased  out-sourcing of their technical support  requirements.
Revenue from IT Services as a percentage of total revenue increased from 6.6% in
1996 to 8.1% in 1997  due to the  higher  growth  rate in IT  Services  revenues
relative to the growth rate of Computer Products revenues in 1997.  Revenue from
Telecom  Systems,  which  comprised  4.2% of total  revenue,  increased  by $1.6
million  (41.3%).  This  increase in Telecom  Systems  revenue was primarily the
result of adding new customers, of which one customer accounted for $1.3 million
(81.2%) of the increase. Sales of CTI Software increased 66.5% from $1.3 million
in 1996 to $2.1 million in 1997.  The  increased  revenues  were  primarily  the
result of sales to new customers.

       Gross Profit.  Gross profit  increased by $2.0 million (12.4%) from $16.0
million in 1996 to $18.0  million in 1997,  while gross  margin  increased  from
13.3% in 1996 to 13.9% in 1997. The gross margin for Computer Products increased
from  10.4% in 1996 to 10.7% in 1997,  reflecting  the  continuation  of  highly
competitive market conditions for Computer Products.

       The gross margin from IT Services  increased  from 37.6% in 1996 to 37.0%
in 1997.  This  decrease in gross margin was primarily  attributable  increases,
expressed as a  percentage  of revenue,  in the cost of the  billable  technical
staff which is due to the relative scarcity of qualified  technical staff in the
information  technology industry.  These cost increases were almost fully offset
by increases in the prices being  charged for services  which is also due to the
relative  scarcity of qualified  technical staff in the  information  technology
industry.  In 1996 the  Company  commenced  the  implementation  of a program to
replace less profitable hardware  maintenance and repair services with a variety
of services that were expected to generate  higher gross  margins.  This program
resulted in the elimination of certain IT Services customer  relationships which
had been  producing  lower than  average  gross  margin.  The loss of this lower
margin  revenue was offset by revenues  from new IT Services  customers and from
existing customers at higher gross margins.

       The gross margin for Telecom  Systems sales  decreased from 35.5% in 1996
to 26.1% in 1997. In 1997,  Telecom  Systems bid on and won the  installation of
several large systems.  As a result of the competitive  bidding process employed
by certain  customers  these large  systems were  projects  which had lower than
normal margins. In addition,  gross margin decreased in 1997 due to the purchase
of a large system by a single customer at a lower than usual margin.

       CTI  Software  sales  resulted  in a gross  margin  of 43.0% in 1997,  an
increase from 40.2% in 1996.  This reflected  slightly lower, as a percentage of
revenue, installation costs and development costs in 1997 compared to 1996.

       Selling,  General  and  Administrative  Expenses .  Selling,  general and
administrative expenses increased by $ 2.1 million (17.1%) from $12.3 million in
1996 to $14.4  million  in 1997.  As a  percentage  of total  revenue,  selling,
general and  administrative  expenses  increased  from 10.2% in 1996 to 11.1% in
1997.  Of the dollar  increase,  $1.5  million  was  attributable  to  increased
temporary and permanent  personnel,  principally in non-sales  personnel.  Other
costs which grew at a rate in excess of the rate of growth in revenues  includes
expenses  relating  to  becoming  and  being a  publicly  held  corporation  and
professional  fees.  The  increase as a  percentage  of total  revenue  resulted
primarily from increased  expenditures for those expenses which do not fluctuate
with gross profit or revenues.

     Operating Income.  Operating income decreased by $118,000 (3.1 %) from $3.8
million  in 1996 to $3.7  million  in  1997.  Operating  income  decreased  as a
percentage  of total  revenue  from 3.1% in 1996 to 2.8% in 1997  largely due to
increases in selling, general and administrative expenses.

       Interest  Expense (Net of Other Income).  Interest  expense (net of other
income)  decreased by $498,000  (42.1%).  Interest expense  decreased due to the
reduction of outstanding debt by applying the proceeds of the Company's  initial
public offering to the reduction of debt.


<PAGE>
       Net Income.  Net  income,  after a provision  for income  taxes  totaling
$1,126,000 (  reflecting  an  effective  tax rate of 37.9%  compared to 38.1% in
1996),  increased by $241,000 from $1.6 million in 1996 to $1.8 million in 1997.
Net income  increased as a percentage of total revenue from 1.3% in 1996 to 1.4%
in 1997.


Year Ended December 31, 1996 Compared to the Year Ended December 31, 1995

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

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

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


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

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

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

Quarterly Results of Operations

        The following  table sets forth certain  unaudited  quarterly  financial
information for each of the Company's last eight quarters and, in the opinion of
management,  includes  all  adjustments  (consisting  of only  normal  recurring
adjustments)  which the Company  considers  necessary for a fair presentation of
the  information  set forth therein.  The Company's  quarterly  results may vary
significantly  depending on factors such as the timing of large customer orders,
timing of new product introductions,  adequacy of product supply,  variations in
the Company's product costs, variations in the Company's product mix, promotions
by  the  Company,   seasonal   influences  and  competitive  pricing  pressures.
Furthermore,  the Company  generally  experiences  a higher  volume of orders of
Computer  Products  in the  fourth  quarter,  which the  Company  attributes  to
year-end  capital  spending  by its  customers.  Any  decrease  in the number of
year-end  orders  experienced  by the  Company  may not be offset  by  increased
revenues in the Company's  first three  quarters.  The results of any particular
quarter may not be indicative of results for the full year or any future period.
<PAGE>
<TABLE>


<S>                                          <C>                                  <C> 
                                             1996                                 1997
                            -------------------------------------  -------------------------------------
                                                   (In thousands, except per share amounts)
                              First    Second     Third    Fourth     First   Second     Third    Fourth
                            Quarter   Quarter   Quarter   Quarter   Quarter  Quarter   Quarter   Quarter

Total Revenue               $25,948   $32,202   $29,187   $33,022   $26,593  $32,239   $31,914   $38,423
Cost of sales and service    22,727    28,234    24,669    28,672    22,762   27,312    27,777    33,277
                            -------   -------   -------   -------   -------  -------   -------   -------
 Gross Profit                 3,221     3,968     4,518     4,350     3,831    4,927     4,137     5,146
Selling, general and
  administrative expenses     2,674     2,992     3,319     3,299     3,135    3,839     3,439     3,974
                            -------   -------   -------   -------   -------  -------   -------   -------
Operating Income                547       976     1,199     1,051       696    1,088       698     1,172
Interest expense (net of
  other income)                 297       285       338       263       289      309        82         5
                            -------   -------   -------   -------   -------  -------   -------   -------
Income before provision
for income taxes                250       691       861       788       407      779       616     1,167
Provision for income taxes      111       223       362       291       154      310       236       424
                            -------   -------   -------   -------   -------  -------   -------   -------
Net income                  $   139   $   468   $   499   $   497   $   253  $   469   $   380   $   742
                            =======   =======   =======   =======   =======  =======   =======   =======
Net income per share          $0.05     $0.17     $0.19     $0.19     $0.09    $0.17     $0.09     $0.17

</TABLE>

Liquidity and Capital Resources

       Historically, the Company has satisfied its cash requirements principally
through borrowings under its lines of credit and through operations. The Company
maintains a cash position sufficient to pay only its immediately due obligations
and expenses. When the amount of cash available falls below its immediate needs,
the Company requests advances under its credit facility.  As the Company's total
revenue has grown, the Company has obtained  increases in its available lines of
credit to enable it to finance its growth.  The  Company's  working  capital was
$1.7  million,  $2.3 million and $12.8  million at December  31, 1995,  1996 and
1997,  respectively.  The  increase  in  working  capital  from 1996 to 1997 was
attributable  to the  receipt  of net  proceeds  from a public  offering  of the
Company's common stock in July, 1997 and net earnings.  As of December 31, 1997,
the Company had total borrowing capacity, based on its collateral base under its
credit facility of approximately  $23.8 million versus $18.8 million at December
31,  1996.  At December  31, 1997 the Company had unused  borrowing  capacity of
approximately $18.6 million versus $1.2 million at December 31, 1996.

Cash Flow

       Operating  activities  used net cash  totaling  $123,000  during 1995 and
provided  net cash  totaling  $89,000  and $2.0  million  during  1996 and 1997,
respectively.  Net  cash  used in 1995  was  primarily  due to  working  capital
requirements to finance increased  accounts  receivable and inventory.  In 1996,
net cash was provided from  operations  due primarily to the combined  effect of
significantly  increased net income, a relatively small year-to-year increase in
accounts receivable and a year-to-year  decrease in inventory.  During 1997, net
cash was provided from operations due primarily to net income  increased  levels
of trade accounts  payable and accrued expenses which more than offset increases
in accounts receivable.

       Trade  accounts  receivable  increased  $4.4  million,  $695,000 and $7.2
million during 1995, 1996 and 1997, respectively. Inventory increased $21,000 in
1995 and decreased $545,000 and $162,000 in 1996 and 1997, respectively.

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

       Investing  activities used cash totaling $458,000,  $952,000 and $992,000
during 1995, 1996 and 1997,  respectively.  The Company's  investing  activities
that  used  cash  during  these  periods  were  primarily   related  to  capital
expenditures.  During the next twelve  months,  the Company  expects to incur an
estimated $1.0 million for capital expenditures, a majority of which is expected
to be incurred for  leasehold  improvements  and other capital  expenditures  in
connection  with the planned  consolidation  of its warehouse  facilities into a
single  facility in the  Dallas-Fort  Worth area,  the  relocation of its Dallas
branch  office and the  opening of branch  offices in  McAllen,  El Paso and San
Antonio,  Texas.  All or a portion of the $1.0  million in capital  expenditures
currently budgeted by the Company for such purposes are presently expected to be
financed from net cash flow from  operations  or borrowings  under the Company's
line of credit.  The actual amount and timing of such capital  expenditures  may
vary  substantially  depending upon, among other things,  the actual  facilities
selected,  the level of expenditures  required to render the facilities suitable
for the Company's purposes and the terms of lease arrangements pertaining to the
facilities.

       Financing  activities  provided  cash  totaling  $940,000,   $63,000  and
$344,000 during 1995 , 1996 and 1997,  respectively.  In July, 1997, the Company
received  $8.7  million net  proceeds  from the sale of Common Stock in a public
offering.  Those proceeds were used to reduce the outstanding  balance under the
Company's line of credit.  The primary source of cash from financing  activities
in other periods has been borrowings on the Company's lines of credit. The lines
of  credit  have  been  used  principally  to  finance   increases  in  accounts
receivable.

Asset Management

       The Company's cash flow from  operations  has been affected  primarily by
the timing of its collection of trade accounts receivable. The Company typically
sells its products and services on short-term credit terms and seeks to minimize
its credit risk by performing  credit checks and  conducting  its own collection
efforts.  The  Company  had trade  accounts  receivable,  net of  allowance  for
doubtful accounts, of $15.8 million, $16.5 million and $23.8 million at December
31, 1995, 1996 and 1997, respectively.  The number of days' sales outstanding in
trade accounts  receivable was 45 days, 40 days and 53 days for years 1995, 1996
and 1997, respectively.  The increase in days' sales outstanding was caused by a
general  slow down in  payments  by the  Company's  customers.  To improve  this
condition  the  Company  has  increased  its  collection   staff  and  added  an
experienced  credit  manager.  Bad debt expense as a percentage of total revenue
for the same  periods  was 0.1%,  0.2% and 0.2%.  The  Company's  allowance  for
doubtful accounts, as a percentage of trade accounts receivable,  was 2.8%, 1.3%
and 1.0% at December 31, 1995, 1996 and 1997, respectively.

       The Company  manages  its  inventory  in order to minimize  the amount of
inventory held for resale and the risk of inventory  obsolescence  and decreases
in market value. The Company attempts to maintain a level of inventory  required
to reach  only its near  term  delivery  requirements  by  relying  on the ready
availability  of products from its  principal  suppliers.  Manufacturers  of the
Company's major products  generally provide price protection,  which reduces the
Company's exposure to decreases in prices. In addition,  its suppliers generally
allow for  returns of excess  inventory,  which,  on a limited  basis,  are made
without material restocking fees. Inventory turnover for 1995, 1996 and 1997 was
14.6 times, 19.2 times and 21.5 times, respectively.

Prior Debt Obligations

       Throughout  1997, the principal  source of liquidity for the Company,  in
addition to its cash provided from operations,  was its revolving line of credit
with IBMCC (the "IBMCC  Facility").  On February  27, 1998 the Company  executed
agreements  with Deutsche  Financial  Services  ("DFS") for a revolving  line of
credit which will replace the IBMCC Facility as the Company's  principal  source
of liquidity and the IBMCC Facility will be converted into a credit facility for
the purchase of IBM branded computer products.  The credits facilities described
herein as the "Old  IBMCC  Facility"  and the "Old DFS  Facility"  set forth the
provisions of the credit facilities in effect during 1997 and prior periods. The
credit  facilities  described  as the "New  DFS  Facility"  and the  "New  IBMCC
Facility" set forth the provisions of those facilities after the  implementation
of the revolving  credit  agreement  with DFS dated February 27, 1998. The total
credit  available  under the Old IBMCC  Facility was $20.0  million,  subject to
borrowing  base  limitations  which were  generally  computed as a percentage of
various  classes of  eligible  accounts  receivable  and  qualifying  inventory.
Borrowings  were available under the Old IBMCC Facility for floor plan financing
of inventory from approved  manufacturers (the "Old Inventory Line").  Available
credit under the Old IBMCC Facility, net of Inventory Line advances, was used by
the Company primarily to carry accounts receivable and for other working capital
and general corporate  purposes (the "Old Accounts Line").  Borrowings under the
Old  Accounts  Line bore  interest at the  fluctuating  prime rate plus 2.0% per
annum. Under the Old Inventory Line, IBMCC paid the Company's  inventory vendors
directly, generally in exchange for negotiated financial incentives.  Typically,
the financial  incentives received were such that IBMCC does not charge interest
to the Company until approximately 30 days after the transaction is financed, at
which time the Company was required to either pay the full invoice amount of the
inventory  purchased from  corporate  funds or to borrow under the Accounts Line
for the amount due to IBMCC.  Inventory  Line  advances  not paid within 30 days
after the financing date bear interest at the fluctuating  prime rate plus 6.0%.
IBMCC was  permitted to fix a minimum  prime rate for the IBMCC  Facility of not
less than the average prime rate in effect at the time the minimum prime rate is
set but did not do so. IBMCC was  authorized to change,  on 30 days notice,  the
computation of the borrowing  base and to disqualify  accounts  receivable  upon
which  advances  have been made and require  repayment  of such  advances to the
extent  such  disqualifications  cause the  Company's  borrowings  to exceed the
reduced borrowing base.

       The Old IBMCC  Facility  was  collateralized  by a security  interest  in
substantially  all of the Company's assets,  including its accounts  receivable,
inventory,  equipment and bank accounts.  The Company's Chief Executive  Officer
and principal stockholder  personally  guaranteed the Company's  indebtedness to
IBMCC.  Collections  of the Company's  accounts  receivable  were required to be
applied through a lockbox  arrangement to repay indebtedness to IBMCC;  however,
IBMCC  customarily  released a portion of the Company's daily collections to the
extent that they exceed the daily estimated borrowing base.

       Through  most of 1995,  the  Company's  credit  limit under the Old IBMCC
Facility was $15.0  million.  From October 1995  through  February  1996,  IBMCC
extended a temporary  increase in the credit limit to $22.5 million and in April
1996 increased the base credit limit to $20.0 million. Effective September 1996,
the Company was notified by IBMCC that it had received further  temporary credit
limit  adjustments  consisting of increases to $30.0 million from September 1996
through February 1997, $28.0 million in March 1997, $25.0 million in April 1997,
and  returning to the base limit of $20.0  million  thereafter.  At December 31,
1997,  the total  indebtedness  of the Company under the Old IBMCC  Facility was
$4.3 million of which $1.6 million was  outstanding  under the Accounts Line and
$1.1 million was outstanding  under the Inventory Line. The Company's  remaining
available  credit  at  December  31,  1997,  based  on its  borrowing  base  was
approximately $18.6 million.

       The Company had a $3.0 million  credit  facility with Deutsche  Financial
Services  (the "Old DFS  Facility")  for the purchase of inventory  from certain
suppliers.  From October 1995 through May 1996, the Company received a temporary
increase in the available  credit line to $6.0 million and on or about  November
15,  1997 this  facility  was  increased  to $10.0  million in  anticipation  of
increased usage of this facility for inventory purchases.  As in the case of the
Old IBMCC  Inventory  Line,  advances  under the Old DFS Facility were typically
interest free for 30 days after the  financing  date for  transactions  in which
adequate  financial  incentives  are received by DFS from the vendor.  Within 30
days after the financing  date, the full invoice  amount for inventory  financed
through DFS is required to be paid by the Company. On or about November 15, 1997
DFS extended to interest free period for advances  under the Old DFS Facility to
40  days.  Amounts  remaining  outstanding   thereafter  bear  interest  at  the
fluctuating  prime  rate (but not less  than  6.5%)  plus  6.0%.  DFS  retains a
security interest in the inventory financed. The Old DFS Facility is immediately
terminable by either party by written notice to the other. At December 31, 1997,
the amount outstanding under the DFS Facility was $9.4 million.

       The Company was required to comply with certain key  financial  and other
covenants  under the Old IBMCC  Facility and Old DFS  Facility.  During 1994 and
1995 and the first seven  months of 1996,  the Company was in default of certain
financial covenants and certain other covenants under the Old IBMCC Facility and
Old DFS  Facility.  For example,  the Company was  required  under the Old IBMCC
Facility to maintain  during 1995 the following  financial  ratios:  net profits
after taxes to revenue of at least 0.5%;  annualized revenues to working capital
of more  than zero but no  greater  than  35.0 to 1; and  total  liabilities  to
tangible  net worth of more  than  zero but no more  than 12.0 to 1. The  ratios
actually  attained by the Company for the year ended  December  31,  1995,  were
approximately  0.57%,  43.9  to 1 and  12.7  to 1,  respectively.  The  Old  DFS
Facility,  for instance,  requires that at all times the Company's  indebtedness
for borrowed  money and capital  lease  obligations  divided by its tangible net
worth plus  subordinated  debt not exceed  8.0 to 1, but at June 30,  1996,  the
actual ratio attained by the Company was approximately 9.18 to 1. In addition to
financial ratio  covenants,  the Company has violated other covenants under both
credit  facilities,  including timely filing of periodic  financial  reports and
covenants   prohibiting   certain   transactions  with  subsidiaries  and  other
affiliates.  IBMCC and DFS have, however,  waived defaults when requested by the
Company from time to time. Most recently,  IBMCC and DFS waived certain defaults
in August 1996 through December 31, 1996. Additionally, both lenders liberalized
certain financial covenants in connection with their waivers.  DFS increased the
maximum  permitted ratio for  indebtedness for borrowed money plus capital lease
obligations  to tangible  net worth plus  subordinated  debt to 9.5 to 1 through
December 31, 1996, reverting to 8.0 to 1 thereafter. IBMCC increased the maximum
permissible ratio of annualized  revenue to working capital to 56.0 to 1 through
1996 and to 52.0 to 1  thereafter,  reserving  the right to  further  change the
ratio upon notice to the Company. Throughout 1997, the Company was in compliance
with the key financial and other covenants under both the Old IBMCC Facility and
the Old DFS Facility.

New Credit Facilities.

       The total credit  available  under the New DFS Facility is $30.0 million,
subject  to  borrowing  base  limitations  which  are  generally  computed  as a
percentage of various  classes of eligible  accounts  receivable  and qualifying
inventory.  Credit available under the New DFS Facility for floor plan financing
of  inventory  from  approved  manufacturers  (the  "Inventory  Line")  is $20.0
million.  Available  credit under the New DFS  Facility,  net of Inventory  Line
advances,  is $10.0  million,  which is used by the Company  primarily  to carry
accounts receivable and for other working capital and general corporate purposes
(the "Accounts  Line").  Borrowings under the Accounts Line bear interest at the
fluctuating prime rate minus 1.0% per annum.  Under the Inventory Line, DFS pays
the Company's  inventory vendors directly,  generally in exchange for negotiated
financial incentives. Typically, the financial incentives received are such that
DFS does not charge  interest to the Company until 40 days after the transaction
is  financed,  at which  time the  Company  is  required  to either pay the full
invoice  amount of the inventory  purchased  from  corporate  funds or to borrow
under the Accounts Line for the amount due to DFS.  Inventory  Line advances not
paid within 40 days after the financing  date bear  interest at the  fluctuating
prime rate plus 5.0%. For purposes of calculating  interest  charges the minimum
prime rate under the New DFS Facility is 7.00%.  DFS may change the  computation
of the borrowing base and to disqualify  accounts receivable upon which advances
have been  made and  require  repayment  of such  advances  to the  extent  such
disqualifications cause the Company's borrowings to exceed the reduced borrowing
base.

       The  New  DFS  Facility  is  collateralized  by a  security  interest  in
substantially  all of the Company's assets,  including its accounts  receivable,
inventory,  equipment and bank accounts.  Collections of the Company's  accounts
receivable  are required to be applied  through a lockbox  arrangement  to repay
indebtedness to DFS; however, DFS has amended the lockbox agreement to make such
arrangements  contingent upon certain financial ratios.  Provided the Company is
in  compliance  with its debt to tangible  net worth  covenant,  the Company has
discretion  over the use and  application of the funds collected in the lockbox.
If the Company  exceeds  that  financial  ratio,  DFS may require  that  lockbox
payments  be applied  to reduce the  Company's  indebtedness  to DFS.  If in the
future DFS requires that all lockbox payments be applied to reduce the Company's
indebtedness,  the Company  would be required to seek  funding from DFS or other
sources to meet substantially all of its cash needs.

       Effective  with the  implementation  of the New DFS  Facility the Company
will have a $2.0 million credit  facility with IBMCC (the "New IBMCC  Facility")
for the purchase of IBM branded inventory from certain suppliers. As in the case
of the Old IBMCC  Inventory  Line,  advances  under the New IBMCC  Facility  are
typically interest free for 30 days after the financing date for transactions in
which  adequate  financial  incentives  are  received  by IBMCC from the vendor.
Within 30 days after the financing  date,  the full invoice amount for inventory
financed through IBMCC is required to be paid by the Company.  Amounts remaining
outstanding thereafter bear interest at the fluctuating prime rate (but not less
than  6.5%) plus  6.0%.  IBMCC  retains a  security  interest  in the  inventory
financed.  The New IBMCC Facility is  immediately  terminable by either party by
written notice to the other.

       Under the New DFS  Facility  the Company is  required  to maintain  (i) a
tangible  net worth of $10.0  million,  (ii) a ratio of debt minus  subordinated
debt to  tangible  net  worth of 4 to 1 and  (iii) a ratio of  current  tangible
assets to current liabilities of not less than 1.4 to 1. The covenants under the
New IBMCC Facility remain unchanged from the Old IBMCC Facility.

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

Year 2000 Compliance

         During the first quarter of 1998 the Company  commenced a conversion of
it MIS to a more  powerful  computing  platform  which will allow the Company to
improve and enhance its MIS.  The new system will allow the Company to expand it
uses and more fully  integrate its  operations  with the MIS.  While the Company
expects the system conversion to be fully implemented with only normal debugging
and reprogramming, a failure to fully implement the conversion with only minimal
disruption  of its  operation  could  have an  adverse  effect on the  Company's
results of operations and financial condition.

         The system  conversion was  implemented  as a general  upgrading of the
Company's MIS and was not for the purpose of achieving Year 2000 compliance. The
Company  believes  its prior MIS was,  and its new MIS is, Year 2000  compliant.
Accordingly,  the Company does not believe that Year 2000 compliance will have a
material adverse effect on its results of operations or financial condition.  It
is possible that the Company could be impacted if its  significant  suppliers or
customers  do not  successfully  and timely  achieve Year 2000  compliance  with
respect to their own computer systems. The Company has inquired of its two major
suppliers  as to the status of their Year 2000  compliance  and has been advised
that they expect to achieve Year 2000 compliance.  If, contrary to the Company's
expectations, it or the significant suppliers and customers fail to achieve Year
2000  compliance in a timely  manner,  the Company's  results of operations  and
financial condition could be materially and adversely effected.

Accounting Pronouncements

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

Item 7A. Quantitative and Qualitative disclosures about Market Risk.

     This item is inapplicable to the Company.



<PAGE>


Item 8.  Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Financial Statements:

Independent Auditor's Report.............................................     27

  Consolidated Balance Sheets as of December 31, 1996 and 1997...........     28

  Consolidated Statements of Operations for the years ended
    December 31, 1995, 1996 and 1997..,,.................................     29

  Consolidated Statements of Stockholders' Equity for the years
    ended December 31, 1995, 1996 and 1997...............................     30

  Consolidated Statements of Cash Flows for the years ended
    December 31, 1995, 1996 and 1997.....................................     31

  Notes to Consolidated Financial Statements for the years
    ended December 31, 1995, 1996 and 1997...............................     32


INDEPENDENT AUDITORS' REPORT

To the Stockholders of Allstar Systems, Inc.:

         We have audited the accompanying consolidated balance sheets of Allstar
Systems,  Inc. and  subsidiaries  ("Allstar") at December 31, 1996 and 1997, and
the related  statements of operations,  stockholders'  equity and cash flows for
each of the three years in the period ended  December 31, 1997.  Our audits also
included the financial  statement schedule listed in the index at Item 14(a)(2).
These   financial   statements   and  financial   statement   schedule  are  the
responsibility  of Allstar's  management.  Our  responsibility  is to express an
opinion on these financial  statements and financial statement schedule based on
our audits.

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

         In our opinion, such consolidated  financial statements present fairly,
in all material respects, the financial position of Allstar at December 31, 1996
and 1997,  and the results of its  operations and its cash flows for each of the
three years in the period ended  December 31, 1997 in conformity  with generally
accepted accounting  principles.  Also, in our opinion, such financial statement
schedule,  when  considered  in  relation  to the basic  consolidated  financial
statements  taken as a whole,  presents  fairly  in all  material  respects  the
information set forth therein.




Deloitte & Touche LLP

Houston, Texas
March 27, 1998


<PAGE>


ALLSTAR SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1997
In thousands, except share and per shares amounts)


ASSETS                                                1996              1997
                                                      ----              ----

Current Assets:
  Cash and cash equivalents:
    Restricted cash                              $        94       $       280
      Cash                                               135              1301
                                                 -----------       -----------
        Total cash and cash equivalents                  229             1,581
  Accounts receivable - trade, net                    16,517            23,759
  Accounts receivable - affiliates                       140               434
  Inventory                                            4,862             4,700
  Deferred taxes                                         350               212
  Deferred offering costs                                412
  Other current assets                                   174               404
                                                 -----------       -----------
        Total current assets                          22,684            31,090
Property and equipment, net                            1,644             2,013
Other assets                                             392                81
                                                 -----------       -----------
                                                 $    24,720       $    33,184
                                                 ===========       ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
  Notes payable                                  $     9,975       $     1,572
  Accounts payable                                     7,157            12,805
  Accrued expenses                                     2,759             3,565
  Income taxes payable                                   206                82
  Deferred service revenue                               296               242
                                                 -----------       -----------
        Total current liabilities                     20,393            18,266
  Deferred credit - Stock warrants                                         195


Commitments and Contingencies

Stockholders' Equity:
  Preferred stock, $.01 par value, 5,000,000 shares authorized,
           no shares issued
  Common   stock, $.01 par value, 50,000,000 shares authorized, 2,675,000 and
           4,454,411 outstanding at December 31,
           1996 and 1997, respectively                    27                45
  Additional paid in capital                           1,479            10,013
  Retained earnings                                    2,821             4,665
                                                 -----------       -----------
        Total stockholders' equity              $      4,327       $    14,723
                                                ------------       -----------
                                                 $    24,720       $    33,184
                                                 ===========       ===========
See notes to consolidated financial statements.


<PAGE>


ALLSTAR SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
 (In thousands, except share and per shares amounts)
<TABLE>

<CAPTION>

                                                                           Years  ended  December 31,                   .
<S>                                                                     <C>          <C>          <C> 
                                                                        1995         1996         1997

Total revenue ..................................................   $   91,085   $  120,359   $  129,167

Cost of goods and services .....................................       79,857      104,302      111,126
                                                                   ----------   ----------   ----------

                  Gross profit .................................       11,228       16,057       18,041

Selling, general and administrative expenses ...................        9,149       12,284       14,386
                                                                   ----------   ----------   ----------

Operating income ...............................................        2,079        3,773        3,655

Interest expense and other .....................................        1,218        1,183          685
                                                                   ----------   ----------   ----------

Income before provision for income taxes .......................          861        2,590        2,970

Provision for income taxes .....................................          342          987        1,126
                                                                   ----------   ----------   ----------

Net income .....................................................   $      519   $    1,603   $    1,844
                                                                   ==========   ==========   ==========

Net income per share:
         Basic .................................................   $     0.19   $     0.60   $     0.52
                                                                   ==========   ==========   ==========

         Diluted ...............................................   $     0.19   $     0.60   $     0.52
                                                                   ==========   ==========   ==========

Weighted average number of shares outstanding:
         Basic .................................................    2,675,000    2,675,000    3,519,821
                                                                   ==========   ==========   ==========

         Diluted ...............................................    2,675,000    2,675,000    3,526,787
                                                                   ==========   ==========   ==========

See notes to consolidated financial statements.
</TABLE>



<PAGE>


 ALLSTAR SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31,
1995, 1996 AND 1997 (In thousands, except share and per shares amounts)

<TABLE>

<S>                                       <C>        <C>           <C>      <C>           <C>          <C>        <C>
                                          $.01 Par value           No Par Value         Additional
                                           Common Stock            Common Stock          Paid-In     Retained
                                         Shares     Amount       Shares    Amount        Capital     Earnings      Total

BALANCE AT JANUARY 1, 1995                                       328,125   $    2   $      1,504   $      699   $   2,205

Net income                                                                                   519          519
                                                              ----------   ------   ------------   ----------   ---------

BALANCE AT DECEMBER 31, 1995                                     328,125        2          1,504        1,218       2,724

Issuance of common stock
  on conversion (see Note 1)            2,675,000   $  27       (328,125)      (2)           (25)

Net income                                                                                              1,603       1,603
                                       ----------   -----     ----------   ------   ------------   ----------   ---------

BALANCE AT DECEMBER 31, 1996            2,675,000      27                                  1,479        2,821       4,327

Sale of common stock, net of initial
public offering expenses of $2,040      1,765,125      18                                  8,448                    8,466

Issuance of restricted stock               14,286                                             86                       86

Net income                                                                                              1,844       1,844
                                       ----------   -----     ----------   ------   ------------   ----------   ---------

BALANCE AT DECEMBER 31, 1997            4,544,411   $  45                  $        $     10,013   $    4,665   $  14,723
                                       ==========   =====     ==========    =====   ============   ==========    ========

See notes to consolidated financial statements.
</TABLE>

<PAGE>


ALLSTAR SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED  STATEMENTS  OF CASH FLOWS FOR THE YEARS ENDED  DECEMBER  31, 1995,
1996 AND 1997 (In thousands, except share and per shares amounts)
<TABLE>
<CAPTION>
                                                                             Years ended December 31,
<S>                                                                        <C>        <C>        <C> 
                                                                           1995       1996       1997
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income ..........................................................   $   519    $ 1,603    $ 1,844
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Gain on disposal of assets ..........................................        (1)       (11)
Depreciation and amortization .......................................       309        305        623
Deferred tax provision ..............................................      (146)       (92)       138

Changes in assets and liabilities that provided (used) cash:
         Accounts receivable - trade, net ...........................    (4,437)      (695)    (7,242)
         Accounts receivable - affiliates ...........................       (80)       153
                                                                                                 (294)
         Inventory ..................................................       (21)       545        162
         Other current assets .......................................         4       (507)      (230)
         Other assets ...............................................       311
         Accounts payable ...........................................     1,977       (492)     6,060
         Accrued expenses ...........................................     1,673       (598)       806
         Income taxes payable .......................................        53        (77)      (124)
         Deferred service revenue ...................................        27        (45)       (54)
                                                                        -------    -------    -------

                  Net cash provided by (used in) operating activities      (123)        89      2,000

CASH FLOWS FROM INVESTING ACTIVITES:
Capital expenditures ................................................      (518)      (965)      (992)
Proceeds from sale of fixed assets ..................................        60         13
                                                                        -------    -------    -------

                  Net cash used in investing activities                    (458)      (952)      (992)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in notes payable                                    940         63     (8,403)
Net proceeds from sale of common stock                                                          8,747
                                                                        -------    -------    -------

                  Net cash provided from financing activities               940         63        344

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                        359       (800)     1,352

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                            670      1,029        229
                                                                        -------    -------    -------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                             $  1,029  $     229  $   1,581
                                                                        =======  =========   ========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest                                               $    1,189  $   1,140  $     958
                                                                      =========   ========  =========
Cash paid for income taxes                                           $      432  $   1,138  $   1,032
                                                                      =========   ========  =========

See notes to consolidated financial statements.
</TABLE>

<PAGE>


ALLSTAR SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO  CONSOLIDATED  FINANCIAL  STATEMENTS  FOR THE YEARS ENDED  DECEMBER 31,
1995, 1996 AND 1997 (In thousands, except share and per shares amounts)


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Allstar Systems, Inc. and subsidiaries  ("Allstar"') is engaged in the sale
and service of computer and  telecommunications  hardware and software products.
During 1995 Allstar  formed and  incorporated  Stratasoft,  Inc., a wholly owned
subsidiary, to create and market software related to the integration of computer
and telephone technologies.  In January, 1997 Allstar formed IT Staffing Inc. to
provide temporary and permanent placement services of technical  personnel.  All
operations of the business are conducted from offices located in Texas.

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

     Allstar's significant accounting policies are as follows:

     Principles  of  Consolidation  - The  accompanying  consolidated  financial
statements  include the accounts of Allstar  Systems,  Inc. and its wholly owned
subsidiaries.  All significant  intercompany balances and transactions have been
eliminated.

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

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

     Property and equipment are depreciated  over their  estimated  useful lives
ranging  from five to ten years  using the  straight-line  method.  Depreciation
expense totaled $307, $303 ,and $623 for the years ended December 31, 1995, 1996
and 1997, respectively.

     Impairment of  Long-Lived  Assets  -Allstar  records  impairment  losses on
long-lived  assets,  including  goodwill,  used in  operations  when  events and
circumstances  indicate  that the assets might be impaired and the  undiscounted
cash flows  estimated to be generated by those assets are less than the carrying
amounts of those assets.

     Federal Income Taxes - Deferred taxes are provided at enacted rates for the
temporary differences between the financial reporting bases and the tax bases of
assets and liabilities.

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

     In February 1997, the Financial  Accounting Standards Board ("FASB") issued
Statement of Financial  Accounting  Standards No. 128, Earnings Per Share ("SFAS
128").  SFAS 128 requires a dual  presentation of basic and diluted earnings per
share for entities  with  complex  capital  structures.  At December 31 1995 and
1996,  Allstar had no stock options or similar  equity  instruments  outstanding
accordingly SFAS No. 128 had no retroactive effect on the consolidated financial
statement  for the years then ended.  During  1997  Allstar  granted  options to
purchase  200,300  shares,  issued 14,286 shares of restricted  stock and issued
warrants to purchase 176,750 common shares at $9.60 per share to underwriters in
connection  with a public  offering of the common stock.  If Allstar had adopted
the statement in prior years, earnings per share would have been as follows:

                                                 1997       1996        1995
                                                 ----       ----        ----
     Basic......................................$0.52      $0.60       $0.19
     Diluted....................................$0.52      $0.60       $0.19

     Revenue  Recognition  -  Revenue  from the  sale of  computer  products  is
recognized  when the product is shipped.  Service  income is recognized  ratably
over the  service  contract  life.  Revenues  resulting  from  installations  of
equipment for which duration is in excess of three months are  recognized  using
the  percentage-of-completion  method.  The percentage of revenue  recognized on
each contract is based on the most recent cost estimate available.  Revisions of
estimates  are  reflected  in the  period in which the facts  necessitating  the
revision become known; when a contract indicates a loss, a provision is made for
the total  anticipated  loss. At December 31, 1996 Allstar had no such contracts
in process. At December 31, 1997, Allstar had $868 of such contracts in progress
and $401 of revenue has been  deferred  together  with $197 of costs  related to
those revenues.

     Research and Development  Costs - Expenditures  relating to the development
of  new  products  and  processes,   including   significant   improvements  and
refinements to existing products,  are expensed as incurred. The amounts charged
to expense were $13, $96 and $157 in the years ended December 31, 1995, 1996 and
1997, respectively.

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

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

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

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

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



2.   ACCOUNTS RECEIVABLE

     Accounts  receivable  consisted  of the  following at December 31, 1996 and
1997:

                                                    1996              1997

     Trade....................................    $16,736           $24,008
     Allowances for doubtful accounts.........       (219)             (249)
                                                  -------           -------
          Total...............................    $16,517           $23,759
                                                  =======           =======

3.   DEFERRED OFFERING COSTS

     Deferred  offering  costs  represent  amounts  incurred by Allstar  through
December  31,  1996 in  preparation  of filing  an  offering  document.  Allstar
completed  a public  offering  of its  common  stock  in 1997  and the  deferred
offering costs were included as a cost of issuance of the common stock.

4.   PROPERTY AND EQUIPMENT

     Property and equipment  consisted of the following at December 31, 1996 and
1997:

                                                    1996              1997

        Equipment.............................    $   282           $   339
        Computer equipment....................      1,964             2,870
        Furniture and fixtures                        294               316
        Leasehold improvements                         47                55
        Vehicles                                      105               105
                                                  -------           -------
                                                  $ 2,692             3,685
        Accumulated depreciation and amortization  (1,048)           (1,672)
                                                  -------           -------
              Total                               $ 1,644           $ 2,013
                                                  =======           =======

5.   CREDIT ARRANGEMENTS

     Allstar had two revolving lines of credit with a commercial finance company
which  were  collateralized  by  substantially  all of  Allstar's  assets  and a
personal  guarantee  of the  principal  stockholder  of Allstar.  The  aggregate
maximum  combined  lines of credit  were  $20.0  million  and $30.0  million  at
December 31, 1996 and 1997, respectively.  The maximum combined credit limit was
subject to  borrowing  base  limitations  which  were  generally  computed  as a
percentage of various  classes of eligible  accounts  receivable  and qualifying
inventory (as defined). Allstar paid an annual facility fee of $18,000.

     Under the first revolving line of credit (the "Accounts Line"), outstanding
principal and interest were due upon termination of the agreement.  Transactions
on the  Accounts  Line  are  reflected  as  Notes  Payable  in the  consolidated
financial statements.  The Accounts Line accrued interest at the prime rate plus
2% (10.25% at December 31, 1996 and 10.50% at December 31, 1997).  The agreement
required  that  all  payments   received  from  customers  on  pledged  accounts
receivable  be  applied  to  the  outstanding  balance  on  the  Accounts  Line.
Accordingly, accounts receivable payments received in the amount of $94 and $280
at December 31, 1996 and 1997, respectively,  but not yet applied to the line of
credit,  are shown as restricted cash in the  accompanying  balance sheets.  The
weighted average interest rate on the Accounts Line for the years ended December
31, 1995, 1996 and 1997 was 12.84%, 10.25% and 10.50%, respectively.

     The second  revolving  line of credit  (the  "Inventory  Line") was used by
Allstar to floor plan inventory purchases. At December 31, 1996 and December 31,
1997,  aggregate  borrowings  on the  Inventory  Line were  $6,134  and  $1,089,
respectively. Interest accrues at the prime rate plus 6% (14.50% at December 31,
1997) for all outstanding balances over 30 days.

     On March 27, 1998,  Allstar and the commercial  finance company  terminated
their credit  arrangement and entered into a new $2.0 million  revolving  credit
line of credit to floor plan inventory.  This line of credit accrues interest at
prime plus 6% (14.50% at December 31, 1997) for all outstanding balances over 30
days.

     In  addition,  Allstar had a $10.0  million  ($3.0  million at December 31,
1996)  credit  line with  another  financing  company  to be used to floor  plan
inventory  purchases.  At December 31, 1996 and  December  31,  1997,  aggregate
borrowings on this line were $993 and $9,391, respectively.  Interest accrues at
the prime rate,  which for purposes of this  agreement will not fall below 6.5%,
plus 6% (14.50% at December 31, 1997) for all outstanding balances over 30 days.

     Amounts  borrowed  under the  Inventory  Line and the $3.0  million line of
credit  (collectively  the "Floor  Plan  Agreements")  are  included in accounts
payable  in  the  consolidated  financial  statements.   Under  the  Floor  Plan
Agreements the financing companies pay Allstar's suppliers directly and maintain
a purchase money security  interest in the related  inventory.  Allstar incurred
interest  expense under the Floor Plan  Agreements of $35, $59 and $4 during the
years ended  December  31,  1995,  1996 and 1997,  respectively.  The Floor Plan
Agreements  require  payment of interest  on a monthly  basis and  principal  on
demand.

     The combined  borrowing base under all credit  arrangements was $18,841 and
$23,871 at December 31, 1996 and 1997, respectively.

New Credit Facilities.

     On February 27, 1998 Allstar  entered  into a new credit  agreement  with a
commercial  finance  company..  The total credit  available under the new credit
facility is $30.0  million,  subject to  borrowing  base  limitations  which are
generally  computed as a  percentage  of various  classes of  eligible  accounts
receivable and qualifying inventory. Credit available under the new facility for
floor plan financing of inventory from approved  manufacturers  (the  "Inventory
Line")  is $20.0  million.  Available  credit  under  the new  facility,  net of
Inventory  Line  advances,  is  $10.0  million,  which  is used  by the  Company
primarily to carry accounts receivable and for other working capital and general
corporate  purposes (the "Accounts  Line").  Borrowings  under the Accounts Line
bear  interest  at the  fluctuating  prime rate minus 1.0% per annum.  Under the
Inventory  Line  interest  accrues at prime  rate,  which for  purposes  of this
agreement  will not fall below 7.0%,  plus 5% for  outstanding  balances over 40
days.

     This  agreement,  which continues in full force and effect for 36 months or
until  terminated by 30 day written notice from the lender and may be terminated
upon 90 days notice by Allstar,  subject to a termination fee, is collateralized
by substantially all of Allstar's assets.  The credit facility is not guaranteed
by the principal  stockholder  of Allstar.  The agreement  contains  restrictive
covenants  which,  among other  things,  require  specific  ratios of revenue to
working  capital,  total  liabilities to tangible net worth and net profit after
tax to  revenue.  The  terms of the  agreement  also  prohibit  the  payment  of
dividends,  the purchase of Allstar common stock and other similar expenditures,
including advances to related parties.

6.   INCOME TAXES

     The provision for income taxes for the years ended December 31, 1995,  1996
and 1997 consisted of the following:

                                                1995         1996         1997
                                                ----         ----         ----
     Current Provision (benefit)
        Federal.....................         $   446       $  962       $  848
        State.........................            42          117          140
                                              ------       ------       ------
     Total current provision..........           488        1,079          988
     Deferred Provision...............          (146)         (92)         138
                                              ------       ------          ---
         Total........................       $   342       $  987       $1,126
                                              ======        =====        =====




     The total  provision  for income taxes during the years ended  December 31,
1995,  1996 and 1997  varied  from the U.S.  federal  statutory  rate due to the
following:

                                                1995         1996         1997
                                                ----         ----         ----

     Federal income tax at statutory rate..    $  301       $  907       $1,010
       Nondeductible expenses..............        48           17           24
       State income taxes..................        28           77           92
       Other...............................       (35)         (14)
                                               ------       ------       ------
         Total.............................    $  342       $  987       $1,126
                                               ======       ======       ======

     Deferred  tax assets  computed at the  statutory  rate related to temporary
     differences at December 31, 1996 and December 31, 1997 were as follows:

                                            December 31           December 31,
                                                 1996                 1997
     Deferred tax assets:
      Accounts receivable..................   $   142               $   149
      Deferred service revenue.............        69                    41
      Inventory............................       139                    22
                                               ------               -------
         Total deferred tax assets.........   $   350               $   212
                                               ======                ======

7.   ACCRUED EXPENSES

     Accrued liabilities  consisted of the following as of December 31, 1996 and
     1997:

                                                 1996                 1997
                                                 ----                 ----
     Sales tax payable                         $1,309                $1,922
     Accrued employee benefits, payroll
       and other related costs                    996                   962
     Accrued interest                             209                    47
     Other                                        245                   634

         Total                                 $2,759                $3,565
                                               ======                ======

8.   FRANCHISE FEES

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

     Allstar  entered  into an  agreement  in August  1996 in which  Allstar  is
required to purchase at least 80% of its computer  products  from Inacom if such
are  available  within a  reasonable  period of time at  reasonably  competitive
prices. The agreement expires on December 31, 2001 and automatically  renews for
successive  one-year  periods.  A  cancellation  fee of $571 will be  payable by
Allstar in the event of  non-renewal  or early  termination  of the agreement by
either  party;  however,  Allstar does not  anticipate  termination  to occur by
either party prior to the initial  termination  date.  Allstar is accruing  this
cancellation fee over the initial  agreement period by an approximate $9 monthly
charge to earnings.  For the years  December 31,  1995,  1996 and 1997,  Allstar
charged to expense $0, $44 and $105, respectively, related to this agreement.

9.   COMMITMENTS AND CONTINGENCIES

     Operating Leases - Allstar  subleases  office space from Allstar  Equities,
Inc.  ("Equities"),  a company  wholly  owned by the  principal  stockholder  of
Allstar.  In 1996,  Allstar  renewed its office  sublease  with  monthly  rental
payments  of  $31.5 in 1997 and $32 in 1998,  plus  certain  operating  expenses
through  December  1998.  Rental  expense  under  this  agreement   amounted  to
approximately $372, $372 and $378 during years ended December 31, 1995, 1996 and
1997, respectively.

     Additionally,  minimum  annual  rentals  at  December  31,  1996  on  other
operating leases amount to  approximately  $126 for 1998, $63 in 1999, and $8 in
2000. Amounts paid during the years ended December 31, 1995, 1996 and 1997 under
such agreements totaled approximately $137, $252 and $142, respectively.

     Benefit  Plans - Allstar  maintains  a group  medical  and  hospitalization
insurance program under which Allstar pays employees' covered health care costs.
Any claims  exceeding $30 per employee or a cumulative  maximum of approximately
$180 per year are insured by an outside insurance  company.  Allstar's claim and
premium expense for this self-insurance  program totaled approximately $67, $193
and $684 for the years ended December 31, 1995, 1996 and 1997, respectively.

     Allstar  maintains a 401(k) savings plan. All full-time  employees who have
completed 90 days of service with  Allstar are  eligible to  participate  in the
plan.  Allstar also has the option of making additional  contributions  based on
net  profitability.  Declaration of such  contributions  is at the discretion of
Allstar's Board of Directors.  Allstar made no additional  contributions  to the
plan for the years ended  December,  1995 and 1997. In 1996 Allstar  contributed
$136 to the plan.

     Allstar  has filed  under the  Internal  Revenue  Service  Walk-in  Closing
Agreement  Program  (the  "Program")  to negotiate a  settlement  regarding  the
qualified status of the 401(k) savings plan in order to meet the requirements of
Section  401(a) of the Internal  Revenue Code.  Under the Program,  any sanction
amount  negotiated is based upon the total tax liability which could be assessed
if the plan were to be  disqualified.  At  December  31,  1997 the  Company  has
accrued $28 for the estimated  settlement  cost. In 1998,  the Internal  Revenue
Service accepted the settlement and the Company paid $25.

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

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

10.  STOCK OPTION PLANS

     In  September  1996  Allstar  adopted  the 1996  Incentive  Stock Plan (the
"Incentive  Plan") and the 1996  Non-Employee  Director  Stock  Option Plan (the
"Director Plan"). Under the Incentive Plan, Allstar's Compensation Committee may
grant up to  417,500  shares of common  stock,  which  have  been  reserved  for
issuance,  to certain key employees of Allstar.  The Incentive Plan provides for
the granting of incentive awards in the form of stock options, restricted stock,
phantom stock,  stock bonuses and cash bonuses in accordance with the provisions
of the plan. Additionally,  no shares may be granted after the tenth anniversary
of the Incentive Plan's adoption.  Allstar has reserved for issuance,  under the
Director Plan, 100,000 shares of common stock,  subject to certain  antidilution
adjustments.  The Director Plan provides for a one-time  option by newly elected
directors to purchase up to 5,000 common  shares,  after which each  director is
entitled to receive an option to purchase  up to 2,000  common  shares upon each
date of re-election to Allstar's  Board of Directors.  Options granted under the
Director Plan have an exercise  price equal to the fair market value on the date
of grant and  generally  expire  ten years  after the grant  date.  During  1997
Allstar  granted  options to purchase  200,300  common shares to its  directors,
officers and employees.


The plans activity is summarized below:


                                                          1997
                                                                  Weighted
                                                                   Average
                                                                  Exercise
                                                 Shares             Price
Options outstanding at January 1.......                0       $     0.00
Granted during the year................          200,300             5.17
Exercised during the year..............                0             0.00
Canceled during the year...............                0             0.00
                                                 -------       ----------
Options outstanding at December 31.....          200,300       $     5.17
                                                 =======       ==========
Options exercisable at December 31.....                0       $     5.17
                                                 =======       ==========
Options outstanding price range........          $4.625 to $6.00
Option weighted average remaining life.          9.7 Years

     Allstar  applies  APB  Opinion  No.  25,  "Accounting  for Stock  Issued to
Employees" and related  interpretations  in accounting for options granted under
the  Plans.  Accordingly,  no  compensation  expense  has been  recognized.  Had
compensation  expense been recognized based on the Black-Scholes  option pricing
model  value  at the  grant  date  for  awards  consistent  with  SFAS  no.  123
"Accounting for stock-Based Compensation, ." For purposes of estimating the fair
value disclosures  below, the fair value of each stock option has been estimated
on the grant date with a Black-Scholes  option-pricing model using the following
weighted-average  assumptions:  dividend  yield of 0%;  expected  volatility  of
76.2%;  risk-free interest rate of 6.0%; and expected lives of 10 years of stock
options granted. The effects of using the fair value method of accounting on net
income and earnings per share are indicated in the pro forma accounts below:

     Net Income:
         As Reported..........................................   $    1,844
         Pro forma............................................   $    1,815
     Earnings per share (Basic)
         As reported..........................................   $     0.52
         Pro forma............................................   $     0.52
     Earnings per share (Diluted)
         As reported..........................................   $     0.52
         Pro forma............................................   $     0.51

11.   RELATED-PARTY TRANSACTIONS

     Allstar has from time to time made  payments on behalf of Equities  and the
Company's principal  stockholders for taxes,  property and equipment.  Effective
July 1, 1996,  Allstar and its principal  stockholder  entered into a promissory
note to repay certain advances,  which were  approximately $173 at July 1, 1996,
in equal annual installments of principal and interest, from August 1997 through
2001.  This note bears  interest at 9% per year.  Also  effective  July 1, 1996,
Allstar and Equities entered into a promissory note whereby Equities would repay
the balance of amounts advanced,  which were approximately $387 at July 1, 1996,
in monthly  installments  of $6.5,  including  interest,  from July 1996 through
November  1998 with a final  payment of $275 due on December 1, 1998.  This note
bears interest at 9% per year. The principal amounts as of December 31, 1996 are
classified  as Accounts  receivable -  affiliates  and Other assets based on the
repayment terms of the promissory  notes.  The principal  amounts as of December
31,  1997 are  classified  as  Accounts  receivable  -  affiliates  based on the
expectation of repayment  within one year. At December 31, 1996 and December 31,
1997, Allstar  receivables from these affiliates  amounted to approximately $501
and $434, respectively.


Item 9. Changes in and  Disagreements  With  Accountants  on Accounting and
        Financial Disclosure

         NONE

PART III.

Item 10-13

         The  Registrant  incorporates  the  information  required by Form 10-K,
Items 10 through 13 by reference to the Company's definitive proxy statement for
its 1998 Annual Meeting of  Shareholder  which will be filed with the Commission
prior to April 30, 1998.

PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K

  a  (1) Consolidated Financial Statements - See Index to Consolidated Financial
         Statements on Page 27
     (2) Consolidated Financial Statements Schedule II Valuation and Qualifying
         Accounts Exhibit 99.1
     (3) Exhibits
<TABLE>

<CAPTION>
3.    Exhibits

<S>                       <C>                                                       <C>   

                                                                                Filed Herewith

   Exhibit                                                                      or Incorporated by
   Number                         Description                                     Reference to:

2.1   Plan and Agreement of Merger by and Between                               Exhibit 2.1 to Form
      Allstar Systems, Inc, a Texas corporation and                             S-1 filed Aug. 8, 1996
      Allstar Systems, Inc. a Deleware corporation
3.1   Bylaws of the Company                                                     Exhibit 3.1 to Form
                                                                                S-1 filed Aug. 8, 1996
3.2   Certificate of Incorporation of the Company                               Exhibit 3.2 to Form
                                                                                S-1 filed Aug. 8, 1996
4.1   Specimen Common Stock Certificate                                         Exhibit 4.1 to Form
                                                                                S-1 filed Aug. 8, 1996
4.2   See Exhibits 3.1 and 3.2 for provisions of the Certificate of             Exhibit 4.2 to Form
      Incorporation and Bylaws of the Company defining the rights of the        S-1 filed Aug. 8, 1996
       holders of Common Stock.
10.1  Revolving Loan and Security Agreement by and between                      Exhibit 10.1 to Form
      IBM Credit Corporation and Allstar Systems, Inc.                          S-1 filed Aug. 8, 1996
10.2  Agreement for Wholesale Financing dated September 20, 1993, by            Exhibit 10.2 to Form
      and between ITT Commercial Finance Corp. and Allstar-Valcom, Inc.         S-1 filed Aug. 8, 1996
10.3  Amendment to Agreement for Wholesale Financing dated                      Exhibit 10.3 to Form
      October 25, 1994, by and between ITT Commercial Finance Corp.             S-1 filed Aug. 8, 1996
      and Allstar Systems, Inc.
10.4  Sublease Agreement by and between Allstar Equities and Allstar            Exhibit 10.4 to Form
      Systems, Inc.                                                             S-1 filed Aug. 8, 1996
10.5  Form of Employment Agreement by and between the Company and               Exhibit 10.5 to Form
      certain members of Management.                                            S-1 filed Aug. 8, 1996
10.6  Employment Agreement dated September 7, 1995, by and between              Exhibit 10.6 to Form
      Stratasoft, Inc. and William R. Hennessy.                                 S-1 filed Aug. 8, 1996
10.7  Assignment of Certain Software dated September 7, 1995, by                Exhibit 10.7 to Form
      International Lan and Communications, Inc. and Aspen System               S-1 filed Aug. 8, 1996
      Technologies, Inc. to Stratasoft, Inc.
10.8  Microsoft Solution Provider Agreement by and between Microsoft            Exhibit 10.8 to Form
      Corporation and Allstar Systems, Inc.                                     S-1 filed Aug. 8, 1996
10.9  Novell Platinum Reseller Agreement by and between Novell, Inc.            Exhibit 10.9 to Form
      and Allstar Systems, Inc.                                                 S-1 filed Aug. 8, 1996
10.10 Allstar Systems, Inc. 401(k) Plan.                                        Exhibit 10.10 to Form
                                                                                S-1 filed Aug. 8, 1996
10.11 Allstar Systems, Inc. 1996 Incentive Stock Plan.                          Exhibit 10.11 to Form
                                                                                S-1 filed Aug. 8, 1996
10.12 Allstar Systems, Inc. 1996 Non-Employee Director Stock Option Plan.       Exhibit 10.12 to Form
                                                                                S-1 filed Aug. 8, 1996
10.13 Primary Vendor Volume Purchase Agreement dated August 1, 1996 by          Exhibit 10.13 to Form
      and between Inacom Corp. and Allstar Systems, Inc.                        S-1 filed Aug. 8, 1996
10.14 Resale Agreement dated December 14, 1995, by and between Ingram           Exhibit 10.14 to Form
      Micro Inc. and Allstar Systems, Inc.                                      S-1 filed Aug. 8, 1996
10.15 Volume Purchase Agreement dated October 31, 1995, by and between          Exhibit 10.15 to Form
      Tech Data Corporation and Allstar Systems, Inc.                           S-1 filed Aug. 8, 1996
10.16 Intelligent Electronics Reseller Agreement by and between Intelligent     Exhibit 10.16 to Form
      Electronics, Inc. and Allstar Systems, Inc.                               S-1 filed Aug. 8, 1996
10.17 MicroAge Purchasing Agreement by and between MicroAge Computer            Exhibit 10.17 to Form
      Centers, Inc. and Allstar Systems, Inc.                                   S-1 filed Aug. 8, 1996
10.18 IBM Business Partner Agreement by and between IBM                         Exhibit 10.18 to Form
      and Allstar Systems, Inc.                                                 S-1 filed Aug. 8, 1996
10.19 Confirmation of Allstar Systems, Inc.'s status as a Compaq authorized     Exhibit 10.19 to Form
      reseller dated August 6, 1996.                                            S-1 filed Aug. 8, 1996
10.20 Hewlett-Packard U.S. Agreement for Authorized Second Tier Resellers       Exhibit 10.20 to Form
      by and between Hewlett-Packard Company and Allstar Systems, Inc.          S-1 filed Aug. 8, 1996
10.21 Associate Agreement by and between NEC America, Inc. and                  Exhibit 10.21 to Form
      Allstar Systems, Inc.                                                     S-1 filed Aug. 8, 1996
10.22 Mitel Elite Dealer Agreement and Extension Addendum by and between        Exhibit 10.22 to Form
      Mitel, Inc. and Allstar Systems, Inc.                                     S-1 filed Aug. 8, 1996
10.23 Dealer Agreement dated March 1, 1995, by and between Applied Voice        Exhibit 10.23 to Form
      Technology and Allstar Systems, Inc.                                      S-1 filed Aug. 8, 1996
10.24 Industrial Lease Agreement dated March 9, 1996, by and between            Exhibit 10.24 to Form
      H-5 J.E.T. Ltd. as lessor and Allstar Systems, Inc. as lessee.            S-1 filed Aug. 8, 1996
10.25 Lease  Agreement  dated June 24,  1992,  by and  between  James J.  Laney,
      Exhibit 10.25 to Form et al. As lessors,  and Technicomp  Corporation  and
      Allstar Services as S-1 filed Aug. 8, 1996 lessees.
10.26 Agreement for Wholesale Financing, Business Financing Agreement           Filed herewith
      and related agreements and correspondence by and between DFS
      Financial Services and Allstar Systems, Inc., dated February 27, 1998
10.27 Sublease Agreement by and between X.O. Spec Corporation and               Filed herewith
      Allstar Systems, Inc. dated May 12, 1997
21.1  List of Subsidiaries of the Company.                                      Filed herewith
23.1  Independent Auditors' Consent of Deloitte & Touche LLP,.                  Filed herewith
27.1  Financial Data Schedule.                                                  Filed herewith
99.1  Schedule II Valuation and Qualifying Accounts                             Filed herewith

b No Form 8-K has been filed in the last  quarter of the fiscal year  covered by
this report
</TABLE>

<PAGE>


                                                     SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, March 31, 1998.

                              Allstar Systems, Inc.
                                  (Registrant)

                                        By:/s/ James H. Long
                      James H Long, Chief Executive Officer

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
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                                         Capacity

    /s/ James H. Long           Chief Executive Officer, President and Chairman
                                    of the Board


    /s/ Donald R. Chadwick      Chief Financial Officer, Secretary and Treasurer
                                    and Director
                                    (Principal Financial and Accounting Officer)

    /s/ G. Chris Andersen       Director


    /s/ Richard D. Darrell      Director


    /s/ Jack M. Johnson         Director


    /s/ Donald D. Sykora        Director




<PAGE>


                                                   Exhibit 10.26


<PAGE>


                                         AGREEMENT FOR WHOLESALE FINANCING


This Agreement for Wholesale Financing  ("Agreement") is made as of February 27,
1998  between  Deutsche  Financial  Services  Corporation  ("DFS")  and  Allstar
Systems, Inc., a |___| SOLE PROPRIETORSHIP,  | | PARTNERSHIP, | X | CORPORATION,
| | LIMITED  LIABILITY  COMPANY (check  applicable  term)  ("Dealer"),  having a
principal place of business located at 6401 Southwest  Freeway,  Houston,  Texas
77074.

     1.  Extension of Credit.  Subject to the terms of this  Agreement,  DFS may
extend  credit  to  Dealer  from  time to time to  purchase  inventory  from DFS
approved vendors ("Vendors") and for other purposes.  Dealer hereby confirms its
understanding  of the  discretionary  nature of its credit facility  established
pursuant hereto. The foregoing notwithstanding,  DFS hereby confirms that it has
established a facility  available  for Dealer's  inventory  purchases  under the
terms of this Agreement in the amount of  $20,000,000.  If DFS advances funds to
Dealer  following  Dealer's  execution of this Agreement,  DFS will be deemed to
have entered into this  Agreement  with Dealer,  whether or not executed by DFS.
DFS'  decision to advance funds will not be binding until the funds are actually
advanced.  DFS may combine all of DFS' advances to Dealer or on Dealer's behalf,
whether under this Agreement or any other agreement, and whether provided by one
or more of DFS' branch  offices,  together  with all finance  charges,  fees and
expenses related thereto,  to make one debt owed by Dealer. DFS may, at any time
and  without  notice to  Dealer,  elect not to  finance  any  inventory  sold by
particular  Vendors  who are in default  of their  obligations  to DFS,  or with
respect to which DFS reasonably feels insecure.  This is an agreement  regarding
the extension of credit, and not the provision of goods or services.

     2. Financing Terms and Statements of Transaction. Dealer and DFS agree that
certain financial terms of any advance made by DFS under this Agreement, whether
regarding  finance  charges,  other  fees,  maturities,  curtailments  or  other
financial  terms,  are not set forth herein because such terms depend,  in part,
upon the availability of Vendor  discounts,  payment terms or other  incentives,
prevailing economic  conditions,  DFS' floorplanning volume with Dealer and with
Dealer's  Vendors,  and other economic factors which may vary over time.  Dealer
and DFS further  agree that it is therefore in their mutual best interest to set
forth in this Agreement only the general terms of Dealer's financing arrangement
with DFS.  Upon  agreeing to finance a particular  item of inventory for Dealer,
DFS will send Dealer a Statement of Transaction  identifying  such inventory and
the applicable  financial  terms.  Unless Dealer  notifies DFS in writing of any
objection  within thirty (30) days after a Statement of Transaction is mailed to
Dealer: (a) the amount shown on such Statement of Transaction will be an account
stated; (b) Dealer will have agreed to all rates,  charges and other terms shown
on such  Statement  of  Transaction;  (c) Dealer  will have  agreed  that DFS is
financing the items of inventory  referenced in such Statement of Transaction at
Dealer's  request;  and (d) such Statement of Transaction  will be  incorporated
herein  by  reference,  will be made a part  hereof as if  originally  set forth
herein,  and will constitute an addendum hereto.  If Dealer objects to the terms
of any Statement of Transaction,  Dealer agrees to pay DFS for such inventory in
accordance with the most recent terms for similar  inventory to which Dealer has
not objected (or, if there are no prior terms, at the lesser of 16% per annum or
at the maximum lawful contract rate of interest permitted under applicable law),
but Dealer  acknowledges that DFS may then elect to terminate Dealer's financing
program pursuant to Section 17, and cease making additional  advances to Dealer.
However,  such  termination  ----------  will not  accelerate  the maturities of
advances  previously  made,  unless Dealer shall otherwise be in default of this
Agreement.

     3. Grant of Security Interest. To secure payment of all of Dealer's current
and future debts to DFS,  whether under this  Agreement or any current or future
guaranty or other  agreement,  Dealer  grants DFS a security  interest in all of
Dealer's inventory,  equipment,  fixtures,  accounts,  contract rights,  chattel
paper, security agreements,  instruments, deposit accounts, reserves, documents,
and general  intangibles;  and all judgments,  claims,  insurance policies,  and
payments  owed or made to Dealer  thereon;  all whether  now owned or  hereafter
acquired,  all attachments,  accessories,  accessions,  returns,  repossessions,
exchanges, substitutions and replacements thereto, and all proceeds thereof. All
such assets are collectively referred to herein as the "Collateral." All of such
terms for which  meanings  are  provided in the Uniform  Commercial  Code of the
applicable state are used herein with such meanings.  All Collateral financed by
DFS, and all  proceeds  thereof,  will be held in trust by Dealer for DFS,  with
such proceeds being payable in accordance with Section 9. ---------

     4.  Affirmative   Warranties  and  Representations.   Dealer  warrants  and
represents to DFS that:  (a) Dealer has good title to all  Collateral;  (b) DFS'
security  interest  in the  Collateral  financed  by DFS is not now and will not
become subordinate to the security interest,  lien,  encumbrance or claim of any
person;  (c) Dealer  will  execute  all  documents  DFS  requests to perfect and
maintain DFS' security  interest in the  Collateral;  (d) Dealer will deliver to
DFS immediately upon each request, and DFS may retain, each Certificate of Title
or Statement of Origin issued for Collateral financed by DFS; (e) Dealer will at
all times be duly organized,  existing, in good standing, qualified and licensed
to do  business  in each state,  county,  or parish,  in which the nature of its
business  or  property  so  requires;  (f)  Dealer  has  the  right  and is duly
authorized  to  enter  into  this  Agreement;  (g)  Dealer's  execution  of this
Agreement  does not  constitute a breach of any agreement to which Dealer is now
or hereafter  becomes bound;  (h) other than as disclosed on Exhibit B, attached
hereto  and  incorporated  herein  by this  reference,  there are and will be no
actions or proceedings  pending or threatened  against Dealer which might result
in any material  adverse change in Dealer's  financial or business  condition or
which might in any way adversely affect any of Dealer's assets;  (i) Dealer will
maintain the Collateral in good condition and repair;  (j) Dealer has duly filed
and will duly file all tax returns required by law; (k) Dealer has paid and will
pay when due all taxes,  levies,  assessments  and  governmental  charges of any
nature;  (l)  Dealer  will  keep  and  maintain  all of its  books  and  records
pertaining to the  Collateral at its principal  place of business  designated in
this  Agreement;  (m) Dealer  will  promptly  supply  DFS with such  information
concerning it or any guarantor as DFS hereafter may reasonably request;  (n) all
Collateral  will be kept at Dealer's  principal  place of business listed above,
and such other locations, if any, of which Dealer has notified DFS in writing or
as listed on any current or future  Exhibit "A" attached  hereto  which  written
notice(s)  to DFS and Exhibit A(s) are  incorporated  herein by  reference;  (o)
Dealer  will give DFS  thirty  (30) days prior  written  notice of any change in
Dealer's identity, name, form of business organization,  ownership,  management,
principal place of business,  Collateral  locations or other business locations,
and before moving any books and records to any other  location;  (p) Dealer will
observe and perform all matters  required by any lease,  license,  concession or
franchise  forming part of the Collateral in order to maintain all the rights of
DFS thereunder; (q) Dealer will advise DFS of the commencement of material legal
proceedings against Dealer or any guarantor; and (r) Dealer will comply with all
applicable  laws and will conduct its business in a manner which  preserves  and
protects the Collateral and the earnings and incomes thereof.

     5.  Negative  Covenants.  Dealer will not at any time  (without  DFS' prior
written consent):  (a) other than in the ordinary course of its business,  sell,
lease or otherwise  dispose of or transfer any of its assets;  (b) rent,  lease,
demonstrate,  consign,  or use any  Collateral  financed by DFS; or (c) merge or
consolidate with another entity.

     6.  Insurance.  Dealer will  immediately  notify DFS of any material  loss,
theft or damage to any Collateral.  Dealer will keep the Collateral  insured for
its full insurable  value under an "all risk" property  insurance  policy with a
company  acceptable to DFS,  naming DFS as a lender  loss-payee  and  containing
standard lender's loss payable and termination  provisions.  Dealer will provide
DFS with  written  evidence of such  property  insurance  coverage  and lender's
loss-payee endorsement.

     7. Financial Statements. Dealer will deliver to DFS: (a) within one-hundred
twenty (120) days after the end of each of Dealer's  fiscal years,  a reasonably
detailed  balance  sheet as of the last day of such fiscal year and a reasonably
detailed income statement covering Dealer's  operations for such fiscal year, in
a form  satisfactory  to DFS; (b) within  forty-five  (45) days after the end of
each of Dealer's fiscal quarters,  a reasonably detailed balance sheet as of the
last day of such quarter and an income statement  covering  Dealer's  operations
for such quarter,  in a form  satisfactory  to DFS; and (c) within ten (10) days
after  request  therefor by DFS,  any other report  reasonably  requested by DFS
relating to the Collateral or the financial condition of Dealer. Dealer warrants
and represents to DFS that all financial  statements and information relating to
Dealer or any guarantor  which have been or may hereafter be delivered by Dealer
or any  guarantor  are true and  correct  and have been and will be  prepared in
accordance with generally accepted accounting  principles  consistently  applied
and, with respect to such previously delivered statements or information,  there
has been no material  adverse  change in the financial or business  condition of
Dealer or any guarantor  since the  submission to DFS,  either as of the date of
delivery, or, if different,  the date specified therein, and Dealer acknowledges
DFS' reliance thereon.

     8. Reviews.  Dealer  grants DFS an  irrevocable  license to enter  Dealer's
business locations during normal business hours without notice to Dealer to: (a)
account for and inspect all Collateral; (b) verify Dealer's compliance with this
Agreement;  and (c) examine and copy Dealer's  books and records  related to the
Collateral.

     9.  Payment  Terms.   Dealer  will   immediately   pay  DFS  the  principal
indebtedness  owed DFS on each item of  Collateral  financed by DFS (as shown on
the  Statement  of  Transaction  identifying  such  Collateral)  on the earliest
occurrence of any of the  following  events:  (a) when such  Collateral is lost,
stolen or damaged;  (b) for Collateral  financed under Pay-As-Sold ("PAS") terms
(as shown on the Statement of Transaction  identifying  such  Collateral),  when
such Collateral is sold, transferred,  rented, leased,  otherwise disposed of or
matured;  (c) in  strict  accordance  with  any  curtailment  schedule  for such
Collateral  (as  shown  on  the  Statement  of  Transaction   identifying   such
Collateral); (d) for Collateral financed under Scheduled Payment Program ("SPP")
terms (as shown on the Statement of Transaction identifying such Collateral), in
strict accordance with the installment payment schedule;  and (e) when otherwise
required  under the terms of any financing  program  agreed to in writing by the
parties.  Regardless of the SPP terms  pertaining to any Collateral  financed by
DFS, if DFS determines  that the current  outstanding  debt which Dealer owes to
DFS exceeds the aggregate wholesale invoice price of such Collateral in Dealer's
possession,  Dealer will immediately upon demand pay DFS the difference  between
such  outstanding  debt  and  the  aggregate  wholesale  invoice  price  of such
Collateral. If Dealer from time to time is required to make immediate payment to
DFS of any past due obligation  discovered  during any Collateral  review, or at
any other time,  Dealer agrees that  acceptance of such payment by DFS shall not
be construed to have waived or amended the terms of its financing  program.  The
proceeds  of any  Collateral  received by Dealer will be held by Dealer in trust
for DFS' benefit,  for  application as provided in this  Agreement.  Dealer will
send all payments to DFS' branch office(s) responsible for Dealer's account. DFS
may apply:  (i) payments to reduce  finance  charges  first and then  principal,
which  application may be regardless of Dealer's  instructions in the event of a
default;  and (ii)  principal  payments  to the oldest  (earliest)  invoice  for
Collateral financed by DFS, but, in any event, all principal payments will first
be applied to such Collateral  which is sold,  lost,  stolen,  damaged,  rented,
leased,  or otherwise  disposed of or unaccounted for. Any third party discount,
rebate, bonus or credit granted to Dealer for any Collateral will not reduce the
debt Dealer owes DFS until DFS has  received  payment  therefor in cash.  Dealer
will: (1) pay DFS even if any Collateral is defective or fails to conform to any
warranties  extended by any third party; (2) not assert against DFS any claim or
defense  Dealer has  against any third  party;  and (3)  indemnify  and hold DFS
harmless against all claims and defenses asserted by any buyer of the Collateral
relating  to the  condition  of, or any  representations  regarding,  any of the
Collateral. Dealer waives all rights of offset and counterclaims Dealer may have
against DFS.

     10.  Calculation of Charges.  Dealer will pay finance charges to DFS on the
outstanding  principal  debt which  Dealer owes DFS for each item of  Collateral
financed by DFS at the rate(s) shown on the Statement of Transaction identifying
such  Collateral,  unless Dealer  objects  thereto as provided in Section 2. The
_________  finance  charges  attributable  to the rate shown on the Statement of
Transaction  will: (a) be computed based on a 360 day year; (b) be calculated by
multiplying  the Daily Charge (as defined below) by the actual number of days in
the  applicable  billing  period;  and (c) accrue from the  invoice  date of the
Collateral  identified on such Statement of Transaction  until DFS receives full
payment in good funds of the  principal  debt  Dealer  owes DFS for each item of
such  Collateral  in  accordance  with DFS' payment  recognition  policy and DFS
applies such payment to Dealer's  principal debt in accordance with the terms of
this Agreement.  The "Daily Charge" is the product of the Daily Rate (as defined
below)  multiplied by the Average Daily Balance (as defined  below).  The "Daily
Rate" is the quotient of the annual rate shown on the  Statement of  Transaction
divided by 360,  or the  monthly  rate  shown on the  Statement  of  Transaction
divided by 30. The "Average Daily Balance" is the quotient of (i) the sum of the
outstanding  principal  debt owed DFS on each day of a billing  period  for each
item of Collateral identified on a Statement of Transaction, divided by (ii) the
actual number of days in such billing period.  Dealer will also pay DFS $100 for
each check returned  unpaid for  insufficient  funds (an "NSF check") (such $100
payment  repays  DFS'  estimated  administrative  costs;  it does not  waive the
default  caused by the NSF  check).  The annual  percentage  rate of the finance
charges  relating to any item of  Collateral  financed by DFS will be calculated
from the invoice date of such Collateral,  regardless of any period during which
any finance charge  subsidy shall be paid or payable by any third party.  Dealer
acknowledges  that DFS intends to strictly  conform to the applicable usury laws
governing this Agreement. Regardless of any provision contained herein or in any
other document  executed or delivered in connection  herewith or therewith,  DFS
shall never be deemed to have contracted for, charged or be entitled to receive,
collect or apply as interest on this Agreement  (whether  termed interest herein
or deemed to be interest by judicial  determination  or operation  of law),  any
amount in excess of the maximum  amount  allowed by applicable  law, and, if DFS
ever  receives,  collects or applies as interest  any such  excess,  such amount
which would be excessive  interest will be applied first to the reduction of the
unpaid principal  balances of advances under this Agreement,  and,  second,  any
remaining  excess  will be paid to  Dealer.  In  determining  whether or not the
interest  paid or payable  under any  specific  contingency  exceeds the highest
lawful  rate,  Dealer and DFS  shall,  to the  maximum  extent  permitted  under
applicable law: (A) characterize any non-principal  payment (other than payments
which are expressly  designated as interest payments hereunder) as an expense or
fee rather than as interest;  (B) exclude voluntary  pre-payments and the effect
thereof;  and (C) spread the total amount of interest throughout the entire term
of this Agreement so that the interest rate is uniform throughout such term.

     11. Billing  Statement.  DFS will send Dealer a monthly  billing  statement
identifying all charges due on Dealer's account with DFS. The charges  specified
on each billing  statement  will be: (a) due and payable in full  immediately on
receipt;  and (b) an  account  stated,  unless  DFS  receives  Dealer's  written
objection  thereto within 15 days after it is mailed to Dealer.  If DFS does not
receive,  by the 25th day of any given month,  payment of all charges accrued to
Dealer's account with DFS during the immediately  preceding  month,  Dealer will
(to the  extent  allowed by law) pay DFS a late fee  ("Late  Fee")  equal to the
greater of $5 or 5% of the amount of such finance  charges  (payment of the Late
Fee does not waive the default caused by the late  payment).  DFS may adjust the
billing statement at any time to conform to applicable law and this Agreement.

12. Default. Dealer will be in default under this Agreement if:

        (I) Any of the  following  occur  and shall  continue  for ten (10) days
        after the sooner to occur of  Dealer's  receipt of notice of such breach
        from DFS or the date on which such breach  becomes  known to any officer
        or other  representative  of  Dealer:  (a)  Dealer  breaches  any terms,
        warranties  or  representations  contained  herein,  in any Statement of
        Transaction  to which  Dealer has not objected as provided in Section 2,
        or in any other agreement  between DFS and Dealer;  (b) any guarantor of
        Dealer's debts to DFS breaches any terms,  warranties or representations
        contained in any guaranty or other  agreement  between the guarantor and
        DFS; (c) any  representation,  statement,  report or certificate made or
        delivered by Dealer or any  guarantor to DFS is not accurate  when made;
        (d) [INTENTIONALLY  OMITTED]; (e) Dealer abandons any material amount of
        Collateral;  (f) Dealer or any guarantor is or becomes in default in the
        payment of any debt owed to any third party; (g) a money judgment issues
        against  Dealer or any  guarantor;  (h) an  attachment,  sale or seizure
        issues or is executed  against any assets of Dealer or of any guarantor;
        (i) [INTENTIONALLY  OMITTED];  (j) any guarantor dies; (k) Dealer or any
        guarantor shall cease existence as a corporation,  partnership,  limited
        liability  company or trust, as applicable;  (l) Dealer or any guarantor
        ceases or suspends  business;  (m) Dealer,  any  guarantor or any member
        while Dealer's business is operated as a limited liability  company,  as
        applicable, makes a general assignment for the benefit of creditors; (n)
        Dealer,  any guarantor or any member while Dealer's business is operated
        as a limited  liability  company,  as applicable,  becomes  insolvent or
        voluntarily or involuntarily  becomes subject to the Federal  Bankruptcy
        Code,  any state  insolvency law or any similar law; (o) any receiver is
        appointed  for any assets of Dealer,  any  guarantor or any member while
        Dealer's  business  is  operated  as a  limited  liability  company,  as
        applicable; (p) any guaranty of Dealer's debts to DFS is terminated; (q)
        Dealer loses any franchise, permission, license or right to sell or deal
        in any  Collateral  which DFS  finances;  (r)  Dealer  or any  guarantor
        misrepresents  Dealer's  or  such  guarantor's  financial  condition  or
        organizational structure; or

        (II) Dealer  fails to pay any portion of Dealer's  debts to DFS when due
        and  payable  hereunder  or under any other  agreement  between  DFS and
        Dealer  and such  failure  is not cured  within  five (5) days after the
        applicable due date;  provided,  however,  that during any period of 180
        consecutive  days  commencing  at any time  hereafter,  Dealer  shall be
        entitled to no more than two (2) such 5-day cure periods,  and as to any
        such payment failures in excess of such limitation,  no such cure period
        shall be available to Dealer.

13. Rights of DFS Upon Default. In the event of a default:
        (a)       DFS may at any time at DFS' election, without notice or demand
                  to Dealer, do any one or more of the following: declare all or
                  any  part of the debt  Dealer  owes  DFS  immediately  due and
                  payable,   together  with  all  costs  and  expenses  of  DFS'
                  collection  activity,   including,   without  limitation,  all
                  reasonable  attorneys' fees;  exercise any or all rights under
                  applicable law (including,  without  limitation,  the right to
                  possess, transfer and dispose of the Collateral); and/or cease
                  extending any additional credit to Dealer (DFS' right to cease
                  extending   credit   shall  not  be  construed  to  limit  the
                  discretionary nature of this credit facility).
        (b)       Dealer will  segregate  and keep the  Collateral  in trust for
                  DFS,  and in good order and repair,  and will not sell,  rent,
                  lease,  consign,  otherwise  dispose of or use any Collateral,
                  nor further encumber any Collateral.
        (c)       Upon DFS' oral or  written  demand,  Dealer  will  immediately
                  deliver the Collateral to DFS, in good order and repair,  at a
                  place specified by DFS,  together with all related  documents;
                  or DFS may,  in DFS' sole  discretion  and  without  notice or
                  demand to Dealer, take immediate  possession of the Collateral
                  together with all related documents.
        (d)       DFS may,  without  notice,  apply a default  finance charge to
                  Dealer's  outstanding  principal  indebtedness  equal  to  the
                  default rate specified in Dealer's financing program with DFS,
                  if any, or if there is none so specified,  at the lesser of 3%
                  per annum  above the rate in effect  immediately  prior to the
                  default,  or the  highest  lawful  contract  rate of  interest
                  permitted under applicable law.

                  All of DFS' rights and remedies are  cumulative.  DFS' failure
                  to exercise any of DFS' rights or remedies  hereunder will not
                  waive any of DFS' rights or  remedies as to any past,  current
                  or future default.

     14. Sale of  Collateral.  Dealer agrees that if DFS conducts a private sale
of any Collateral by requesting  bids from 10 or more dealers or distributors in
that  type of  Collateral,  any  sale by DFS of  such  Collateral  in bulk or in
parcels  within  120 days of: (a) DFS'  taking  possession  and  control of such
Collateral;  or (b) when DFS is otherwise  authorized  to sell such  Collateral;
whichever  occurs last, to the bidder  submitting the highest cash bid therefor,
is  a  commercially  reasonable  sale  of  such  Collateral  under  the  Uniform
Commercial Code.  Dealer agrees that the purchase of any Collateral by a Vendor,
as provided in any  agreement  between  DFS and the  Vendor,  is a  commercially
reasonable  disposition  and private sale of such  Collateral  under the Uniform
Commercial  Code,  and no request  for bids shall be  required.  Dealer  further
agrees that 7 or more days prior written notice will be commercially  reasonable
notice of any public or private sale  (including  any sale to a Vendor).  Dealer
irrevocably waives any requirement that DFS retain possession and not dispose of
any  Collateral  until  after  an  arbitration   hearing,   arbitration   award,
confirmation,  trial or final  judgment.  If DFS disposes of any such Collateral
other  than  as  herein  contemplated,  the  commercial  reasonableness  of such
disposition  will be  determined  in  accordance  with  the  laws  of the  state
governing this Agreement.

     15. Power of Attorney.  Dealer grants DFS an irrevocable  power of attorney
to:  execute or endorse on  Dealer's  behalf any checks,  financing  statements,
instruments,  Certificates  of Title and Statements of Origin  pertaining to the
Collateral;  supply any omitted  information and correct errors in any documents
between DFS and Dealer; upon the occurrence of a default hereunder, initiate and
settle any  insurance  claim  pertaining to the  Collateral;  and do anything to
preserve and protect the Collateral and DFS' rights and interest therein.

     16. Information.  DFS may provide to any third party any credit information
on Dealer that DFS may from time to time possess. DFS may obtain from any Vendor
any credit, financial or other information regarding Dealer that such Vendor may
from time to time possess.

     17.  Termination.  Either party may terminate this Agreement at any time by
written notice  received by the other party.  If DFS terminates  this Agreement,
Dealer  agrees that if Dealer:  (a) is not in default  hereunder,  30 days prior
notice of  termination  is reasonable  and  sufficient  (although this provision
shall not be  construed  to mean that  shorter  periods may not,  in  particular
circumstances,  also  be  reasonable  and  sufficient);  or  (b)  is in  default
hereunder,  no prior  notice of  termination  is  required.  Dealer  will not be
relieved from any  obligation to DFS arising out of DFS' advances or commitments
made before the effective  termination  date of this Agreement.  DFS will retain
all of its rights, interests and remedies hereunder until Dealer has paid all of
Dealer's  debts to DFS. All waivers set forth within this Agreement will survive
any termination of this Agreement.

     18.  Binding  Effect.  Dealer cannot assign its interest in this  Agreement
without DFS' prior written consent,  although DFS may assign or participate DFS'
interest,  in whole or in part,  without Dealer's  consent.  This Agreement will
protect and bind DFS' and Dealer's respective heirs, representatives, successors
and assigns.

     19. Notices.  Except as otherwise stated herein,  all notices,  arbitration
claims,  responses,  requests and documents will be sufficiently given or served
if mailed or delivered:  (a) to Dealer at Dealer's  principal  place of business
specified above, Attn: Chief Executive Officer or Chief Financial  Officer;  and
(b) to DFS at 655  Maryville  Centre  Drive,  St.  Louis,  Missouri  63141-5832,
Attention:  General Counsel,  or such other address as the parties may hereafter
specify in writing.

     20. NO ORAL  AGREEMENTS.  ORAL  AGREEMENTS  OR  COMMITMENTS  TO LOAN MONEY,
EXTEND  CREDIT  OR TO  FORBEAR  FROM  ENFORCING  REPAYMENT  OF A DEBT  INCLUDING
PROMISES TO EXTEND OR RENEW SUCH DEBTS ARE NOT  ENFORCEABLE.  TO PROTECT  DEALER
AND DFS FROM  MISUNDERSTANDING  OR DISAPPOINTMENT,  ALL AGREEMENTS COVERING SUCH
MATTERS ARE  CONTAINED IN THIS  WRITING,  WHICH IS THE  COMPLETE  AND  EXCLUSIVE
STATEMENT OF THE AGREEMENT BETWEEN THE PARTIES,  EXCEPT AS SPECIFICALLY PROVIDED
HEREIN OR AS THE PARTIES  MAY LATER AGREE IN WRITING TO MODIFY IT.  THERE ARE NO
UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.

     21. Other Waivers.  Dealer irrevocably waives notice of: DFS' acceptance of
this Agreement,  presentment, demand, protest, nonpayment,  nonperformance,  and
dishonor.  Dealer and DFS  irrevocably  waive all  rights to claim any  punitive
and/or exemplary damages.

     22. Severability.  If any provision of this Agreement or its application is
invalid or  unenforceable,  the remainder of this Agreement will not be impaired
or affected and will remain binding and enforceable.

     23. Supplement. If Dealer and DFS have heretofore executed other agreements
in  connection  with all or any part of the  Collateral,  this  Agreement  shall
supplement  each and every other  agreement  previously  executed by and between
Dealer  and DFS,  and in that  event this  Agreement  shall  neither be deemed a
novation nor a  termination  of such  previously  executed  agreement  nor shall
execution of this Agreement be deemed a satisfaction  of any obligation  secured
by such  previously  executed  agreement.  The  foregoing  notwithstanding,  the
Agreement for Wholesale  Financing  between  Dealer and DFS dated as of March 5,
1997 is hereby terminated and of no further force or effect.

     24. Receipt of Agreement.  Dealer  acknowledges that it has received a true
and complete copy of this Agreement.  Dealer  acknowledges  that it has read and
understood this Agreement.  Notwithstanding anything herein to the contrary: (a)
DFS may rely on any facsimile copy,  electronic data  transmission or electronic
data storage of this Agreement, any Statement of Transaction, billing statement,
invoice  from a Vendor,  financial  statements  or other  reports,  and (b) such
facsimile copy,  electronic data transmission or electronic data storage will be
deemed an original,  and the best evidence thereof for all purposes,  including,
without limitation,  under this Agreement or any other agreement between DFS and
Dealer, and for all evidentiary  purposes before any arbitrator,  court or other
adjudicatory authority.

     25. Miscellaneous. Time is of the essence regarding Dealer's performance of
its obligations to DFS  notwithstanding  any course of dealing or custom on DFS'
part to grant  extensions of time.  Dealer's  liability  under this Agreement is
direct  and   unconditional   and  will  not  be  affected  by  the  release  or
nonperfection  of any security  interest  granted  hereunder.  DFS will have the
right to refrain  from or postpone  enforcement  of this  Agreement or any other
agreements  between DFS and Dealer without prejudice and the failure to strictly
enforce  these  agreements  will not be construed as having  created a course of
dealing  between DFS and Dealer contrary to the specific terms of the agreements
or as having  modified,  released or waived the same.  The express terms of this
Agreement  will not be  modified by any course of  dealing,  usage of trade,  or
custom of trade which may deviate from the terms hereof.  If Dealer fails to pay
any taxes,  fees or other  obligations  which may impair  DFS'  interest  in the
Collateral,  or fails to keep the Collateral insured,  DFS may, but shall not be
required to, pay such taxes,  fees or obligations and pay the cost to insure the
Collateral,  and the amounts paid will be: (a) an additional debt owed by Dealer
to DFS, which shall be subject to finance  charges as provided  herein;  and (b)
due and payable immediately in full. Dealer agrees to pay all of DFS' reasonable
attorneys' fees and expenses incurred by DFS in enforcing DFS' rights hereunder.
The Section  titles used in this Agreement are for  convenience  only and do not
define or limit the contents of any Section.

     26.  BINDING  ARBITRATION.  26.1  Arbitrable  Claims.  Except as  otherwise
specified below, all actions,  disputes,  claims and controversies  under common
law,  statutory  law or in equity of any type or nature  whatsoever  (including,
without limitation, all torts, whether regarding negligence, breach of fiduciary
duty,  restraint of trade, fraud,  conversion,  duress,  interference,  wrongful
replevin,  wrongful sequestration,  fraud in the inducement,  usury or any other
tort, all contract actions,  whether regarding express or implied terms, such as
implied covenants of good faith, fair dealing, and the commercial reasonableness
of any  Collateral  disposition,  or any other  contract  claim,  all  claims of
deceptive trade practices or lender  liability,  and all claims  questioning the
reasonableness  or lawfulness of any act),  whether  arising before or after the
date of this Agreement, and whether directly or indirectly relating to: (a) this
Agreement and/or any amendments and addenda hereto, or the breach, invalidity or
termination  hereof;  (b) any previous or subsequent  agreement  between DFS and
Dealer;  (c) any act  committed by DFS or by any parent  company,  subsidiary or
affiliated  company of DFS (the "DFS  Companies"),  or by any  employee,  agent,
officer or director of a DFS Company whether or not arising within the scope and
course of employment or other  contractual  representation  of the DFS Companies
provided  that such act  arises  under a  relationship,  transaction  or dealing
between  DFS and  Dealer;  and/or  (d) any other  relationship,  transaction  or
dealing between DFS and Dealer (collectively the "Disputes"), will be subject to
and resolved by binding  arbitration.  26.2 Administrative Body. All arbitration
hereunder will be conducted in accordance with the Commercial  Arbitration Rules
of The  American  Arbitration  Association  ("AAA").  If the  AAA is  dissolved,
disbanded or becomes  subject to any state or federal  bankruptcy  or insolvency
proceeding, the parties will remain subject to binding arbitration which will be
conducted by a mutually  agreeable  arbitral  forum.  The parties agree that all
arbitrator(s)  selected  will be attorneys  with at least five (5) years secured
transactions  experience.  The  arbitrator(s)  will decide if any  inconsistency
exists  between the rules of any applicable  arbitral forum and the  arbitration
provisions  contained  herein.  If such  inconsistency  exists,  the arbitration
provisions  contained  herein will control and supersede such rules. The site of
all  arbitration  proceedings  will be in the  Division of the Federal  Judicial
District  in which AAA  maintains  a regional  office that is closest to Dealer.
26.3  Discovery.  Discovery  permitted in any arbitration  proceeding  commenced
hereunder is limited as follows. No later than thirty (30) days after the filing
of a claim for  arbitration,  the  parties  will  exchange  detailed  statements
setting  forth the facts  supporting  the claim(s) and all defenses to be raised
during the arbitration,  and a list of all exhibits and witnesses. No later than
twenty-one (21) days prior to the arbitration hearing, the parties will exchange
a final list of all exhibits and all witnesses, including any designation of any
expert  witness(es)  together with a summary of their  testimony;  a copy of all
documents  and a detailed  description  of any property to be  introduced at the
hearing.  Under no circumstances will the use of  interrogatories,  requests for
admission, requests for the production of documents or the taking of depositions
be  permitted.   However,  in  the  event  of  the  designation  of  any  expert
witness(es),  the following will occur: (a) all information and documents relied
upon by the expert  witness(es) will be delivered to the opposing party, (b) the
opposing  party will be  permitted  to depose the  expert  witness(es),  (c) the
opposing party will be permitted to designate rebuttal expert  witness(es),  and
(d) the arbitration hearing will be continued to the earliest possible date that
enables the foregoing  limited  discovery to be accomplished.  26.4 Exemplary or
Punitive  Damages.  The  Arbitrator(s)  will  not have  the  authority  to award
exemplary or punitive damages.  26.5  Confidentiality of Awards. All arbitration
proceedings,   including  testimony  or  evidence  at  hearings,  will  be  kept
confidential, although any award or order rendered by the arbitrator(s) pursuant
to the terms of this  Agreement  may be entered  as a  judgment  or order in any
state or federal court and may be confirmed within the federal judicial district
which  includes the  residence of the party against whom such award or order was
entered.  This  Agreement  concerns  transactions  involving  commerce among the
several states. The Federal Arbitration Act, Title 9 U.S.C.  Sections 1 et seq.,
as amended ("FAA") will govern all arbitration(s)  and confirmation  proceedings
hereunder.  26.6  Prejudgment and Provisional  Remedies.  Nothing herein will be
construed  to  prevent  DFS'  or  Dealer's  use  of  bankruptcy,   receivership,
injunction, repossession, replevin, claim and delivery, sequestration,  seizure,
attachment,  foreclosure,  dation and/or any other  prejudgment  or  provisional
action or remedy  relating to any Collateral for any current or future debt owed
by either  party to the other.  Any such action or remedy will not waive DFS' or
Dealer's right to compel  arbitration of any Dispute.  26.7 Attorneys'  Fees. If
either Dealer or DFS brings any other action for judicial relief with respect to
any Dispute  (other than those set forth in Section  26.6),  the party  bringing
such  action  will be liable for and  immediately  pay all of the other  party's
costs and expenses (including  attorneys' fees) incurred to stay or dismiss such
action and remove or refer such Dispute to arbitration.  If either Dealer or DFS
brings or  appeals an action to vacate or modify an  arbitration  award and such
party does not prevail,  such party will pay all costs and  expenses,  including
attorneys'  fees,  incurred  by  the  other  party  in  defending  such  action.
Additionally,  if  Dealer  sues  DFS or  institutes  any  arbitration  claim  or
counterclaim  against DFS in which DFS is the prevailing party,  Dealer will pay
all costs and expenses (including attorneys' fees) incurred by DFS in the course
of  defending  such action or  proceeding.  26.8  Limitations.  Any  arbitration
proceeding  must  be  instituted:  (a)  with  respect  to any  Dispute  for  the
collection  of any debt owed by either party to the other,  within two (2) years
after the date the last payment was received by the instituting  party;  and (b)
with  respect  to any other  Dispute,  within  two (2) years  after the date the
incident giving rise thereto  occurred,  whether or not any damage was sustained
or capable of  ascertainment  or either party knew of such incident.  Failure to
institute  an  arbitration  proceeding  within such period  will  constitute  an
absolute  bar  and  waiver  to  the  institution  of  any  proceeding,   whether
arbitration or a court proceeding,  with respect to such Dispute.  26.9 Survival
After  Termination.  The agreement to arbitrate will survive the  termination of
this Agreement.

     27.  INVALIDITY/UNENFORCEABILITY  OF BINDING ARBITRATION. IF THIS AGREEMENT
IS FOUND TO BE NOT SUBJECT TO ARBITRATION,  ANY LEGAL PROCEEDING WITH RESPECT TO
ANY  DISPUTE  WILL BE  TRIED  IN A COURT OF  COMPETENT  JURISDICTION  BY A JUDGE
WITHOUT A JURY.  DEALER  AND DFS  WAIVE  ANY  RIGHT TO A JURY  TRIAL IN ANY SUCH
PROCEEDING.

     28.  Governing Law. Dealer  acknowledges and agrees that this and all other
agreements between Dealer and DFS have been substantially  negotiated,  and will
be substantially performed, in the state of Illinois. Accordingly, Dealer agrees
that all Disputes  will be governed by, and construed in  accordance  with,  the
laws of such state, except to the extent inconsistent with the provisions of the
FAA which shall control and govern all arbitration proceedings hereunder.

        IN WITNESS  WHEREOF,  Dealer and DFS have executed this  Agreement as of
the date first set forth hereinabove.

     THIS CONTRACT CONTAINS BINDING ARBITRATION, JURY WAIVER AND PUNITIVE DAMAGE
WAIVER PROVISIONS.



DEUTSCHE FINANCIAL SERVICES CORPORATION         ALLSTAR SYSTEMS, INC.


By:____________________________________    By:__________________________
Print Name:____________________________    Print Name:  James H. Long
Title:_________________________________    Title:  Chief Executive Officer


                                            ATTEST:

                                            --------------------------------
                                            Secretary
                                            Print Name:  Donald R. Chadwick


<PAGE>


                                       SECRETARY'S CERTIFICATE OF RESOLUTION

        I  certify  that  I am  the  Secretary  or  Assistant  Secretary  of the
corporation  named below, and that the following  completely and accurately sets
forth certain  resolutions of the Board of Directors of the corporation  adopted
at a special meeting thereof held on due notice (and with shareholder  approval,
if required by law), at which  meeting there was present a quorum  authorized to
transact the business  described  below, and that the proceedings of the meeting
were in accordance with the certificate of incorporation, charter and by-laws of
the corporation, and that they have not been revoked, annulled or amended in any
manner whatsoever.

        Upon  motion  duly  made and  seconded,  the  following  resolution  was
unanimously adopted after full discussion:

        "RESOLVED,  That the  several  officers,  directors,  and agents of this
corporation,  or any one or more of them, are hereby authorized and empowered on
behalf of this corporation: to obtain financing from Deutsche Financial Services
Corporation  ("DFS")  in such  amounts  and on  such  terms  as  such  officers,
directors or agents deem proper; to enter into financing,  security,  pledge and
other agreements with DFS relating to the terms upon which such financing may be
obtained  and security  and/or  other credit  support is to be furnished by this
corporation  therefor;  from  time to time  to  supplement  or  amend  any  such
agreements;  and from time to time to pledge, assign,  mortgage,  grant security
interests,  and  otherwise  transfer,  to DFS as  collateral  security  for  any
obligations of this corporation to DFS, whenever and however arising, any assets
of this  corporation,  whether  now owned or  hereafter  acquired;  the Board of
Directors  hereby  ratifying,  approving  and  confirming  all  that any of said
officers,  directors  or  agents  have  done  or  may  do  with  respect  to the
foregoing."

        IN  WITNESS  WHEREOF,  I have  executed  and  affixed  the  seal  of the
corporation on the date stated below.

Dated:_February 27_________________, 1998   ____________________________________
                                            Secretary

                                            ALLSTAR SYSTEMS, INC.
        (SEAL)



<PAGE>


2

                          BUSINESS FINANCING AGREEMENT


This Business Financing Agreement  ("Agreement") is made as of February 27, 1998
between Deutsche  Financial  Services  Corporation  ("DFS") and Allstar Systems,
Inc., a | | SOLE PROPRIETORSHIP, | | PARTNERSHIP, | X | CORPORATION, | | LIMITED
LIABILITY COMPANY (check  applicable term) ("Dealer"),  having a principal place
of business located at 6401 Southwest Freeway, Houston, Texas 77074.


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

1.      DEFINITIONS

        1.1    Special Definitions.  The following terms will have the following
               meanings in this Agreement, Agreement for Wholesale Financing and
               in the Other Agreements:

                         "Accounts":  all  accounts,  leases,  contract  rights,
                         chattel  paper,   choses  in  action  and  instruments,
                         including  any lien or  other  security  interest  that
                         secures or may secure  any of the  foregoing,  plus all
                         books,  invoices,  documents  and other  records in any
                         form  evidencing  or relating to any of the  foregoing,
                         now owned or hereafter acquired by Dealer.

                         "Accounts  Receivable  Facility":   a  credit  facility
                         extended pursuant to this Agreement.

                         "Agreement for Wholesale Financing":  any Agreement for
                         Wholesale  Financing,  as  amended  from  time to time,
                         which Dealer has executed in conjunction with inventory
                         financing extended by DFS.

                         "Average  Contract  Balance":  the amount determined by
                         dividing:  (a) the sum of the Daily  Contract  Balances
                         (as defined in Section 2.1.1) for a billing period; by,
                         (b) the actual number of days in such billing period.
                         "Default":  the events or occurrences enumerated in
                         Section 6.

                         "Entity":    any   individual,    association,    firm,
                         corporation,  partnership,  limited liability  company,
                         trust,  governmental  body,  agency or  instrumentality
                         whatsoever.

                         "Guarantor":  a guarantor of any of the Obligations.

                         "Inventory":   all  of  Dealer's  presently  owned  and
                         hereafter  acquired  goods  which  are held for sale or
                         lease.

                         "Obligations":  all liabilities and indebtedness now or
                         hereafter arising, owing, due or payable from Dealer to
                         DFS  (and  any of  its  subsidiaries  and  affiliates),
                         including  any  third  party  claims   against   Dealer
                         satisfied  or  acquired  by  DFS,  whether  primary  or
                         secondary, joint or several, direct, contingent,  fixed
                         or   otherwise,   and  whether  or  not   evidenced  by
                         instruments  or  evidences  of  indebtedness,  and  all
                         covenants,  agreements  (including  consent  to binding
                         arbitration),  warranties,  duties and representations,
                         whether such  Obligations  arise under this  Agreement,
                         the   Other   Agreements   or  any   other   agreements
                         previously,  now or  hereafter  executed  by Dealer and
                         delivered to DFS or by operation of law.

                         "Other Agreements":  all security agreements (including
                         the  Agreement  for  Wholesale  Financing),  mortgages,
                         leases, instruments,  documents, guarantees, schedules,
                         certificates,    contracts   and   similar   agreements
                         heretofore,  now or  hereafter  executed  by Dealer and
                         delivered to DFS or delivered by or on behalf of Dealer
                         to a third party and  assigned to DFS by  operation  of
                         law or otherwise.

                         "Prime  Rate":   the  rate  of  interest   which  Chase
                         Manhattan Bank publicly  announces from time to time as
                         its prime rate or reference  rate;  provided,  however,
                         that for purposes of this Agreement,  the interest rate
                         charged  to  Dealer  will at no time be  computed  on a
                         Prime Rate of less than seven  percent  (7%) per annum.
                         The Prime Rate will change and take effect for purposes
                         of this Agreement on the day that Chase  Manhattan Bank
                         announces  any  change in its Prime  Rate or  reference
                         rate.

2.      CREDIT FACILITY/INTEREST RATES/FEES

        2.1    Accounts  Receivable  Facility.  Subject  to the  terms  of  this
               Agreement, DFS agrees to provide to Dealer an Accounts Receivable
               Facility of TEN MILLION DOLLARS  ($10,000,000).  DFS' decision to
               advance  funds will not be binding  until the funds are  actually
               advanced.
               2.1.1     Interest.  Dealer  agrees to pay interest to DFS on the
                         Daily  Contract  Balance  at a rate  equal to the Prime
                         Rate minus one percent (1.0%) per annum.  Such interest
                         will: (i) be computed based on a 360 day year;  (ii) be
                         calculated  each day by multiplying  the Daily Rate (as
                         defined  below)  by  the  Daily  Contract  Balance  (as
                         defined below); and (iii) accrue from the date that DFS
                         makes any  Electronic  Transfer  (as defined in Section
                         3.10  herein) or otherwise  makes an advance  under the
                         Accounts  Receivable  Facility  until DFS  receives the
                         full and final  payment  of the  principal  debt  which
                         Dealer owes to DFS, subject to the terms of Section 3.8
                         herein.  The  "Daily  Rate"  is  the  quotient  of  the
                         applicable  annual rate provided herein divided by 360.
                         The  "Daily  Contract  Balance"  is the  amount  of the
                         outstanding  principal debt which Dealer owes to DFS on
                         the Accounts Receivable Facility at the end of each day
                         (including the amount of all Electronic Transfers made)
                         after  DFS  has  credited  the  payments  which  it has
                         received on the Accounts Receivable  Facility,  subject
                         to the terms of Section 3.8 herein.
               2.1.2     Maximum Interest.  Dealer acknowledges that DFS intends
                         to  strictly  conform  to  the  applicable  usury  laws
                         governing this  Agreement.  Regardless of any provision
                         contained  herein or in any other document  executed or
                         delivered in connection herewith or therewith,DFS shall
                         never be deemed to have contracted  for,  charged or be
                         entitled  to  receive,  collect or apply as interest on
                         this  Agreement  (whether  termed  interest  herein  or
                         deemed to be  interest  by  judicial  determination  or
                         operation  of law),  any amount in excess of the maximu
                         amount  allowed by  applicable  law,  and,  if DFS ever
                         receives,  collects  or  applies as  interest  any such
                         excess,  such amount which would be excessive  interest
                         will be applied  first to the  reduction  of the unpaid
                         principal  balances of advances  under this  Agreement,
                         and,  second,  any  remaining  excess  will  be paid to
                         Dealer. In determining whether or not the interest paid
                         or payable under any specific  contingency  exceeds the
                         highest  lawful  rate,  Dealer  and DFS  shall,  to the
                         maximum  extent  permitted  under  applicable  law: (a)
                         characterize  any  non-principal  payment  (other  than
                         payments  which are  expressly  designated  as interest
                         payments hereunder) as an expense or fee rather than as
                         interest;  (b) exclude  voluntary  pre-payments and the
                         effect  thereof;  and (c)  spread  the total  amount of
                         interest  throughout  the entire term of this Agreement
                         so that the interest  rate is uniform  throughout  such
                         term.
        2.2    Payments.  DFS will send  Dealer a monthly  billing  statement(s)
               identifying  all charges due on Dealer's  account  with DFS.  The
               interest and fee charges specified on each billing statement will
               be: (a) due and payable in full  immediately on receipt,  and (b)
               an account stated, unless DFS receives Dealer's written objection
               thereto within thirty (30) days after it is mailed to Dealer.  If
               DFS does not receive, by the 25th day of any given month, payment
               of all charges  accrued to Dealer's  account  with DFS during the
               immediately  preceding month,  Dealer will (to the extent allowed
               by law) pay DFS a late fee ("Late  Fee")  equal to the greater of
               $5 or 5% of the amount of such  finance  charges  (payment of the
               Late Fee does not waive the default  caused by the late payment).
               Dealer  will  also  pay DFS  $100  for  each of  Dealer's  checks
               returned  unpaid for  insufficient  funds (an "NSF check")  (such
               $100 payment repays DFS' estimated  administrative costs; it does
               not waive the default  caused by the NSF  check).  DFS may adjust
               the billing  statement at any time to conform to  applicable  law
               and  this   Agreement.   Upon  the   occurrence  and  during  the
               continuance  of a Default,  Dealer waives the right to direct the
               application of any payments  hereafter received by DFS on account
               of the Obligations.
        2.3    One Loan.  DFS may combine  all of DFS'  advances to Dealer or on
               Dealer's  behalf,  whether  under  this  Agreement  or any  Other
               Agreements,  and  whether  provided by one or more of DFS' branch
               offices,  together  with all finance  charges,  fees and expenses
               related thereto, to make one debt owed by Dealer.

3.      ACCOUNTS  RECEIVABLE  FACILITY - ADDITIONAL  PROVISIONS  3.1  Schedules.
               Dealer will, no less than monthly or upon the
               occurrence and during the continuance of a Default, weekly, or as
               otherwise  agreed to,  furnish  DFS with a schedule  of  Accounts
               ("Schedule")  which will:  (a) describe  all Accounts  created or
               acquired by Dealer  since the last  Schedule  furnished  DFS; (b)
               inform DFS of any  material  rejection  of goods by any  obligor,
               material delays in delivery of goods, material non-performance of
               contracts  and  of  any   assertion  of  any  claim,   offset  or
               counterclaim  by any obligor;  and (c) inform DFS of any material
               adverse  information  relating to the financial  condition of any
               obligor.
        3.2    Available  Credit.  On receipt of each Schedule,  DFS will credit
               Dealer  with  such  amount  as  DFS  may  deem  advisable  up  to
               eighty-five  percent  (85%)  of the net  amount  of the  eligible
               Accounts  listed  in such  Schedule.  DFS will loan  Dealer  such
               amounts so credited or a part thereof as requested  provided that
               at no time will such  outstanding  loans exceed Dealer's  maximum
               Accounts  Receivable  Facility from time to time  established  by
               DFS. No loans need be made by DFS if the Dealer is in Default.
        3.3    Ineligible  Accounts.  DFS will have the sole right to  determine
               eligibility of Accounts and,  without limiting DFS' discretion in
               that regard,  the following  Accounts will be deemed  ineligible:
               (a)  Accounts  created  from the sale of goods  and  services  on
               non-standard  terms and/or that allow for payment to be made more
               than thirty (30) days from the date of sale; (b) Accounts  unpaid
               more than ninety (90) days from date of invoice; (c) all Accounts
               of  any  obligor  with  fifty   percent  (50%)  or  more  of  the
               outstanding  balance  unpaid for more than  ninety (90) days from
               the date of  invoice;  (d)  Accounts  for which the obligor is an
               officer, director, shareholder, partner, member, owner, employee,
               agent, parent, subsidiary,  affiliate of, or is related to Dealer
               or has common shareholders, officers, directors, owners, partners
               or members;  (e)  consignment  sales;  (f) Accounts for which the
               payment  is or may be  conditional;  (g)  Accounts  for which the
               obligor is not a commercial or  institutional  entity or is not a
               resident  of the  United  States or  Canada;  (h)  Accounts  with
               respect  to which any  warranty  or  representation  provided  in
               Subsection  3.4 is not  true  and  correct;  (i)  Accounts  which
               represent goods or services  purchased for a personal,  family or
               household  purpose;  (j) Accounts which  represent goods used for
               demonstration  purposes or loaned by the Dealer to another party;
               (k)  Accounts  which  are  progress  payment,  barter,  or contra
               accounts;  and (l) any and all other  Accounts which DFS deems to
               be  ineligible,  provided  that DFS shall use its best efforts to
               give Dealer notice of any such determination of ineligibility but
               its  failure  so to do shall in no way limit or impair its rights
               hereunder.  If DFS  determines  that any Account is or becomes an
               ineligible  Account,  immediately  upon notice  thereof from DFS,
               Dealer  will  either  pay to DFS an  amount  equal to the  monies
               loaned by DFS for such  ineligible  Account or have its available
               credit   under   the   Accounts   Receivable   Facility   reduced
               accordingly, as DFS shall determine;  provided, further, however,
               if after any reduction of Dealer's  available credit there exists
               any remaining  Obligations  owing to DFS, Dealer will immediately
               pay, in cash to DFS, any such remaining balance.
        3.4    Warranties  and  Representations.  For each Account  which Dealer
               lists on any Schedule, Dealer warrants and represents to DFS that
               at all times:  (a) such  Account is genuine;  (b) such Account is
               not  evidenced  by a  judgment  or  promissory  note  or  similar
               instrument  or agreement;  (c) it  represents an undisputed  bona
               fide  transaction  completed in accordance  with the terms of the
               invoices and purchase orders relating thereto; (d) to the best of
               Dealer's  knowledge,  the goods sold or services  rendered  which
               resulted in the creation of such  Account have been  delivered or
               rendered to and  accepted by the  obligor,  except for certain of
               Dealer's  Accounts  which are  generated  from advance  billings,
               which will in no event in the aggregate  exceed at any time 2% of
               all of Dealer's Accounts; (e) the amounts shown on the Schedules,
               Dealer's  books  and  records  and all  invoices  and  statements
               delivered to DFS with respect thereto are owing to Dealer and are
               not contingent; (f) no payments have been or will be made thereon
               except payments made in accordance with the  requirements of this
               Agreement;  (g) there are no offsets,  counterclaims  or disputes
               existing or asserted with respect thereto and Dealer has not made
               any  agreement  with any obligor for any deduction or discount of
               the sum payable  thereunder  except regular  discounts allowed by
               Dealer in the ordinary course of its business for prompt payment;
               (h) to the  best of  Dealer's  knowledge,  there  are no facts or
               events  which in any way impair the  validity  or  enforceability
               thereof or reduce the amount payable  thereunder  from the amount
               shown  on the  Schedules,  Dealer's  books  and  records  and the
               invoices and  statements  delivered to DFS with respect  thereto;
               (i) to the best of  Dealer's  knowledge,  all  persons  acting on
               behalf  of  obligors  thereon  have  the  authority  to bind  the
               obligor;  (j) the goods sold or  transferred  giving rise thereto
               are not  subject  to any lien,  claim,  encumbrance  or  security
               interest  which is superior to that of DFS; and (k) other than as
               disclosed on Exhibit A, attached hereto and  incorporated  herein
               by this  reference,  there are no proceedings or actions known to
               Dealer  which are  threatened  or  pending  against  any  obligor
               thereon which might result in any material adverse change in such
               obligor's financial condition.
        3.5    Notes.  Loans  made  pursuant  to  this  Agreement  need  not  be
               evidenced by promissory notes unless otherwise required by DFS in
               DFS' sole discretion.
        3.6    Certain  Charges.  Dealer will: (a) reimburse DFS for all charges
               made by banks,  including  charges for  collection  of checks and
               other items of payment,  and (b) pay DFS' fees for  transfers  of
               funds to or from the Dealer. DFS may, from time to time, announce
               its fees for transfers of funds to or from the Dealer,  including
               the issuance of Electronic Transfers.
        3.7    Collections.  Unless  otherwise  directed  by  DFS,  to  expedite
               collection  of  Accounts  for the  benefit of DFS,  Dealer  shall
               notify all of its obligors to make payment of the Accounts to one
               or more lock-boxes  under the control of DFS, except as permitted
               under the terms of the Contingent  Blocked Account Amendment to a
               Lockbox Agreement, the Lockbox Agreement, and the other documents
               pursuant to which such lockboxes and  corresponding  accounts are
               established    (as    amended,    collectively    the    "Lockbox
               Documentation").  The  lock-box,  and all accounts into which the
               proceeds  of  any  such  lock-box(es)  are  deposited,  shall  be
               established at banks selected by the Dealer and  satisfactory  to
               DFS in its sole discretion.  Dealer shall issue to any such banks
               an   irrevocable   letter  of   instruction   under  the  Lockbox
               Documentation, in form and substance acceptable to DFS, directing
               such banks to deposit all payments or other remittances  received
               in the lock-box to such account or accounts as DFS shall  direct.
               All  funds   deposited  in  the  lock-box  or  any  such  account
               immediately  shall become the property of DFS, and subject to the
               terms  of  the  agreements  establishing  such  lock-box(es)  and
               account(s),  any disbursements of the proceeds in the lock-box or
               any such  account  will only be made to DFS  except as  permitted
               under  the  Lockbox   Documentation.   Dealer  shall  obtain  the
               agreement  of such banks to waive any offset  rights  against the
               funds  so  deposited.  DFS  assumes  no  responsibility  for such
               lock-box arrangement, including, without limitation, any claim of
               accord and satisfaction or release with respect to deposits which
               any  banks  accept  thereunder.   All  remittances  which  Dealer
               receives in payment of any  Accounts,  and the proceeds of any of
               the other Collateral,  shall be: (i) kept separate and apart from
               Dealer's own funds so that they are capable of  identification as
               DFS' property; (ii) held by Dealer as trustee of an express trust
               for DFS'  benefit;  and (iii) shall be  immediately  deposited in
               such  accounts  designated  by  DFS.  All  proceeds  received  or
               collected by DFS with respect to Accounts, and reserves and other
               property  of  Dealer  in  possession  of DFS at any time or times
               hereafter,  may be held by DFS without  interest to Dealer  until
               all  Obligations are paid in full or applied by DFS on account of
               the Obligations.  DFS may release to Dealer such portions of such
               reserves and proceeds as DFS may  determine.  Upon the occurrence
               and  during  the  continuance  of a  Default,  DFS may notify the
               obligors that the Accounts have been assigned to DFS, collect the
               Accounts directly in its own name and charge the collection costs
               and expenses,  including  attorneys' fees, to Dealer.  DFS has no
               duty to protect,  insure, collect or realize upon the Accounts to
               preserve rights in them.
        3.8    Collection  Days.  All payments  and all amounts  received on any
               Account will be credited by DFS to Dealer's  account  (subject to
               final  collection  thereof) (i) on the business day of receipt if
               in the form of immediately available Electronic Transfer, or (ii)
               after  allowing one (1) business day for  collection of checks or
               other instruments or other forms of payment.
        3.9    Power  of  Attorney.  Dealer  irrevocably  appoints  DFS (and any
               person  designated  by it) as Dealer's  true and lawful  Attorney
               with full power to at any time, in the discretion of DFS (whether
               or not Default has  occurred)  to: (a) endorse the name of Dealer
               upon any of the items of payment or proceeds and deposit the same
               in the account of DFS for  application  to the  Obligations;  (b)
               sign the name of Dealer to verify the  accuracy of the  Accounts;
               and (c) sign the name of Dealer  on any  document  or  instrument
               that DFS shall deem  necessary  or  appropriate  to  perfect  and
               maintain perfected the security interests in the Collateral under
               this  Agreement  and the  Other  Agreements.  In the  event  of a
               Default and after the  expiration of any  applicable  cure period
               hereunder,  Dealer  irrevocably  appoints  DFS  (and  any  person
               designated by it) as Dealer's true and lawful  Attorney with full
               power to at any time,  in the  discretion  of DFS to:  (i) demand
               payment,  enforce payment and otherwise  exercise all of Dealer's
               rights,  and  remedies  with  respect  to the  collection  of any
               Accounts;  (ii) settle, adjust,  compromise,  extend or renew any
               Accounts;   (iii)  settle,   adjust  or   compromise   any  legal
               proceedings brought to collect any Accounts;  (iv) sell or assign
               any Accounts  upon such terms,  for such amounts and at such time
               or times as DFS may deem advisable; (v) discharge and release any
               Accounts;  (vi) prepare, file and sign Dealer's name on any Proof
               of Claim in Bankruptcy or similar  document  against any obligor;
               (vii)  endorse  the  name  of  Dealer  upon  any  chattel  paper,
               document,  instrument,  invoice,  freight bill, bill of lading or
               similar  document or  agreement  relating to any Account or goods
               pertaining thereto; (viii) take control in any manner of any item
               of payments or proceeds and for such purpose to notify the Postal
               Authorities  to change the address for delivery of mail addressed
               to Dealer to such address as DFS may designate; and (ix) initiate
               and settle any insurance  claim and endorse  Dealer's name on any
               check, instrument or other item of payment. The power of attorney
               is for value and coupled with an interest and is  irrevocable  so
               long as any Obligations  remain outstanding and by DFS exercising
               such right,  DFS shall not waive any right  against  Dealer until
               the Obligations are paid in full.
        3.10   Continuing Requirements.  Advances hereunder will be made by DFS,
               at Dealer's  direction,  by paper check,  electronic  transfer by
               Automated  Clearing House ("ACH"),  Fed Wire Funds Transfer ("Fed
               Wire") or such other  electronic  means as DFS may announce  from
               time to time (ACH,  Fed Wire and such other  electronic  transfer
               are  collectively  referred  to as  "Electronic  Transfers").  If
               Dealer does not request  advances be made in a specific method of
               transfer,  DFS may  determine  from  time  to  time  in its  sole
               discretion  what method of transfer to use.  Dealer will:  (a) if
               from time to time required by DFS upon the  occurrence and during
               the  continuance of a Default,  immediately  upon their creation,
               deliver to DFS copies of all  invoices,  delivery  evidences  and
               other such documents relating to each Account;  (b) not permit or
               agree to any  extension,  compromise  or  settlement  or make any
               change to any Account, except for those in the ordinary course of
               business  which do not  result in a  material  adverse  change in
               Dealer's  financial  or business  condition or which might in any
               way materially and adversely affect any of Dealer's  assets;  (c)
               affix appropriate endorsements or assignments upon all such items
               of  payment  and  proceeds  so  that  the  same  may be  properly
               deposited  by DFS  pursuant  to the  Lockbox  Documentation;  (d)
               immediately  notify DFS in writing  which  Accounts may be deemed
               ineligible  as defined in  Subsection  3.3;  (e) mark all chattel
               paper and  instruments  now owned or hereafter  acquired by it to
               show that the same are  subject  to DFS'  security  interest  and
               immediately thereafter deliver such chattel paper and instruments
               to DFS with appropriate  endorsements and assignments to DFS; (f)
               within fifteen (15) days after the end of each month, provide DFS
               with a detailed  aging of its Accounts for each month,  together,
               if  requested  by  DFS,  with  the  names  and  addresses  of all
               obligors.
        3.11   Release. Dealer releases DFS from all claims and causes of action
               which Dealer may now or hereafter  have for any loss or damage to
               it claimed to be caused by or arising  from:  (a) any  failure of
               DFS to  protect,  enforce or  collect,  in whole or in part,  any
               Account;  (b) DFS'  notification to any obligors  thereon of DFS'
               security interest in any of the Accounts;  (c) DFS' directing any
               obligor to pay any sum owing to Dealer  directly to DFS;  and (d)
               any  other  act  or  omission  to act on the  part  of  DFS,  its
               officers,  agents or employees,  except for willful misconduct or
               gross negligence.  DFS will have no obligation to preserve rights
               to Accounts  against prior  parties.  Dealer waives all rights of
               offset and counterclaims Dealer may have against DFS.
        3.12   Review.  Dealer  grants  DFS  an  irrevocable  license  to  enter
               Dealer's business  locations during normal business hours without
               notice to Dealer to: (a) account for and inspect all  Collateral;
               (b)  verify  Dealer's  compliance  with this  Agreement;  and (c)
               review,  examine,  and make  copies of Dealer's  books,  records,
               files and  business  procedures  and  practices.  Dealer  further
               agrees  to  pay  DFS  a  review  fee  of  One  Thousand   DOLLARS
               ($1,000.00) for any such review,  inspection or examination  made
               by DFS. DFS agrees that provided  Dealer is not in Default,  such
               reviews  shall not  exceed  three  (3) in number in any  calendar
               year. DFS may,  without notice to Dealer and at any time or times
               hereafter,  verify  the  validity,  amount  or any  other  matter
               relating to any Account by mail,  telephone,  or other means,  in
               the name of Dealer or DFS.

4.      SECURITY - COLLATERAL
        4.1    Grant of Security Interest.  To secure payment of all of Dealer's
               current and future Obligations and to secure Dealer's performance
               of all of the  provisions  under  this  Agreement  and the  Other
               Agreements,  Dealer  grants  DFS a  security  interest  in all of
               Dealer's  inventory,   equipment,  fixtures,  accounts,  contract
               rights, chattel paper, security agreements,  instruments, deposit
               accounts,  reserves,  documents, and general intangibles; and all
               judgments,  claims, insurance policies, and payments owed or made
               to Dealer thereon;  all whether now owned or hereafter  acquired,
               all attachments, accessories, accessions, returns, repossessions,
               exchanges,   substitutions  and  replacements  thereto,  and  all
               proceeds  thereof.  All such assets are collectively  referred to
               herein as the  "Collateral." All of such terms for which meanings
               are  provided in the Uniform  Commercial  Code of the  applicable
               state are used herein with such meanings.  Dealer  covenants with
               DFS that DFS may realize  upon all or part of any  Collateral  in
               any order it desires  and any  realization  by any means upon any
               Collateral  will not bar realization  upon any other  collateral.
               Dealer's   liability   under   this   Agreement   is  direct  and
               unconditional  and  will  not  be  affected  by  the  release  or
               nonperfection  of any security  interest granted  hereunder.  All
               Collateral  financed by DFS,  and all proceeds  thereof,  will be
               held in trust by Dealer for DFS, with such proceeds being payable
               in accordance with this Agreement.

5.      WARRANTIES AND REPRESENTATIONS
        5.1    Affirmative  Warranties and Representations.  Except as otherwise
               specifically  provided in the Other  Agreements,  Dealer warrants
               and  represents  to DFS that:  (a)  Dealer  has good title to all
               Collateral;  (b) DFS'  security  interest in the Accounts will at
               all times constitute a perfected, first security interest in such
               Accounts  and  will  not  become   subordinate  to  the  security
               interest,  lien,  encumbrance or claim of any Entity;  (c) Dealer
               will execute all  documents  DFS requests to perfect and maintain
               DFS' security  interest in the Collateral and to fully consummate
               the transactions  contemplated under this Agreement and the Other
               Agreements;  (d)  Dealer  will at all  times  be duly  organized,
               existing, in good standing, qualified and licensed to do business
               in each  state,  county,  or  parish,  in which the nature of its
               business or property so requires; (e) Dealer has the right and is
               duly  authorized  to enter  into  this  Agreement;  (f)  Dealer's
               execution of this  Agreement  does not constitute a breach of any
               agreement to which Dealer is now or hereafter  becomes bound; (g)
               except  as  disclosed  on  Exhibit  A,  there are no  actions  or
               proceedings  pending or  threatened  against  Dealer  which might
               result in any material  adverse  change in Dealer's  financial or
               business condition or which might in any way adversely affect any
               of Dealer's  assets;  (h) Dealer will maintain the  Collateral in
               good  condition  and  repair;  (i) Dealer has duly filed and will
               duly file all tax returns  required  by law;  (j) Dealer has paid
               and  will  pay  when  due  all  taxes,  levies,  assessments  and
               governmental  charges of any nature;  (k) Dealer will  maintain a
               system  of  accounting  in  accordance  with  generally  accepted
               accounting  principles  and account  records  which  contain such
               information  in a format as may be  requested  by DFS; (l) Dealer
               will keep and maintain all of its books and records pertaining to
               the Accounts at its  principal  place of business  designated  in
               this  Agreement;  (m) Dealer will  promptly  supply DFS with such
               information  concerning  it or any Guarantor as DFS hereafter may
               reasonably  request;  (n) Dealer  will give DFS thirty  (30) days
               prior written  notice of any change in Dealer's  identity,  name,
               form of business organization,  ownership,  management, principal
               place  of  business,   Collateral  locations  or  other  business
               locations;  and before  moving any books and records to any other
               location;  (o)  Dealer  will  observe  and  perform  all  matters
               required by any lease,  license,  concession or franchise forming
               part of the Collateral in order to maintain all the rights of DFS
               thereunder;  (p) Dealer  will advise DFS of the  commencement  of
               material legal proceedings  against Dealer or any Guarantor;  (q)
               Dealer will comply with all applicable  laws and will conduct its
               business in a manner which  preserves and protects the Collateral
               and the  earnings and incomes  thereof;  and (r) Dealer will keep
               the Collateral insured for its full insurable value under an "all
               risk" property insurance policy with a company acceptable to DFS,
               naming  DFS  as  a  lender  loss-payee  and  containing  standard
               lender's  loss payable and  termination  provisions.  Dealer will
               provide  DFS with  written  evidence of such  property  insurance
               coverage and lender's loss-payee endorsement.
        5.2    Negative  Covenants.  Dealer will not at any time  (without  DFS'
               prior written consent):  (a) grant to or in favor of any Entity a
               security  interest  in or  permit  to  exist  a  lien,  claim  or
               encumbrance  in the Accounts which is superior to the interest of
               DFS; (b) other than in the ordinary course of its business, sell,
               lease or otherwise dispose of or transfer any of its assets;  (c)
               merge or  consolidate  with  another  Entity;  (d) subject to the
               provisions  of  Section  5.2.1  below,   acquire  the  assets  or
               ownership  interest  of any  other  Entity;  (e)  subject  to the
               provisions of Section 5.2.1 below, enter into any transaction not
               in the ordinary course of business; (f) guarantee or indemnify or
               otherwise   become  in  any  way  liable  with   respect  to  the
               obligations  of any Entity  (other than of Dealer's  wholly-owned
               subsidiaries, but only to the extent the aggregate amount of such
               obligations does not exceed  $500,000),  except by endorsement of
               instruments  or items  of  payment  for  deposit  to the  general
               account of Dealer or which are  transmitted or turned over to DFS
               on account of the Obligations;  (g) redeem,  retire,  purchase or
               otherwise  acquire,  directly  or  indirectly,  any  of  Dealer's
               capital stock except in connection  with Dealer's  employee stock
               purchase plan  approved by Dealer's  Board of Directors in effect
               as of the date  hereof to the extent the  amount so  redeemed  or
               otherwise acquired does not exceed $1,500,000 in the aggregate at
               any time;  (h) subject to the  provisions of Section 5.2.1 below,
               make any change in Dealer's  capital  structure  or in any of its
               business   objectives  or  operations  which  might  in  any  way
               adversely  affect the ability of Dealer to repay the Obligations;
               (i) make any  distribution of Dealer's assets not in the ordinary
               course of  business;  (j)  subject to the  provisions  of Section
               5.2.1 below,  incur any debts  outside of the ordinary  course of
               business  except  renewals or  extensions  of existing  debts and
               interest thereon; and (k) make any loans, advances, contributions
               or payments of money or in goods to any  affiliated  entity or to
               any officer, director,  stockholder,  member or partner of Dealer
               or of any such  entity  (except  for  compensation  for  personal
               services actually rendered) other than those described on Exhibit
               B,  attached  hereto,  on which loans  Dealer  shall not make any
               additional  advances and which  Dealer  shall not amend,  modify,
               restate or replace without the prior written consent of DFS.
                         5.2.1 The provisions of Subsections  5.2 (d), (e), (h),
               and (j) above  notwithstanding,  Dealer shall only be required to
               obtain DFS' prior written  consent for any such action  described
               therein  on and after  such time as the  aggregate  amount of all
               such transactions described in such Subsections equals $500,000.
        5.3    Financial  Statements.  Dealer  will  deliver to DFS:  (a) within
               one-hundred  twenty  (120) days after the end of each of Dealer's
               fiscal years, a reasonably  detailed balance sheet as of the last
               day  of  such  fiscal  year  and  a  reasonably  detailed  income
               statement covering Dealer's operations for such fiscal year, in a
               form  satisfactory to DFS; (b) within  forty-five (45) days after
               the  end of  each  of  Dealer's  fiscal  quarters,  a  reasonably
               detailed  balance sheet as of the last day of such quarter and an
               income statement covering Dealer's operations for such quarter in
               a form  satisfactory  to DFS;  (c)  within  ten (10)  days  after
               request therefor by DFS, any other report reasonably requested by
               DFS  relating to the  Collateral  or the  financial  condition of
               Dealer.  Dealer warrants and represents to DFS that all financial
               statements  and  information  relating to Dealer or any Guarantor
               which have been or may  hereafter  be  delivered by Dealer or any
               Guarantor  to DFS are true and  correct and have been and will be
               prepared  in  accordance  with  generally   accepted   accounting
               principles   consistently  applied  and,  with  respect  to  such
               previously delivered statements or information, there has been no
               material adverse change in the financial or business condition of
               Dealer or any Guarantor since the submission to DFS, either as of
               the date of  delivery,  or,  if  different,  the  date  specified
               therein, and Dealer acknowledges DFS' reliance thereon.

6.      DEFAULT

        6.1 Definition. Dealer will be in default under this Agreement if:

               (I) Any of the  following  occur and shall  continue for ten (10)
               days after the sooner to occur of  Dealer's  receipt of notice of
               such  breach  from DFS or the date on which such  breach  becomes
               known to any  officer  or other  representative  of  Dealer:  (a)
               Dealer   breaches  any  terms,   warranties  or   representations
               contained herein or in any Other Agreements; (b) any Guarantor of
               Dealer's   debts  to  DFS  breaches  any  terms,   warranties  or
               representations  contained in any  guaranty or Other  Agreements;
               (c) any representation, statement, report, or certificate made or
               delivered by Dealer or any  Guarantor to DFS is not accurate when
               made;  (d)  [INTENTIONALLY  OMITTED];  (e)  Dealer  abandons  any
               material amount of Collateral;  (f) Dealer or any Guarantor is or
               becomes in  default in the  payment of any debt owed to any third
               party;  (g)  a  money  judgment  issues  against  Dealer  or  any
               Guarantor;  (h) an  attachment,  sale  or  seizure  issues  or is
               executed  against any assets of Dealer or of any  Guarantor;  (i)
               [INTENTIONALLY  OMITTED]; (k) Dealer or any Guarantor shall cease
               existence  as  a  corporation,   partnership,  limited  liability
               company or trust,  as  applicable;  (l)  Dealer or any  Guarantor
               ceases or suspends  business;  (m) Dealer,  any  Guarantor or any
               member while Dealer's business is operated as a limited liability
               company,  as  applicable,  makes  a  general  assignment  for the
               benefit of  creditors;  (n) Dealer,  any  Guarantor or any member
               while  Dealer's  business  is  operated  as a  limited  liability
               company,  as  applicable,  becomes  insolvent or  voluntarily  or
               involuntarily becomes subject to the Federal Bankruptcy Code, any
               state  insolvency  law or any similar  law;  (o) any  receiver is
               appointed  for any assets of Dealer,  any Guarantor or any member
               while  Dealer's  business  is  operated  as a  limited  liability
               company, as applicable;  (p) any guaranty of Dealer's debt to DFS
               is  terminated;  (q)  Dealer  loses  any  franchise,  permission,
               license  or right  to sell or deal in any  Collateral  which  DFS
               finances;  (r) Dealer or any Guarantor  misrepresents Dealer's or
               such Guarantor's financial condition or organizational structure;
               or

               (II)  Dealer  fails  to pay any of the  Obligations  when due and
               payable and such  failure is not cured within five (5) days after
               the  applicable  due date;  provided,  however,  that  during any
               period of 180 consecutive  days commencing at any time hereafter,
               Dealer  shall be entitled to no more than two (2) such 5-day cure
               periods,  and as to any such  payment  failures in excess of such
               limitation, no such cure period shall be available to Dealer.

        6.2 Rights of DFS. In the event of a Default:
               (a)       DFS may at any time at DFS' election, without notice or
                         demand to Dealer,  do any one or more of the following:
                         declare all or any of the  Obligations  immediately due
                         and  payable,  together  with all costs and expenses of
                         DFS'   collection    activity,    including,    without
                         limitation,  all reasonable  attorneys' fees;  exercise
                         any or all  rights  under  applicable  law  (including,
                         without limitation,  the right to possess, transfer and
                         dispose of the Collateral);  and/or cease extending any
                         additional  credit  to  Dealer  (DFS'  right  to  cease
                         extending  credit  shall not be  construed to limit the
                         discretionary  nature  of this  credit  facility).  (b)
                         Dealer will  segregate and keep the Collateral in trust
                         for DFS,  and in good  order and  repair,  and will not
                         sell, rent, lease, consign, otherwise dispose of or use
                         any  Collateral,  nor further  encumber any Collateral.
                         (c) Upon  DFS'  oral or  written  demand,  Dealer  will
                         immediately  deliver  the  Collateral  to DFS,  in good
                         order and repair, at a place specified by DFS, together
                         with all  related  documents;  or DFS may, in DFS' sole
                         discretion and without notice or demand to Dealer, take
                         immediate  possession of the  Collateral  together with
                         all related  documents.  (d) DFS may,  without  notice,
                         apply a default finance charge to Dealer's  outstanding
                         principal   indebtedness  equal  to  the  default  rate
                         specified  in Dealer's  financing  program with DFS, if
                         any, or if there is none so specified, at the lesser of
                         3% per annum above the rate in effect immediately prior
                         to the Default,  or the highest lawful contract rate of
                         interest permitted under applicable law.
               (e)       DFS may,  without  notice to Dealer  and at any time or
                         times enforce payment and collect, by legal proceedings
                         or  otherwise,  Accounts  in the name of Dealer or DFS;
                         and  take  control  of any  cash or  non-cash  items of
                         payment or proceeds of  Accounts  and of any  rejected,
                         returned,  repossessed  or  stopped  in  transit  goods
                         relating to Accounts.  DFS may at its sole election and
                         without demand enter,  with or without  process of law,
                         any premises  where  Collateral  might be and,  without
                         charge or  liability  to DFS therefor do one or more of
                         the  following:  (i) take  possession of the Collateral
                         and use or store it in said  premises  or  remove it to
                         such other place or places as DFS may deem  convenient;
                         (ii) take  possession  of all or part of such  premises
                         and  the  Collateral  and  place  a  custodian  in  the
                         exclusive   control   thereof   until   completion   of
                         enforcement of DFS' security interest in the Collateral
                         or until DFS'  removal  of the  Collateral  and,  (iii)
                         remain on such premises and use the same, together with
                         Dealer's materials,  supplies,  books and records,  for
                         the  purpose  of  performing  all  acts  necessary  and
                         incidental  to the  collection or  liquidation  of such
                         Collateral.   All  of  DFS'  rights  and  remedies  are
                         cumulative. DFS' failure to exercise any of DFS' rights
                         or remedies hereunder will not waive any of DFS' rights
                         or remedies as to any past, current or future Default.
        6.3    Sale of Collateral.  Dealer agrees that if DFS conducts a private
               sale of any Collateral by requesting bids from 10 or more dealers
               or  distributors  in that type of Collateral,  any sale by DFS of
               such  Collateral  in bulk or in  parcels  within 120 days of: (a)
               DFS' taking  possession  and control of such  Collateral;  or (b)
               when  DFS  is  otherwise  authorized  to  sell  such  Collateral;
               whichever occurs last, to the bidder  submitting the highest cash
               bid  therefor,   is  a  commercially   reasonable  sale  of  such
               Collateral under the Uniform  Commercial Code. Dealer agrees that
               the purchase of any  Collateral  by a vendor,  as provided in any
               agreement   between  DFS  and  the  vendor,   is  a  commercially
               reasonable  disposition and private sale of such Collateral under
               the  Uniform  Commercial  Code,  and no request for bids shall be
               required. Dealer further agrees that 7 or more days prior written
               notice will be  commercially  reasonable  notice of any public or
               private sale (including any sale to a vendor). Dealer irrevocably
               waives any requirement that DFS retain possession and not dispose
               of any Collateral until after an arbitration hearing, arbitration
               award, confirmation,  trial or final judgment. If DFS disposes of
               any  such  Collateral  other  than as  herein  contemplated,  the
               commercial  reasonableness of such disposition will be determined
               in  accordance   with  the  laws  of  the  state  governing  this
               Agreement.

7.      MISCELLANEOUS
        7.1    Termination.  This  Agreement  will  continue  in full  force and
               effect and be  non-cancellable  by Dealer  (except that it may be
               terminated by DFS upon thirty (30) days written  notice to Dealer
               or in the  exercise of its rights and  remedies  upon  Default by
               Dealer) for a period of three (3) years from the first day of the
               first month  following the date hereof and for successive one (1)
               year  periods  thereafter,  subject to  termination  as to future
               transactions  at the end of any such  period  on at least  ninety
               (90) days prior  written  notice by Dealer to DFS. If such notice
               of  termination  is given by Dealer to DFS,  such  notice will be
               ineffective  unless  Dealer  pays  to DFS all  Obligations  on or
               before the termination date. Any termination of this Agreement by
               Dealer or DFS will have the effect of  accelerating  the maturity
               of all  Obligations  not then otherwise  due.  7.1.1  Termination
               Privilege.  Despite  anything  to the  contrary in Section 7.1 of
               this Agreement, this Agreement may be terminated by Dealer at any
               time upon  ninety (90) days prior  written  notice and payment to
               DFS  of  the  following  sum  (in  addition  to  payment  of  all
               Obligations,  whether  or not by their  terms then due) which sum
               represents liquidated damages for the loss of the bargain and not
               as a penalty,  and the same is hereby acknowledged by Dealer: the
               product of (a) One Thousand  Dollars  ($1,000)  multiplied by (b)
               the number of months  remaining in the original or renewal  term;
               provided, however, that if Dealer is not in Default, Dealer shall
               not be obligated to DFS for such fee if the termination occurs in
               connection  with DFS'  decision to  increase  the  interest  rate
               chargeable  under  Section  2.1.1  hereof  or  DFS'  decision  to
               substantially  restrict the criteria for eligibility of Accounts.
               This  sum  will  also be  paid  by  Dealer  if the  Agreement  is
               terminated on account of Dealer's Default.
               7.1.2     Effect of Termination. Dealer will not be relieved from
                         any  Obligations to DFS arising out of DFS' advances or
                         commitments made before the effective  termination date
                         of this  Agreement.  DFS will retain all of its rights,
                         interests and remedies  hereunder until Dealer has paid
                         all of  Dealer's  Obligations  to DFS.  All waivers set
                         forth   within   this   Agreement   will   survive  any
                         termination of this Agreement.
        7.2    Collection.  Checks  and other  instruments  delivered  to DFS on
               account of the Obligations  will constitute  conditional  payment
               until such items are actually paid to DFS.
        7.3    Demand, Etc. Dealer irrevocably waives notice of: DFS' acceptance
               of this  Agreement,  presentment,  demand,  protest,  nonpayment,
               nonperformance,  and dishonor.  Dealer and DFS irrevocably  waive
               all rights to claim any punitive and/or exemplary damages. Dealer
               waives all notices of default and  non-payment at maturity of any
               or all of the Accounts.
        7.4    Reimbursement.  Dealer will assume and  reimburse DFS upon demand
               for  all  expenses   incurred  by  DFS  in  connection  with  the
               preparation of this Agreement and the Other Agreements (including
               fees and costs of outside  counsel) and all filing and  recording
               fees and taxes payable in connection with the filing or recording
               of all documents  under this Agreement and the Other  Agreements;
               provided,  however,  that such  reimbursement by Dealer hereunder
               will not exceed the sum of ONE THOUSAND DOLLARS ($1,000.00).
        7.5    Additional  Obligations.  DFS,  without  waiving or releasing any
               Obligation or Default,  may perform any  Obligations  that Dealer
               fails or refuses to  perform.  DFS shall use its best  efforts to
               give Dealer  notice of any such  actions but its failure so to do
               shall in no way limit or impair  its rights  hereunder.  All sums
               paid  by DFS  on  account  of the  foregoing  and  any  expenses,
               including  reasonable  attorneys'  fees,  will  be a part  of the
               Obligations, payable on demand and secured by the Collateral.
        7.6    NO ORAL AGREEMENTS. ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY,
               EXTEND  CREDIT OR TO FORBEAR FROM  ENFORCING  REPAYMENT OF A DEBT
               INCLUDING  PROMISES  TO  EXTEND  OR  RENEW  SUCH  DEBTS  ARE  NOT
               ENFORCEABLE.  TO PROTECT DEALER AND DFS FROM  MISUNDERSTANDING OR
               DISAPPOINTMENT,   ALL   AGREEMENTS   COVERING  SUCH  MATTERS  ARE
               CONTAINED IN THIS WRITING AND THE OTHER AGREEMENTS,  WHICH IS THE
               COMPLETE AND  EXCLUSIVE  STATEMENT OF THE  AGREEMENT  BETWEEN THE
               PARTIES, EXCEPT AS SPECIFICALLY PROVIDED HEREIN OR AS THE PARTIES
               MAY LATER AGREE IN WRITING TO MODIFY IT.  THERE ARE NO  UNWRITTEN
               AGREEMENTS  BETWEEN  THE  PARTIES.  DFS may,  from  time to time,
               announce  in  writing  to  Dealer  (which  announcement  shall be
               delivered in accordance with the notice provisions  hereof),  its
               policies and  procedures  regarding  its  administration  of this
               facility,  including,  without  limitation,  DFS'  fees  for  the
               transfer  of  funds  to  or  from  Dealer,  including  Electronic
               Transfers; any subsequent use by Dealer of this facility ten (10)
               days following any such  announcement  shall constitute  Dealer's
               acceptance  of such  revised  policies and  procedures  beginning
               after  the  expiration  of  such  10-day  period.  Time is of the
               essence regarding Dealer's  performance of its obligations to DFS
               notwithstanding  any  course of dealing or custom on DFS' part to
               grant extensions of time. DFS will have the right to refrain from
               or postpone enforcement of this Agreement or any Other Agreements
               between  DFS and  Dealer  without  prejudice  and the  failure to
               strictly enforce these agreements will not be construed as having
               created a course of dealing  between  DFS and Dealer  contrary to
               the  specific  terms of the  agreements  or as  having  modified,
               released or waived the same.  The express terms of this Agreement
               will not be modified by any course of dealing, usage of trade, or
               custom of trade which may deviate from the terms hereof.
        7.7    Severability.  If any  provision  of this  Agreement or the Other
               Agreements  or  the  application   thereof  is  held  invalid  or
               unenforceable,  the  remainder  of this  Agreement  and the Other
               Agreements  will not be  impaired  or  affected  and will  remain
               binding and enforceable.
        7.8    Supplement.  If Dealer  and DFS have  heretofore  executed  Other
               Agreements in connection  with all or any part of the Collateral,
               this Agreement  shall  supplement  each and every Other Agreement
               previously  executed by and between  Dealer and DFS,  and in that
               event this  Agreement  shall  neither be deemed a novation  nor a
               termination of any such  previously  executed Other Agreement nor
               shall execution of this Agreement be deemed a satisfaction of any
               obligation  secured by such previously  executed Other Agreement.
               In the event of any conflict  between the terms of this Agreement
               and any previously  executed Business Financing Agreement between
               DFS and Dealer, the terms of this Agreement shall control.
        7.9    Section Titles. The Section titles used in this Agreement are for
               convenience  only and do not define or limit the  contents of any
               Section.
        7.10   Binding  Effect.  Dealer  cannot  assign  its  interest  in  this
               Agreement  or any Other  Agreements  without  DFS' prior  written
               consent, although DFS may assign or participate DFS' interest, in
               whole or in part,  without Dealer's  consent.  This Agreement and
               the Other  Agreements  will  protect  and bind DFS' and  Dealer's
               respective heirs, representatives, successors and assigns.
        7.11   Notices.   Except  as  otherwise  stated  herein,   all  notices,
               arbitration  claims,  responses,  requests and documents  will be
               sufficiently  given or  served if  mailed  or  delivered:  (a) to
               Dealer at Dealer's  principal place of business  specified above,
               Attn: Chief Executive Officer or Chief Financial Officer; and (b)
               to  DFS  at 655  Maryville  Centre  Drive,  St.  Louis,  Missouri
               63141-5832,  Attention: General Counsel, or such other address as
               the parties may hereafter specify in writing.
        7.12   Receipt of Agreement.  Dealer acknowledges that it has received a
               true and complete  copy of this  Agreement.  Dealer  acknowledges
               that it has read and understood this  Agreement.  Notwithstanding
               anything  herein  to  the  contrary:  (a)  DFS  may  rely  on any
               facsimile copy,  electronic data  transmission or electronic data
               storage of any Schedule, statement, financial statements or other
               reports,   and  (b)  such   facsimile   copy,   electronic   data
               transmission  or  electronic  data  storage  will  be  deemed  an
               original,  and  the  best  evidence  thereof  for  all  purposes,
               including,  without limitation, under this Agreement or any Other
               Agreements,   and  for  all   evidentiary   purposes  before  any
               arbitrator, court or other adjudicatory authority.
        7.13   Information.  DFS may  provide  to any  third  party  any  credit
               information on Dealer that DFS may from time to time possess. DFS
               may obtain from any third party any  credit,  financial  or other
               information  regarding Dealer that such third party may from time
               to time possess.

8.      BINDING ARBITRATION
        8.1    Arbitrable  Claims.  Except as  otherwise  specified  below,  all
               actions,  disputes,  claims and  controversies  under common law,
               statutory  law or in  equity  of any  type or  nature  whatsoever
               (including,  without  limitation,  all torts,  whether  regarding
               negligence,  breach of fiduciary duty, restraint of trade, fraud,
               conversion,  duress,  interference,  wrongful replevin,  wrongful
               sequestration,  fraud in the inducement, usury or any other tort,
               all contract actions, whether regarding express or implied terms,
               such as implied  covenants of good faith,  fair dealing,  and the
               commercial  reasonableness of any Collateral disposition,  or any
               other contract claim,  all claims of deceptive trade practices or
               lender liability,  and all claims  questioning the reasonableness
               or lawfulness of any act),  whether  arising  before or after the
               date  of this  Agreement,  and  whether  directly  or  indirectly
               relating to: (a) this  Agreement or any Other  Agreements  and/or
               any  amendments  and addenda  hereto or  thereto,  or the breach,
               invalidity or termination hereof or thereof;  (b) any previous or
               subsequent   agreement  between  DFS  and  Dealer;  (c)  any  act
               committed  by  DFS  or  by  any  parent  company,  subsidiary  or
               affiliated  company  of  DFS  (the  "DFS  Companies"),  or by any
               employee, agent, officer or director of an DFS Company whether or
               not arising  within the scope and course of  employment  or other
               contractual  representation  of the DFS  Companies  provided that
               such act  arises  under a  relationship,  transaction  or dealing
               between  DFS  and  Dealer;  and/or  (d) any  other  relationship,
               transaction or dealing between DFS and Dealer  (collectively  the
               "Disputes"),   will  be  subject  to  and   resolved  by  binding
               arbitration.
        8.2    Administrative Body. All arbitration  hereunder will be conducted
               in  accordance  with  the  Commercial  Arbitration  Rules  of The
               American   Arbitration   Association   ("AAA").  If  the  AAA  is
               dissolved,  disbanded or becomes  subject to any state or federal
               bankruptcy  or  insolvency  proceeding,  the parties  will remain
               subject  to binding  arbitration  which  will be  conducted  by a
               mutually  agreeable  arbitral  forum.  The parties agree that all
               arbitrator(s)  selected will be attorneys  with at least five (5)
               years secured  transactions  experience.  The arbitrator(s)  will
               decide  if any  inconsistency  exists  between  the  rules of any
               applicable   arbitral  forum  and  the   arbitration   provisions
               contained herein. If such  inconsistency  exists, the arbitration
               provisions  contained  herein  will  control and  supersede  such
               rules.  The site of all  arbitration  proceedings  will be in the
               Division of the Federal Judicial  District in which AAA maintains
               a regional office that is closest to Dealer.
        8.3    Discovery.  Discovery  permitted  in any  arbitration  proceeding
               commenced  hereunder is limited as follows.  No later than thirty
               (30) days  after  the  filing  of a claim  for  arbitration,  the
               parties will exchange detailed statements setting forth the facts
               supporting  the claim(s) and all defenses to be raised during the
               arbitration,  and a list of all exhibits and witnesses.  No later
               than twenty-one (21) days prior to the arbitration  hearing,  the
               parties  will  exchange  a  final  list of all  exhibits  and all
               witnesses,  including any  designation of any expert  witness(es)
               together  with a  summary  of  their  testimony;  a  copy  of all
               documents  and a  detailed  description  of  any  property  to be
               introduced at the hearing. Under no circumstances will the use of
               interrogatories,   requests  for  admission,   requests  for  the
               production  of  documents  or  the  taking  of   depositions   be
               permitted. However, in the event of the designation of any expert
               witness(es),  the following will occur:  (a) all  information and
               documents relied upon by the expert witness(es) will be delivered
               to the opposing  party,  (b) the opposing party will be permitted
               to depose the expert witness(es),  (c) the opposing party will be
               permitted to designate rebuttal expert  witness(es),  and (d) the
               arbitration  hearing will be  continued to the earliest  possible
               date  that  enables  the  foregoing   limited   discovery  to  be
               accomplished.
        8.4    Exemplary or Punitive Damages.  The  Arbitrator(s)  will not have
               the authority to award exemplary or punitive damages.
        8.5    Confidentiality of Awards. All arbitration proceedings, including
               testimony  or evidence at  hearings,  will be kept  confidential,
               although  any  award  or  order  rendered  by  the  arbitrator(s)
               pursuant  to the  terms of this  Agreement  may be  entered  as a
               judgment  or  order  in any  state or  federal  court  and may be
               confirmed within the federal judicial district which includes the
               residence  of the  party  against  whom  such  award or order was
               entered. This Agreement concerns transactions  involving commerce
               among the several states.  The Federal  Arbitration  Act, Title 9
               U.S.C.  Sections 1 et seq.,  as amended  ("FAA")  will govern all
               arbitration(s) and confirmation proceedings hereunder.
        8.6    Prejudgment  and  Provisional  Remedies.  Nothing  herein will be
               construed  to  prevent  DFS'  or  Dealer's  use  of   bankruptcy,
               receivership,   injunction,  repossession,  replevin,  claim  and
               delivery, sequestration, seizure, attachment, foreclosure, dation
               and/or  any other  prejudgment  or  provisional  action or remedy
               relating to any Collateral for any current or future debt owed by
               either  party to the other.  Any such  action or remedy  will not
               waive  DFS'  or  Dealer's  right  to  compel  arbitration  of any
               Dispute.
        8.7    Attorneys'  Fees. If either Dealer or DFS brings any other action
               for judicial relief with respect to any Dispute (other than those
               set forth in Section 8.6), the party bringing such action will be
               liable for and immediately pay all of the other party's costs and
               expenses (including  attorneys' fees) incurred to stay or dismiss
               such action and remove or refer such Dispute to  arbitration.  If
               either  Dealer or DFS  brings or  appeals  an action to vacate or
               modify an arbitration award and such party does not prevail, such
               party will pay all costs and expenses, including attorneys' fees,
               incurred  by  the  other   party  in   defending   such   action.
               Additionally,  if Dealer sues DFS or institutes  any  arbitration
               claim or counterclaim  against DFS in which DFS is the prevailing
               party,   Dealer  will  pay  all  costs  and  expenses  (including
               attorneys'  fees) incurred by DFS in the course of defending such
               action or proceeding. 8.8 Limitations. Any arbitration proceeding
               must be  instituted:  (a) with  respect  to any  Dispute  for the
               collection of any debt owed by either party to the other,  within
               two (2) years after the date the last payment was received by the
               instituting  party;  and (b) with  respect to any other  Dispute,
               within  two (2) years  after the date the  incident  giving  rise
               thereto  occurred,  whether or not any damage  was  sustained  or
               capable of  ascertainment  or either party knew of such incident.
               Failure to institute an arbitration proceeding within such period
               will  constitute an absolute bar and waiver to the institution of
               any proceeding,  whether arbitration or a court proceeding,  with
               respect to such Dispute.
        8.9    Survival  After  Termination.  The  agreement to  arbitrate  will
               survive the termination of this Agreement.

9.      INVALIDITY/UNENFORCEABILITY OF BINDING ARBITRATION. IF THIS AGREEMENT IS
        FOUND TO BE NOT  SUBJECT  TO  ARBITRATION,  ANY  LEGAL  PROCEEDING  WITH
        RESPECT  TO  ANY  DISPUTE   WILL  BE  TRIED  IN  A  COURT  OF  COMPETENT
        JURISDICTION  BY A JUDGE WITHOUT A JURY.  DEALER AND DFS WAIVE ANY RIGHT
        TO A JURY TRIAL IN ANY SUCH PROCEEDING.

10.     Governing Law.  Dealer  acknowledges  and agrees that this and all Other
        Agreements  between Dealer and DFS have been  substantially  negotiated,
        and  will  be  substantially   performed,  in  the  state  of  Illinois.
        Accordingly,  Dealer  agrees that all Disputes  will be governed by, and
        construed  in  accordance  with,  the laws of such state,  except to the
        extent  inconsistent  with the provisions of the FAA which shall control
        and govern all arbitration proceedings hereunder.

        IN WITNESS  WHEREOF,  Dealer and DFS have executed this  Agreement as of
        the date first set forth hereinabove.

        THIS CONTRACT  CONTAINS  BINDING  ARBITRATION,  JURY WAIVER AND PUNITIVE
        DAMAGE WAIVER PROVISIONS.

DEUTSCHE FINANCIAL SERVICES CORPORATION     ALLSTAR SYSTEMS, INC.


By:_______________________________          By:_________________________________

Print Name: ________________________        Print Name:   James H. Long


Title:______________________________        Title:______________________________



                                            ATTEST:

                                            ____________________________________
                                                           Secretary

                                            Print Name:  Donald R. Chadwick


<PAGE>


                      SECRETARY'S CERTIFICATE OF RESOLUTION

        I  certify  that  I am  the  Secretary  or  Assistant  Secretary  of the
corporation  named below, and that the following  completely and accurately sets
forth certain  resolutions of the Board of Directors of the corporation  adopted
at a special meeting thereof held on due notice (and with shareholder  approval,
if required by law), at which  meeting there was present a quorum  authorized to
transact the business  described  below, and that the proceedings of the meeting
were in accordance with the certificate of incorporation, charter and by-laws of
the corporation, and that they have not been revoked, annulled or amended in any
manner whatsoever.

        Upon  motion  duly  made and  seconded,  the  following  resolution  was
unanimously adopted after full discussion:

        "RESOLVED,  That the  several  officers,  directors,  and agents of this
corporation,  or any one or more of them, are hereby authorized and empowered on
behalf of this corporation: to obtain financing from Deutsche Financial Services
Corporation  ("DFS")  in such  amounts  and on  such  terms  as  such  officers,
directors or agents deem proper; to enter into financing,  security,  pledge and
other agreements with DFS relating to the terms upon which such financing may be
obtained  and security  and/or  other credit  support is to be furnished by this
corporation  therefor;  from  time to time  to  supplement  or  amend  any  such
agreements;  execute and deliver any and all assignments and schedules; and from
time to  time  to  pledge,  assign,  mortgage,  grant  security  interests,  and
otherwise  transfer,  to DFS as collateral  security for any obligations of this
corporation  to  DFS,   whenever  and  however  arising,   any  assets  of  this
corporation,  whether now owned or  hereafter  acquired;  the Board of Directors
hereby  ratifying,  approving  and  confirming  all that  any of said  officers,
directors or agents have done or may do with respect to the foregoing."

        I do  further  certify  that the  following  are the names and  specimen
signatures  of the officers  and agents of said  corporation  so  empowered  and
authorized, namely:

President:                     James H. Long        ____________________________
                                 (Print Name)               (Signature)

Chief Financial Officer:       Donald R. Chadwick   ____________________________
                                 (Print Name)               (Signature)

Secretary:                     Donald R. Chadwick   ____________________________
                                 (Print Name)               (Signature)

Chief Operating Officer:       Ronald J. Burger     ____________________________
                                 (Print Name)               (Signature)

President IT Services:         Shabbir K. Ali       ____________________________
                                 (Print Name)               (Signature)
President Computer Products:
                               Frank Cano           ____________________________
                                 (Print Name)               (Signature)

        IN  WITNESS  WHEREOF,  I have  executed  and  affixed  the  seal  of the
corporation on the date stated below.

Dated: February 27, 1998                                      Secretary


                                                         ALLSTAR SYSTEMS, INC.
                                                         (SEAL) Corporate Name



<PAGE>


                                   CONTINGENT BLOCKED ACCOUNT AGREEMENT


                                                        Date:  February 27,1998

Southwest Bank of Texas
5 Post Oak Park
4400 Post Oak Parkway
Houston, Texas 77027





Gentlemen:

Reference is hereby made to a lockbox  agreement dated February  27,1998 between
ourselves,  _Allstar Systems, Inc. ("Company"),  and you,Southwest Bank of Texas
("Bank") (hereafter referred to as "Lockbox  Agreement").  The Lockbox Agreement
is attached hereto as Exhibit A.

Reference is also made to the Business  Financing  Agreement  dated February 27,
1998 and all addenda  thereto between  Company and Deutsche  Financial  Services
Corporation ("DFS") (hereafter referred to as "Financing Agreement").

Pursuant to the Lockbox  Agreement,  Company has directed its  customers to send
remittance payments to a post office box ("Lockbox") rented by Bank as follows:

        P.O. Box 4346, Dept. 523
        Houston, TX 77210-4346
        Account # 0133329

After  remittances are processed by Bank, they are deposited into account number
("Special Account"), which was established exclusively for this purpose.

Bank is hereby  notified  that  Company  has  granted,  assigned,  conveyed  and
transferred  to  DFS,  pursuant  to the  terms  of the  Financing  Agreement  as
permitted by applicable law, all rights, title, security interest, and any other
interest  Company  has or may have in all  remittances  sent to the  Lockbox and
deposited  to the  Special  Account  including  checks,  drafts,  notes,  money,
acceptances,  cash,  and  any  other  evidence  of  indebtedness  (collectively,
"Remittances")  as proceeds of accounts  receivable in which DFS has a perfected
security  interest.  DFS also has a security interest in the Special Account and
all certificates and instruments, if any, representing or evidencing the Special
Account and all interest,  dividends,  cash,  instruments and any other property
from time to time received, receivable or otherwise distributed in respect of or
in exchange for any of the collateral referred to herein.

This letter ("Letter  Agreement") will constitute the agreement between Company,
DFS  and  Bank  with  respect  to the  Lockbox,  the  Special  Account  and  the
Remittances collected therein.

From and after the date of this Letter Agreement:

              a.  Notwithstanding  any  provision  of any  depository  agreement
         relating to the Special Account (or any right otherwise arising),  Bank
         hereby waives any right of set off or any other right which it may have
         from  time to time to apply  any  funds  in the  Lockbox,  the  Special
         Account or any  Remittances  to the  payment  of any  present or future
         indebtedness of the Company to Bank.

              b. Copies of all checks  (including  check  stubs),  all  "backup"
         deposited into the Lockbox by Company's customers (including customers'
         advices and  statements),  bank  advices  and any other  correspondence
         regarding  the Lockbox  service,  shall  continue to be sent to Company
         with a copy to DFS at the address designated below.

              c. All items  originally  deposited in and credited to the Special
         Account which are returned unpaid, and all rental fees for the Lockbox,
         Lockbox  charges  and all  deposit  account  activity  charges and wire
         transfer  charges  arising from the Special  Account will be charged to
         the Company.

              d. Bank will forward a copy of the monthly  statement  relating to
         the Special Account to DFS at the address  designated  below, or as DFS
         may from time to time direct.

              e.  Prior to Bank's  receipt  of the  "Notification"  (as  defined
         below),  Bank shall honor all  withdrawal,  payment,  transfer or other
         instructions  received from Company which are consistent with the terms
         hereof.

DFS  may,  at  any  time,  in its  sole  discretion,  send  Bank  via  facsimile
transmission (number ) a written notification in such form as attached hereto as
Exhibit B that control over withdrawals from and all other matters regarding the
Special Account has been transferred from Company to DFS ("Notification").

Upon Bank's receipt of such Notification:

              1. Company hereby  directs and  authorizes  Bank to cease honoring
         any of Company's  withdrawal,  payment,  transfer or other instructions
         regarding the Special Account.

              2. The Special  Account shall be "blocked" in favor of DFS so that
         the only  disbursements to be made against the Special Account shall be
         in favor of DFS.

              3. Company shall have no right to interfere with the processing of
         Remittances  as set forth in the  Lockbox  Agreement  without the prior
         written consent of DFS.

              4. Bank agrees not to pay or deliver any amounts  from the Lockbox
         to the Company or to any payee other than DFS unless so directed by DFS
         in writing or unless Bank is otherwise  ordered by a court of competent
         jurisdiction.

              5. Company and Bank agree that, by maintaining the Lockbox and any
         Remittances  included therein,  Bank shall be acting solely as agent on
         behalf of DFS.

              6. All Lockbox processing  instructions presently set forth in the
         Lockbox Agreement will continue in effect with the following changes or
         additions:

                  (a) Each banking day  collected  funds in the Special  Account
                  will be wire  transferred  to DFS as directed by DFS. (b) Bank
                  will send checks which state they are for "payment in full" or
                  contain  an  equivalent   statement  to  DFS  at  the  address
                  designated below, or as DFS may from time to time direct, with
                  a copy to the Company.

Company agrees to indemnify and hold Bank harmless against all liability,  loss,
damage or expense,  including attorneys' fees, to which Bank may be put or which
Bank may incur by reason of Bank acting upon  instructions  furnished by Company
and/or DFS.

Company  understands and agrees that neither it nor any of its officers,  agents
or employees  shall  assert any claim  against DFS or DFS'  attorneys  for loss,
mutilation,  destruction or  disappearance  of any instrument or document of any
kind,  including,  but not limited to, currency,  checks,  money orders,  stubs,
correspondence  or any other  record  of  property  which  might be  claimed  by
Company.

In the event of any  conflict  between  this  Letter  Agreement  and the Lockbox
Agreement, this Letter Agreement shall prevail.

This Letter Agreement may be terminated by DFS or the Bank upon thirty (30) days
prior written notice to all other parties. Notwithstanding any such termination,
the provisions of this Letter Agreement shall remain in full force and effect as
to all  transactions  which shall have occurred  prior to the effective  date of
termination.

Company may not terminate,  modify or alter this Letter Agreement or the Lockbox
Agreement without the prior written consent of Bank and DFS.

                                               Very truly yours,


                                               Allstar Systems, Inc.

                                               By:
                                               Print Name: Donald R. Chadwick
                                               Title:  Chief Financial Officer

All of the foregoing is approved and accepted by the undersigned:


DEUTSCHE FINANCIAL SERVICES CORPORATION         Southwest Bank of Texas
                                                       (Bank's Name)

By:____________________________                By:______________________________
Name:__________________________                Name: ___________________________
Title:_________________________                Title: __________________________
Date: _________________________                Date:____________________________
Address:_______________________

Attn:__________________________

<PAGE>


EXHIBIT B

                                       Date:_______________________

                                               NOTIFICATION






Facsimile Number:

Gentlemen:

Reference  is made to a  Letter  Agreement  dated , and  executed  by and  among
____________________________    ("Company"),    Deutsche    Financial   Services
Corporation ("DFS") and _______________________________  ("Bank"). All terms not
defined herein shall have the definitions stated in the Letter Agreement.

DFS  hereby  notifies  Bank that  pursuant  to the terms set forth in the Letter
Agreement,  control of the Special Account shall, as of the date of this notice,
be transferred  from Company to DFS, and the Special Account shall from the date
of this notice be held in favor and for the benefit of DFS.  The Bank shall take
all further  instructions as to the disbursement of funds in the Special Account
from DFS, and, in accordance  with the Letter  Agreement,  until further  notice
from DFS,  you are directed to wire  transfer on each banking day all  collected
funds in the Special Account to DFS at
                                                          .

                                   Very truly yours,

                                   DEUTSCHE FINANCIAL SERVICES CORPORATION


                                   By:_____________________________

                                   Name:___________________________

                                   Title:__________________________



<PAGE>


                              ADDENDUM TO AGREEMENT FOR WHOLESALE FINANCING

                                     AND BUSINESS FINANCING AGREEMENT





      This  Addendum  is  made  to (i)  that  certain  Agreement  for  Wholesale
Financing  executed on the 27th day of February,  1998, between Allstar Systems,
Inc. ("Dealer") and Deutsche Financial Services  Corporation ("DFS"), as amended
("AWF) and (ii) that certain Business Financing Agreement between Dealer and DFS
dated February 27, 1998, as amended ("BFA").



      FOR VALUE RECEIVED,  DFS and Dealer agree that the following  paragraph is
incorporated into the AWF and BFA as if fully and originally set forth therein:



         "Dealer will at all times maintain:



         (a) a Tangible Net Worth and  Subordinated  Debt in the combined amount
         of not less than Ten Million Dollars ($10,000,000.00);



         (b) a ratio of Debt minus  Subordinated  Debt to Tangible Net Worth and
         Subordinated Debt of not more than Four to One (4.0:1.0); and



         (c) a ratio of Current  Tangible  Assets to current  liabilities of not
         less than One and Four Tenths to One (1.4:1.0).



         For purposes of this paragraph: (i) 'Tangible Net Worth' means the book
         value of Dealer's assets less  liabilities,  excluding from such assets
         all  Intangibles;   (ii)  'Intangibles'   means  and  includes  general
         intangibles (as that term is defined in the Uniform  Commercial  Code);
         accounts   receivable  and  advances  due  from  officers,   directors,
         employees,  stockholders and affiliates;  leasehold improvements net of
         depreciation;  licenses; good will; prepaid expenses;  escrow deposits;
         covenants  not to  compete;  the  excess  of cost  over  book  value of
         acquired assets; franchise fees; organizational costs; finance reserves
         held for recourse  obligations;  capitalized  research and  development
         costs;  and such  other  similar  items  as DFS may  from  time to time
         determine in DFS' sole  discretion;  (iii) 'Debt' means all of Dealer's
         liabilities and  indebtedness for borrowed money of any kind and nature
         whatsoever,  whether direct or indirect,  absolute or  contingent,  and
         including  obligations  under  capitalized  leases,  guaranties or with
         respect  to which  Dealer  has  pledged  assets to secure  performance,
         whether or not direct  recourse  liability  has been assumed by Dealer;
         (iv)   'Subordinated   Debt'  means  all  of  Dealer's  Debt  which  is
         subordinated  to  the  payment  of  Dealer's  liabilities  to DFS by an
         agreement in form and substance  satisfactory  to DFS; and (v) 'Current
         Tangible  Assets'  means  Dealer's  current  assets less, to the extent
         otherwise included therein,  all Intangibles.  The foregoing terms will
         be  determined  in  accordance  with  generally   accepted   accounting
         principles consistently applied, and, if applicable,  on a consolidated
         basis."



      Dealer waives notice of DFS' acceptance of this addendum.



      All other  terms and  provisions  of the AWF and BFA,  to the  extent  not
inconsistent  with the foregoing,  are ratified and remain unchanged and in full
force and effect.



      IN WITNESS  WHEREOF,  Dealer and DFS have  executed  this Addendum on this
27th day of February, 1998.



                                                Allstar Systems, Inc.



ATTEST:_______________________                  ________________________________
                                                By:

                                                Title:

      Secretary



                                                 DEUTSCHE FINANCIAL SERVICES
                                                 CORPORATION




                                                ________________________________
                                                By:

                                                Title:





<PAGE>


                                           LETTER OF DIRECTION







March          , 1998





Deutsche Financial Services Corporation

4747 W Lincoln Highway Suite 200

Matteson, IL 60443



Re: Letter of Direction



Gentlemen:



We hereby authorize and direct Deutsche Financial Services  Corporation  ("DFS")
to pay to IBM Credit Corporation ("Lender") the sum of $_______________________,
which shall be an additional amount of the outstanding  indebtedness owed to DFS
under our Business  Financing  Agreement with DFS (the  "Agreement").  The above
amount   represents   the  total  sum  now   outstanding   under  our  financing
relationships  with Lender that Lender has  advanced to us against our  accounts
receivable.



We further affirm that by DFS' payment made  hereunder,  DFS will obtain a first
and priority security interest in all of the applicable  collateral described in
the  Agreement  or any  other  agreement  between  us,  and that we will pay DFS
therefor  under the terms and  conditions of the Agreement and any other written
agreement between us. We realize that we may not set off any credits that we may
now have or have in the future from  Lender  against any or all of the amount we
owe DFS.



Sincerely,









Allstar Systems, Inc.

By:

Print Name:  Donald R. Chadwick

Title: Chief Financial Officer



<PAGE>



February 27, 1998

Southwest Bank of Texas
5 Post Oak Park
4400 Post Oak Parkway
Houston, Texas 77027


Gentlemen:

This letter will serve as your  authorization  to operate Lockbox No. 4346, Dept
523  ("Lockbox")  under  which  remittance  checks  from our  customers  will be
presented  and  collected  for  the  benefit  of  Deutsche   Financial  Services
Corporation, with an office located at 3075 Highland Parkway, Suite 600, Downers
Grove,  IL 60515 ("DFS").  We have therefore  requested our customers to forward
their  remittances to our company  addressed to Lockbox No. P.O. Box 4346, Dept.
523 , Houston, Texas 77210-4346 , beginning on February 27, 1998.

In the event of any  conflict  between this letter and the terms of that certain
Contingent  Blocked  Account  Agreement  of even date  herewith  among DFS,  the
undersigned and you, the terms and provisions of such Contingent Blocked Account
Agreement shall prevail.

The receivables in the form of remittances that will be sent to the Lockbox have
been  assigned  to DFS.  We have  rented  this  Lockbox  in our  name  and  your
representatives  are  hereby  deputied  as our agents to have  unrestricted  and
exclusive  access to such Lockbox for the purpose of collecting the mail therein
and processing the remittance for the benefit of DFS.

You are  further  authorized  to open a  special  checking  account  No.  133329
("Account")  in which you will  deposit all checks  from the  Lockbox  which are
accepted  hereunder  for  collection.  The  Account is to be  designated  as the
"Special  Collection  Account of  Allstar  Systems,  Inc." The  Account is to be
"blocked" in favor of DFS so that the only  disbursements to be made against the
Account will be in favor of DFS.

It is our understanding that you will:

     l. Have  your  employees  collect  such mail as our  agents at times  which
        coincide with the mail schedules from the areas being serviced.

     2. Endorse  any  checks  and any  other  evidences  of  payments  which are
        contained  in such mail and appear to be for  deposit to our credit when
        received at your bank in our name for DFS' benefit.

     3. Date any undated checks as of the date received.

     4. Maintain a record of the checks received,  so that duplicate photographs
        can be made, should the need arise.

     5. Provide a daily remittance package to us consisting of the following:

            a.  Validated deposit slip.
            b.  Adding machine tape detailing the deposits.
            c.  Photocopy of each check.
            d.  Papers or documents which accompany payment.
            e.  Envelopes which contain only correspondence.
            f.  Checks  which are not deposited for any of the  reasons  listed
                below.

     6. Mail to us all checks on which the numeric  amounts  differ and on which
        the correct amount cannot be determined from the accompanying  documents
        and mail a copy of such checks to DFS at its above specified office.

     7. Not endorse  checks which do not bear the drawer's  signature and do not
        indicate the drawer's  identity,  unless the drawer is identified by the
        face of the  check,  in which  case,  you  shall  process  the  check by
        affixing a stamped impression  requesting the drawee bank to contact the
        drawer for authority to pay.

     8. Forward a copy of the  monthly  statements  relating  to the Lockbox and
        Account to DFS at the above-specified address or as DFS may from time to
        time direct.

It is also understood that you are acting in connection with the Lockbox and the
Account solely as trustee of an express trust for the benefit of DFS so that you
have no interest in any remittances sent to, or any funds contained within,  the
Lockbox  and the  Account,  all of which  interest  is and  shall  be  DFS'.  In
connection  therewith,  and  notwithstanding  any  provision  of any  depository
agreement relating to any funds within the Lockbox and the Account, or any other
right  otherwise  arising,  you have waived any right which you have or may have
from time to time to apply  any  funds or  remittances  in the  Lockbox  and the
Account to the payment of any present or future indebtedness of us to you.

Any returned  items or service  charges  relating to the Lockbox and the Account
are to be charged to our regular checking account No. 133213.

From time to time  remittance  checks or vouchers may carry a printed  phrase to
the effect  that such  checks  represent  "Payment in Full" (or words of similar
import).  We understand that you will inspect all such remittance  checks,  that
you will send to us for  disposition  any such checks  which bear such a phrase,
but we agree  that you shall  have no  liability  in the event  that you  should
process any check bearing such phraseology.

Please  confirm your  agreement to the terms and  conditions  set forth above by
executing and returning the copy of this letter  provided.  In that regard,  you
understand that such copy will be delivered to DFS for its acknowledgment of the
terms and  conditions  of this  letter and that the  agreement  with you, as set
forth in the preceding  paragraphs,  may not be revoked or amended without their
written consent.

Very truly yours,



By:
Title: Chief Financial Officer



<PAGE>




Letter to Bank (cont.)
(Date)
Page 3

                                             ACKNOWLEDGEMENT

The  undersigned  hereby  acknowledges  receipt of the above letter,  and hereby
accepts  the terms and  provisions  thereof  and agrees to be bound  thereby and
subject thereto, on this day of , 19 .


ATTEST:                                                (Name of Bank)


By:_______________________________

Title:______________________________


                                 ACKNOWLEDGEMENT

The  undersigned  hereby  acknowledges  receipt of the above letter,  and hereby
accepts  the terms and  provisions  thereof  and agrees to be bound  thereby and
subject thereto, on this day of , 19 .


ATTEST:                                 DEUTSCHE FINANCIAL SERVICES CORPORATION



By:__________________________________

Title:_________________________________


<PAGE>


              PAYDOWN ADDENDUM TO BUSINESS FINANCING AGREEMENT AND
                        AGREEMENT FOR WHOLESALE FINANCING

      This  Addendum is made to (i) that certain  Business  Financing  Agreement
executed  on the 27th day of  February,  1998,  between  Allstar  Systems,  Inc.
("Dealer")  and Deutsche  Financial  Services  Corporation  ("DFS"),  as amended
("BFA") and (ii) that certain  Agreement for Wholesale  Financing between Dealer
and DFS dated February 27, 1998, as amended ("AWF").

      FOR VALUE  RECEIVED,  DFS and Dealer  agree that Section 3.2 of the BFA is
hereby amended to read as follows, and, to the extent applicable,  the following
provision  shall  also  amend the AWF  (capitalized  terms  shall  have the same
meaning as defined in the BFA unless otherwise indicated):


         "3.2 Available Credit;  Paydown. On receipt of each Schedule,  DFS will
         credit  Dealer  with such  amount as DFS may deem  advisable  up to the
         remainder of  eighty-five  percent  (85%) of the net amount of eligible
         Accounts  listed in such  Schedule,  minus the amount of  Dealer's  SPP
         Deficit (as defined  below)  under  Dealer's  Agreement  for  Wholesale
         Financing  (the  'AWF')  with DFS as in  effect  from time to time (the
         'Available Credit').

         Dealer's 'SPP Deficit' shall mean the amount, if any, by which Dealer's
         total current  outstanding  indebtedness to DFS under the AWF as of the
         date of the Inventory  Report (as defined  below) exceeds the Inventory
         Value (as defined  below) as determined  by, and as of the date of, the
         Inventory Report.  Such SPP Deficit,  if any, will remain in effect for
         purposes of this Agreement until the preparation and delivery by Dealer
         to DFS of a new  Inventory  Report.  Dealer will  forward to DFS by the
         15th day of every month,  or more  frequently  at Dealer's  and/or DFS'
         option, an Inventory Report dated as of the last day of the prior month
         which specifies the total aggregate  wholesale  invoice price of all of
         Dealer's  inventory financed by DFS under the AWF that is unsold and in
         Dealer's possession and control as of the date of the Inventory Report.

         The term Inventory  Value is defined herein to mean one hundred percent
         (100%)  of  the  total  aggregate  wholesale  invoice  price  of all of
         Dealer's  inventory financed by DFS under the AWF that is unsold and in
         Dealer's possession and control as of the date of the Inventory Report,
         excluding   therefrom   any   inventory   which  DFS   determines   has
         significantly  depreciated  in value  or is  otherwise  ineligible  for
         inclusion in such  calculation,  and to the extent that DFS has a first
         priority, fully perfected security interest therein.

         In addition,  if Dealer's  outstanding  loans under  Dealer's  accounts
         receivable  credit  facility  as set  forth  in  Section  2.1  of  this
         Agreement at any time exceed  Dealer's  Available  Credit,  Dealer will
         immediately  pay to DFS an amount not less than the difference  between
         (i)  Dealer's  outstanding  loans under  Dealer's  accounts  receivable
         credit facility as set forth in Section 2.1 of this Agreement, and (ii)
         Dealer's Available Credit.

         Furthermore,  as an  amendment  to the AWF, in the event  Dealer's  SPP
         Deficit  exceeds at any time (a)  eighty-five  percent (85%) of the net
         amount of Dealer's eligible  Accounts,  minus (b) Dealer's  outstanding
         loans under Dealer's  accounts  receivable credit facility as set forth
         in Section 2.1 of this Agreement,  Dealer will  immediately pay to DFS,
         as a reduction of Dealer's total current  outstanding  indebtedness  to
         DFS under the AWF, the difference between (i) Dealer's SPP Deficit, and
         (ii) (a)  eighty-five  percent  (85%)  of the net  amount  of  Dealer's
         eligible  Accounts minus (b) Dealer's  outstanding loans under Dealer's
         accounts receivable credit facility as set forth in Section 2.1 of this
         Agreement. DFS will loan Dealer, on request, such amount so credited or
         a part  thereof  as  requested  provided  that  at no  time  will  such
         outstanding  loans exceed Dealer's maximum accounts  receivable  credit
         facility as set forth in Section 2.1 of this Agreement.  No advances or
         loans need be made by DFS if Dealer is in Default."


         All  other  terms  and  provision  of the BFA and  AWF,  to the  extent
consistent with the foregoing, are hereby ratified and will remain unchanged and
in full force and effect.

         IN WITNESS WHEREOF, Dealer and DFS have both read this Paydown Addendum
to the Business  Financing  Agreement and  Agreement  for  Wholesale  Financing,
understand all the terms and provisions hereof and agree to be bound thereby and
subject thereto as of this 27th day of February, 1998.


                              ALLSTAR SYSTEMS, INC.

Attest:

                                             By:________________________________

                                             Title:_____________________________
                                                               Secretary


                                             DEUTSCHE FINANCIAL SERVICES
CORPORATION


                                             By:________________________________

                                             Title:_____________________________


<PAGE>



February 27, 1998

Allstar Systems, Inc.
6401 Southwest Freeway
Houston, TX 77074

Re:  Financing Agreements

Gentlemen:

Deutsche  Financial  Services  Corporation  ("DFS")  and Allstar  Systems,  Inc.
("Dealer") are parties to that certain Business Financing  Agreement dated as of
February 27, 1998 and that certain Agreement for Wholesale Financing dated as of
February 27, 1998 (as amended from time to time, collectively the "Agreements").
Capitalized terms used but not defined herein shall have the meanings given them
in the Business Financing Agreement.

The  Agreements  are hereby  amended to provide  that  notwithstanding  anything
therein to the contrary,  Dealer shall maintain a ratio of its average quarterly
outstanding indebtedness to DFS under the AWF (determined in accordance with the
provisions of the next paragraph  hereof),  to its Average  Contract Balance for
any such quarter,  of no less than to Two to One (2.0:1.0).  In the event Dealer
is not in  compliance  with  such  ratio,  DFS shall  have the right to  request
Dealer's  agreement  to a new,  higher  interest  rate  for  application  to any
advances under the Accounts Receivable Facility.

Dealer's  average  quarterly  outstanding  indebtedness to DFS under the AWF for
purposes hereof shall be equal to the arithmetic average of Dealer's outstanding
indebtedness to DFS under the AWF on last day of each month within such quarter.

Except as amended hereby,  the terms and conditions of the Agreements are hereby
ratified and shall remain in full force and effect.

Please indicate your acceptance and agreement to the terms and provisions hereof
by signing where indicated below.

DEUTSCHE FINANCIAL SERVICES CORPORATION


By: ______________________________
Name:_____________________________
Title:____________________________

Accepted and agreed to:

ALLSTAR SYSTEMS, INC.

By: ______________________________
Name:_____________________________
Title:____________________________
Date:_____________________________


<PAGE>



                                              Exhibit 10.27

<PAGE>



                                 LEASE AGREEMENT

                                     Between

                           STONELAKE ASSOCIATES, LTD.,

                                  as Landlord,


                                       and

                      PHONEWORKS, INC., DBA ONEPHONE CALL,

                                   as Tenant,


                 Covering approximately 2,700 gross square feet
                    of the Building known (or to be known) as


                                   STONELAKE 3


                                   located at


                        4030 BRAKER LANE WEST, SUITE 310


                               AUSTIN, Texas 78758



                                     <PAGE>


STANDARD INDUSTRIAL LEASE AGREEMENT
TRAMMELL CROW COMPANY - (AUS/91)
                                           Approximately 2,700 gross square feet
                                                4030 Braker Lane West, Suite 310
                                                            Austin, Texas  78758
                                                                   (Stonelake 3)

                                 LEASE AGREEMENT

THIS  LEASE  AGREEMENT  is  made  and  entered  into  by and  between  Stonelake
Associates,  Ltd.,  hereinafter referred to as "Landlord," and Phoneworks,  Inc.
d/b/a OnePhone Call, hereinafter referred to as "Tenant."


<PAGE>



          I. [missing]

          I. [missing]

          I. [missing]

          I. [missing]

               A. [portion missing]

as used herein shall not include loading docks.  Tenant shall  immediately  give
Landlord  written  notice of defect or need for  repairs,  after which  Landlord
shall have reasonable opportunity to effect such repairs or cure such defect.

               A. Tenant's  Share of Common Area  Charges.  Tenant agrees to pay
its  Proportionate  Share  of he  cost  of (i)  maintenance  and/or  landscaping
(including both maintenance and replacement of landscaping) of any property that
is a part of the Building and/or the Project;  (ii)  operating,  maintaining and
repairing any property,  facilities or services  (including  without  limitation
utilities and insurance  therefor)  provided for the use or benefit of Tenant or
the common use or  benefit  of Tenant  and other  lessees of the  Project or the
Building;  and (iii) an administrative fee of fifteen percent (15) of all common
area maintenance charges.

          I. TENANT'S REPAIRS.

               A. Maintenance of Premises and Appurtenances.  Tenant, at its own
cost and expense, shall (i) maintain all parts of the Premises and promptly make
all necessary  repairs and  replacements to the Premises (except those for which
Landlord is expressly responsible  hereunder),  and (ii) keep the parking areas,
driveways and alleys surrounding the Premises in a clean and sanitary condition.
Tenant's  obligation to maintain,  repair and make  replacements to the Premises
shall cover,  but not be limited to, pest control  (including  termites),  trash
removal and the  maintenance,  repair and  replacement of all HVAC,  electrical,
plumbing, sprinkler and other mechanical systems.

               A. Parking.  Tenant and its employees,  customers,  and licensees
shall have the right to use only its  Proportionate  Share of any parking  areas
that have been  designated  for such use by Landlord in writing,  subject to (i)
all rules and regulations promulgated by Landlord and (ii) rights of ingress and
egress  of other  lessees.  Landlord  shall  not be  responsible  for  enforcing
Tenant's parking rights against any third parties, and Tenant expressly does not
have the right to tow or obstruct improperly parked vehicles.  Tenant agrees not
to park on any public streets or private roadways adjacent to or in the vicinity
of the Premises.

               A. System Maintenance. Tenant, at its own cost and expense, shall
enter into a regularly scheduled preventive  maintenance/service contract with a
maintenance contractor approved by Landlord for servicing all hot water, heating
and air  conditioning  systems and equipment  within the  Premises.  The service
contract must include all services  suggested by the equipment  manufacturer and
its  operations/maintenance  manual and must become effective within thirty (30)
days of the date Tenant takes possession of the Premises.

               A. Option to Maintain  Premises.  Landlord  reserves the right to
perform, in whole or in part and without notice to Tenant, maintenance,  repairs
and  replacements  to the Premises,  paving,  common area,  landscape,  exterior
painting,  common  sewage line  plumbing and any other items that are  otherwise
Tenant's  obligations  under this  Paragraph 5, in which event,  Tenant shall be
liable  for its  Proportionate  Share of the cost and  expense  of such  repair,
replacement, maintenance and other such items.

          I. ALTERATIONS. Tenant shall not make any alterations, additions or
improvements  to the  Premises  without the prior  written  consent of Landlord.
Tenant, at its own costs and expense,  may erect such shelves,  bins,  machinery
and trade fixtures as it desires,  provided that (i) such items do not alter the
basic  character  of the Premises or the  Building,  (ii) such items do not over
load or damage  same,  (iii)  such items may be  removed  without  injury to the
Premises,  and (iv) the construction,  erection or installation thereof complies
with  all  applicable  governmental  laws,  ordinances,   regulations  and  with
Landlord's  specifications  and  requirements.  Tenant shall be responsible  for
compliance with The Americans With  Disabilities  Act of 1990.  Without implying
any consent of Landlord thereto,  all alterations,  additions,  improvements and
partitions  erected by Tenant shall be and remain the property of Tenant  during
the  term of this  Lease.  All  shelves,  bins,  machinery  and  trade  fixtures
installed  by Tenant  shall be removed on or before the  earlier to occur of the
day of  termination  or expiration  of this Lease or vacating the  Premises,  at
which time Tenant shall restore the Premises to their  original  condition.  All
alterations,  installations,  removals and restorations  shall be performed in a
good and workmanlike  manner so as not to damage or alter the primary  structure
or structural  qualities of the Building or other  improvements  situated on the
Premises or of which the Premises are a part.

          I. SIGNS. Any signage Tenant desires for the Premises shall be subject
to Landlord's  written  approval and shall be submitted to Landlord prior to the
Commencement Date of this Lease.  Tenant shall repair,  paint and/or replace the
Building  fascia surface to which its signs are attached upon Tenant's  vacating
the  Premises or the removal or  alteration  of its  signage.  Tenant shall not,
without  Landlord's prior written consent,  (i) make any changes to the exterior
of  the  Premises,   such  as  painting;   (ii)  install  any  exterior  lights,
decorations, balloons, flags, pennants or banners; or (iii) erect or install any
signs, windows or door lettering,  placards, decorations or advertising media of
any type  which can be viewed  from the  exterior  of the  Premises.  All signs,
decorations,  advertising media, blinds, draperies and other window treatment or
bars or other  security  installations  visible from outside the Premises  shall
conform in all  respects  to the  criteria  established  by Landlord or shall be
otherwise subject to Landlord's prior written consent.

          I. UTILITIES.  Landlord agrees to provide normal water and electricity
service to the  Premises.  Tenant  shall pay for all water,  gas,  heat,  light,
power, telephone, sewer, sprinkler charges and other utilities and services used
on or at the  Premises,  together with any taxes,  penalties,  surcharges or the
like pertaining to the Tenant's use of the Premises and any maintenance  charges
for utilities. Landlord shall have the right to cause any of said services to be
separately metered to Tenant, at Tenant's expense. Tenant shall pay its pro rata
share, as reasonably  determined by Landlord, of all charges for jointly metered
utilities.  Landlord  shall not be liable  for any  interruption  or  failure of
utility service on the Premises,  and Tenant shall have no rights or claims as a
result of any such  failure.  In the event  water is not  separately  metered to
Tenant,  Tenant  agrees that it will not use water and sewer  capacity  for uses
other than normal domestic restroom and kitchen usage, and Tenant further agrees
to reimburse  Landlord for the entire  amount of common water and sewer costs as
additional  rental if, in fact,  Tenant  uses water or sewer  capacity  for uses
other than normal  domestic  restroom and kitchen uses without  first  obtaining
Landlord's  written  permission,  including  but not  limited  to the  cost  for
acquiring  additional  sewer  capacity  to service  Tenant's  excess  sewer use.
Furthermore,  Tenant  agrees  in such  event to  install  at its own  expense  a
submeter to determine Tenant's usage.

          I. INSURANCE.

               A. Landlord's Insurance. Subject to reimbursement under Paragraph
2C herein,  Landlord shall maintain insurance covering the Building in an amount
not less than eighty percent (80%) of the "replacement  cost" thereof,  insuring
against the perils of fire, lighting, extended coverage, vandalism and malicious
mischief.

               A. Tenant's Insurance. Tenant, at its own expense, shall maintain
during the term of this Lease a policy or policies of workers'  compensation and
comprehensive  general  liability  insurance,   including  personal  injury  and
property damage, with contractual liability  endorsement,  in the amount of Five
Hundred  Thousand  Dollars  ($500,000.00)  for  property  damage and One Million
Dollars  ($1,000,000.00) per occurrence and One Million Dollars  ($1,000,000.00)
in the  aggregate  for  personal  injuries or deaths of persons  occurring in or
about the Premises.  Tenant, at its own expense,  shall also maintain during the
term of this Lease fire and extended coverage insurance covering the replacement
cost of (i) all alterations,  additions,  partitions, and improvements installed
or placed on the Premises by Tenant or by Landlord on behalf of Tenant; and (ii)
all of Tenant's personal property  contained within the Premises.  Said policies
shall (i) name the  Landlord  as an  additional  insured  and insure  Landlord's
contingent  liability  under or in  connection  with this Lease  (except for the
workers'   compensation   policy,  which  instead  shall  include  a  waiver  of
subrogation  endorsement  in favor of  Landlord);  (ii)  shall be  issued  by an
insurance  company which is acceptable to Landlord;  and (iii) provide that said
insurance  shall not be cancelled  unless thirty (30) days prior written  notice
has been given to  landlord.  Said policy or policies  or  certificates  thereof
shall be delivered to Landlord by Tenant on or before the Commencement  Date and
upon each renewal of said insurance.

               A.  Prohibited  Uses.  Tenant will not permit the  Premises to be
used for any purpose or in any manner that would (i) void the insurance thereon,
(ii)  increase  the  insurance  risk  or  cost  thereof,   or  (iii)  cause  the
disallowance of any sprinkler credits;  including without limitation, use of the
Premises  for the  receipt,  storage or  handling  of any  product,  material or
merchandise that is explosive or highly inflammable. If any increase in the cost
of any  insurance  on the  Premises or the Building is caused by Tenant's use of
the Premises or because Tenant  vacates the Premises,  then Tenant shall pay the
amount of such increase to Landlord upon demand therefor.

          I. FIRE AND CASUALTY DAMAGE.

               A. Total or Substantial  Damage and Destruction.  If the Premises
or the Building  should be damaged or  destroyed by fire or other peril,  Tenant
shall immediately give written notice to Landlord of such damage or destruction.
If the Premises or the Building should be totally destroyed by any peril covered
by the insurance to be provided by Landlord under Paragraph 9A above, or if they
should be so damaged  thereby  that,  in  Landlord's  estimation,  rebuilding or
repairs cannot be completed  within one hundred eighty (180) days after the date
of such damage or after such completion there would not be enough time remaining
under the terms of this Lease to fully amortize such rebuilding or repairs, then
this Lease shall  terminate  and the rent shall be abated  during the  unexpired
portion of this Lease, effective upon the date of the occurrence of such damage.

               A. Partial Damage or Destruction. If the Premises or the Building
should be  damaged by any peril  covered  by the  insurance  to be  provided  by
Landlord under paragraph 9A above and, in Landlord's  estimation,  rebuilding or
repairs can be  substantially  completed  within one hundred  eighty  (180) days
after the date of such damage,  then this Lease shall not terminate and Landlord
shall substantially restore the Premises to its previous condition,  except that
Landlord  shall not be required  to  rebuild,  repair or replace any part of the
partitions,  fixtures,  additions  and  other  improvements  that may have  been
constructed,  erected or  installed in or about the Premises for the benefit of,
by or for Tenant.

               A.  Lienholders'  Rights in  Proceeds.  Notwithstanding  anything
herein to the contrary, in the event the holder of any indebtedness secured by a
mortgage or deed of trust  covering  the  Premises  requires  hat the  insurance
proceeds be applied to such indebtedness,  then Landlord shall have the right to
terminate  this Lease by  delivering  written  notice of  termination  to Tenant
within fifteen (15) days after such requirement is made known to Landlord by any
such holder,  whereupon  all rights and  obligations  hereunder  shall cease and
terminate.

               A. Waiver of Subrogation.  Notwithstanding anything in this Lease
to the contrary,  Landlord and Tenant hereby waive and release each other of and
from any and all rights of recovery, claims, actions or causes of action against
each other, or their respective agents, officers and employees,  for any loss or
damage that may occur to the Premises,  improvements to the Building or personal
property (Building contents) within the Building and/or Premises, for any reason
regardless of cause or origin. Each party to this Lease agrees immediately after
execution  of this  Lease to give  written  notice  of the  terms of the  mutual
waivers contained in this subparagraph to each insurance company that has issued
to such party policies of fire and extended  coverage  insurance and to have the
insurance  policies  properly  endorsed  to provide  that the  carriers  of such
policies waive all rights of recovery under subrogation or otherwise against the
other party.

          I.  LIABILITY AND  INDEMNIFICATION.  Except for any claims,  rights of
recovery  and causes of action that  Landlord  has  released,  Tenant shall hold
Landlord  harmless  from and  defend  Landlord  against  any and all  claims  or
liability  for any  injury or damage (i) to any  person or  property  whatsoever
occurring in, on or about the Premises or any part thereof,  the Building and/or
other common  areas,  the use of which Tenant may have in  accordance  with this
Lease,  if (and only if) such  injury  or damage  shall be caused in whole or in
part by the act, neglect,  fault or omission of any duty by Tenant,  its agents,
servants,  employees or invitees; (ii) arising from the conduct or management of
any work  done by the  Tenant  in or about  the  Premises;  (iii)  arising  from
transactions  of the Tenant;  and (iv) all costs,  counsel  fees,  expenses  and
liabilities  incurred in connection  with any such claim or action or proceeding
brought  thereon.  The  provisions  of  this  Paragraph  11  shall  survive  the
expiration or  termination  of this Lease.  Landlord  shall not be liable in any
event for personal injury or loss of Tenant's  property  caused by fire,  flood,
water  leaks,  rain,  hail,  ice,  snow,  smoke,  lightning,   wind,  explosion,
interruption of utilities or other  occurrences.  Landlord  strongly  recommends
that Tenant  secure  Tenant's own  insurance  in excess of the amounts  required
elsewhere  in this  Lease to protect  against  the above  occurrences  if Tenant
desires additional  coverage for such risks.  Tenant shall give prompt notice to
Landlord of any significant  accidents  involving injury to persons or property.
Furthermore,  Landlord  shall not be  responsible  for lost or  stolen  personal
property, equipment, money or jewelry from the Premises or from the public areas
of the Building or the Project,  regardless of whether such loss occurs when the
area is locked against entry. Landlord shall not be liable to Tenant or Tenant's
employees, customers or invitees of any damages or losses to persons or property
caused by any  Leases in the  Building  or the  Project,  or for any  damages or
losses caused by theft, burglary,  assault, vandalism, or other crimes. Landlord
strongly  recommends  that Tenant provide its own security  systems and services
and secure Tenant's own insurance in excess of the amounts required elsewhere in
this Lease to protect against the above occurrences if Tenant desires additional
protection or coverage for such risks.  Tenant shall give Landlord prompt notice
of any criminal or suspicious conduct within or about the Premises, the Building
or the Project  and/or any personal  injury or property  damage caused  thereby.
Landlord may, but is not obligated to, enter into  agreements with third parties
for the provision, monitoring, maintenance and repair of any courtesy patrols or
similar  services or fire  protective  systems and equipment  and, to the extent
same is provided at Landlord's sole discretion,  Landlord shall not be liable to
Tenant for any  damages,  costs or  expenses  which  occur for any reason in the
event any such system or  equipment  is not  properly  installed,  monitored  or
maintained or any such services are not properly  provided.  Landlord  shall use
reasonable  diligence in the  maintenance of existing  lighting,  if any, in the
parking garage or parking areas  servicing the Premises,  and Landlord shall not
be responsible for additional  lighting or any security measures in the Project,
the Premises, the parking garage or other parking areas.

          I. USE. The Premises  shall be used only for the purpose of receiving,
storing,  shipping  and selling  (other than  retail)  products,  materials  and
merchandise made and/or distributed by Tenant and for such other lawful purposes
as may be  directly  incidental  thereto.  Outside  storage,  including  without
limitation  storage  of  trucks  and  other  vehicles,   is  prohibited  without
Landlord's  prior  written  consent.  Tenant shall comply with all  governmental
laws, ordinances and regulations applicable to the use of the Premises and shall
promptly comply with all governmental  orders and directives for the correction,
prevention  and abatement of nuisances in, upon or connected  with the Premises,
all at Tenant's  sole  expense.  Tenant  shall not permit any  objectionable  or
unpleasant  odors,  smoke,  dust,  gas,  noise or vibrations to emanate from the
Premises,  nor take any other  action that would  constitute a nuisance or would
disturb,  unreasonably  interfere with or endanger Landlord or any other lessees
of the Building or the Project.

          I. HAZARDOUS WASTE.  The term "Hazardous  Substances," as used in this
Lease,  shall  mean  pollutants,   contaminants,   toxic  or  hazardous  wastes,
radioactive  materials  or any other  substances,  the use and/or the removal of
which is required or the use of which is restricted,  prohibited or penalized by
any  "Environmental  Law,"  which term shall  mean any  federal,  state or local
statute,   ordinance,   regulation   or   other   law  of  a   governmental   or
quasi-governmental   authority  relating  to  pollution  or  protection  of  the
environment   or  the  regulation  of  the  storage  or  handling  of  Hazardous
Substances.  Tenant hereby agrees that: (i) no activity will be conducted on the
Premises that will produce any Hazardous Substances,  except for such activities
that are part of the  ordinary  course  of  Tenant's  business  activities  (the
"Permitted  Activities"),  provided said  Permitted  Activities are conducted in
accordance  with all  Environmental  Laws and have been  approved  in advance in
writing by Landlord and, in connection  therewith,  Tenant shall be  responsible
for obtaining  any required  permits or  authorizations  and paying any fees and
providing any testing  required by any  governmental  agency;  (ii) the Premises
will not be used in any manner  for the  storage  of any  Hazardous  Substances,
except for the temporary storage of such materials that are used in the ordinary
course of Tenant's business (the "Permitted Materials"), provided such Permitted
Materials are properly stored in a manner and location meeting all Environmental
Laws and have  been  approved  in  advance  in  writing  by  Landlord,  and,  in
connection  therewith,  Tenant shall be  responsible  for obtaining any required
permits or authorizations and paying any fees and providing any testing required
by any governmental  agency;  (iii) no portion of the Premises will be used as a
landfill or a dump;  (iv) Tenant will not install any  underground  tanks of any
type; (v) Tenant will not allow any surface or subsurface conditions to exist or
come into existence that constitute, or with the passage of time may constitute,
a public or private  nuisance;  and (vi)  Tenant  will not permit any  Hazardous
Substances to be brought onto the Premises,  except for the Permitted Materials,
and if so  brought  or found  located  thereon,  the same  shall be  immediately
removed,  with proper disposal,  and all required  clean-up  procedures shall be
diligently  undertaken by Tenant at its sole cost pursuant to all  Environmental
Laws. Landlord and Landlord's  representatives  shall have the right but not the
obligation to enter the Premises for the purpose of inspecting the storage,  use
and  disposal  of  any  Permitted   Materials  to  ensure  compliance  with  all
Environmental  Laws. Should it be determined,  in Landlord's sole opinion,  that
any Permitted  Materials are being improperly stored,  used or disposed of, then
Tenant shall  immediately take such corrective  action as requested by Landlord.
Should Tenant fail to take such corrective action within twenty-four (24) hours,
Landlord  shall have the right to perform such work and Tenant  shall  reimburse
Landlord,  on demand, for any and all costs associated with said work. If at any
time  during  or  after  the term of this  Lease,  the  Premises  is found to be
contaminated with Hazardous Substances, Tenant shall diligently institute proper
and  thorough  clean-up  procedures,  at Tenant's  sole cost.  Tenant  agrees to
indemnify  and  hold  Landlord  harmless  from  all  claims,  demands,  actions,
liabilities,  costs, expenses,  damages, penalties and obligations of any nature
arising from or as a result of any  contamination of the Premises with hazardous
Substances,  or otherwise  arising  from the use of the Premises by Tenant.  The
foregoing  indemnification and the  responsibilities of Tenant shall survive the
termination or expiration of this Lease.

          I. INSPECTION.  Landlord's agents and  representatives  shall have the
right to enter the Premises at any reasonable  time during business hours (or at
any time in case of emergency)  (i) to inspect the  Premises,  (ii) to make such
repairs as may be required or  permitted  pursuant to this Lease,  and/or  (iii)
during the last six (6) months of the Lease term, for the purpose of showing the
Premises. In addition, Landlord shall have the right to erect a suitable sign on
the Premises  stating the Premises are available for Lease.  Tenant shall notify
Landlord in writing at least thirty (30) days prior to vacating the Premises and
shall arrange to meet with Landlord for a joint inspection of the Premises prior
to  vacating.  If  Tenant  fails to give  such  notice  or to  arrange  for such
inspection,  then Landlord's  inspection of the Premises shall be deemed correct
for  the  purpose  of  determining  Tenant's   responsibility  for  repairs  and
restoration of the Premises.

          I. ASSIGNMENT AND  SUBLETTING.  Tenant shall have the right to sublet,
assign or otherwise  transfer or encumber this Lease,  or any interest  therein,
without  the prior  written  consent  of  Landlord.  Any  attempted  assignment,
subletting,  transfer or  encumbrance  by Tenant in  violation  of the terms and
covenants of this paragraph shall be void. Any assignee, sublessee or transferee
of  Tenant's  interest  in  this  Lease  (all  such  assignees,  sublessees  and
transferees  being  hereinafter  referred  to  as  "Transferees"),  by  assuming
Tenant's  obligations  hereunder,  shall  assume  liability  to Landlord for all
amounts  paid to  persons  other  than  Landlord  by such  Transferees  to which
Landlord is entitled or is otherwise in  contravention  of this Paragraph 15. No
assignment,  subletting  or  other  transfer,  whether  or not  consented  to be
Landlord or permitted  hereunder,  shall relieve  Tenant of its liability  under
this Lease. If an Event of Default occurs while the Premises or any part thereof
are assigned or sublet, then Landlord,  in addition to any other remedies herein
provided or provided by law, may collect directly from such Transferee all rents
payable  to the  Tenant  and  apply  such  rent  against  any sums due  Landlord
hereunder.  No such collection  shall be construed to constitute a novation or a
release  of  Tenant  from  the  further  performance  of  Tenant's   obligations
hereunder.  If Landlord  consents to any  subletting  or assignment by Tenant as
hereinabove  provided and any category of rent  subsequently  received by Tenant
under any such  sublease is in excess of the same category of rent payable under
this Lease,  or any additional  consideration  is paid to Tenant by the assignee
under any such assignment, then Landlord may, at its option, declare such excess
rents under any sublease or such additional  consideration for any assignment to
be due and payable by Tenant to  Landlord  as  additional  rent  hereunder.  The
following  shall  additionally  constitute an assignment of this Lease by Tenant
for the  purposes  of this  Paragraph  15: (i) if Tenant is a  corporation,  any
merger, consolidation, dissolution or liquidation, or any change in ownership or
power to vote of thirty  percent  (30%) or more of Tenant's  outstanding  voting
stock;  (ii) if Tenant is a  partnership,  joint  venture or other  entity,  any
liquidation,  dissolution  or transfer of  ownership of any  interests  totaling
thirty  percent (30%) or more of the total  interests in such entity;  (iii) the
sale, transfer, exchange,  liquidation or other distribution of more than thirty
percent (30%) of Tenant's  assets,  other than this Lease; or (iv) the mortgage,
pledge, hypothecation or other encumbrance of or grant of a security interest by
Tenant in this Lease, or of any of Tenant's rights hereunder.

          I. CONDEMNATION. If more than eighty percent (80%) of the Premises are
taken for any public or quasi-public use under  governmental  law,  ordinance or
regulation,  or by right of eminent domain or private  purchase in lieu thereof,
and the taking  prevents or materially  interferes with the use of the remainder
of the Premises for the purpose for which they were leased to Tenant,  then this
Lease shall terminate and the rent shall be abated during the unexpired  portion
of this Lease, effective on the date of such taking. If less than eighty percent
(80%) of the  Premises  are taken for any public or  quasi-public  use under any
governmental  law,  ordinance or  regulation,  or by right of eminent  domain or
private  purchase  in  lieu  thereof,  or if the  taking  does  not  prevent  or
materially  interfere  with the use of the  remainder  of the  Premises  for the
purpose  for  which  they were  leased to  Tenant,  then  this  Lease  shall not
terminate,  but the rent payable  hereunder during the unexpired portion of this
Lease shall be reduced to such extent as may be fair and reasonable under all of
the circumstances. All compensation awarded in connection with or as a result of
any of the foregoing  proceedings shall be the property of Landlord,  and Tenant
hereby  assigns any interest in any such award to Landlord;  provided,  however,
Landlord shall have no interest in any award made to Tenant for loss of business
or goodwill or for the taking of Tenant's trade fixtures and personal  property,
if a separate award for such items is made to Tenant.

          I. HOLDING OVER. At the termination of this Lease by its expiration or
otherwise,  Tenant  shall  immediately  deliver  possession  of the  Premises to
Landlord  with all repairs and  maintenance  required  herein to be performed by
Tenant completed.  If, for any reason, Tenant retains possession of the Premises
after the  expiration or  termination  of this Lease,  unless the parties hereto
otherwise agree in writing,  such possession  shall be deemed to be a tenancy at
will only,  and all of the other  terms and  provisions  of this Lease  shall be
applicable  during such period,  except that Tenant shall pay Landlord from time
to time,  upon demand,  as rental for the period of such  possession,  an amount
equal to one and  one-half  (1 1/2) times the rent in effect on the date of such
termination  of this  Lease,  computed  on a daily  basis  for  each day of such
period. No holding over by Tenant,  whether with or without consent of Landlord,
shall operate to extend this Lease except as otherwise expressly  provided.  The
preceding  provisions of this Paragraph 17 shall not be construed as consent for
Tenant to retain  possession  of the Premises in the absence of written  consent
thereto by Landlord.

          I. QUIET ENJOYMENT.  Landlord  represents that it has the authority to
enter into this Lease and that, so long as Tenant pays all amounts due hereunder
and performs all other covenants and agreements  herein set forth,  Tenant shall
peaceably  and quietly  have,  hold and enjoy the  Premises  for the term hereof
without  hindrance  or  molestation  from  Landlord,  subject  to the  terms and
provisions of this Lease.

          I.  EVENTS OF  DEFAULT.  The  following  events  (herein  individually
referred  to as an "Event of  Default")  each shall be deemed as a default in or
breach of Tenant's obligations under this Lease:

               A. Tenant  shall fail to pay any  installment  of the rent herein
reserved when due, or any other payment or  reimbursement  to Landlord  required
herein when due, and such failure  shall  continue for a period of five (5) days
from the date such payment was due.

               A.  Tenant  shall (i)  vacate  or  abandon  all or a  substantial
portion of the Premises  (ii) fail to  continuously  operate its business at the
Premises for the permitted use set forth herein,  in either event whether or not
Tenant is in default of the rental payments due under this Lease.

               A.  Tenant  shall  fail to  discharge  any lien  placed  upon the
Premises in violation of Paragraph 22 hereof  within  twenty (20) days after any
such lien or encumbrance is filed against the Premises.

               A.  Tenant  shall  default  in  the  performance  of  any  of its
obligations under any other lease to Tenant from Landlord, or from any person or
entity  affiliated  with or related to Landlord,  and same shall remain  uncured
after the lapsing of any applicable  cure periods  provided for under such other
lease.

               A.  Tenant  shall  fail to  comply  with any term,  provision  or
covenant of this Lease  (other than those listed  above in this  paragraph)  and
shall not cure such failure within twenty (20) days after written notice thereof
from Landlord.

          I.  REMEDIES.  Upon each  occurrence of an Event of Default,  Landlord
shall  have the  option  to  pursue  any one or more of the  following  remedies
without any notice or demand:

                    1. Terminate this Lease;

                    1. Enter upon and take  possession  of the Premises  without
                       terminating this Lease;

                    1. Make such payments and/or take such action and pay and/or
                       perform  whatever  Tenant is  obligated to pay or perform
                       under the terms of this  Lease,  and Tenant  agrees  that
                       Landlord shall not be liable for any damages resulting to
                       Tenant from such action; and/or

                    1. Alter  all  locks  and  other  security  devices  at  the
                       Premises,  with or without  terminating  this Lease,  and
                       pursue,  at  Landlord's  option,  one  or  more  remedies
                       pursuant  to this  Lease,  and  Tenant  hereby  expressly
                       agrees that Landlord  shall not be required to provide to
                       Tenant the new key to the  Premises,  regardless of hour,
                       including  Tenant's  regular  business hours;  and in any
                       such event Tenant shall immediately  vacate the Premises,
                       and if Tenant fails to do so,  Landlord  without  waiving
                       any other  remedy it may  have,  may enter  upon and take
                       possession of the Premises and expel or remove Tenant and
                       any other  person who may be occupying  such  Premises or
                       any part thereof, without being liable for prosecution or
                       any  claim  of  damages  therefore.  In the  event of any
                       violation of Section 93.002 of the Texas Property Code by
                       Landlord or by any agent or employee of Landlord,  Tenant
                       hereby  expressly  waives any and all  rights  Tenant may
                       have under Paragraph (g) of such Section 93.002.

               A. Damages Upon Termination. If Landlord terminates this Lease at
Landlord's option,  Tenant shall be liable for and shall pay to Landlord the sum
of all rental and other payments owed to Landlord  hereunder accrued to the date
of such  termination,  plus, as liquidated  damages,  an amount equal to (i) the
present  value of the total rental and other  payments  owed  hereunder  for the
remaining  portion of the Lease term,  calculated as if such term expired on the
date set forth in  Paragraph  1, less  (ii) the  present  value of the then fair
market rental for the Premises for such period,  provided  that,  because of the
difficulty  of  ascertaining  such  value and in order to  achieve a  reasonable
estimate of  liquidated  damages  hereunder,  Landlord and Tenant  stipulate and
agree, for the purposes  hereof,  that such fair market rental shall in no event
exceed seventy-five percent (75%) of the rental amount for such period set forth
in Paragraph 2 above.

               A.  Damages  Upon  Repossession.   If  Landlord  repossesses  the
Premises without terminating this Lease,  Tenant, at Landlord's option, shall be
liable for and shall pay Landlord on demand all rental and other  payments  owed
to  Landlord  hereunder,  accrued  to the  date of such  repossession,  plus all
amounts  required to be paid by Tenant to Landlord  until the date of expiration
of the term as  stated  in  Paragraph  1,  diminished  by all  amounts  actually
received by Landlord  through  reletting the Premises during such remaining term
(but only to the extent of the rent herein reserved). Actions to collect amounts
due by Tenant to Landlord under this paragraph may be brought from time to time,
on one or more  occasions,  without the  necessity of  Landlord's  waiting until
expiration of the Lease term.

               A. Costs of Reletting, Removing, Repairs and Enforcement. Upon an
Event  of  Default,  in  addition  to any sum  provided  to be paid  under  this
Paragraph  20,  Tenant  also shall be liable for and shall pay to  Landlord  (i)
brokers'  fees  and all  other  costs  and  expenses  incurred  by  Landlord  in
connection with reletting the whole or any part of the Premises;  (ii) the costs
of removing,  storing or disposing of Tenant's or any other occupant's property;
(iii) the costs of  repairing,  altering,  remodeling  or otherwise  putting the
Premises into condition  acceptable to a new tenant or tenants' (iv) any and all
costs and expenses  incurred by Landlord in effecting  compliance  with Tenant's
obligations  under this  Lease;  and (v) all  reasonable  expenses  incurred  by
Landlord in enforcing or defending  Landlord's rights and/or remedies hereunder,
including without limitation all reasonable  attorneys' fees and all court costs
incurred in connection with such enforcement or defense.  B. Late Charge. In the
event Tenant fails to make any payment due hereunder  within five (5) days after
such payment is due,  including without limitation any rental or escrow payment,
in order to help defray the  additional  cost to Landlord  for  processing  such
payments  and not as  interest,  Tenant  shall pay to  Landlord on demand a late
charge in an amount equal to five percent (5%) of such  payment.  The  provision
for such late charge shall be in addition to all of the Landlord's  other rights
and remedies  hereunder  or at law,  and shall not be  construed  as  liquidated
damages or as limiting Landlord's remedies in any manner.

               A.  Interest on Past Due Amounts.  If Tenant fails to pay any sum
which at any time becomes due to Landlord  under any  provision of this Lease as
and when the same becomes due hereunder, and such failure continues for ten (10)
days after the due date for such  payment,  then  Tenant  shall pay to  Landlord
interest on such overdue  amounts from the date due until paid at an annual rate
which equals the lesser of (i) eighteen  percent  (18%) or (ii) the highest rate
then permitted by law.

               A. No Implied Acceptance or Waivers.  Exercise by Landlord of any
one or more remedies hereunder granted or otherwise available shall be deemed to
be an  acceptance by Landlord of Tenant's  surrender of the  Premises,  it being
understood that such surrender can be effected only by the written  agreement of
Landlord.  Tenant and Landlord  further  agree that  forbearance  by Landlord to
enforce any of its rights under this Lease or at law or in equity shall not be a
waiver of Landlord's rights to enforce any one or more of its rights,  including
any right  previously  forborne,  in connection  with any existing or subsequent
default.  No re-entry or taking  possession of the Premises by Landlord shall be
construed as an election on its part to terminate  this Lease,  unless a written
notice of such  intention  is given to  Tenant,  and,  notwithstanding  any such
reletting or re-entry or taking possession of the Premises,  Landlord may at any
time thereafter elect to terminate this Lease for a previous default. Pursuit of
any remedies hereunder shall not preclude the pursuit of any other remedy herein
provided or any other remedies  provided by law, nor shall pursuit of any remedy
herein  provided  constitute a forfeiture  or waiver of any rent due to Landlord
hereunder or of any damages  occurring to Landlord by reason of the violation of
any of the terms,  provisions and covenants contained in this Lease.  Landlord's
acceptance  of any rent  following  an Event of Default  hereunder  shall not be
construed as Landlord's  waiver of such Event of Default.  No waiver by Landlord
of any violation or breach of any of the terms, provisions and covenants of this
Lease shall be deemed or construed to constitute a waiver of any other violation
or default.

               A. Reletting of Premises. In the event of any termination of this
Lease and/or  repossession  of the  Premises  for an Event of Default,  Landlord
shall use  reasonable  efforts to relet the Premises and to collect rental after
reletting,  with  no  obligation  to  accept  any  lessee  that  Landlord  deems
undesirable  or to  expend  any  funds in  connection  with  such  reletting  or
collection  of rents  therefrom.  Tenant  shall not be  entitled  to credit  for
reimbursement  of any  proceeds of such  reletting  in excess of the rental owed
hereunder for the period of such reletting.  Landlord may relet the whole or any
portion  of the  Premises,  for any  period,  to any  tenant  and for any use or
purpose.

               A.  Landlord's  Default.  If Landlord fails to perform any of its
obligations  hereunder  within thirty (30) days after written notice from Tenant
specifying  such  failure,  Tenant's  exclusive  remedy  shall  bean  action for
damages.  Unless  and until  Landlord  fails to so cure any  default  after such
notice.  Tenant shall not have any remedy or cause of action by reason  thereof.
All  obligations  of Landlord  hereunder  will be  construed as  covenants,  not
conditions;  and all such  obligations will be binding upon Landlord only during
the  period of its  possession  of the  premises  and not  thereafter.  The term
"Landlord"  shall mean only the owner,  for the time being, of the Premises and,
in the event of the transfer by such owner of its interest in the Premises, such
owner  shall  thereupon  be  released  and  discharged  from all  covenants  and
obligations of the Landlord  thereafter  accruing,  provided that such covenants
and  obligations  shall be binding during the Lease term upon each new owner for
the duration of such owner's ownership.  Notwithstanding  any other provision of
this Lease,  Landlord shall not have any personal  liability  hereunder.  In the
event of any breach or  default by  Landlord  in any term or  provision  of this
Lease,  Tenant  agrees to look  solely to the equity or  interest  then owned by
Landlord  in the  Premises  or the  Building;  however,  in no event  shall  any
deficiency  judgment  or any money  judgment  of any kind be sought or  obtained
against any Landlord.

          A. Tenant's Personal  Property.  If Landlord  repossesses the Premises
pursuant to the authority  herein granted,  or if Tenant vacates or abandons all
or any part of the  Premises,  then,  in addition  to  Landlord's  rights  under
paragraph 27 hereof, Landlord shall have the right to (i) keep in place and use,
or (ii) remove and store,  all of the  furniture,  fixtures and equipment at the
Premises,  including  that which is owned by or leased to  Tenant,  at all times
prior to any  foreclosure  thereon by  Landlord or  repossession  thereof by any
lessor  thereof  or  third  party  having a lien  thereon.  In  addition  to the
Landlord's other rights  hereunder,  Landlord may dispose of the stored property
if Tenant  does not claim the  property  within ten (10) days after the date the
property  is stored.  Landlord  shall  give  Tenant at least ten (10) days prior
written notice of such intended disposition.  Landlord shall also have the right
to  relinquish  possession  of all or any portion of such  furniture,  fixtures,
equipment and other property to any person ("Claimant") who presents to Landlord
a copy of any instrument represented by Claimant to have been executed by Tenant
(or any  predecessor  of  Tenant)  granting  Claimant  the right  under  various
circumstances to take possession of such furniture, fixtures, equipment or other
property,  without the  necessity  on the part of  Landlord to inquire  into the
authenticity  or legality  of said  instrument.  The rights of  Landlord  herein
stated shall be in addition to any and all other rights that Landlord has or may
hereafter  have at law or in equity,  and Tenant  stipulates and agrees that the
rights granted Landlord under this paragraph are commercially reasonable.

          I. MORTGAGES. Tenant accepts this Lease subject and subordinate to any
mortgages and/or deeds of trust now or at any time hereafter constituting a lien
or  charge  upon  the  Premises  or the  improvements  situated  thereon  or the
Building,  provided,  however,  that if the mortgagee,  trustee or holder of any
such  mortgage or deed of trust elects to have  Tenant's  interest in this Lease
superior to any such  instrument,  then by notice to Tenant from such mortgagee,
trustee or holder,  this Lease shall be deemed  superior  to such lien,  whether
this Lease was executed before or after said mortgage or deed of trust.  Tenant,
at any time  hereafter on demand,  shall  execute any  instruments,  releases or
other documents that may be required by any mortgagee, trustee or holder for the
purpose  of  subjecting  and  subordinating  this  Lease to the lien of any such
mortgage.  Tenant  shall not  terminate  this Lease or pursue  any other  remedy
available to Tenant  hereunder  for any default on the part of Landlord  without
first giving  written  notice by certified or registered  mail,  return  receipt
requested,  to any mortgagee,  trustee or holder of any such mortgage or deed of
trust,  the name and post office  address of which Tenant has  received  written
notice,   specifying  the  default  in  reasonable  detail  and  affording  such
mortgagee, trustee or holder a reasonable opportunity (but in no event less than
thirty (30) days) to make  performance,  at its  election,  for and on behalf of
Landlord.

          I. MECHANIC'S LIENS.  Tenant has no authority,  express or implied, to
create or place any lien or encumbrance of any kind or nature  whatsoever  upon,
or in any manner to bind,  the  interest of Landlord or Tenant in the  Premises.
Tenant  will save and hold  Landlord  harmless  from any and all  loss,  cost or
expense,  including without limitation  attorneys' fees, based on or arising out
of asserted  claims or liens against the leasehold  estate or against the right,
title and  interest of the  Landlord in the  Premises or under the terms of this
Lease.

          I. MISCELLANEOUS.

               A.  Interpretation.  The captions  inserted in this Lease are for
convenience only and in no way define,  limit or otherwise describe the scope or
intent  of this  Lease,  or any  provisions  hereof,  or in any way  affect  the
interpretation of this Lease. Any reference in this Lease to rentable area shall
mean the gross  rentable  area as  determined by the roofline of the building in
question.

               A. Binding Effect. Except as otherwise herein expressly provided,
the terms, provisions and covenants and conditions in this Lease shall apply to,
inure to the benefit of and be binding  upon the  parties  hereto and upon their
respective heirs, executors,  personal  representatives,  legal representatives,
successors and assigns. Landlord shall have the right to transfer and assign, in
whole or in part, its rights and obligations in the Premises and in the Building
and other property that are the subject of this Lease.

               A. Evidence of  Authority.  Tenant agrees to furnish to Landlord,
promptly upon demand,  a corporate  resolution,  proof of due  authorization  by
partners or other appropriate  documentation evidencing the due authorization of
such party to enter into this Lease.

               A. Force  Majeure.  Landlord  shall not be held  responsible  for
delays in the performance of its  obligations  hereunder when caused by material
shortages,  acts of God,  labor  disputes or other events  beyond the control of
Landlord.

               A. Payments Constitute Rent. Notwithstanding anything in this
Lease to the contrary, all amounts payable by Tenant to or on behalf of Landlord
under this Lease, whether or not expressly denominated as rent, shall constitute
rent.

               A. Estoppel Certificates. Tenant agrees, from time to time,
within ten (10) days after the  request of  Landlord,  to deliver to Landlord or
Landlord's designee,  an estoppel certificate stating that this Lease is in full
force and effect,  the date to which rent has been paid,  the unexpired  term of
this Lease, any defaults  existing under this Lease (or the absence thereof) and
such other factual or legal matters pertaining to this Lease as may be requested
by Landlord.  It is understood  and agreed that  Tenant's  obligation to furnish
such estoppel  certificates  in a timely  fashion is a material  inducement  for
Landlord's execution of this Lease.

               A.  Entire   Agreement.   This  Lease   constitutes   the  entire
understanding  and  agreement of Landlord and Tenant with respect to the subject
matter of this Lease,  and  contains  all of the  covenants  and  agreements  of
Landlord and Tenant with respect  thereto.  Landlord and Tenant each acknowledge
that no representations,  inducements,  promises or agreements, oral or written,
have been made by Landlord or Tenant,  or anyone acting on behalf of Landlord or
Tenant,  which are not contained  herein,  and any prior  agreements,  promises,
negotiations or representations  not expressly set forth in this Lease are of no
force or effect.  EXCEPT AS SPECIFICALLY  PROVIDED IN THIS LEASE,  TENANT HEREBY
WAIVES THE BENEFIT OF ALL  WARRANTIES,  EXPRESS OR IMPLIED,  WITH RESPECT TO THE
PREMISES,  INCLUDING  WITHOUT  LIMITATION ANY IMPLIED WARRANTY THAT THE PREMISES
ARE SUITABLE FOR ANY PARTICULAR PURPOSE.  Landlord's agents and employees do not
and will not have  authority to make  exceptions,  changes or amendments to this
Lease, or factual  representations  not expressly contained in this Lease. Under
no  circumstances  shall Landlord or Tenant be considered an agent of the other.
This Lease may not be altered,  changed or amended  except by an  instrument  in
writing signed by both parties hereto.

               A. Survival of Obligations. All obligations of Tenant
hereunder not fully performed as of the expiration or earlier termination of the
term of this Lease shall survive the  expiration or earlier  termination  of the
term hereof,  including without limitation all payment  obligations with respect
to taxes and insurance and all  obligations  concerning the condition and repair
of the Premises.  Upon the expiration or earlier termination of the term hereof,
and prior to Tenant  vacating  the  Premises,  Tenant  shall pay to Landlord any
amount reasonably estimated by Landlord as necessary to put the Premises in good
condition  and repair,  reasonable  wear and tear  excluded,  including  without
limitation,  the cost of  repairs to and  replacements  of all  heating  and air
conditioning systems and equipment therein. Tenant shall also, prior to vacating
the Premises,  pay to Landlord the amount, as estimated by Landlord, of Tenant's
obligation  hereunder for real estate taxes and insurance  premiums for the year
in which the Lease  expires or  terminates.  All such amounts  shall be used and
held by  Landlord  for payment of such  obligations  of Tenant  hereunder,  with
Tenant being liable for any additional  costs therefore upon demand by Landlord,
or with any excess to be returned to Tenant after all such obligations have been
determined  and  satisfied,  as the case may be. Any  Security  Deposit  held by
Landlord may, at  Landlord's  option,  be credited  against any amounts due from
Tenant under this Paragraph 23H.

               A.  Severability  of Terms.  If any clause or  provision  of this
Lease is  illegal,  invalid  or  unenforceable  under  present  or  future  laws
effective  during  the  term of this  Lease,  then,  in  such  event,  it is the
intention  of the parties  hereto that the  remainder of this Lease shall not be
affected thereby, and it is also the intention of the parties to this Lease that
in lieu of each clause or  provision  of this Lease that is illegal,  invalid or
unenforceable,  there be added,  as part of this Lease, a clause or provision as
similar in terms to such illegal,  invalid or unenforceable  clause or provision
as may be possible and be legal, valid and enforceable.

               A.  Effective  Date.  All  references  in this Lease to "the date
hereof" or  similar  references  shall be deemed to refer to the last  date,  in
point of time, on which all parties hereto have executed this Lease.

               A. Brokers'  Commission.  Tenant  represents and warrants that it
has dealt with and will deal with no broker, agent or other person in connection
with this transaction or future related  transactions and that no broker,  agent
or other person brought about this  transaction,  and Tenant agrees to indemnify
and hold Landlord  harmless from and against any claims by any broker,  agent or
other person  claiming a commission or other form of  compensation  by virtue of
having dealt with Tenant with regard to this leasing transaction.

               A.  Ambiguity.  Landlord and Tenant hereby agree and  acknowledge
that this Lease has been fully  reviewed  and  negotiated  by both  Landlord and
Tenant,  and that Landlord and Tenant have each had the opportunity to have this
Lease reviewed by their respective legal counsel, and, accordingly, in the event
of any ambiguity herein,  Tenant does hereby waive the rule of construction that
such ambiguity shall be resolved against the party who prepared this Lease.

               A. Joint Several Liability. If there be more than one Tenant, the
obligations  hereunder imposed upon Tenant shall be joint and several.  If there
be a guarantor of Tenant's  obligations  hereunder,  the  obligations  hereunder
imposed  upon Tenant shall be joint and several  obligations  of Tenant and such
guarantor,  and Landlord need not first proceed against Tenant before proceeding
against  such  guarantor,  nor shall any such  guarantor  be  released  from its
guaranty for any reason whatsoever,  including,  without limitation,  in case of
any  amendments  hereto,  waivers  hereof or failure to give such  guarantor any
notices hereunder.

               A. Third Party  Rights.  Nothing  herein  expressed or implied is
intended, or shall be construed, to confer upon or give to any person or entity,
other than the parties  hereto,  any right or remedy  under or by reason of this
Lease.

               A. Exhibits and Attachments. All exhibits, attachments, riders
and addenda  referred to in this Lease, and the exhibits listed herein below and
attached hereto, are incorporated into this Lease and made a part hereof for all
intents and purposes as if fully set out herein.  All capitalized  terms used in
such documents shall,  unless otherwise defined therein,  have the same meanings
as are set forth herein.

               B.  Applicable  Law. This Lease has been executed in the State of
Texas and shall be governed  in all  respects by the laws of the State of Texas.
It is the intent of Landlord  and Tenant to conform  strictly to all  applicable
state and federal  usury  laws.  All  agreements  between  Landlord  and Tenant,
whether now  existing or  hereafter  arising  and whether  written or oral,  are
hereby expressly limited so that in no contingency or event whatsoever shall the
amount contracted for, charged or received by Landlord for the use,  forbearance
or retention of money  hereunder  or otherwise  exceed the maximum  amount which
Landlord  is legally  entitled  to  contract  for,  charge or collect  under the
applicable  state  or  federal  law.  If,  from  any  circumstance   whatsoever,
fulfillment  of any provision  hereof at the time  performance of such provision
shall be due shall involve transcending the limit of validity prescribed by law,
then the obligation to be fulfilled shall be automatically  reduced to the limit
of such validity,  and if from any such circumstance Landlord shall ever receive
as interest or  otherwise an amount in excess of the maximum that can be legally
collected,  then such amount which would be excessive  interest shall be applied
to the reduction of rent hereunder,  and if such amount which would be excessive
interest  exceeds such rent, then such  additional  amounts shall be refunded to
Tenant.

          I. NOTICES.  Each  provision of this  instrument or if any  applicable
governmental laws, ordinances, regulations and other requirements with reference
to the sending,  mailing or delivering of notice of the making of any payment by
Landlord to Tenant or with  reference to the sending,  mailing or  delivering of
any notice or the making of any payment by Tenant to Landlord shall be deemed to
be complied with when and if the following steps are taken:

          (i) All rent and  other  payments  required  to be made by  Tenant  to
Landlord  hereunder shall be payable to Landlord at the address for Landlord set
forth below or at such other  address as Landlord  may specify from time to time
by written notice delivered in accordance  herewith.  Tenant's obligation to pay
rent and any other  amounts to Landlord  under the terms of this Lease shall not
be  deemed  satisfied  until  such  rent and other  amounts  have been  actually
received by Landlord.

          (ii) All payments required to be made by Landlord to Tenant hereunder
shall be  payable to Tenant at the  address  set forth  below,  or at such other
address within the continental  United States as Tenant may specify from time to
time by written notice delivered in accordance herewith.

          (iii)  Except  as  expressly  provided  herein,  any  written  notice,
document,  or payment  required or permitted to be delivered  hereunder shall be
deemed to be delivered when received or, whether actually  received or not, when
deposited in the United States Mail,  postage  prepaid,  Certified or Registered
Mail, addressed to the parties hereto at the respective addresses set out below,
or at such other address as they have  theretofore  specified by written  notice
delivered in accordance herewith.

          I.  ADDITIONAL  PROVISIONS.   See  Exhibit  "C"  attached  hereto  and
incorporated  herein by  reference.  II.  LANDLORD'S  LIEN.  In  addition to any
statutory  lien for rent in  Landlord's  favor,  Landlord  shall have and Tenant
hereby  grants to  Landlord a  continuing  security  interest in all rentals and
other sums of money  which may become  due under  this  Lease from  Tenant,  all
goods, equipment, fixtures, furniture, inventory, and other personal property of
Tenant now or hereafter situated at, on or within the real property described in
EXHIBIT "A"  attached  hereto and  incorporated  herein by  reference,  and such
property shall not be removed therefrom without the consent of Landlord,  except
in the ordinary course of Tenant's  business.  In the event any of the foregoing
described  property is removed from the Premises in violation of the covenant in
the preceding  sentence,  the security  interest shall continue in such property
and all proceeds and products,  regardless of location. Upon an Event of Default
hereunder by Tenant, in addition to all of Landlord's other rights and remedies,
Landlord shall have all rights and remedies under the Uniform  Commercial  Code,
including  without  limitation the right to sell the property  described in this
paragraph at public or private sale at any time after ten (10) days prior notice
by Landlord.  Tenant hereby agrees to execute such other  instruments  deemed by
Landlord as necessary or desirable  under  applicable  law to perfect more fully
the security interest hereby created.  Landlord and Tenant agree that this Lease
and security  agreement  and EXHIBIT "A" attached  hereto  serves as a financing
statement and that a copy,  photograph or other  reproduction of this portion of
this Lease may be filed of record by Landlord and have the same force and effect
as the original.  This security  agreement and financing  statement  also covers
fixtures located at the Premises subject to this Lease and legally  described in
EXHIBIT "A" attached hereto, and all rents or other consideration received by or
on behalf of Tenant in connection  with any  assignment of Tenant's  interest in
this Lease or any sublease of the Premises or any part thereof,  and, therefore,
may also be filed for record in the appropriate real estate records.

         EXECUTED BY LANDLORD, this _______ of ________________, 19______.

                          STONELAKE ASSOCIATES, LTD.:

                          By:  Crow-Gottesman-Hill #23, General Partner
                          By:  Trammell Crow Central Texas, Inc., Agent



                          By:   Andrew R. Pastor
                          Title:   Vice President
Attest/Witness            Address:  c/o Trammell Crow Central Texas, Inc.
                          301 Congress Avenue, Suite 1300, Austin, Tx  78701
Title:




<PAGE>


         EXECUTED BY TENANT, this _____ day of ___________, 19_____.


                           PHONEWORKS, INC., DBA ONEPHONE CALL:



                           By:   Kenneth J. Hardor
                           Title:   President
Attest/Witness             Address:  11130 Jollyville Rd. #1000
                           Austin, Tx  78759
Title:


EXHIBIT "A"       -        Description of Premises
EXHIBIT "C"       -        Additional Provisions


<PAGE>


                                               EXHIBIT "A"



BUILDING:                                   Stonelake #3

LEGAL DESCRIPTION:                  James Rogers Survey #19, Abstract 659

ADDRESS:                            4030 Braker Lane West
                                            Austin, Texas  78759



[DIAGRAM OF BRAKER LANE]


<PAGE>


                                   EXHIBIT "C"

                              ADDITIONAL PROVISIONS

INTERIOR IMPROVEMENTS

Tenant shall accept the premises in its current "as is"  condition  and shall be
responsible for all interior  improvements.  These improvements must comply with
Trammell   crow   Company's   standard   specifications   (see   Standards   and
Specifications for Office/Warehouse  Buildings) and all applicable  governmental
regulations.  Prior to beginning  construction of any such improvements,  Tenant
shall submit architectural drawings of the proposed improvements to Landlord and
shall obtain Landlord's written consent to begin construction.

TENANT FINISH ALLOWANCE

Tenant  shall pay all  costs of  improvements  in the  demised  premises.  After
completion of such improvements, Tenant shall provide Landlord with invoices for
all work performed. At the end of the lease term, Landlord shall pay one-half of
cost of such  improvements  up to a maximum  of four  thousand  fifty and 00/100
Dollars  ($4,050.00)  plus interest at eight  percent (8%),  i.e., if the Tenant
finish cost of Tenant prior to  occupancy  is ten  thousand  and 00/100  Dollars
($10,000),  the Landlord  would owe Tenant four thousand five hundred forty five
and 40/100 Dollars ($4,545.40) at the end of the thirtieth month ($4,050 maximum
amortized at 8% interest for 2.5 years).

RENEWAL OPTION

Provided  no Event of  Default  exists,  Tenant  may  renew  the  Lease  for one
additional period of thirty months (30) on the same terms provided in the Lease,
(except  as set forth  below),  by  delivering  written  notice of the  exercise
thereof to  Landlord  not later than one hundred  twenty  days (120)  before the
expiration of the Term.

The Basic Rental  payable for each month during each such extended Term shall be
as follows:

                                             30 Month Option
                                    Months           Base Rental Rate
                                    1-6                       $.75NNN
                                    7-30                      $.80NNN

These amounts shall be in addition to property taxes,  common area  maintenance,
and insurance.

If Tenant exercises this renewal option, at the end of tush renewal option (61st
month of the overall lease term),  Landlord shall pay one-half the amount of the
cost of Tenant improvements as delineated in Exhibit C, Tenant Finish Allowance.
This amount shall not be in excess of four thousand and fifty and 00/100 Dollars
($4,050.00)  and shall accrue  interest at an eight  percent (8%)  interest rate
commencing at the date such  improvements  are made, i.e.: If tenant finish cost
prior to initial  tenant  occupancy  (prior to 1st month of occupancy)  was nine
thousand and 00/100  Dollars  ($9,000.00),  the  Landlord  would owe tenant four
thousand  nine hundred  eighty four and 32/100  Dollars  ($4,984.32)  ($4,050.00
maximum at 8% interest rate for 61 months).


<PAGE>


                                               EXHIBIT "C"

[DIAGRAM OF DRIVE UP RAMP]


PAGE 1



<PAGE>


                                               EXHIBIT "C"


Changes to suite 305:

1. Addition of Eleven (11) five foot (5') dry wall partitions anchored to floor.

2. Move door from inside room to hallway.

3. Remove room in warehouse and replace new wall and door.

                                                       X-O-SPEC Corporation
                                                                  SubLessor



                        By:
                                                  Alan K. Harder, Vice President


                                                                   TRICOHO, Ltd.
                          Palm Springs Co., a Texas Corporation, General Partner
                                                                          Lessor




                        By:
                                                   Sarah Puckett, Vice President


                                                          Allstar Systems, Inc.,
                                                                       SubLessee


                        By:
                               Frank Cano, Sr. Vice President, Branch Operations


<PAGE>


                               WAIVER OF LIABILITY


The undersigned  acknowledges  and agrees that neither the Trammell Crow Company
nor its agent,  Trammell  Crow  Central  Texas,  Ltd.,  nor the owner,  or their
partners, affiliates,  agents, employees,  successors or assigns shall be liable
for claims, property damage or loss which may be sustained by the undersigned or
their personal  representative or dependents,  whether or not caused in whole or
in part by the  active or  passive  actions of The  Owner/Owens,  Trammell  Crow
Company,  Trammell  crow Central  Texas,  Ltd., or their  partners,  affiliates,
agents,  employees  successors,  or  assigns  or any cause  whatsoever.  In this
regard, the undersigned hereby agrees to assume all risk of such occurrences and
to  hold  Trammell  Crow  Company,   Trammell  Crow  Central  Texas,  Ltd.,  The
Owner/Owners, or their partners,  affiliates,  agents, employees,  successors or
assigns  harmless  and  indemnify  and defend  same  against any and all claims,
liabilities,   damages,  liens  and  expenses  (including,  without  limitation,
reasonable  attorney's  fees)  arising  directly  or  indirectly  from  any such
occurrences. Allstar Systems, Inc. will self perform all work in Exhibit "C."



Signature                                                              Date




Printed Name


<PAGE>



                                               EXHIBIT "A"

BUILDING:                                   Stonelake #3

LEGAL DESCRIPTION:                  James Rogers Survey #19, Abstract 659

ADDRESS:                            4030 Braker Lane West, Suite 305
                                            Austin, Texas  78759



[DIAGRAM OF SUBLEASE SPACE, BRAKER LANE]


<PAGE>


                                               EXHIBIT "A"


BUILDING:                                   Stonelake #3

LEGAL DESCRIPTION:                  James Rogers Survey #19, Abstract 659

ADDRESS:                            4030 Braker Lane West, Suites 310 and 320
                                            Austin, Texas  78759



[DIAGRAM OF EXISTING 2,700 S.F. SPACE AND NEW 4,991 S.F. SPACE]


<PAGE>


                                            SUBLEASE AGREEMENT

         This  Sublease is made this __ day of  _____________  , 19 at Travis or
Williamson  County,  Texas  by  and  between  X.O.  Spec  Corporation,  (herein,
"Sublessor"), and Allstar Systems, Inc., (herein, "Sublessee").

         Sublessor is the Lessee under that certain  lease,  (the "Main Lease"),
by and between TRICOHO, Ltd. a Texas limited partnership,  as Landlord, (herein,
"Lessor"), and X.O. Spec Corporation, as Tenant, (herein "Sublessor"),  executed
on or about  January 28,  1994,  for the  premises  described in the Main Lease,
(herein,  "Leased  Premises"),  a true and  correct  copy of which Main Lease is
attached hereto as Exhibit "B" and incorporated herein by this reference.

         In consideration  of the mutual promises  contained  herein,  Sublessor
hereby  subleases the Leased Premises to Sublessee,  subject to the terms of the
Main Lease, and subject further to the provisions of this Sublease Agreement, as
follows:

                  1.  Sublessee  hereby  agrees to abide by and  observe all the
                  terms, covenants and conditions of the Main Lease.

                  2.  The  term  of  this  Sublease  shall  be  for  a  term  of
                  twenty-four  (24) months,  commencing on August 11, 1997,  and
                  ending August 10, 1999, provided,  however, that this Sublease
                  shall  sooner  terminate  upon the  termination  for any cause
                  whatsoever of the Main lease.

                  3. Insofar as the provisions of the Main Lease do not conflict
                  with the specific provisions of this Sublease Agreement,  they
                  and each of them are  incorporated  into this  Sublease  as if
                  fully completely  rewritten herein, and Sublessee agrees to be
                  bound to the Sublessor by all the terms of the Main Lease (and
                  applicable rights therein) and to assume towards Sublessor and
                  perform  all  the   obligations  and   responsibilities   that
                  Sublessor,  by the Main  Lease,  assumes  towards  the Lessor,
                  except for the  payment  of rent by  Sublessee  to  Sublessor,
                  which  is  governed  by  Paragraph  4  herein.  Sublessee  and
                  Sublessor  further  agree to indemnify  and hold  harmless one
                  another from any claim or liability under the Main Lease.  The
                  relationship between Sublessee and Sublessor shall be the same
                  as that between Sublessor and Lessor under the Main Lease.

                  4. Sublessee  agrees to pay Sublessor,  as rent for the Leased
                  Premises, the sum of two thousand one hundred sixty and 00/100
                  dollars ($2,160.00),  per month, payable in advance on the 1st
                  day of each calendar  month during the term of this  Sublease.
                  In  addition,  Sublessee  agrees to pay to  Sublessor  monthly
                  escrow  deposits for Tenant Costs as described in Section 2.C.
                  of the Main Lease, payable in advance on the first day of each
                  calendar  month  during the term of this  Sublease.  The first
                  monthly  installment  of $2,807.19  for Base Rent of $2,160.00
                  and Tenant  Costs of $647.19 as set forth  above  shall be due
                  and payable on the date hereof.

                  5. The  following  events  shall be  deemed  to be  events  of
                  default  by  Sublessee  under  this  Sublease:  any  events of
                  default  by  Sublessee,  listed as events of default by Tenant
                  set forth in the Main Lease,  or any default in the provisions
                  of this Sublease  Agreement.  Upon the  occurrence of any such
                  events of  default,  and in  addition  to any other  available
                  remedies  provided by law or in equity,  Sublessor  shall have
                  all remedies granted to Lkessor in the Main Lease

                  6. Upon  execution of this Sublease,  Sublessee  shall deposit
                  with  Sublessor  the sum of two thousand one hundred sixty and
                  00/100 Dollars  ($2,160.00),  as a security deposit to be held
                  by Sublessor pursuant to the provisions of the Main Lease.

                  7. Time is of the essence of this  Sublease,  and each and all
                  the terms hereof.

                  8. Any notice or other communication  required or permitted to
                  be given under this  Sublease or under the Main Lease shall be
                  in writing and shall be deemed to be  delivered on the date it
                  is hand  delivered  to the party to whom such notice is given,
                  at the address set forth  below,  or if such notice is mailed,
                  on the date on  which it is  deposited  in the  United  States
                  Mail,  postage prepaid,  certified or registered mail,  return
                  receipt requested,  addressed to the party to whom such notice
                  is directed, at the address set forth below:

If to Sublessor:
         Mr. Ken J. Harder
         X.O. Spec Corporation
         4030 W. Braker Lane, Suite 310
         Austin, Texas. 78768

If to Sublessee:
         Mr. Frank Cano
         Allstar Systems, Inc.
         4030 W. Braker Lane, Suite 305
         Austin, Texas 78768

                  9.  Sublessee  shall  have no right to assign  or  sublet  any
                  interest in this Sublease  without first obtaining the written
                  consent of the Lessor and Sublessor,  which consent may or may
                  not be granted by the Lessor or Sublessor in their  reasonable
                  opinion,   judgment   or   discretion,   which  shall  not  be
                  unreasonably withheld

                  10.  Sublessor  shall have no liability  to Sublessee  for any
                  wrongful  action or default on the part of Lessor  pursuant to
                  the terms of the Main Lease,  and  Sublessee  hereby agrees to
                  look  solely  to  Lessor  in event of any  such  default,  the
                  liability and  obligations of Sublessor  being solely pursuant
                  to the terms and conditions of this Sublease Agreement.

                  11.  Sublessor  shall agree to pay, at its sole cost,  to have
                  the walls of the demised sublease premises painted.  Sublessor
                  shall have the HVAC and  electrical  systems  in good  working
                  order prior to Lease Commencement. After that, Sublessee shall
                  accept the sublease  premises in its current "as is" condition
                  and shall be responsible for all interior improvements.  These
                  improvements must comply with Trammell Crow Company's standard
                  specifications   (see   Standards   and   Specifications   for
                  Office/Warehouse  Buildings) and all  applicable  governmental
                  regulations.  Prior  to  beginning  construction  of any  such
                  improvements,  Tenant shall submit  architectural  drawings of
                  the  proposed   improvements  to  landlord  and  shall  obtain
                  Landlord's   and   Sublessor's   written   consent   to  begin
                  construction, which shall not be unreasonably withheld.

                  12. On or anytime  after May 10, 1998 eitber the  Sublessor or
                  Sublessee  may  cancel  this  Sublease  with  sixty  (60) days
                  written notice to the other party.

                  13. In the event any one or more of the  provisions  contained
                  in  this  Sublease  Agreement  shall  for any  reason  be held
                  invalid  illegal,  or  unenforceable  in  any  respect,   such
                  invalidity,  illegality or  unenforceability  shall not affect
                  any  other  provision  hereof  and  this  agreement  shall  be
                  construed  as  if  such  invalid,   illegal  or  unenforceable
                  provisions had never been contained herein.

                  14. This agreement  constitutes the sole and only agreement of
                  the parties hereto and supersedes any prior understandings and
                  written or oral agreements  between the parties respecting the
                  subject matter of this Sublease Agreement.

         EXECUTED on the day and year first above written.

SUBLESSOR:                                           SUBLESSEE:
X.O. Spec Corporation, Inc.                          Allstar Systems, Inc.




By:                                                  Printed Name:
Title:                                               Title:


                                            CONSENT BY LESSOR

         TRICOHO, Ltd., a Texas limited partnership, Lessor under the Main Lease
referred  to in  this  Sublease  Agreement,  hereby  consents  to the  foregoing
Sublease Agreement, provided that this Sublease in no way modifies or amends the
Main Lease,  and such consent  shall not be construed in any way as a consent to
any other sublease of the Premises or assignment of the Lease.

                    LESSOR:
                    TRICOHO, Ltd., a Texas limited partnership
                    By:  Palm Springs Co.,  a Texas Corporation, General Partner



                    Name:  Sarah Puckett
                    Title:  Vice President

ATTACHMENTS

Exhibit "A" - Demised Premises
Exhibit "B" - Main Lease


<PAGE>


                                   EXHIBIT "B"
                   FIRST AMENDMENT TO LEASE AGREEMENT BETWEEN
                           STONELAKE ASSOCIATES, LTD.
                 PHONEWORKS, INC. D/B/A ONEPHONE CALL, AS TENANT

To be  attached  to and form a part of the Lease  made the 28th day of  January.
1994 (which together with any amendments,  modifications and extensions thereof,
is hereinafter called the Lease), between Landlord and Tenant,  covering a total
of 2,700  square feet and located at 4030 Braker Lane West,  Suite 310,  Austin,
Texas, known as Stonelake 3.

          WITNESSETH,  that the  Lease is  hereby  extended  and  renewed  for a
forty-four  (44)  months  to  commence  on the 1st day of  September,  1996,  on
condition  that  Landlord  and  Tenant  comply  with all terms,  covernants  and
conditions  contained  in the Lease.  The Tenent  shall  accept the space in its
current "as-is" condition.

          WHEREAS,  Tenant needs additional space for its business  purposes and
Landlord has available an area adjacent hereto.

          NOW, THEREFORE, in consideration of the premises,  Landlord and Tenant
covenant and agree as follows:

          1.  Effective May 1, 1997 April 30, 2000,  the demised  premises shall
contain,  in addition to the approximately  2,700 square feet originally demised
(the "existing space"), an additional area,  hereinafter called the "new space",
Suite 320,  containing  approximately  4,991 square feet  adfacent  thereto (see
Exhibit "A"  attached  hereto),  thus making the  aggregate  area of the demised
premises approximately 7,691 square feet. Tenant shall accept the "new space" in
its current "as is" condition and all  improvements  must comply with Landlord's
Standards and  Specifications  for  Office/Warehouse  Buildings.  Landlord shall
provide a tenant  finish  allowance  of up to  $23,255.00  to be applied  toward
actual interior improvements constructed in the new space by Tenant.



<PAGE>


          2.  Effective  September 1, 1996, the monthly base rental shall be set
forth below:
<TABLE>


<S>      <C>                 <C>               <C>                 <C>               <C>                 <C>
                          SQUARE
         <C>                 <C>               <C>                 <C>
                         FOOTAGE OF       BASE RENTAL OF     SQUARE FOOTAGE     BASE RENTAL OF       TOTAL BASE
         <C>                 <C>               <C>                 <C>
        TERM           EXISTING SPACE     EXISTING SPACE      OF NEW SPACE         NEW SPACE        RENTAL AMOUNT

09/01/96-02/28/97           2,700            $2,025.00             N/A                N/A             $2,025.00

03/01/97-04/30/97           2,700            $2,160.00             N/A                N/A             $2,160.00

05/01/97 - 04/30/2000       2,700            $2,160.00            4,991            $4,765.20          $6,925.20
</TABLE>


These amounts shall be in addition to property taxes,  common area  maintenance,
and  insurance as provided in the Lease,  payable on the first day of each month
during the balance of the term.

          3. WITNESSETH that the Lease expressly refers to landlord as Stonelake
Associates,  Ltd. The landlord's name has been changed to TRICOHO, Ltd., a Texas
Limited Partnership. The Lease and all related documents are hereby amended such
that all references to "Landlord" or "Stonelake Associates, Ltd." will translate
to mean "TRICOHO, Ltd., a Texas Limited Partnership."

          4. WITNESSETH that the Lease expressly refers to Tenant as Phoneworks,
Inc.  d/b/a  OnePhone  Call.  The Tenant's  name has been  changed to X.O.  Spec
Corporation  (a  C-Corporation).  The Lease and all related  documents are herey
amended  such that all  references  to  "Tenant"  or  "Phoneworks,  Inc.,  d/b/a
OnePhone   Call"   will   translate   to  mean  "X.  O.  Spec   Corporation   (a
C-Corporation)".

          5.  Paragraph 9 of the Lease  Agreemeut it hereby  amended to name the
Management Company as an additional insured on all Tenant's Liability  Insurance
Policies in connection with this Lease.

          6. Commencing May 1, 1997,  Paragraph 2.C. shall be amended to include
Tenant's  proportionate  share of  management  fees as part of Tenant's  monthly
escrow deposits on total square footage.

          Except as herein and hereby  modified and  arnended  the  Agreement of
Lease  shall  remain in full force and  effect  and all the  terms,  provisions,
covenants and conditions thereof are hereby ratified and confirmed.

DATED AS OF THE ______ DAY OF ______________________, 1997.

WITNESS:                             TRICOHO, Ltd., a Texas Limited Partnership
                                     By:  Palm Springs Co., a Texas Corporation,
                                     General Partner



                                     By:               Sarah Puckett
                                     Title:            Vice President


DATED AS OF THE ___ DAY OF _____________________, 19___.

WITNESS:                             Phoneworks, Inc. d/b/a OnePhone Call



                                     By:      Kenneth J. Harder
                                     Title:   President


[DIAGRAM OF EXISTING 2,700 S.F. SPACE AND NEW 4,991 S.F. SPACE]






<PAGE>




                                               Exhibit 21.1



                                   List of Subsidiaries of the Company

Name                                                 State of Incorporation

Stratasoft, Inc                                      Texas

IT Staffing, Inc.                                    Delaware

Allstar Systems Rio Grande, Inc.                     Texas


<PAGE>


Exhibit 23.1


INDEPENDENT AUDITORS' CONSENT

We consent to the  incorporation  by reference  in  Registration  Statement  No.
333-09789,  on Form S-8, of Allstar Systems, Inc. of our reports dated March 27,
1998, appearing in this Annual Report on Form 10-K of Allstar Systems,  Inc. for
the year ended December 31, 1997.



Deloitte & Touche LLP

Houston, Texas
March 31, 1998

<PAGE>


EXHIBIT 27.1


<PAGE>


EXTRACTEDFROM THE CONSOLIDATED FINANCIAL STATEMENTS OF ALLSTAR SYSTEMS, INC. OF

FINANCIAL DATA SCHEDULE


THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL  INFORMATION DECEMBER 31,
1994  AND 1995 AND JUNE 30,  1996  (UNAUDITED)  AND FOR THE  THREE  YEARS IN THE
PERIOD  ENDED  DECEMBER  31,  1995 AND FOR THE SIX MONTHS  ENDED  JUNE 30,  1996
(UNAUDITED)  AND IS QUALIFIED  IN ITS  ENTIRETY BY  REFERENCE TO SUCH  FINANCIAL
STATEMENTS.


                                       YEAR              YEAR             YEAR
FISCAL-YEAR-END                        DEC-31-1995    DEC-31-1996   DEC-31-1997
PERIOD-END                             DEC-31-1995    DEC-30-1996   DEC-31-1997
CASH                                   1,029              229             1,581
SECURITIES                                 0                0                 0
RECEIVABLES                           16,965           16,876            24,540
ALLOWANCES                              (464)            (219)             (249)
INVENTORY                              5,407            4,862             4,700
CURRENT-ASSETS                        23,274           22,684            31,090
PP&E                                   1,703            2,692             3,685
DEPRECIATION                            (717)          (1,048)           (1,672)
TOTAL-ASSETS                          24,266           24,720            33,184
CURRENT-LIABILITIES                   21,542           20,393            18,266
BONDS                                      0                0                 0
PREFERRED-MANDATORY                        0                0                 0
PREFERRED                                  0                0                 0
COMMON                                     2               27                45
OTHER-SE                               2,724            4,327            14,723
TOTAL-LIABILITY-EQUITY                24,266           24,720            33,184
SALES                                 91,085          120,359           129,167
TOTAL-REVENUES                        91,085          120,359           129,167
CGS                                   79,857          104,302           111,126
TOTAL-COSTS                           79,857          104,302           111,126
OTHER-EXPENSES                         9,149           12,284            14,386
LOSS-PROVISION                             0                0                 0
INTEREST-EXPENSE                       1,218            1,183               685
INCOME-PRETAX                            861            2,590             2,970
INCOME-TAX                               342              987             1,126
INCOME-CONTINUING                        519            1,603             1,844
DISCONTINUED                               0                0                 0
EXTRAORDINARY                              0                0                 0
CHANGES                                    0                0                 0
NET-INCOME                               519            1,603             1,844
EPS-PRIMARY                              .19              .60               .52
EPS-DILUTED                              .19              .60               .52


<PAGE>


                                               Exhibit 99.1

<PAGE>

<TABLE>
<CAPTION>
                                     FINANCIAL STATEMENT SCHEDULE II
                                          ALLSTAR SYSTEMS, INC.
                                    VALUATION AND QUALIFYING ACCOUNTS
                                         AS OF DECEMBER 31, 1997
                                              (In Thousands)


<S>                                                       <C>        <C>         <C>          <C>  <C>         <C>
                                                      Balance at  Charges to   Charge to
                                                      Beginning   Costs and      Other       Other          Balance at
                    Description                        of Year     Expenses    Accounts     Changes         End of year

Accumulated provision deducted from related assets on balance sheet:
         Allowance for doubtful accounts receivable:



              1995.................................    $   188     $   353                  $  (77)  (A)
$    464
              1996.................................        464         890                  (1,135)  (A)          219
              1997.................................        219         386      (66)          (290)  (A)          249
         Inventory reserves:
              1995.................................    $   178     $   190
$    368
              1996.................................        368         743                  (1,000)  (A)          111
              1997.................................        111         456                    (551)  (A)           16
Reserves other than those deducted from assets on balance sheet:
         Allowance for doubtful vendor accounts receivable:
              1995.................................    $   150     $   155                  $  (55)  (A)
$    250
              1996.................................        250         119                    (169)  (A)          200
1997       200.....................................    198                      (49)(A)        349

(A) Reductions related to amounts written off.
</TABLE>