NOTE REGARDING FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for certain forward-looking statements. This Quarterly Report on Form 10-Q contains forward-looking statements regarding us, our business prospects and our results of operations that are subject to certain risks and uncertainties posed by many factors and events that could cause our actual business, prospects and results of operations to differ materially from those that may be anticipated by such forward-looking statements. The words "aim," "believe," "expect," "anticipate," "intend," "estimate" and other expressions which indicate future events and trends identify forward-looking statements. Actual future results and trends may differ materially from historical results or those anticipated depending upon a variety of factors, including, but not limited to: the level of continuing demand for data center solutions and services including the effects of current economic and credit conditions and the ability of organizations to outsource data center infrastructure-related services to service providers such as us; the migration of organizations to virtualized server environments, including using a private cloud computing infrastructure; the extent to which customers deploy disk-based backup recovery solutions; the realization of the expected trends identified for advanced network infrastructures; reliance by manufacturers on their data service partners to integrate their specialized products; continued preferred status with certain principal suppliers; competition and pricing pressures and timing of our installations that may adversely affect our revenues and profits; fixed employment costs that may impact profitability if we suffer revenue shortfalls; our ability to hire and retain key technical and sales personnel; continued productivity of our sales personnel; our dependence on key suppliers; our ability to adapt to rapid technological change; risks associated with integrating current and possible futures acquisitions; fluctuations in our quarterly operating results; future changes in applicable accounting rules; and volatility in our stock price. Additional risks, uncertainties and other factors are included in the "Risk Factors" section on our Annual Report on Form 10-K for the year ended December 31, 2011. Further, our revenues for any particular quarter are not necessarily reflected by our backlog of contracted orders, which also may fluctuate unpredictably. We undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that may subsequently arise. Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission that advises interested parties of the risks and factors that may affect our business.

OVERVIEW

We provide solutions and services that make data centers more efficient, manageable and responsive to changing business needs. Focused on mid- and large-size companies, we assess, design, deploy and support infrastructures such as servers, storage and networks. We also resell hardware and software from the industry's leading OEMs as part of our customer offerings. Our portfolio of solutions and services spans four practices: consolidation and virtualization, data storage protection, advanced network infrastructures and business continuity and disaster recovery solutions. We offer a full suite of practice-specific consulting, analysis, design, implementation, management and support services.

Our solutions can include hardware products, such as servers, disk arrays, tape systems, networking and interconnection components and software products. Our data center strategy is supported through multiple trends in the market and involves supporting the market and our customers with a single vendor to provide their data center infrastructure needs. As of March 31, 2012, we have 30 locations, including both leased facilities and home offices, throughout the United States. We historically have derived our greatest percentage of net sales from customers located in the central part of the United States.

We sell support service contracts to most of our customers. In about half of the support service contracts that we sell, our customers purchase support services through us, resulting in customers receiving the benefit of integrated system wide support. We have a qualified, independent support desk that takes calls from customers, diagnoses the issues they are facing and either solves the problem or coordinates with our and/or vendor technical staff to meet the customer's needs. Our support service agreements with our customers include an underlying agreement with the product manufacturer. The manufacturer provides on-site support assistance if necessary. The other half of the support service contracts that we sell to our customers are direct with the product manufacturers. For all support service contracts we sell, we defer revenues and direct costs resulting from these contracts, and amortize these revenues and expenses into operations, over the term of the contracts, which are generally twelve months.

The data center infrastructure solutions and services market is rapidly evolving and highly competitive. Our competition includes other independent storage, server and networking system integrators, high end value-added resellers, distributors, consultants and the internal sales force of our suppliers. Our ability to hire and retain qualified outside sales representatives and engineers with enterprise-

class information storage, server and networking experience is critical to effectively compete in the marketplace and achieve our growth strategies.

In the past, we have experienced fluctuations in the timing of orders from our customers, and we expect to continue to experience these fluctuations in the future. These fluctuations have resulted from, among other things, the time required to design, test and evaluate our data center infrastructure solutions before customers deploy them, the size of customer orders, the complexity of our customers' network environments, necessary system configuration to deploy our solutions and new product introductions by suppliers. Current economic conditions and competition also affect our customers' decisions and timing to place orders with us and the size of those orders. As a result, our net sales may fluctuate from quarter to quarter.

RESULTS OF OPERATIONS



The following table shows, for the periods indicated, certain selected financial
data expressed as a percentage of net sales.



                                      Three Months Ended
                                          March 31,
                                      2012         2011
Net sales                               100.0 %      100.0 %
Cost of sales                            77.1         75.8
Gross profit                             22.9         24.2
Operating expenses:
Sales and marketing                      10.5         10.7
General and administrative                4.0          4.5
Engineering                               4.9          5.1
Integration and transaction costs           -            -
Amortization of intangibles               0.5          0.4
Total operating expenses                 19.9         20.7
Earnings from operations                  3.0 %        3.5 %

The following table shows, for the periods indicated, revenue and gross profit information for our product and service sales.

                                                          Three Months Ended
                                                              March 31,
                                                           2012         2011
                                                            (in thousands)
Product sales                                           $    80,240   $ 55,600
Service sales                                                38,848     30,094

Product gross profit                                    $    17,656   $ 13,374
Service gross profit                                          9,670      7,381

Product gross profit as a percentage of product sales          22.0 %     24.1 %
Service gross profit as a percentage of service sales          24.9 %     24.5 %

Our product sales continue to reflect a diversification in the mix of our offerings. For the three months ended March 31, 2012 and 2011, product sales represented 67% and 65% of net sales, respectively. The increase in our product sales for both 2012 and 2011are a result of the increase in product offerings due to our strategy to service the complete data center. In addition to storage, our server and network sales have increased as part of our strategy to deliver data center hardware, software and services. Going forward, we expect our customers will continue to closely scrutinize their expenditures and what impact, if any, current economic conditions may have on the growth and profitability of their business. We cannot assure that changes in customer spending or economic conditions will positively impact our future product sales.

For the three months ended March 31, 2012 and 2011, our service sales represented 32.6% and 35.1% of net sales, respectively. Service sales increased $8.8 million for the three months ended March 31, 2012, as compared to the same period in 2011. With the growth in our product sales, we continue to successfully sell our installation and configuration services, customer support contracts and consulting services. Without continued sustainable growth in our product sales going forward, we would expect our customer support contract sales to suffer and we cannot assure that our future customer support contract sales will not decline.

In October 2011, we entered into an asset purchase agreement with Midwave Corporation ("Midwave") and its shareholders. Under the asset purchase agreement we purchased from Midwave substantially all of the assets of Midwave's business. Our 2011 results for both product and service sales include revenues of approximately $13.0 million from the acquisition of Midwave.

We had no single customer account for 10% or greater of our revenues for the three months ended March 31, 2012 or 2011.

Gross Profit. Our total gross profit as a percentage of net sales decreased to 22.9% for the quarter ended March 31, 2012, as compared to 24.2% for the comparable quarter in 2011. Product gross profit as a percentage of product sales decreased to 22.0% in the first quarter of 2012 from 24.1% for the comparable quarter in 2011. Service gross profit as a percentage of service sales increased to 24.9% for the first quarter of 2012 from 24.5% for the comparable quarter in 2011.

Our product gross profit as a percentage of product sales is impacted by the mix and type of projects we complete for our customers. The first quarter 2012 product gross profit decreased 2.1% as compared to the same period in 2011. We have experienced a decrease in our product gross profit percentage as we saw an increase in our networking and server business, which historically has carried lower gross margins. The product gross margin percentages we achieved in the first quarters of 2012 and 2011 fall within the range of product gross margin percentages we expect as our strategy continues to mature. Our product gross profit is also impacted by various vendor incentive programs that provide economic incentives for achieving various sales performance targets and early payment of invoices. Vendor incentives were $1.9 million and $1.3 million, respectively, for the three-month periods ended March 31, 2012 and 2011. As a percentage of product cost of goods sold, vendor incentives were 3.0% and 3.1%, respectively, for the periods ending March 31, 2012 and 2011. Several of our vendors have tightened eligibility for their programs in the current economic climate and may further change or terminate their programs at any time. Accordingly, we cannot assure that we will achieve and receive similar vendor incentives in the future. We expect that as we continue implementing our strategy to sell comprehensive data center solutions with servers and networking products that our product gross margins for the remainder of 2012 will be between 21% and 23%.

Service gross profit as a percentage of service sales for the three months ended March 31, 2012 increased 0.4% as compared to the same period in 2011. This increase is primarily due to a slight improvement in the gross margin percentage for our installation and professional services as we sold more professional services that were delivered by our technical engineering groups which generally carry higher margins. We expect that service gross margins will be within the 24% to 27% range for the remainder of fiscal year 2012.

Sales and Marketing. Sales and marketing expenses include wages and commissions paid to sales and marketing personnel, travel costs and advertising, promotion and hiring expenses. Sales and marketing expenses totaled $12.6 million, or 10.5% of net sales for the quarter ended March 31, 2012, compared to $9.2 million, or 10.7% of net sales for the first quarter in 2011.

Sales and marketing expenses increased $3.4 million for the three-month period ended March 31, 2012, as compared to the same period in 2011. This increase is primarily due to an increase in commission expense of $2.0 million, which is commensurate with the increase in sales.

General and Administrative. General and administrative expenses include wages for administrative personnel, professional fees, depreciation, communication expenses and rent and related facility expenses. General and administrative expenses were $4.7 million, or 4.0% of net sales for the quarter ended March 31, 2012, compared to $3.8 million, or 4.5% of net sales for the first quarter in 2011.

General and administrative expenses increased $895,000 for the three months ended March 31, 2012, as compared to the same period in 2011. The increase in general and administrative expenses was primarily due to variable compensation for bonuses of $103,000 and approximately $197,000 in salaries and benefits for headcount additions to support our growth in business and $131,000 in rent and facility expenses.

Engineering. Engineering expenses include employee wages, bonuses and travel, hiring and training expenses for our field and customer support engineers and technicians. We allocate engineering costs associated with installation and configuration services and with consulting services to our cost of services sales. Engineering expenses were $5.8 million, or 4.9% of net sales for the quarter ended March 31, 2012, compared to $4.4 million, or 5.1% of net sales for the first quarter in 2011.

Engineering expenses increased $1.4 million for the three months ended March 31, 2012, as compared to the same period in 2011. The increase in engineering expenses is primarily due to an increase in salaries and benefits of $2.0 million and travel expenses of $192,000 associated with the increase in engineering headcount from our Midwave acquisition. We also had $204,000 of placement fees to support hiring efforts in our regions. This was partially offset by $1.6 million as an increased amount of our engineering costs were allocated to our cost of service sales commensurate with the increase in our professional services sales.

Integration and Transaction Costs. We had $20,000 and $0 of integration and transaction costs for the three months ended March 31, 2012 and 2011, respectively. Integration and transaction expenses in 2012 for the Midwave acquisition included audit and other outside consulting fees.

Amortization of Intangibles. We had $619,000 of intangible asset amortization expenses for the three-months ended March 31, 2012 as compared to intangible amortization expenses of $382,000 for the same three months in 2011. The increase in amortization of intangibles expenses in 2012 as compared to 2011 are primarily due to the acquisition of Midwave in October 2011. The finite-lived intangibles we acquired in our acquisition of Midwave consisted of covenants not to compete, order backlog and customer relationships having estimated lives of 3 years, 3 months and 5 years, respectively

Earnings from Operations. We had earnings from operations of $3.6 million compared to earnings from operations of $3.0 million for the three months ended March 31, 2012 and 2011, respectively. The earnings from operations for the three month period ended March 31, 2012 and 2011 are a result of the financial leverage we achieved by keeping operating expenses relatively flat and realizing substantial growth in our revenues and gross margins as part of our data center strategy.

Income Taxes. We had income tax expense of $1.4 million and $1.3 million for the three months ended March 31, 2012 and 2011, respectively. Our estimated effective tax rate for the first quarters of 2012 and 2011 was 40% and 42%, respectively. For the balance of 2012, we expect to report an income tax provision using an effective tax rate of approximately 40.5%.

LIQUIDITY AND CAPITAL RESOURCES



                                      Three Months Ended March 31,
                                        2012              2011
Total cash provided by (used in):
Operating activities                $       5,695    $         2,611
Investing activities                          978             (2,204 )
Financing activities                          (86 )           18,047
Increase in cash                    $       6,587    $        18,454

Net cash provided by operating activities was $5.7 million for the three months ended March 31, 2012 as compared to net cash provided by operating activities of $2.6 million for the three months ended March 31, 2011. The increase in cash provided by operations was due primarily to our net earnings for the quarter of $2.2 million and non-cash add backs including depreciation of $339,000 and amortization of finite lived intangibles of $619,000. Net cash provided by operating activities for the three months ended March 31, 2011 was primarily due to net earnings for the quarter of $1.7 million.

Net cash provided in investing activities was $978,000 for the three months ended March 31, 2012. For the three months ended March 31, 2012, the sale of $2.3 million in investments was offset by the purchase of $1.3 million in property and equipment. Net cash used in investing activities was $2.2 million related to the purchase of investments for the three months ended March 31, 2011. For the remainder of 2012, we are planning for capital expenditures of up to $700,000 related to enhancements to our management information systems and upgraded computer equipment.

Net cash used by financing activities was $86,000 for the three months ended March 31, 2012. Net cash provided by financing activities was $18.0 million for the three months ended March 31, 2011, which is primarily from proceeds from our second public stock offering. On March 14, 2011, we completed a public offering of 4,266,500 shares of common stock with a price to the public of $5.75 per share. We issued and sold 3,306,500 shares in the offering and the selling shareholder sold 960,000 shares in the offering. We received proceeds from the common stock sold by us, net of offering costs, of approximately $17.5 million. We did not receive any proceeds from the shares sold by the selling shareholder.

On March 31, 2011, we entered into a Credit Agreement with Wells Fargo Bank, N.A. The Credit Agreement provides for a line of credit not to exceed $10.0 million for general working capital purposes. The line of credit is secured by substantially all of our personal property and expires on July 31, 2012.
Borrowings under the line of credit are limited to three times the aggregate of our EBITDA (as defined in the Credit Agreement) for the trailing two fiscal quarters. The Credit Agreement also requires that we have working capital of not less than $15.0 million at each fiscal quarter-end, and certain levels of net income after taxes. As of March 31, 2012, we had no borrowings outstanding on the line of credit and could borrow the full $10.0 million available.

OFF-BALANCE SHEET ARRANGMENTS

We do not have any special purpose entities or off-balance sheet arrangements.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

Other than the discussion below, there have been no material changes to our contractual obligations outside the normal course of business.

As a result of our acquisition of certain assets of Midwave in October 2011, as tenant, we are the successor in interest to a lease ("Original Lease") dated August 9, 2010. The Original Lease was for 20,851 square feet of office space. In December 2011, we entered into a First Amendment to Lease (the "Amendment") to the Original Lease for approximately 32,906 additional square feet of office space ("Expansion Space"), which provided us with approximately 54,000 total square feet available for our operations. On March 1, 2012, we began to occupy the Expansion Space. The Expansion Space results in additional future obligations of $2.8 million, of which $162,000 is due in less than one year, $799,000 is due in one to three years, $832,000 is due in three to five years, and $1.0 million is due in more than five years.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We have identified our critical accounting policies in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011 in "Management's Discussion and Analysis of Financial Condition and Results of Operations" under the heading "Critical Accounting Policies and Estimates." There have been no significant changes in critical accounting policies for the three months ended March 31, 2012 as compared to those disclosed in the our Annual Report on Form 10-K for the year ended December 31, 2011.