FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

(Mark One)

|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934
    For the quarterly period ended June 30, 2001
                                       OR

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

    Commission file number: 0-21479

                              I-SECTOR CORPORATION

             (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, TEXAS                                       77074
Address of principal executive offices)              (Zip code)

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

                              Allstar Systems, Inc.

(Former name, former address, and former fiscal year, if changed since last
report)

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes X

     No___

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

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

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
     Indicate  the  number of  shares  outstanding  of each of the  registrant's
classes of common stock, as of the latest practicable date.

Title                                            Outstanding

Common Stock, $.01 par value per share           As of August 14, 2001
                                                 3,877,625 shares outstanding



<PAGE>


PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                      I-SECTOR CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

               (In thousands, except share and par value amounts)

                                                 June 30,     December 31,
                                                   2001          2000
                                                   ----          ----
                                                            (Unaudited)
ASSETS

Current assets:
     Cash and cash equivalents                $    5,440     $    8,346
     Accounts receivable, net                      4,891          4,473
     Accounts receivable - affiliates                281            303
     Accounts receivable - other                      80            141
     Inventory                                       692            774
     Income taxes receivable                         863            863
     Other current assets                            161            233
                                               ---------       --------
         Total current assets                     12,408         15,133
Property and equipment                             1,289          1,579
Other assets                                         420            430
                                               ---------       --------
Total                                         $   14,117     $   17,142
                                               =========       ========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Accounts payable                         $    1,086     $    1,892
     Billings in excess of cost and
        estimated earnings                           573            503
     Accrued expenses                              2,208          1,635
     Net liabilities related to
        discontinued operations                      660            869
     Deferred service revenue                        115            136
                                                 -------       --------
         Total current liabilities                 4,642          5,035
     Deferred credit - stock warrants                195            195

Commitments and contingencies
Stockholders' equity:

     Preferred stock:
        $.01 par value,
        5,000,000 shares authorized,
        no shares issued
     Common stock:
        $.01 par value, 15,000,000
        shares authorized, 4,441,325
        and 4,442,325 shares issued at
        June 30, 2001 and December 31, 2000           44             44
     Additional paid in capital                   10,185         10,182
     Unearned equity compensation                                  (1)
     Treasury stock (559,900 and 399,800
        shares, at cost)at June 30, 2001
        and December 31, 2000                     (1,154)          (992)
     Retained earnings                               205          2,679
                                               ---------     ----------
         Total stockholders' equity                9,280         11,912
                                               ---------     ----------
Total                                         $   14,117     $   17,142
                                               =========      =========


                 See notes to consolidated financial statements


<PAGE>


                      I-SECTOR CORPORATION AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME

               (In thousands, except share and per share amounts)
                                  (Unaudited)

                                              Three Months Ended June 30,

                                                   2001          2000
                                                   ----          ----


Total revenue                                 $    5,738     $    4,228
Cost of sales and services                         4,326          3,494
                                               ---------      ---------
Gross profit                                       1,412            734
Selling, general and administrative
   expenses                                        2,735          1,951
                                               ---------      ---------
Operating loss                                    (1,323)        (1,217)
Interest income                                      (61)           (50)
                                               ---------      ---------
Loss from continuing operations before
   benefit for income taxes                       (1,262)        (1,167)
Benefit for income taxes                            (179)          (386)
                                               ---------      ---------
Net loss from continuing operations               (1,083)          (781)
Discontinued Operations:
     Gain (loss) on disposal                         346           (387)
                                               ---------      ---------
Net loss                                      $     (737)    $   (1,168)
                                               =========      =========


Net (loss) income per share:
     Basic and diluted:
         Net loss from continuing
            operations                        $    (0.27)    $    (0.20)
         Gain (loss) on disposal                    0.08          (0.09)
                                               ---------      ---------
              Net loss per share              $    (0.19)    $    (0.29)
                                               =========      =========

Weighted average shares outstanding:

         Basic and diluted                     3,905,944      4,048,525
                                               =========     ==========


                 See notes to consolidated financial statements


<PAGE>


                      I-SECTOR CORPORATION AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME

               (In thousands, except share and per share amounts)
                                  (Unaudited)

                                              Six Months Ended June 30,

                                                   2001          2000
                                                   ----          ----


Total revenue                                 $   10,578     $   10,212
Cost of sales and services                         7,987          7,093
                                                --------      ---------
Gross profit                                       2,591          3,119
Selling, general and administrative
   expenses                                        5,747          4,260
                                                --------      ---------
Operating loss                                    (3,156)        (1,141)
Interest income                                     (157)           (35)
                                                --------      ---------
Loss from continuing operations before
     benefit for income taxes                     (2,999)        (1,106)
Benefit for income taxes                            (179)          (367)
                                                --------      ---------
Net loss from continuing operations               (2,820)          (739)
Discontinued Operations:
     Net income from discontinued
        operations, net of taxes                                    301
     Gain on disposal, net of taxes                  346          4,486
                                                --------      ---------
Net (loss) income                             $   (2,474)    $    4,048
                                                ========      =========


Net (loss) income per share:
     Basic and diluted:
         Net loss from continuing
            operations                        $    (0.72)    $    (0.18)
         Net income from discontinued
            operations                                             0.07
         Gain on disposal                           0.09           1.11
                                               ---------      ---------
              Net (loss) income per share     $    (0.63)    $     1.00
                                               =========      =========

Weighted average shares outstanding:

         Basic and diluted                     3,926,002      4,048,965
                                               =========      =========


                 See notes to consolidated financial statements


<PAGE>


                      I-SECTOR CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (In thousands)

                                   (Unaudited)

                                               Six Months Ended June 30,

                                                   2001            2000
                                                   ----            ----

Net (loss) income                             $   (2,474)    $    4,048
Adjustments to reconcile net (loss)
     income to net cash provided by
     (used in) operating activities:
     Net income from discontinued
        operations                                                 (302)
     Gain on disposal of discontinued
        operations                                  (346)        (4,486)
     Depreciation and amortization                   300            260
     Deferred tax provision                         (179)            37
Changes in assets and liabilities that
   provided (used) cash:
     Accounts receivable, net                       (418)        21,332
     Accounts receivable - affiliates
        and other                                     83            (39)
     Inventory                                       212            286
     Other current assets                             72
     Other assets                                     60             16
     Accounts payable                               (806)       (17,059)
     Accrued expenses                                573         (1,774)
     Income taxes payable                                           277
     Billings in excess of cost and
        estimated earnings                            70
     Deferred service revenue                        (21)          (149)
                                               ---------      ---------

Net cash (used in) provided by
   continuing operating activities                (2,874)         2,447
Net cash (used in) provided by
   discontinued operations                          (209)           825
                                               ---------      ---------
     Net cash (used in) provided by
        operating activities                      (3,083)         3,272

Cash flows from investing activities:

     Acquisition costs                               (50)
     Capital expenditures                           (136)           (89)
     Proceeds from sale of discontinued
        operations                                   525         15,029
                                               ---------      ---------
Net cash provided by continuing operations           339         14,940
Net cash provided by discontinued operations                        279
                                               ---------      ---------

     Net cash provided by investing
        activities:                                  339         15,219
                                               ---------      ---------

Cash flows from financing activities:

     Purchase of treasury stock                     (162)           (14)
     Net decrease in notes payable                              (15,869)
                                               ---------      ---------

     Net cash used in financing activities:         (162)       (15,883)
                                               ---------      ---------

Net (decrease) increase in cash and
   cash equivalents                               (2,906)         2,608
Cash and cash equivalents at beginning
   of period                                       8,346          4,647
                                               ---------      ---------
Cash and cash equivalents at end of period    $    5,440     $    7,255
                                               =========      =========
Supplemental disclosures of cash flow
   information:
     Cash paid for interest                   $        0     $      375
                                               =========      =========
     Cash paid for taxes                      $        0     $        0
                                               =========      =========


                 See notes to consolidated financial statements


<PAGE>


                      I-SECTOR CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               (In thousands, except share and per share amounts)

1.   DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     I-Sector  Corporation  and  subsidiaries  ("I-Sector")  is  engaged  in the
business of providing computer services and of selling  associated  hardware and
telephony  software  products in the United  States.  I-Sector's  operations are
conducted through four segments:

o        Allstar  provides  customers  with  turn-key   outsourced  IT  helpdesk
         solutions, helpdesk solutions consulting services, on-site and carry-in
         computer  repair,  application  support and operating  system,  network
         migration  services and technical  staff  augmentation  for IT helpdesk
         operations.

o        Internetwork   Experts,   Inc.  ("INX")  is  a  professional   services
         organization  that  focuses on the  design,  deployment  and support of
         large-scale  networking  infrastructure  requirements  that  are  Cisco
         centric.    INX's   areas   of   practice   include   network   design,
         implementation,  turnkey support,  security audits and firewall design,
         network infrastructure management and network infrastructure consulting
         services.

o        IT Staffing,  Inc.  ("IT  Staffing")  provides  temporary and permanent
         placement services of IT professional personnel.

o        Stratasoft, Inc. ("Stratasoft") creates and markets software related to
         the integration of computer and telephone technologies.

     A substantial portion of I-Sector's sales and services are authorized under
arrangements  with product  manufacturers.  I-Sector's  operations are dependent
upon maintaining its approved status with such manufacturers.  Should I-Sector's
approved status lapse, revenues and gross profit could be adversely affected.

     The condensed  consolidated financial statements presented herein as of and
for the  three  and six  months  ended  June 30,  2001  and 2000 are  unaudited;
however, all adjustments which are, in the opinion of management,  necessary for
a fair  presentation of the financial  position,  results of operations and cash
flows for the  periods  covered  have  been made and are of a normal,  recurring
nature.  Accounting  measurements  at interim dates  inherently  involve greater
reliance on estimates than at year-end.  The results of the interim  periods are
not  necessarily  indicative  of  results  for the full year.  The  consolidated
balance  sheet  at  December  31,  2000 is  derived  from  audited  consolidated
financial statements but does not include all disclosures required by accounting
principles  generally  accepted  in  the  United  States  of  America.  Although
management  believes the  disclosures  are  adequate,  certain  information  and
disclosure  normally included in the notes to the financial  statements has been
condensed or omitted as permitted by the rules and regulations of the Securities
and Exchange Commission.

     Reclassifications   -  Certain  amounts  in  the   consolidated   financial
statements  presented  herein have been  reclassified to conform to current year
presentation.

     Use  of  Estimates  -  The  preparation  of  the  financial  statements  in
conformity with accounting principles generally accepted in the United States of
America  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 revenue and expense during the reporting period.  Actual results could differ
from these estimates.

     Revenue  Recognition - Revenue from the sale of products is recognized when
the  product is  shipped.  Service  income is  recognized  as the  services  are
performed.  Revenues  resulting  from  installations  of equipment for which the
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
revisions  become known;  when a contract  indicates a loss, a provision is made
for the total anticipated loss.


<PAGE>


The following reflects the amounts relating to uncompleted contracts at June 30,
2001 and December 31, 2000:

     Costs incurred on uncompleted contracts     $   212    $   135
     Estimated earnings                            1,108        361
                                                  ------     ------

                                                   1,320        496
     Less: Billings to date                          747        999
                                                  ------     ------

     Billings in excess of cost and
        estimated earnings                       $   573    $   503
                                                  ======     ======

     Accounting   Pronouncements  -  In  June  1998,  the  Financial  Accounting
Standards  Board ("FASB")  issued  Statement of Financial  Accounting  Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities"
which establishes accounting and reporting standards for derivative instruments,
including   certain   derivative   instruments   imbedded  in  other   contracts
(collectively referred to as derivatives),  and for hedging activities. SFAS No.
133, as amended,  was  adopted by I-Sector on January 1, 2001.  I-Sector  has no
derivative instruments as defined by SFAS No. 133.

     On June 29, 2001, SFAS No. 141, "Business Combinations" was approved by the
FASB.  SFAS No. 141 requires the purchase  method of  accounting be used for all
business combinations  initiated after June 30, 2001. Any resulting goodwill and
certain intangible assets will remain on the balance sheet and not be amortized.
On an annual  basis,  and when there is reason to suspect that their values have
been  diminished or impaired,  these assets must be tested for  impairment,  and
write-downs may be necessary.  I-Sector is required to implement SFAS No. 141 on
July 1,  2001.  The  adoption  of this  statement  had no effect  on  I-Sector's
consolidated financial position or its results of operations.

     On June 29, 2001, SFAS No. 142,  "Goodwill and Other Intangible Assets" was
approved by the FASB.  SFAS No. 142 changes the  accounting for goodwill from an
amortization  method to an impairment-only  approach.  Amortization of goodwill,
including  goodwill  recorded  in past  business  combinations,  will cease upon
adoption of this statement. The Company is required to implement SFAS No. 142 on
January  1,  2002  and it has not  determined  the  impact,  if any,  that  this
statement  will have on its  consolidated  financial  position or its results of
operations.

2.   DISCONTINUED OPERATIONS

     On November 2, 1999,  I-Sector approved a plan to sell or close its Telecom
Division.  A sale was  finalized on March 16, 2000.  Under the terms of the sale
I-Sector  received  $250.  Additionally,  the  purchaser  assumed all  telephone
equipment warranty  obligations of I-Sector up to a maximum of $30, all of which
was consumed by October,  2000.  Future warranty costs incurred by the purchaser
will be billed to  I-Sector  at an  agreed  upon  rate.  An  estimate  of future
warranty costs of $95 was recorded  during 2000. A disposal  loss,  including an
estimate of the operating results from the measurement date, November 2, 1999 to
the closing date of the sale of $580,  and  estimates  for  impairment of assets
caused by the  disposal  decision  of $558,  totaling  $1,138 (net of income tax
savings  of $586),  was  recognized  in 1999.  The  disposal  loss  includes  an
operating loss of $284 (net of income tax savings of $146) from the  measurement
date to December 31, 1999. I-Sector recognized additional losses of $344 (net of
taxes of $240) in the year 2000,  and  recognized  no  additional  losses in the
three or six month periods ended June 30, 2001.

     On March 16,  2000,  I-Sector  entered  into an  agreement  to sell certain
assets of and the ongoing operations of its Computer Products Division. The sale
transaction closed on May 19, 2000 after shareholder and other required consents
were obtained.  Under the terms of the sale, I-Sector received $14,529 plus $250
as  reimbursement  of certain  selling costs.  Proceeds of the sale were used to
retire debt under I-Sector's  existing credit  facility.  Pretax income from the
discontinued operations of the Computer Products Division (net of taxes of $156)
was $302 for the period from January 1 to March 16, 2000, the measurement  date.
A gain on disposal of $3,734 (net of taxes of $2,607),  which includes operating
results  from the  measurement  date,  March 16, 2000 to the closing date of the
sale,  as well as a loss on  equipment  sold of $352  (net of taxes of $144) and
estimates for the impairment of assets caused by the disposal decision of $2,820
(net of taxes of $1,156)  have been  recognized  in the year ended  December 31,
2000. Additional gain of $525 (related to a contingency clause which was settled
in May 2001) was  recognized in the quarter  ended June 30, 2001.  Taxes of $179
related to this gain were offset against a valuation reserve  established due to
recurring  losses.  I-Sector  retained  accounts  receivable of $20,266,  net of
reserves, and has retained receivables related to the Computer Products Division
of $3 and  $775 at June  30,  2001  and  December  31,  2000,  respectively.  In
connection with the sale of the Computer Products  Division,  I-Sector also sold
the El  Paso  portion  of the IT  Services  business.  For  financial  reporting
presentation  the El Paso  services  business  was  included  in the  continuing
operations for the three and six months ended June 30, 2001 and 2000.


<PAGE>


     The  balance  sheet  caption  "Net  Liabilities   related  to  discontinued
operations"  contains  $660 and $869 at June 30,  2001 and  December  31,  2000,
respectively,  of  estimated  future  expenses  related to the winding up of the
Telecom Division and the Computer Products Division, and include amounts related
to the collection of accounts  receivable  and settlement of pending  litigation
and to settlements with employees terminated as a result of the sale.

3.   CURRENT DEBT OBLIGATIONS

     On February 27, 1998 I-Sector entered into a credit agreement with Deutsche
Financial  Services ("DFS") for a revolving line of credit (the "DFS Facility"),
which  historically was its principal source of liquidity.  On May 19, 2000, the
day of the closing on the sale of the  Computer  Products  Division,  the credit
facility was amended to decrease the total credit  available  under the facility
from $30,000 to $3,000 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  this  facility  for floor plan
financing of inventory from approved  manufacturers  (the "Inventory  Line'') is
$3,000.  Borrowings  under the Inventory Line accrue  interest at the prime rate
plus 5% on  outstanding  balances over 40 days.  Inventory  Line  borrowings are
reflected in accounts payable on the accompanying  balance sheets.  For purposes
of calculating interest charges the minimum prime rate under the DFS Facility is
7.0%. At June 30, 2001,  I-Sector had $18  outstanding on the Inventory Line and
had total credit availability of $1,721.

     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 I-Sector,  subject to a termination  fee, is collaterized
by  substantially  all I-Sector's  assets.  The agreement  contains  restrictive
covenants,  which, among other things, require the company to maintain a minimum
tangible  net worth.  The terms of the  agreement  also  prohibit the payment of
dividends  and  limit the  purchase  of our  common  stock,  and  other  similar
expenditures,  including  advances  to  related  parties.  I-Sector  is  not  in
compliance with a certain covenant for which it subsequently  received a waiver.
As part of the waiver  the  credit  availability  has been  reduced to  $750,000
through   October  15,  2001.   I-Sector  does  not  believe  the  reduction  of
availability is a hindrance to its operations as the credit facility has been in
limited  use  since  the  discontinuation  of its  Computer  Products  Division.
I-Sector  is in  process  of  evaluating  its  credit  facility  needs and is in
discussion  with  DFS  regarding   modifying,   or  perhaps   terminating,   its
relationship.


4.   SEGMENT INFORMATION

During March, 2001, I-Sector decided to merge a wholly-owned subsidiary (Synergy
Helpdesk Solutions, Inc.) into another wholly-owned subsidiary, Allstar Computer
Products,  Inc.,  and,  subsequent  to the  merger  to  change  the  name of the
resulting wholly-owned  subsidiary to Allstar Solutions,  Inc. ("Allstar").  The
merger was  completed in June 2001. As a result of this  decision,  the segments
previously  reported  as ACS and  Synergy  have been  combined  and  reported as
Allstar.  Corporate  includes the  operations  of the  Company's El Paso service
operations which were sold on May 19, 2000, and service  operations  relating to
computer  installations  for a  certain  customer,  as  well  as  the  company's
corporate  level  expenses  that  are not  allocated  to the  subsidiaries.  The
installations  for the  certain  customer  ceased  when  the  Computer  Products
Division  was sold on May 19,  2000.  The  accounting  policies of the  business
segments are the same as those for I-Sector.  I-Sector evaluates  performance of
each  segment  based  on  operating  income.   Management  only  views  accounts
receivable,   and  not  total  assets,  by  segment  in  their  decision-making.
Intersegment  sales  and  transfers  are not  significant  and are  shown in the
Elimination column in the following table.

<TABLE>

<CAPTION>
For the quarter ended June 30, 2001:
                                                                      IT
                                              Allstar     INX      Staffing  Stratasoft Corporate Elimination Consolidated

<S>                                          <C>        <C>        <C>        <C>        <C>        <C>        <C>
Total revenue                                $ 1,178    $ 2,646    $   339    $ 1,590    $     1    $   (16)   $ 5,738
Cost of sales and services                       982      2,326        207        826        (14)        (1)     4,326
                                              ------     ------     ------     ------     ------     ------     ------
Gross profit (loss)                              196        320        132        764         15        (15)     1,412
Selling, general and
     administrative expenses                     741        783        191        653        382        (15)     2,735
                                              ------     ------     ------     ------     ------     ------     ------
Operating (loss) income                      $  (545)   $  (463)   $   (59)   $   111    $  (367)   $     0     (1,323)
                                              ======     ======     ======     ======     ======     ======
Interest  (income)                                                                                                 (61)
                                                                                                                ------
Loss before benefit for income tax                                                                              (1,262)
Benefit for income tax                                                                                            (179)
                                                                                                                ------
Net loss from continuing operations                                                                             (1,083)
Net gain on disposal, net of taxes                                                                                 346
                                                                                                                ------
Net loss                                                                                                       $  (737)
                                                                                                                ======

Accounts receivable, net                     $   812    $ 1,856    $   232    $ 1,992    $   (4)    $     0      4,888
                                              ======     ======     ======     ======     ======     ======
Accounts receivable retained from
     discontinued operations, net                                                                                    3
                                                                                                                ------
Total accounts receivable, net                                                                                 $ 4,891
                                                                                                                ======
For the quarter ended June 30, 2000:
Total revenue                                $ 1,979    $     0    $   315    $ 1,172    $   762    $     0    $ 4,228
Cost of sales and services                     1,601          0        231        674        988          0      3,494
                                              ------     ------     ------     ------     ------     ------     ------
Gross profit                                     378          0         84        498       (226)         0        734
Selling, general and
     administrative expenses                     841          0         70        747        293          0      1,951
                                              ------     ------     ------     ------     ------     ------     ------
Operating income (loss)                      $  (463)   $     0    $    14    $  (249)   $  (519)   $     0     (1,217)
                                              ======     ======     ======     ======     ======     ======
Interest income                                                                                                    (50)
                                                                                                                ------
Income before benefit
for income tax                                                                                                  (1,167)
Benefit for income tax                                                                                            (386)
                                                                                                                ------
Net loss from continuing operations                                                                               (781)
Loss on disposal, net of taxes                                                                                    (387)
                                                                                                                ------
Net loss                                                                                                       $(1,168)
                                                                                                                ======

Accounts receivable, net                     $ 1,588    $     0    $   136    $ 1,670    $   752    $     0    $ 4,146
                                              ======     ======     ======     ======     ======     ======
Accounts receivable retained from
     discontinued operations, net                                                                               10,536
                                                                                                                ------
Total accounts receivable, net                                                                                 $14,682
                                                                                                                ======
</TABLE>


<PAGE>


<TABLE>
<CAPTION>
For the six months ended June 30, 2001:
                                                                      IT
                                              Allstar     INX      Staffing  Stratasoft Corporate Elimination Consolidated

<S>                                          <C>        <C>        <C>        <C>        <C>        <C>        <C>
Total revenue                                $ 2,394    $ 4,363    $   578    $ 3,272    $    (2)   $   (27)   $10,578
Cost of sales and services                     2,063      4,038        361      1,537          0        (12)     7,987
                                              ------     ------     ------     ------     ------     ------     ------
Gross profit (loss)                              331        325        217      1,735         (2)       (15)     2,591
Selling, general and
     administrative expenses                   1,681      1,392        383      1,399        907        (15)     5,747
                                              ------     ------     ------     ------    -------     ------     ------
Operating (loss) income                      $(1,350)   $(1,067)   $  (166)   $   336    $  (909)   $     0     (3,156)
                                              ======     ======     ======     ======     ======     ======
Interest  (income)                                                                                                (157)
                                                                                                                ------
Loss before benefit for income tax                                                                              (2,999)
Benefit for income tax                                                                                            (179)
                                                                                                                ------
Net loss from continuing operations                                                                             (2,820)
Net gain on disposal                                                                                               346
                                                                                                                ------
Net loss                                                                                                       $(2,474)
                                                                                                                ======

For the six months ended June 30, 2000:

Total revenue                                $ 4,267    $     0    $   636    $ 3,645    $ 1,664    $     0    $10,212
Cost of sales and services                     3,205          0        472      1,825      1,591          0      7,093
                                              ------     ------     ------     ------     ------     ------     ------
Gross profit                                   1,062          0        164      1,820         73          0      3,119
Selling, general and
     administrative expenses                   1,649          0        174      1,808        629          0      4,260
                                              ------     ------     ------     ------     ------     ------     ------
Operating income (loss)                      $  (587)   $     0    $   (10)   $    12    $  (556)   $     0     (1,141)
                                              ======     ======     ======     ======     ======     ======
Interest (income)                                                                                                  (35)
                                                                                                                ------
Income before benefit
for income tax                                                                                                  (1,106)
Benefit for income tax                                                                                            (367)
                                                                                                                ------
Net loss from continuing operations                                                                               (739)
Net income from discontinuing operations,
   net of taxes                                                                                                    301
Gain on disposal, net of taxes                                                                                   4,486
                                                                                                                ------
Net income                                                                                                     $ 4,048
                                                                                                                ======
</TABLE>

5.   EARNINGS PER SHARE

     Basic  EPS  is  computed  by  dividing  net  income   available  to  common
stockholders by the weighted-average number of common shares outstanding for the
period.  Diluted  EPS  is  based  on  the  weighted-average   number  of  shares
outstanding  during  each period and the  assumed  exercise  of  dilutive  stock
options and warrants less the number of treasury  shares assumed to be purchased
from the proceeds using the average  market price of the Company's  common stock
for each of the periods presented.

     There were no  potentially  dilutive  options  for the three and six months
ended June 30, 2001. Potentially dilutive options of 211,660 and 266,082 for the
three and six month periods ended June 30, 2000 were not used in the calculation
of diluted earnings per share since the effect is antidilutive.

     Warrants to purchase  176,750  shares of common  stock were not included in
computing  diluted  earnings  per share for all  periods  presented  because the
inclusion would have been antidilutive.


<PAGE>


6.   LITIGATION

     On February 1, 2000, a competitor  brought a suit against our  wholly-owned
subsidiary Stratasoft, Inc. in ESHARE TECHNOLOGIES,  INC. AND INVENTIONS, INC. V
STRATASOFT,  INC.,  Cause No. 1 99-CV-2303 for the United States  District Court
for the Northern  District of Georgia.  The plaintiff  alleges  infringement  of
certain patents owned by the competitor and is seeking a permanent injunction to
prevent Stratasoft, Inc. from manufacturing, selling, offering for sale or using
the alleged  infringing  products covered by patents owned by eshare Technology,
Inc. et al, as well as unspecified  monetary  damages.  The suit is in its early
stages of discovery,  and therefore I-Sector is unable to determine the ultimate
costs of this  matter.  I-Sector  believes  that this suit is without  merit and
intends to vigorously defend such action.

     I-Sector is party to 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,  I-Sector  believes the final outcome
of such  matters  will not have a  materially  adverse  effect on its results of
operations or financial position.


<PAGE>


ITEM 2.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATION

                              I-SECTOR CORPORATION

                      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  Form  10-Q and the
Company's  Form  10-K,   previously  filed  with  the  Securities  and  Exchange
Commission.

Overview

     I-Sector  Corporation  ("I-Sector"),  formerly  Allstar  Systems,  Inc., is
engaged in the  business of  providing  its  customers  with  solutions to their
information and communications  technology needs.  Currently,  I-Sector operates
through  four  subsidiary  corporations,  each of which is focused on a specific
area of the information and/or communications technology industry:

o          Allstar  Solutions,  Inc.  ("Allstar") helps its clients achieve high
           quality  cost  effective  solutions  in  myriad  areas  of  areas  of
           information  technology.  Allstar  provides  solutions  that  include
           project-based or outsourced information technology support,  turn-key
           IT project  implementation  and  consultation  and turn-key sales and
           installation of certain highly specialized IT products.

o          Internetwork Experts, Inc. ("INX") focuses on the design,  deployment
           and support of networking  infrastructure.  INX provides professional
           services for customers that have large-scale  network  infrastructure
           requirements  that are Cisco  centric.  The areas of practice for INX
           include network design,  implementation,  turnkey  support,  security
           audits and firewall  design,  network  infrastructure  management and
           network infrastructure consulting services

o          IT  Staffing,   Inc.  ("IT  Staffing")  places  IT  professionals  on
           temporary  assignments and permanent  placements,  focusing mainly in
           the  area  of  software  development  and  programming.  IT  Staffing
           employees   dedicated  customer  account  managers  and  professional
           technical  recruiters  who together  provide a highly  selective  and
           confidential recruiting process for clients.

o          Stratasoft,  Inc.  ("Stratasoft")  develops  and markets  proprietary
           software that  integrates  business  telephone  systems and networked
           computer   systems.   Stratasoft's   basic   products  are  sometimes
           customized  to suit a customer's  particular  needs and are sometimes
           bundled  with  computer  hardware  supplied  by us at the  customer's
           request.   Stratasoft  products  include  software  for  call  center
           management, both in-bound and out-bound, as well as interactive voice
           response software.

     We market our  professional  services  businesses  primarily  in Texas from
locations in the Houston and Dallas-Fort Worth  metropolitan  areas.  Stratasoft
markets its  software  products  worldwide  through a direct  sales force and an
authorized dealer network. During the three months ended June 30, 2001, Allstar,
INX and IT Staffing  produced  20.5%,  46.1% and 5.9% of total  revenues,  while
Stratasoft produced 27.7% of total revenues.  Gross margin varies  substantially
between each of these business segments.

     Our  ability to attract and retain  qualified  professional  and  technical
personnel is critical to the success of all of our services businesses. The most
significant  portion of the costs  associated  with the  delivery of services is
personnel costs. Therefore,  in order to be successful,  our billable rates must
be in excess of the personnel costs and our margin is dependent upon maintaining
high utilization of our service personnel. In addition, the competition for high
quality personnel has generally intensified,  causing both our and other service
provider's  personnel  costs to  increase.  In markets  where we do not maintain
branch offices, we often subcontract for necessary technical personnel.

     A  significant  portion  of our cost of  services  for each of our  service
businesses  is comprised of labor.  Labor has a somewhat  fixed nature such that
higher levels of service revenue produces higher gross margin while lower levels
of service  revenue  produces  less gross  margin.  Management  of labor cost is
important in order to prevent erosion of gross margin.


<PAGE>


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

     Historically,  through 1999,  our revenue was derived  through four primary
areas of  business,  each of which was  reported  as a  reportable  segment:  IT
Services, CTI Software,  Computer Products and Telecom Systems.  During the year
ended December 31, 1999 we discontinued  our Telecom Systems business and during
the quarter ended March 31, 2000 we discontinued our Computer Products business.
We sold both  Telecom  Systems  and  Computer  Products  businesses  in separate
transactions  during the first quarter of 2000. We retained accounts  receivable
and inventory  related to the businesses that were sold. A disposal loss (net of
taxes),  including an estimate of the  operating  results  from the  measurement
date,  November 2, 1999 to the closing  date of the sale of Telecom  Systems was
recognized at December 31, 1999. The sale of Computer Products closed on May 19,
2000 after  stockholder  approval was obtained and other  conditions  to closing
were satisfied.  The terms of the agreement included cash consideration of $14.8
million,  plus the  possibility  of receiving a future payment of up to $500,000
from an escrow account. The terms of the agreement also included possible future
cash payments  contingent upon future  performance of the operations being sold.
We recognized a gain of approximately $4.9 million, net of taxes, in the quarter
ended March 31, 2000, but recognized  losses in the quarters ended June 30, 2000
and September  30, 2000 which reduced the gain on the sale to $3.7 million,  net
of taxes.  In the quarter ended June 30, 2001 we recognized  additional  gain of
$346,  net of tax,  related  to a payment  for the  funds  that had been held in
escrow.

     Special notice regarding forward-looking statements

     This  quarterly  report on Form 10-Q  contains  forward-looking  statements
within  the  meaning of the  Private  Securities  Litigation  Reform Act of 1995
relating to future events or our future financial performance including, but not
limited to,  statements  contained  in Item 2. -  "Management's  Discussion  and
Analysis  of  Financial  Condition  and  Results  of  Operations."  Readers  are
cautioned  that  any  statement  that is not a  statement  of  historical  fact,
including  but not  limited  to,  statements  which may be  identified  by words
including,  but not  limited to,  "anticipate,"  "appear,"  "believe,"  "could,"
"estimate,"  "expect," "hope,"  "indicate,"  "intend," "likely," "may," "might,"
"plan,"  "potential," "seek," "should," "will," "would," and other variations or
negative  expressions thereof, are predictions or estimations and are subject to
known and unknown risks and uncertainties.  Numerous factors,  including factors
which we have little or no control over, may affect the company's actual results
and may cause actual results to differ  materially  from those  expressed in the
forward-looking  statements  contained  herein.  In evaluating such  statements,
readers should consider the various factors  identified in the company's  annual
report on Form  10-K,  as filed  with the  Securities  and  Exchange  Commission
including  matters  set forth in Item 1.-  "Factors  Which May Affect The Future
Results Of Operations," which could cause actual events,  performance or results
to differ materially from those indicated by such statements.


<PAGE>


Three Months Ended June 30, 2001 Compared To Three Months Ended June 30, 2000
                             (Dollars in thousands)

     The  following  table  sets  forth,  for  the  periods  indicated,  certain
financial data derived from our unaudited consolidated  statements of operations
for the three months ended June 30, 2001 and 2000. The discussion  below relates
only to our continuing operations, unless otherwise noted.

                                              Three months ended June 30,
                                              ---------------------------
                                              2001                  2000
                                              ----                  ----
                                        Amount      %         Amount      %
                                        ------    ------      ------    ------
Revenue

Allstar                                $ 1,178      20.5     $ 1,979      46.8
INX                                      2,646      46.1           0       0.0
IT Staffing                                339       5.9         315       7.5
Stratasoft                               1,590      27.7       1,172      27.7
Corporate                                    1       0.0         762      18.0
Elimination                                (16)     (0.2)          0       0.0
                                        ------    ------      ------    ------
         Total revenue                   5,738     100.0       4,228     100.0
Gross profit (loss):
Allstar Systems, Inc.                      196      16.6         378      19.1
INX                                        320      12.1           0       0.0
IT Staffing                                132      38.9          84      26.7
Stratasoft                                 764      48.1         498      42.5
Corporate                                   15    1500.0        (226)    (29.7)
Elimination                                (15)     (0.9)          0       0.0
                                        ------    ------      ------    ------
         Total gross profit              1,412      24.6         734      17.4
Selling, general and administrative
   expenses:
Allstar                                    741      62.9         841      42.5
INX                                        783      29.6           0       0.0
IT Staffing                                191      56.3          70      22.2
Stratasoft                                 653      41.1         747      63.7
Corporate                                  382     382.0         293      38.5
Elimination                                (15)    (93.8)          0       0.0
                                        ------    ------      ------    ------
         Total selling, general
            and administrative
         Expenses                        2,735      47.7       1,951      46.1
Operating (loss) income:
Allstar                                   (545)    (46.3)       (463)    (23.4)
INX                                       (463)    (17.5)          0       0.0
IT Staffing                                (59)    (17.4)         14       4.4
Stratasoft                                 111       7.0        (249)    (21.2)
Corporate                                 (367)   (367.0)       (519)    (68.1)
                                        ------    ------      ------    ------
         Total operating (loss) income  (1,323)    (23.1)     (1,217)    (28.8)
Interest (income)                          (61)     (1.1)        (50)     (1.2)
                                        ------    ------      ------    ------
Loss before benefit for income taxes    (1,262)    (22.0)     (1,167)    (27.6)
Benefit for income taxes                  (179)     (3.1)       (386)     (9.1)
                                        ------    ------      ------    ------
Net loss from continuing operations     (1,083)    (18.9)       (781)    (18.5)
Discontinued operations:
         Gain  (loss) on disposal          346       6.1        (387)     (9.1)
                                        ------    ------      ------    ------
Net loss                               $  (737)    (12.8)    $(1,168)    (27.6)
                                        ======    ======      ======    ======


<PAGE>


     TOTAL REVENUE.  Total revenue increased by $1,510 (35.7%) to $5,738 in 2001
from $4,228 in 2000.

     Allstar revenue  decreased by $801 (40.5%) to $1,178 in 2001 from $1,979 in
2000.  As a percentage of total revenue  Allstar  revenue  decreased to 20.5% in
2001 from 46.8% in 2000. The decrease in ACS revenue was primarily  attributable
to issues related to the loss of revenue from certain  customers  after the sale
of the Computer Products Division.

     INX  revenue  was $2,646 for the  quarter  and  represented  46.1% of total
revenue. INX was newly formed in July 2000 to meet the needs of customers in the
area of large-scale network infrastructure  requirements that are Cisco centric.
INX is focused  primarily on penetrating the market in Dallas and Houston and on
forming customer relationships.

     IT Staffing  revenue  increased  by $24 (7.6%) to $339 in 2001 from $315 in
2000. As a percentage of total revenue IT Staffing revenue  decreased to 5.9% in
2001 from 7.5% in 2000.  IT Staffing  experienced a change in its mix of revenue
sources such that  permanent  placements,  which  produce  higher gross  margin,
increased to 21.5% of its total  revenues in 2001 from 11.1% in 2000.  Temporary
placements decreased to 78.5% in 2001 from 88.9% in 2000.

     Stratasoft  revenue increased by $418 (35.7%) to $1,590 in 2001 from $1,172
in  2000.  Stratasoft  revenue,  as  a  percentage  of  total  revenue  remained
consistent  at 27.7% in both  2001 and  2000.  The  increase  is  attributed  to
increased international sales.

     The Corporate  segment  includes both costs related to the operation of the
corporate entity that are not allocated to any subsidiary company,  plus certain
operations which are not on-going  because of the sale of the Computer  Products
Division and including prior period  installation  revenue that was related to a
certain customer of our Computer  Products  Division and revenue from our former
El Paso branch office, which ceased because of the sale of the Computer Products
Division.  As these  operations  have  ceased or are  winding up we  expected an
insignificant  amount of revenue in the quarter ending June 30, 2001.  Corporate
revenue decreased by $761 (99.9%) to $1 in 2001 from $762 in 2000 to $1 in 2001.
As a percentage of total revenue  Corporate  revenue decreased to (0.0)% in 2001
from 18.0% in 2000. The El Paso branch office service business had revenue of $0
and  $230  in  the  quarters  ended  June  30,  2001  and  2000,   respectively.
Installation  revenue for the certain customer of the Computer Products Division
(also discontinued effective May 19, 2000) contributed revenue of $1 and $532 in
the quarters ended June 30, 2001 and 2000, respectively.

     GROSS PROFIT. Gross profit increased by $678 (92.4%) to $1,412 in 2001 from
$734 in 2000. Gross margin increased to 24.6% in 2001 from 17.4% in 2000.

     Allstar gross profit decreased by $182 (48.1%) to $196 in 2001 from $378 in
2000.  Gross  margin for Allstar  decreased to 16.6% in 2001 from 19.1% in 2000.
Allstar cost of service consists primarily of labor cost. Labor has a more fixed
nature such that higher  levels of service  revenue  produces  higher  levels of
gross margin while lower levels of service revenue  produces lower gross margin.
In periods when service revenue  decreases,  it becomes more important to manage
labor  cost in order to  prevent  erosion  of gross  margin.  Subsequent  to the
separation of the IT Services segment into wholly owned subsidiary  companies in
July 2000, Allstar experienced lower labor utilization related to lower revenue.

     INX gross  profit  was $320 and 12.1% of  revenue.  Since INX was formed in
July 2000,  there is no  history  for  comparison.  As a newly  formed  start-up
operation,  it had to have billable technical staff in place in order to be able
to market their services,  but was unable to fully utilize that technical staff,
but its utilization rate has increase as compared to the quarter ended March 31,
2001 when it had gross margin of $4 and 0.2% of revenue.


<PAGE>


     IT Staffing gross profit  increased by $48 (57.1%) to $132 in 2001 from $84
in 2000 as revenue  increased by 7.6%.  Gross margin  increased to 38.9% in 2001
from 26.7% in 2000.  IT  Staffing's  gross  margin is  influenced  by the mix of
revenues.  As discussed  above,  IT Staffing had higher  revenues from permanent
placements in 2001 as compared to 2000, and permanent placements contribute much
higher  gross  margins.  Revenues  from  temporary  placements  decreased  as  a
percentage of total  revenues,  and these  revenues  produce lower gross margins
than do permanent  placements,  particularly  because a large  percentage of the
revenues for  temporary  placements  were  attributed to a contract with a major
customer that limits the rates for that particular customer.

     Stratasoft gross profit increased by $266 (53.4%) to $764 in 2001 from $498
in 2000 as revenue increased by 35.7%. Gross margin for Stratasoft  increased to
48.1% in 2001 from 42.5% in 2000. The increased  gross profit is consistent with
the increased  sales  volume.  Gross margin is also impacted by the mix of sales
between  systems  sales,  which  include a hardware  component,  as  compared to
software only sales, which do not have a hardware cost of goods component.

     Corporate gross profit increased by $241 (106.6%) to gross profit of $15 in
2001 from a gross loss of $226 in 2000 as revenue decreased from $762 in 2000 to
$1 in 2001. Gross margin increased to 1500% in 2001 from (29.7%) in 2000. The El
Paso service  business that was sold on May 19, 2000 produced gross profit of $4
in 2001 as  compared  to a gross loss of $183 in the same  quarter  in 2000.  We
experienced certain costs related to winding up our service operations in the El
Paso branch office that  negatively  impacted  gross profit in 2000.  Augmenting
those results,  the gross margin on installations for the customer that was lost
in the Computer Products Division sale produced a gross profit of $12 in 2001 as
compared to a gross loss of $43 in 2000.

     SELLING,  GENERAL  AND  ADMINISTRATIVE   EXPENSES.   Selling,  general  and
administrative  expenses increased by $784 (40.2%) to $2,735 in 2001 from $1,951
in 2000. As a percentage of revenue,  these expenses increased by 1.6%, to 47.7%
of revenue in 2001 from 46.1% of revenue in 2000.  Overall,  our spending was up
primarily  related to hiring new members of  management  for the new  subsidiary
companies  ($146,  of which $97 was for INX which  was newly  formed  and had no
operations  in  2000),  and  expanding  the  sales  marketing  staff  in the new
companies  ($587,  of which  $362 was for INX which was newly  formed and had no
operations in 2000).  Bad debt expense  decreased by $178 in 2001 as compared to
2000. Corporate selling,  general and administrative  expenses increased by $232
in 2001 as compared to 2000  because  costs  related to the  maintenance  of the
corporate   organization,    including   executive   management    compensation,
corporate-level insurance,  depreciation, legal, director and investor relations
expenses,  which were previously  allocated out to the operating  segments,  and
which are now included in the Corporate segment,  were allocated to the Computer
Products Division in 2000.

     INTEREST  INCOME.  Interest income increased by $11 to $61 in 2001 compared
to $50 in 2000.

     DISCONTINUED OPERATIONS.  On March 16, 2000 we entered into an agreement to
sell certain  assets of, and the ongoing  operation  of, our  Computer  Products
Division. The sale transaction closed on May 19, 2000. As a consequence of these
events,  the  operations  of Computer  Products  are  reported  as  discontinued
operations.  For the quarters  ended June 30, 2001 and 2000,  respectively,  the
gain on disposal related to Computer  Products was $346 in 2000 as compared to a
loss on disposal of $387, net of taxes of $179 and $199.

     NET LOSS.  The net loss was $737 in the  quarter  ended June 30, 2001 which
was  comprised of a loss of $1,083 (after a benefit for income taxes of $179) on
continuing  operations  offset by a $346 (net of tax of $179) gain on  disposal.
The net loss in the quarter ended June 30, 2000 was a loss of $1,168,  comprised
of a loss of $781 on  continuing  operations,  after a benefit for income  taxes
totaling  $386 and a loss on disposal of $387,  after a benefit for income taxes
of $199.


<PAGE>


Six Months Ended June 30, 2001 Compared To Six Months Ended June 30, 2000
                             (Dollars in thousands)

     The  following  table  sets  forth,  for  the  periods  indicated,  certain
financial data derived from our unaudited consolidated  statements of operations
for the three months ended March 31, 2001 and 2000. The discussion below relates
only to our continuing operations, unless otherwise noted.

                                               Six months ended June 30,
                                               -------------------------
                                              2001                  2000
                                              ----                  ----
                                        Amount      %         Amount      %
                                        -------  -------      ------   -------
Revenue

Allstar                                $ 2,394      22.6     $ 4,267      41.8
  INX                                    4,363      41.2           0       0.0
IT Staffing                                578       5.5         636       6.2
Stratasoft                               3,272      30.9       3,645      35.7
Corporate                                   (2)     (0.0)      1,664      16.3
Elimination                                (27)     (0.2)          0       0.0
                                        ------   -------      ------   -------
         Total revenue                  10,578     100.0      10,212     100.0
Gross profit (loss):
Allstar Systems, Inc.                      331      13.8       1,062      24.9
  INX                                      325       7.4           0       0.0
IT Staffing                                217      37.5         164      25.8
Stratasoft                               1,735      53.1       1,820      49.9
Corporate                                   (2)    100.0          73       4.4
Elimination                                (15)    (55.6)          0       0.0
                                        ------   -------      ------   -------
         Total gross profit              2,591      24.5       3,119      30.5
Selling, general and administrative
   expenses:
Allstar                                  1,681      70.2       1,649      38.6
  INX                                    1,392      31.9           0       0.0
IT Staffing                                383      66.3         174      27.4
Stratasoft                               1,399      42.8       1,808      49.6
Corporate                                  907   45350.0         629      37.8
Elimination                                (15)    (55.6)          0       0.0
                                        ------   -------      ------   -------
         Total selling, general and
            administrative
         Expenses                        5,747      54.3       4,260      41.7
Operating (loss) income:
Allstar                                 (1,350)    (56.4)       (587)    (13.8)
  INX                                   (1,067)    (24.5)          0       0.0
IT Staffing                               (166)    (28.7)        (10)     (1.6)
Stratasoft                                 336      10.3          12       0.3
Corporate                                 (909) (45450.0)       (556)    (33.4)
                                        ------   -------      ------   -------
         Total operating loss           (3,156)    (29.8)     (1,141)    (11.1)
Interest (income)                         (157)     (1.5)        (35)     (0.3)
                                        ------   -------      ------   -------
Loss before benefit for income taxes    (2,999)    (28.3)     (1,106)    (10.8)
Benefit for income taxes                  (179)     (1.7)       (367)     (3.6)
                                        ------   -------      ------   -------
Net loss from continuing operations     (2,820)    (26.6)       (739)     (7.2)
Discontinued operations:
         Net income from discontinued
            operations,
              net of taxes                                       301       2.9
         Gain on disposal                  346       3.3       4,486      43.9
                                        ------   -------      ------   -------
Net (loss) income                      $(2,474)    (23.3)    $ 4,048      39.6
                                        ======   =======      ======   =======


<PAGE>


     TOTAL  REVENUE.  Total revenue  decreased by $366 (3.6%) to $10,578 in 2001
From $10,212 in 2000.

     Allstar  revenue  decreased by $1,873 (43.9%) to $2,394 in 2001 from $4,267
in 2000. As a percentage of total revenue Allstar revenue  decreased to 22.6% in
2001 from 41.8% in 2000. The decrease in ACS revenue was primarily  attributable
to issues related to the loss of revenue from certain  customers  after the sale
of the Computer Products Division.

     INX  revenue was $4,363 for the six months and  represented  41.2% of total
revenue. INX was newly formed in July 2000 to meet the needs of customers in the
area of large-scale network infrastructure  requirements that are Cisco centric.
INX  exerted  intense  efforts to  introduce  itself to the market in Dallas and
Houston and form customer relationships.

     IT Staffing  revenue  decreased  by $58 (9.1%) to $578 in 2001 from $636 in
2000. As a percentage of total revenue IT Staffing revenue  decreased to 5.5% in
2001 from 6.2% in 2000.  IT Staffing  experienced a change in its mix of revenue
sources such that  permanent  placements,  which  produce  higher gross  margin,
increased to 26.7% of its total  revenues in 2001 from 10.2% in 2000.  Temporary
placements decreased to 73.3% in 2001 from 89.8% in 2000.

     Stratasoft  revenue decreased by $373 (10.2%) to $3,272 in 2001 from $3,645
in 2000.  Stratasoft  revenue,  as a percentage of total  revenue,  decreased to
30.9% in 2001 from  35.7% in 2000.  In 2000  Stratasoft  had one large  contract
which contributed $580 in revenues but no such large contract occurred in 2001.

     The Corporate  segment  includes both costs related to the operation of the
corporate entity that are not allocated to any subsidiary company,  plus certain
operations which are not on-going  because of the sale of the Computer  Products
Division and including prior period  installation  revenue that was related to a
certain customer of our Computer  Products  Division and revenue from our former
El Paso branch office, which ceased because of the sale of the Computer Products
Division.  As these  operations  have  ceased or are  winding up we  expected an
insignificant  amount  of  revenue  in the six  months  ending  June  30,  2001.
Corporate  revenue  decreased by $1,666  (100.1%) to $(2) in 2001 from $1,664 in
2000.  Revenue in 2001 is negative because of credits issued to customers.  As a
percentage of total revenue  Corporate  revenue decreased to (0.0)% in 2001 from
16.3% in 2000.  The El Paso branch office  service  business had revenue of $(1)
and $941 in the six month  periods  ended June 30, 2001 and 2000,  respectively.
Installation  revenue for the certain customer of the Computer Products Division
(also discontinued effective May 19, 2000) contributed revenue of $0 and $723 in
the six month peiods ended June 30, 2001 and 2000, respectively.

     GROSS PROFIT. Gross profit decreased by $528 (16.9%) to $2,591 in 2001 from
$3,119 in 2000. Gross margin decreased to 24.5% in 2001 from 30.5% in 2000.

     Allstar gross profit  decreased by $731 (68.8%) to $331 in 2001 from $1,062
in 2000. Gross margin for Allstar decreased to 13.8% in 2001 from 24.9% in 2000.
Allstar cost of service consists primarily of labor cost. Labor has a more fixed
nature such that higher  levels of service  revenue  produces  higher  levels of
gross margin while lower levels of service revenue  produces lower gross margin.
In periods when service revenue  decreases,  it becomes more important to manage
labor  cost in order to  prevent  erosion  of gross  margin.  Subsequent  to the
separation of the IT Services segment into wholly owned subsidiary  companies in
July 2000, Allstar experienced lower labor utilization related to lower revenue.

     INX gross profit was $325 and 7.4% of revenue. Since INX was formed in July
2000, there is no history for comparison.  As a newly formed start-up operation,
it had to have billable  technical  staff in place in order to be able to market
their services,  but was unable to utilize that technical staff  sufficiently to
cover  their  labor  cost in the first  three  months of the  period.  INX gross
margins increased to 12.1% in the second three months of the period, but has not
yet achieved optimum utilization of its technical staff.

     IT Staffing gross profit increased by $53 (32.3%) to $217 in 2001 from $164
in 2000 as revenue  decreased by 9.1%.  Gross margin  increased to 37.5% in 2001
from 25.8% in 2000.  IT  Staffing's  gross  margin is  influenced  by the mix of
revenues.  As discussed  above,  IT Staffing had higher  revenues from permanent
placements in 2001 as compared to 2000, and permanent placements contribute much
higher gross margins.


<PAGE>


     Stratasoft  gross  profit  decreased  by $85  (4.7%) to $1,735 in 2001 from
$1,820 in 2000 as  revenue  decreased  by 10.2%.  Gross  margin  for  Stratasoft
increased  to 53.1% in 2001 from 49.9% in 2000.  The  decreased  gross profit is
consistent with the decreased sales volume. Gross margin is also impacted by the
mix of sales  between  systems  sales,  which include a hardware  component,  as
compared to  software  only  sales,  which do not have a hardware  cost of goods
component.

     Corporate  gross  profit  decreased by $75 (102.7%) to a loss of $2 in 2001
from a gross profit of $73 in 2000 as revenue  decreased by 100.1%.  The El Paso
service  business  that was sold on May 19, 2000  produced  gross loss of $15 in
2001 as compared to $26 in the same six months in 2000. We  experienced  certain
costs related to winding up our service  operations in the El Paso branch office
that  negatively  impacted gross profit.  Augmenting  those  results,  the gross
margin on installations  for the customer that was lost in the Computer Products
Division sale produced a gross profit of $12 in 2001 as compared to $99 in 2000.

     SELLING,  GENERAL  AND  ADMINISTRATIVE   EXPENSES.   Selling,  general  and
administrative  expenses  increased  by  $1,487  (34.9%)  to $5,747 in 2001 from
$4,260 in 2000. As a percentage of revenue,  these expenses  increased by 12.6%,
to 54.3% of revenue in 2001 from 41.7% of revenue in 2000. Overall, our spending
was up  primarily  related  to hiring  new  members  of  management  for the new
subsidiary companies ($388, of which $233 was for INX which was newly formed and
had no operations in 2000),  and expanding the sales  marketing staff in the new
companies  ($844,  of which  $468 was for INX which was newly  formed and had no
operations in 2000).  Bad debt expense  decreased by $103 in 2001 as compared to
2000. Corporate selling,  general and administrative  expenses increased by $418
in 2001 as compared to 2000  because  costs  related to the  maintenance  of the
corporate   organization,    including   executive   management    compensation,
corporate-level insurance,  depreciation, legal, director and investor relations
expenses,  which were previously  allocated out to the operating  segments,  and
which are now included in the Corporate segment,  were allocated to the Computer
Products Division in 2000.

     INTEREST INCOME. Interest income increased by $122 to $157 in 2001 compared
to interest  expense of $35 in 2000,  primarily  due to the  reduction  of notes
payable and investment of available cash.

     DISCONTINUED OPERATIONS.  On March 16, 2000 we entered into an agreement to
sell certain  assets of, and the ongoing  operation  of, our  Computer  Products
Division. The sale transaction closed on May 19, 2000. As a consequence of these
events,  the  operations  of Computer  Products  are  reported  as  discontinued
operations.  For the six months ended June 30, 2001 and 2000, respectively,  net
income  from  discontinued  operations  was $0 and $301  (net of taxes of $0 and
$156) and the gain on disposal  related to the  Computer  Products  Division was
$346 and $4,486, net of taxes of $179 and $2,313.

     NET LOSS.  The net loss was  $2,474 in the six months  ended June 30,  2001
which was  comprised  of a loss of $2,820  (after a benefit for income  taxes of
$179) on  continuing  operations  offset by a $346 (net of tax of $179)  gain on
disposal.  The net loss in the quarter ended June 30, 2000 was income of $4,048,
comprised of a loss of $739 on continuing operations, after a benefit for income
taxes totaling $367, offset by net income from discontinued  operations of $301,
net of taxes of $156 and a gain on  disposal of $4,486,  after a  provision  for
income taxes of $2,313.

Liquidity and Capital Resources

     Our working  capital  was $7,766 and $10,098 at June 30, 2001 and  December
31, 2000,  respectively.  As of June 30, 2001,  we had no  outstanding  debt and
available  borrowing base of $1,721 under our Deutsche Financial Services credit
facility.  We expect to satisfy our capital  requirements from our existing cash
balances and collection of our accounts receivables.

Cash Flow

     Operating  activities  used net cash totaling  $3,083 during the six months
ended  June 30,  2001.  Operating  activities  used net cash  during  the period
primarily to fund operating losses of $2,474, an increase in accounts payable of
$806 and an  increase in accounts  receivable  of $418.  These uses of cash were
offset by cash  provided  by an decrease in  inventory  of $212,  an increase in
accrued expenses of $573, a increase in billings in excess of cost and estimated
earnings of $70 and a non cash charge of  depreciation  of $301 which  increased
the operating loss.


<PAGE>


     Investing  activities  provided cash totaling $339,  comprised primarily of
the proceeds from the sale of discontinued  operations of $525 offset by capital
expenditures  of $136 during the six months  ended June 30,  2001 and  financing
activities used cash totaling $162.

Asset Management

     Our cash flow from operations has been affected  primarily by the timing of
our collection of accounts  receivable.  We have typically sold our products and
services on  short-term  credit  terms and seek to  minimize  our credit risk by
performing  credit checks and  conducting  our own  collection  efforts.  We had
accounts  receivable,  net of  allowance  for doubtful  accounts,  of $4,891 and
$4,473 at June 30, 2001 and December 31, 2000, respectively.

Current Debt Obligations

     On  February  27, 1998 we entered  into a credit  agreement  with  Deutsche
Financial  Services ("DFS") for a revolving line of credit (the "DFS Facility"),
which  historically was our principal source of liquidity.  On May 19, 2000, the
day of the closing on the sale of the  Computer  Products  Division,  the credit
facility was amended to decrease the total credit  available  under the facility
from $30,000 to $3,000 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  this  facility  for floor plan
financing of inventory from approved  manufacturers  (the  "Inventory  Line") is
$3,000.  Borrowings  under the Inventory Line accrue  interest at the prime rate
plus 5% on  outstanding  balances over 40 days.  Inventory  Line  borrowings are
reflected in accounts payable on the accompanying  balance sheets.  For purposes
of calculating interest charges the minimum prime rate under the DFS Facility is
7.0%. At June 30, 2001,  we had $18  outstanding  on the Inventory  Line and had
total credit availability of $1,721.

     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 us,  subject to a  termination  fee, is  collaterized  by
substantially all of our assets. The agreement contains  restrictive  covenants,
which, among other things,  require us to maintain a minimum tangible net worth.
The terms of the agreement  also prohibit the payment of dividends and limit the
purchase of our common stock, and other similar expenditures, including advances
to related  parties.  We are not in compliance with a certain covenant for which
we subsequently received a waiver. As part of the waiver our credit availability
has been reduced to $750,000  through  October 15,  2001.  We do not believe the
reduction  of  availability  is a  hindrance  to our  operations  as the  credit
facility  has been in  limited  use since the  discontinuation  of our  Computer
Products Division. We are in the process of evaluating our credit facility needs
and are in discussion with DFS regarding modifying, or perhaps terminating,  our
relationship.

ITEM 3.  Quantitative and Qualitative Disclosures about Market Risk

     We incur certain market risks related to interest rate  variations  because
we hold floating rate debt.  Based upon the average  amount of debt  outstanding
during the six months ended June 30, 2001,  a  one-percent  increase in interest
rates paid by us on our debt would not have  resulted in an increase in interest
for the period.

PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

     On February 1, 2000, a competitor  brought a suit against our  wholly-owned
subsidiary Stratasoft, Inc. in ESHARE TECHNOLOGIES,  INC. AND INVENTIONS, INC. V
STRATASOFT,  INC.,  Cause No. 1 99-CV-2303 for the United States  District Court
for the Northern  District of Georgia.  The plaintiff  alleges  infringement  of
certain patents owned by the competitor and is seeking a permanent injunction to
prevent Stratasoft, Inc. from manufacturing, selling, offering for sale or using
the alleged  infringing  products covered by patents owned by eshare Technology,
Inc. et al, as well as unspecified  monetary  damages.  The suit is in its early
stages of discovery, and therefore we are unable to determine the ultimate costs
of this  matter.  We  believe  that this  suit is  without  merit and  intend to
vigorously defend such action.

     We are 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.  We believe the final outcome of such
matters will not have a materially  adverse  effect on its results of operations
or financial position.


<PAGE>


SIGNATURES

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

                             I-Sector Corporation.

August 14, 2001              By:  /s/ JAMES H. LONG
                                  -----------------
Date                              James H. Long, Chief Executive Officer,
                                  President and Chairman of the Board
                                  (Principal Financial and Accounting Officer)