FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

(Mark One)

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

For the quarterly period ended September 30, 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 November 13, 2001
                                                  3,849,525 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)

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

Current assets:
     Cash and cash equivalents                    $        5,191  $       8,346
     Accounts receivable, net                              3,894          4,473
     Accounts receivable - affiliates                        278            303
     Accounts receivable - other                              36            141
     Inventory                                             1,004            774
     Income taxes receivable                                 863            863
     Cost and estimated earnings
          in excess of billings                              798
     Other current assets                                    292            233
                                                     -----------    -----------
         Total current assets                             12,356         15,133
Property and equipment                                     1,298          1,579
Other assets                                               1,464            430
                                                     -----------    -----------
Total                                             $       15,118  $      17,142
                                                     ===========    ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Accounts payable                             $        2,438  $       1,892
     Billings in excess of cost
          and estimated earnings                                            503
     Accrued expenses                                      2,349          1,635
     Net liabilities related to
          discontinued operations                            872            869
     Deferred service revenue                                126            136
     Short term debt                                         179
                                                     -----------    -----------
         Total current liabilities                         5,964          5,035
     Deferred credit - stock warrants                        195            195
     Long term debt                                          467
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 September 30, 2001
              and December 31, 2000                           44             44
     Additional paid in capital                           10,185         10,182
     Unearned equity compensation                                            (1)
     Treasury stock (591,800 and 399,800
         shares, at cost) at September
         30, 2001 and December 31, 2000                   (1,187)          (992)
     Retained earnings                                      (550)         2,679
                                                     -----------    -----------
         Total stockholders' equity                        8,492         11,912
                                                     -----------    -----------
Total                                             $       15,118  $      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 September 30,

                                                       2001             2000
                                                       ----             ----


Total revenue                                     $        6,529  $       4,173
Cost of sales and services                                 4,697          3,314
                                                     -----------    -----------
Gross profit                                               1,832            859
Selling, general and administrative expenses               2,703          3,282
                                                     -----------    -----------
Operating loss                                              (871)        (2,423)
Interest income and other income                            (116)          (100)
                                                     -----------    -----------
Loss from continuing operations before
     benefit  for income taxes                              (755)        (2,323)
Benefit for income taxes                                                   (708)
                                                     -----------    -----------
Net loss from continuing operations                         (755)        (1,615)
Discontinued Operations:
     Loss on disposal                                                    (1,095)
                                                     -----------    -----------
Net loss                                          $         (755) $      (2,710)
                                                     ===========    ===========


Net (loss) income per share:
     Basic and diluted:
         Net loss from continuing operations      $       (0.20)  $       (0.40)
         Loss on disposal                                  0.00           (0.27)
                                                     ----------     -----------
              Net loss per share                  $       (0.20)  $       (0.67)
                                                     ==========     ===========

Weighted average shares outstanding:

         Basic and diluted                             3,853,607      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)

                                                 Nine Months Ended September 30,

                                                       2001            2000
                                                       ----            ----


Total revenue                                     $       17,107  $      14,386
Cost of sales and services                                12,684         10,407
                                                     -----------    -----------
Gross profit                                               4,423          3,979
Selling, general and administrative expenses               8,450          7,544
                                                     -----------    -----------
Operating loss                                            (4,027)        (3,565)
Interest income and other income                            (273)          (135)
                                                     -----------    -----------
Loss from continuing operations before
     benefit for income taxes                             (3,754)        (3,430)
Benefit for income taxes                                    (179)        (1,075)
                                                     -----------    -----------
Net loss from continuing operations                       (3,575)        (2,355)
Discontinued Operations:
     Net income from discontinued operations,
          net of taxes                                                      300
     Gain on disposal, net of taxes                          346          3,392
                                                     -----------    -----------
Net (loss) income                                 $       (3,229) $       1,337
                                                     ===========    ===========


Net (loss) income per share:
     Basic and diluted:
         Net loss from continuing operations      $       (0.92)  $       (0.58)
         Net income from discontinued operations                           0.07
         Gain on disposal                                  0.09            0.84
                                                     ----------     -----------
              Net (loss) income per share         $       (0.83)  $        0.33
                                                     ==========     ===========

Weighted average shares outstanding:

         Basic and diluted                             3,901,783      4,048,672
                                                     ===========    ===========


                 See notes to consolidated financial statements


<PAGE>

                      I-SECTOR CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (In thousands)
                                   (Unaudited)

                                                 Nine Months Ended September 30,

                                                       2001            2000
                                                       ----            ----

Net (loss) income                                 $       (3,229) $       1,337
Adjustments to reconcile net (loss) income
     to net cash provided by (used in)
     operating activities:
     Net income from discontinued operations                               (300)
     Gain on disposal of discontinued operations            (346)        (3,392)
     Depreciation and amortization                           380            376
     Deferred tax provision                                 (179)        (2,233)
Changes in assets and liabilities that provided
    (used) cash:
     Accounts receivable, net                                579         30,622
     Accounts receivable - affiliates and other              130            (44)
     Inventory                                              (164)           (82)
     Cost and estimated earnings in excess of
          billings                                          (798)
     Other current assets                                    (59)           181
     Other assets                                            137             29
     Accounts payable                                        546        (19,901)
     Accrued expenses                                        714         (1,758)
     Income taxes payable                                                  (521)
     Billings in excess of cost and estimated
          earnings                                          (503)
     Deferred service revenue                                (10)          (143)
                                                     -----------    -----------
Net cash  (used in) provided by continuing
          operating activities                            (2,802)         4,171
Net cash provided by discontinued operations                   3            852
                                                     -----------    -----------
     Net cash (used in) provided by operating
          activities                                      (2,799)         5,023

Cash flows from investing activities:

     Acquisition costs                                       (50)
     Capital expenditures                                   (636)          (333)
     Proceeds from sale of discontinued operations           525         15,029
                                                     -----------    -----------
Net cash (used in) provided by continuing
     operations                                             (161)        14,696
Net cash provided by discontinued operations                                279
                                                     -----------    -----------

     Net cash (used in) provided by investing
          activities:                                       (161)        14,975
                                                      -----------    -----------

Cash flows from financing activities:

     Purchase of treasury stock                             (195)           (14)
     Net decrease in notes payable                                      (15,869)
                                                     -----------    -----------

     Net cash provided by (used in)
          financing activities:                             (195)       (15,883)
                                                     -----------    -----------

Net (decrease) increase in cash and cash
          equivalents                                     (3,155)         4,115
Cash and cash equivalents at beginning of period           8,346          4,647
                                                     -----------    -----------
Cash and cash equivalents at end of period        $        5,191  $       8,762
                                                     ===========    ===========
Supplemental disclosures of cash flow information:
     Cash paid for interest                       $            0  $         375
                                                     ===========    ===========
     Cash paid for taxes                          $            0  $       1,009
                                                     ===========    ===========
Supplemental Schedule of Noncash Investing and
     Financing Activities:
     Intangible assets acquired through note
          payable                                 $          646  $
                                                   =============   ============

                 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:

          Allstar Solutions,  Inc.  ("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.

          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.

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

          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 nine months ended  September 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:

                                                     September 30,  December 31,
                                                          2001          2000

     Costs incurred on uncompleted contracts            $   195        $  135
     Estimated earnings                                   1,275           361
                                                        -------        -------

                                                          1,470           496
     Less: Billings to date                                 672           999
                                                        -------        -------

     Cost and estimated earnings in excess of billings  $   798
                                                        =======
     Billings in excess of cost and estimated earnings                 $  503
                                                                       =======

     Accounting  Pronouncements In June, 2001, Statement of Accounting Standards
("SFAS"),  SFAS No. 141,  "Business  Combinations" was approved by the Financial
Accounting  Standards Board ("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. The adoption of this
statement had no effect on  I-Sector's  consolidated  financial  position or its
results of operations.

     In June,  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.

     In August,  2001, SFAS No. 144,  "Accounting for the Impairment or Disposal
of Long-Lived Assets" was approved by the FASB. SFAS No. 144 supercedes SFAS No.
121,  "Accounting  for the  Impairment of  Long-Lived  Assets and for Long Lived
Assets to be Disposed  of". SFAS No. 144 requires  recognition  of an impairment
loss,  measured as the difference between the carrying amount and the fair value
of  the  asset,  only  if the  carrying  amount  of a  long-lived  asset  is not
recoverable  from its  undiscounted  cash  flows.  The  Company is  required  to
implement  SFAS No. 144 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.


<PAGE>

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 nine month periods ended September 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 nine months ended June 30, 2001 and 2000.

     The  balance  sheet  caption  "Net  Liabilities   related  to  discontinued
operations"  contains $872 and $869 at September 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 September 30, 2001,  I-Sector had $677 outstanding  under the Inventory
line.


<PAGE>

     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 of 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.  Subsequent  to September  30, 2001  I-Sector and DFS
mutually  agreed to  terminate  their  relationship.  I-Sector  is in process of
evaluating  its credit  facility  needs and is in discussion  with other parties
regarding the establishment of another credit facility.

     On September 27, 2001 Stratasoft,  a subsidiary of I-Sector,  signed a note
payable  to a third  party for $725  payable  in  monthly  installments  through
February,  2007.  The note  does not bear  interest  and  I-Sector  has  imputed
interest at 5.5% to record the debt and related patent asset. In connection with
this note payable,  I-Sector has reported  short-term  debt maturing  within one
year of $179 and  long-term  debt of $467.  Stratasoft  has  granted a  security
interest in its pending patent application and the next two patent  applications
filed by Stratasoft.

4.   SEGMENT INFORMATION

     I-Sector  operates through four subsidiary  corporations,  each of which is
focused on a specific area of the information and/or  communications  technology
industry:

          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, turnkey IT
          project   implementation   and  consultation  and  turnkey  sales  and
          installation of certain highly specialized IT products.

          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

          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.

          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.

  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.

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

<S>                                          <C>         <C>         <C>         <C>         <C>         <C>         <C>
Total revenue                                $ 1,682     $ 2,876     $   288     $ 1,687     $    (4)    $           $ 6,529
Cost of sales and services                     1,181       2,516         164         841          (5)                  4,697
                                              ------      ------      ------      ------      ------      ------      ------
Gross profit (loss)                              501         360         124         846           1                   1,832
Selling, general and
     administrative expenses                     772         729         186         715         301                   2,703
                                              ------      ------      ------      ------      ------      ------      ------
Operating (loss) income                      $  (271)    $  (369)    $   (62)    $   131     $  (300)    $              (871)
                                              ======      ======      ======      ======      ======      ======
Interest  (income)                                                                                                      (116)
                                                                                                                      ------
Loss before benefit for income tax                                                                                      (755)
Benefit for income tax                                                                                                ------
Net loss from continuing operations                                                                                     (755)
Net gain on disposal, net of taxes                                                                                    ------
Net loss                                                                                                             $  (755)
                                                                                                                      ======

Accounts receivable, net                     $ 1,052     $ 2,107     $   158     $   574     $    (2)    $     0       3,889
                                              ======      ======      ======      ======      ======      ======
Accounts receivable retained from
     discontinued operations, net                                                                                          5
                                                                                                                      ------
Total accounts receivable, net                                                                                       $ 3,894
                                                                                                                      ======
For the quarter ended September 30, 2000:

Total revenue                                $ 1,412     $   700     $   334     $ 1,779     $   (41)    $   (11)    $ 4,173
Cost of sales and services                     1,246         735         250       1,015          79         (11)      3,314
                                              ------      ------      ------      ------      ------      ------      ------
Gross profit                                     166         (35)         84         764        (120)          0         859
Selling, general and
     administrative expenses                     690         327         138       1,139         988           0       3,282
                                              ------      ------      ------      ------      ------      ------      ------
Operating income (loss)                      $ (524)     $  (362)    $   (54)    $  (375)    $(1,108)    $   0        (2,423)
                                              ======      ======      ======      ======      ======      ======
Interest income                                                                                                         (100)
                                                                                                                      ------
Loss before benefit
for income tax                                                                                                        (2,323)
Benefit for income tax                                                                                                  (708)
                                                                                                                      ------
Net loss from continuing operations                                                                                   (1,615)
Loss on disposal, net of taxes                                                                                        (1,095)
                                                                                                                      ------
Net loss                                                                                                             $(2,710)
                                                                                                                      ======

Accounts receivable, net                     $ 1,716     $   266     $   279     $   803     $ 1,055     $     0     $ 4,119
                                              ======      ======      ======      ======      ======      ======
Accounts receivable retained from
     discontinued operations, net                                                                                      1,511
                                                                                                                      ------
Total accounts receivable, net                                                                                       $ 5,630
                                                                                                                      ======
</TABLE>


<PAGE>


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

<S>                                          <C>        <C>        <C>         <C>         <C>         <C>         <C>
Total revenue                                $ 4,076    $  7,239   $     866   $   4,959   $      (6)  $    (27)   $  17,107
Cost of sales and services                      3,245      6,554         525       2,377          (5)       (12)      12,684
                                               ------     ------      ------      ------      ------      ------      ------
Gross profit (loss)                               831        685         341       2,582          (1)        (15)      4,423
Selling, general and
     administrative expenses                    2,453      2,121         570       2,114       1,207         (15)      8,450
                                               ------     ------      ------      ------      ------      ------      ------
Operating (loss) income                      $ (1,622)  $ (1,436)  $    (229)  $     468   $  (1,208)  $       0      (4,027)
                                              =======    =======      ======      ======      ======      ======
Interest  (income)                                                                                                      (273)
                                                                                                                      ------
Loss before benefit for income tax                                                                                    (3,754)
Benefit for income tax                                                                                                  (179)
                                                                                                                      ------
Net loss from continuing operations                                                                                   (3,575)
Net gain on disposal                                                                                                     346
                                                                                                                      ------
Net loss                                                                                                           $  (3,229)
                                                                                                                      ======

For the nine months ended September 30, 2000:

Total revenue                               $  5,680   $     700    $    970    $  5,424   $   1,623   $     (11)  $  14,386
Cost of sales and services                     4,450         735         722       2,841       1,670         (11)     10,407
                                              ------      ------      ------      ------      ------      ------      ------
Gross profit                                   1,230         (35)        248       2,583         (47)          0       3,979
Selling, general and
     administrative expenses                   2,338         327         312       2,947       1,620           0       7,544
                                              ------      ------      ------      ------      ------      ------      ------
Operating income (loss)                     $ (1,108)  $   (362)   $     (64)   $   (364)  $  (1,667)  $       0      (3,565)
                                              ======      ======      ======      ======      ======      ======
Interest (income)                                                                                                       (135)
                                                                                                                      ------
Loss before benefit
for income tax                                                                                                        (3,430)
Benefit for income tax                                                                                                (1,075)
                                                                                                                      ------
Net loss from continuing operations                                                                                   (2,355)
Net income from discontinuing operations,
   net of taxes                                                                                                          300
Gain on disposal, net of taxes                                                                                         3,392
                                                                                                                      ------
Net income                                                                                                         $   1,337
                                                                                                                      ======
</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 0 and 835  potentially  dilutive  options for the three and nine
months ended  September 30, 2001.  Potentially  dilutive  options of 148,733 and
214,360 for the three and nine month periods  ended  September 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.

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  alleged  infringement  of
certain  patents owned by the competitor and was 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
Technologies,  Inc. et al, as well as unspecified  monetary damages.  Stratasoft
settled the patent infringement lawsuit on September 27, 2001 for a cash payment
and a note payable in exchange for a patent licensing cross-licensing agreement.

     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.

7.  NOTE PAYBLE

     On  September  27, 2001 the Company  signed a note payable to a third party
for $725 payable in monthly installments  through February,  2007. The note does
not have a stated  interest  rate.  The Company has imputed  interest at 5.5% to
record the debt. The Company has reported  short-term debt of $179 and long-term
debt of $467  related to this note  payable.  The Company has granted a security
interest in its pending patent application and the next two patent  applications
filed.


<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:

          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, turnkey IT
          project   implementation   and  consultation  and  turnkey  sales  and
          installation of certain highly specialized IT products.

          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

          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.

          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  September 30, 2001,
Allstar,  INX and IT Staffing produced 25.8%,  44.0% and 4.4% of total revenues,
while  Stratasoft  produced  25.9%  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 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 September 30, 2001 Compared To Three Months Ended September
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  September 30, 2001 and 2000.  The  discussion  below
relates only to our continuing operations, unless otherwise noted.

<TABLE>
<CAPTION>
                                                        Three months ended September 30,
                                                        --------------------------------
                                                          2001                2000
                                                          ----                ----
                                                    Amount      %        Amount     %
                                                    ------    ------     ------   ------
Revenue

<S>                                               <C>           <C>   <C>           <C>
Allstar                                           $   1,682     25.8  $   1,412     33.8
  INX                                                 2,876     44.0        700     16.8
IT Staffing                                             288      4.4        334      8.0
Stratasoft                                            1,687     25.9      1,779     42.6
Corporate                                                (4)    (0.1)       (41)    (1.0)
Elimination                                                      0.0        (11)    (0.2)
                                                   --------  -------   --------  -------
         Total revenue                                6,529    100.0      4,173    100.0
Gross profit (loss):
Allstar                                                 501     29.8        166     11.8
  INX                                                   360     12.5        (35)    (5.0)
IT Staffing                                             124     43.1         84     25.1
Stratasoft                                              846     50.1        764     42.9
Corporate                                                 1     25.0       (120)  (292.7)
Elimination                                                      0.0          0      0.0
                                                   --------  -------   --------  -------
         Total gross profit                           1,832     28.1        859     20.6
Selling, general and administrative expenses:
Allstar                                                 772     45.9        690     48.9
  INX                                                   729     25.3        327     46.7
IT Staffing                                             186     64.6        138     41.3
Stratasoft                                              715     42.4      1,139     64.0
Corporate                                               301  7,525.0        988  2,410.0
Elimination                                                      0.0          0      0.0
                                                   --------  -------   --------  -------
         Total selling, general and administrative
         Expenses                                     2,703     41.4      3,282     78.6
Operating (loss) income:
Allstar                                                (271)   (16.1)      (524)  (37.11)
  INX                                                  (369)   (12.8)      (362)   (51.7)
IT Staffing                                             (62)   (21.5)       (54)   (16.2)
Stratasoft                                              131      7.8       (375)   (21.1)
Corporate                                              (300) 7,500.0)    (1,108)(2,702.4)
                                                   --------  -------   --------  -------
         Total operating (loss) income                 (871)   (13.3)    (2,423)   (58.1)
Interest (income) and other income                     (116)    (1.8)      (100)    (2.4)
                                                   --------  -------   --------  -------
Loss before benefit for income taxes                   (755)   (11.5)    (2,323)   (55.7)
Benefit for income taxes                                         0.0       (708)   (17.0)
                                                   --------  -------   --------  -------
Net loss from continuing operations                    (755)   (11.5)    (1,615)   (38.7)
Discontinued operations:
         Gain  (loss) on disposal                                0.0     (1,095)   (26.2)
                                                   --------  -------   --------  -------
Net loss                                          $    (755)   (11.5) $  (2,710)   (64.9)
                                                   ========  =======   ========  =======
</TABLE>


<PAGE>


     TOTAL REVENUE.  Total revenue increased by $2,356 (56.5%) to $6,529 in 2001
from $4,173 in 2000.

     Allstar revenue  increased by $270 (19.1%) to $1,682 in 2001 from $1,412 in
2000.  As a percentage of total revenue  Allstar  revenue  decreased to 25.8% in
2001  from  33.8% in  2000.  The  increase  in  Allstar  revenue  was  primarily
attributable  to issues in 2000  related  to the loss of  revenue  from  certain
customers after the sale of the Computer  Products  Division.  Additionally,  in
2001,  Allstar's product revenues  increased by $400 to $414 in 2001 as compared
to $14 in 2000.

     INX revenue  increased by $2,176  (310.9%) to $2,876 in 2001 as compared to
$700 in 2000, its initial quarter of operation. As a percentage of total revenue
INX revenue  increased to 44.0% in 2001 from 16.8% in 2000. 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  decreased by $46 (13.8%) to $288 in 2001 from $334 in
2000. As a percentage of total revenue IT Staffing revenue  decreased to 4.4% in
2001 from 8.0% in 2000.  IT Staffing  experienced  a reduction in the scope of a
contract with its largest customer in the quarter ended September 30, 2001.

     Stratasoft revenue decreased by $92 (5.2%) to $1,687 in 2001 from $1,779 in
2000. Stratasoft revenue, as a percentage of total decreased to 25.9% in 2001 as
compared to 42.6% in 2000.

     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  September  30,  2001.
Corporate revenue decreased by $(37) (90.2%) to $(4) in 2001 from $(41) in 2000.
As a percentage of total revenue  Corporate  revenue decreased to (0.1)% in 2001
from (1.0)% in 2000. The negative revenues for the Corporate segment result from
credits issued to customers.

     GROSS PROFIT.  Gross profit  increased by $973 (113.7%) to  $1,832 in  2001
from $859 in 2000.  Gross margin  increased to 28.1% in 2001 from 20.6% in 2000.

     Allstar  gross profit  increased by $335 (201.8%) to $501 in 2001 from $166
in 2000.  Gross  margins  for Allstar  increased  to 29.8% in 2001 from 11.8% 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  increased by $395  (1128.6%) to $360 in 2001 from a gross
loss of $35 in 2000, it's initial  quarter of operations.  Gross margins for INX
increased  to 12.5% of revenue in 2001 from  (5.0%) in 2000.  As a newly  formed
start-up  operation in 2000, 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 increased in 2001.

     IT Staffing gross profit  increased by $40 (47.6%) to $124 in 2001 from $84
in 2000 as revenue  decreased by 13.8%.  Gross margin increased to 43.1% in 2001
from 25.1% 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  normally  produce lower gross
margins  than do  permanent  placements,  particularly  in 2000  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.


<PAGE>


     Stratasoft  gross profit increased by $82 (10.7%) to $846 in 2001 from $764
in 2000 as revenue  decreased by 5.2%. Gross margin for Stratasoft  increased to
50.1% in 2001 from 42.9% in 2000.  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 $121 (100.8%) to gross profit of $1 in
2001 from a gross loss of $120 in 2000 as revenue  increased  from $(41) in 2000
to $(4) in 2001.  Gross margin increased to 25.0% in 2001 from (292.7%) in 2000.
The gross margin on installations for the customer that was lost in the Computer
Products  Division  sale  produced a gross profit of $1 in 2001 as compared to a
gross loss of $(120) in 2000.

     SELLING,  GENERAL  AND  ADMINISTRATIVE   EXPENSES.   Selling,  general  and
administrative  expenses increased by $579 (17.6%) to $2,703 in 2001 from $3,282
in 2000. As a percentage of revenue, these expenses decreased by 37.2%, to 41.4%
of revenue in 2001 from 78.6% of revenue in 2000.  Overall,  our spending was up
in 2001  primarily  related  expanding  the  sales  marketing  staff  in the new
companies  ($1,192,  of which  $810 was for INX  which  was  formed  in the 2000
quarter).  Bad  debt  expense  increased  by $83 in 2001 as  compared  to  2000.
Corporate selling,  general and administrative expenses decreased by $68 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 AND OTHER INCOME.  Interest income  decreased by $55 to $45
in 2001 compared to $100 in 2000. Other income increased to $71 in 2001 compared
to $0 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  September 30, 2001 and 2000,  respectively,
the loss on disposal related to Computer  Products was $0 in 2001 as compared to
a loss on disposal of $1,095 in 2000, net of taxes of $0 and $566, respectively.

     NET LOSS.  The net loss was $755 in the quarter  ended  September  30, 2001
which was  comprised  of a loss of $755 (after a benefit for income taxes of $0)
on continuing  operations.  The net loss in the quarter ended September 30, 2000
was a loss of $2,710,  comprised of a loss of $1,615 on  continuing  operations,
after a benefit for income taxes totaling $708 and a loss on disposal of $1,095,
after a benefit for income taxes of $566.


<PAGE>


Nine Months Ended September 30, 2001 Compared To Nine Months Ended September 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 nine months ended  September  31, 2001 and 2000.  The  discussion  below
relates only to our continuing operations, unless otherwise noted.

<TABLE>
<CAPTION>
                                                      Nine months ended September 30,
                                                      -------------------------------
                                                          2001                  2000
                                                          ----                  ----
                                                     Amount       %       Amount    %
                                                     ------    ------     ------  ------
Revenue

<S>                                               <C>            <C>   <C>          <C>
Allstar                                           $   4,076      23.8  $   5,680    39.5
  INX                                                 7,239      42.3        700     4.9
IT Staffing                                             866       5.1        970     6.7
Stratasoft                                            4,959      29.0      5,424    37.7
Corporate                                                (6)     (0.0)     1,623    11.3
Elimination                                             (27)     (0.2)       (11)   (0.1)
                                                   --------  --------    ------- -------
         Total revenue                               17,107     100.0     14,386   100.0
Gross profit (loss):
Allstar                                                 831      20.4      1,230    21.7
  INX                                                   685       9.5        (35)   (5.0)
IT Staffing                                             341      39.4        248    25.6
Stratasoft                                            2,582      52.1      2,583    47.6
Corporate                                                (1)     16.7        (47)   (2.9)
Elimination                                             (15)    (55.6)         0     0.0
                                                   --------  --------    ------- -------
         Total gross profit                           4,423      25.9      3,979    27.7
Selling, general and administrative expenses:
Allstar                                               2,453      60.2      2,338    41.2
  INX                                                 2,121      29.3        327    46.7
IT Staffing                                             570      65.8        312    32.2
Stratasoft                                            2,114      42.6      2,947    54.3
Corporate                                             1,207 (20,116.7)     1,620    99.8
Elimination                                             (15)     55.6          0     0.0
                                                   --------  --------   -------- -------
         Total selling, general and administrative
         Expenses                                     8,450      49.4      7,544    52.4
Operating (loss) income:
Allstar                                              (1,622)    (39.8)    (1,108)  (19.5)
  INX                                                (1,436)    (19.8)      (362)  (51.7)
IT Staffing                                            (229)    (26.4)       (64)   (6.6)
Stratasoft                                              468       9.4       (364)   (6.7)
Corporate                                            (1,208)(20,133.3)    (1,667) (102.7)
                                                   --------  --------   -------- -------
         Total operating loss                        (4,027)    (23.5)    (3,565)  (24.8)
Interest (income) and other income                     (273)     (1.6)      (135)   (0.1)
                                                   --------  --------   -------- -------
Loss before benefit for income taxes                 (3,754)    (21.9)    (3,430)  (23.8)
Benefit for income taxes                               (179)     (1.0)    (1,075)   (7.5)
                                                   --------  --------   -------- -------
Net loss from continuing operations                  (3,575)    (20.9)    (2,355)  (16.4)
Discontinued operations:
         Net income from discontinued operations,
              net of taxes                                                   300     2.1
         Gain on disposal                               346       2.0      3,392    23.6
                                                   --------  --------   -------- -------
Net (loss) income                                 $  (3,229)    (18.9) $   1,337     9.3
                                                   ========  ========   ======== =======
</TABLE>


<PAGE>


     TOTAL REVENUE. Total revenue increased by $2,721 (18.9%) to $17,107 in 2001
          from $14,386 in 2000.

     Allstar  revenue  decreased by $1,604 (28.2%) to $4,076 in 2001 from $5,680
in 2000. As a percentage of total revenue Allstar revenue  decreased to 23.8% in
2001 from 39.5% 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  increased  by $6,539  (934.1%) to $7,239 in 2001 from $700 in
2000. As a percentage of total revenue, INX increased to 42.3% in 2001 from 4.9%
in 2000. 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 $104 (10.7%) to $866 in 2001 from $970 in
2000. As a percentage of total revenue IT Staffing revenue  decreased to 5.1% in
2001 from 6.7% in 2000.  IT Staffing  experienced a change in its mix of revenue
sources such that  permanent  placements,  which  produce  higher gross  margin,
increased  to 22.0% of its total  revenues in 2001 from 8.9% in 2000.  Temporary
placements decreased to 77.9% in 2001 from 91.1% in 2000.

     Stratasoft  revenue  decreased by $465 (8.6%) to $4,959 in 2001 from $5,424
in 2000.  Stratasoft  revenue,  as a percentage of total  revenue,  decreased to
29.0% in 2001 from  37.7% 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 nine months  ending  September 30, 2001.
Corporate  revenue  decreased by $1,629  (100.4%) to $(6) in 2001 from $1,623 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
11.3% in 2000.  The El Paso branch office  service  business had revenue of $(1)
and  $931  in the  nine  month  periods  ended  September  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 $692 in the nine month  periods  ended  September  30,  2001 and 2000,
respectively.

     GROSS PROFIT. Gross profit increased by $444 (11.2%) to $4,423 in 2001 from
$3,979 in 2000. Gross margin decreased to 25.9% in 2001 from 27.7% in 2000.

     Allstar gross profit  decreased by $399 (32.4%) to $831 in 2001 from $1,230
in 2000. Gross margin for Allstar decreased to 20.4% in 2001 from 21.7% 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  increased by $720  (2057.1%) to $685 in 2001 from a gross
loss of $35 in 2000.  Gross margin for INX increased to 9.5% in 2001 from (5.0)%
in 2000.  INX was formed in July 2000 and  therefore  had only  three  months of
operations in 2000, as compared to nine months of operations in 2001. As a newly
formed  start-up  operation in 2000, 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 12.5% in the third three
months of the  period,  but have not yet  achieved  optimum  utilization  of its
technical staff.

     IT Staffing gross profit increased by $93 (37.5%) to $341 in 2001 from $248
in 2000 as revenue  decreased by 10.7%.  Gross margin increased to 39.4% in 2001
from 25.6% 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 $1  (0.0%)  to $2,582 in 2001 from
$2,583  in 2000 as  revenue  decreased  by 8.6%.  Gross  margin  for  Stratasoft
increased  to 52.1% in 2001 from 47.6% in 2000.  Gross margin is 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 $46 (97.9%) to a loss of $1 in 2001
from a gross  loss of $41 in 2000 as  revenue  decreased  by $1,629  The El Paso
service  business  that was sold on May 19, 2000  produced  gross loss of $15 in
2001 as compared to $27 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 a loss of
$20 in 2000.

     SELLING,  GENERAL  AND  ADMINISTRATIVE   EXPENSES.   Selling,  general  and
administrative  expenses increased by $906 (12.0%) to $8,450 in 2001 from $7,544
in 2000. As a percentage of revenue,  these expenses decreased by 3.0%, to 49.4%
of revenue in 2001 from 52.4% of revenue in 2000.  Overall,  our spending was up
primarily  related to increased  sales  compensation  due to expanding the sales
marketing staff for the new subsidiary  companies ($1,192, of which $810 was for
INX which was formed in July of 2000). Bad debt expense increased by $83 in 2001
as compared to 2000.  Administrative wages decreased $569 in 2001 as compared to
2000 due to planned reductions in force. Promotional expenditures increased $130
and utility costs increased $53 in 2001 as compared to 2001.

     INTEREST  INCOME  AND  OTHER  INCOME.  Interest  income  and  other  income
increased by $138 to $273 in 2001 compared to interest  expense of $135 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 nine months ended September 30, 2001 and 2000, respectively,
net income from discontinued  operations was $0 and $300 (net of taxes of $0 and
$156) and the gain on disposal  related to the  Computer  Products  Division was
$346 and $3,392, net of taxes of $179 and $1,748.

     NET LOSS.  The net loss was $3,229 in the nine months ended  September  30,
2001 which was  comprised of a loss of $3,575  (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  September  30, 2000 was income of
$1,337, comprised of a loss of $2,355 on continuing operations,  after a benefit
for  income  taxes  totaling  $1,075,  offset by net  income  from  discontinued
operations of $300, net of taxes of $156 and a gain on disposal of $3,392, after
a provision for income taxes of $1,748.

Liquidity and Capital Resources

     Our  working  capital  was $6,392 and  $10,098 at  September  30,  2001 and
December 31, 2000, respectively. As of September 30, 2001, we had short and long
term  outstanding  debt of $646.  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 $2,799 during the nine months
ended September 30, 2001.  Operating  activities used net cash during the period
primarily to fund operating losses of $3,229,  an increase in inventory of $164,
an increase in other current  assets of $59 and a decrease in billings in excess
of cost and estimated earnings of $1,301. These uses of cash were offset by cash
provided by a decrease in accounts  receivable  of $579, an increase in accounts
payable of $546, an increase in accrued  expenses of $714, and a non cash charge
of depreciation of $380 which increased the operating loss.

     Investing  activities used cash totaling $161,  comprised  primarily of the
proceeds  from the sale of  discontinued  operations  of $525  offset by capital
expenditures  of $636  during  the nine  months  ended  September  30,  2001 and
financing activities used cash totaling $195.


<PAGE>


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 $3,894 and
$4,473 at September 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 September 30, 2001, we had $677 outstanding on the Inventory Line.

     This agreement,  which was terminated October 15, 2001, was collaterized by
substantially all of our assets,  except for our patent assets, at September 30,
2001. The agreement contained restrictive covenants,  which, among other things,
require us to maintain a minimum  tangible net worth. The terms of the agreement
also  prohibited  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 at September 30, 2001. As part of
the waiver our credit  availability  was reduced to $750,000 through October 15,
2001.  Effective  October  15,2001,  by mutual  agreement both parties agreed to
termination of the revolving line of credit.  We do not believe the reduction of
availability  or  the  termination  of  the  agreement  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 other parties to
establish another credit line.

     On September 27, 2001 Stratasoft,  a subsidiary of I-Sector,  signed a note
payable  to a third  party for $725  payable  in  monthly  installments  through
February,  2007. The note does not bear interest and we imputed interest at 5.5%
to record the debt. We reported short-term debt maturing within one year of $179
and long-term  debt of $467 related to the note.  Stratasoft  granted a security
interest in its pending patent application and the next two patent  applications
filed by Stratasoft.

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 nine months  ended  September  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.  Stratasoft  settled the
patent infringement  lawsuit on September 27, 2001 for a cash payment and a note
payable in exchange for a patent cross-licensing agreement.

     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.

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

     The annual  meeting  of  stockholders  was held on August 8, 2001.  At that
meeting the  stockholders  elected the slate of directors  listed in its proxies
solicited for the meeting pursuant to Regulation 14. No other matters were voted
upon at the meeting.

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.

November 13, 2001               By:      /s/ JAMES H. LONG
                                         -----------------
Date                            James H. Long,
                                Chief Executive Officer, President and Chairman
                                of the Board (Principal Financial and Accounting
                                Officer)