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, 2003
                                       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


(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 7, 2003
                                           3,707,155 shares outstanding



<PAGE>


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                              I-SECTOR CORPORATION
                                    FORM 10-Q
                        QUARTER ENDED SEPTEMBER 30, 2003

                          Part I. Financial Information

Item  1. Condensed  Consolidated  Financial  Statements  - I-Sector  Corporation
         (Unaudited):

         Condensed  Consolidated  Balance  Sheets  at  September  30,  2003  and
         December 31, 2002

         Condensed Consolidated  Statements of Income for the three months ended
         September 30, 2003 and 2002

         Condensed  Consolidated  Statements of Income for the nine months ended
         September 30, 2003 and 2002

         Condensed  Consolidated  Statements  of Cash Flows for the nine  months
         ended September 30, 2003 and 2002

         Notes to Condensed Consolidated Financial Statements

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

Item 4.  Controls and Procedures

                           Part II. Other Information

Item 1.  Legal Proceedings

Item 2.  Other Information

Item 6.  Exhibits
         Exhibit 31 Certification
         Exhibit 32 Certification  pursuant to Section 906 of the Sarbanes-Oxley
         Act of 2002

         Signatures


<PAGE>



PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                      I-SECTOR CORPORATION AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
               (In thousands, except share and par value amounts)

                                                   September 30,    December 31,
                                                     2003               2002
                                                     ----               ----
                                                            (Unaudited)
ASSETS

Current assets:
     Cash and cash equivalents                  $       1,954     $       3,491
     Accounts receivable-trade, net of
       allowance of $1,965 and $2,153                  10,951             6,525
     Accounts receivable - affiliates                      38                99
     Accounts receivable - other                           30                57
     Notes receivable                                     655               898
     Inventory                                          1,543               781
     Cost and estimated earnings in
       excess of billings                               1,370               709
     Income taxes receivable                             -                  488
     Other current assets                                 465               356
                                                   ----------       -----------
         Total current assets                          17,006            13,404
Property and equipment, net                             1,221             1,115
Patent licenses, net of amortization
  of $236 and $148                                        879               955
Other intangible assets, net of amortization
  of $546 and $356                                        487               207
Other assets                                              232                70
                                                   ----------       -----------
Total                                           $      19,825     $      15,751
                                                   ==========       ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Current portion of long term debt          $         525     $         157
     Accounts payable                                   8,801             4,844
     Billings in excess of cost
       and estimated earnings                             105                75
     Accrued expenses                                   3,157             1,803
     Net liabilities related to
       discontinued operations                            600               904
     Deferred  revenue                                    157                81
                                                   ----------       -----------
         Total current liabilities                     13,345             7,864
Long term debt, net of current maturities                 203               247

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,
         4,518,955 and 4,441,325 shares
         issued at September 30, 2003
         and December 31, 2002                             45                44
     Additional paid-in capital                        10,473            10,379
     Deferred compensation                                 78              -
     Treasury stock, 811,800 shares, at cost           (1,373)           (1,373)
     Retained deficit                                  (2,946)           (1,410)
                                                   ----------       -----------
         Total stockholders' equity                     6,277             7,640
                                                   ----------       -----------
Total                                           $      19,825    $       15,751
                                                   ==========       ===========

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


<PAGE>


                      I-SECTOR CORPORATION AND SUBSIDIARIES
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
               (In thousands, except share and per share amounts)
                                   (Unaudited)



                                                Three Months Ended September 30,

                                                     2003              2002
                                                     ----              ----


Revenues:
     Products                                   $      16,302    $      8,326
     Services                                           2,264           1,538
     Custom projects                                    2,415           1,743
                                                   ----------      ----------
     Total revenues                                    20,981          11,607
                                                   ----------      ----------
Cost of sales and services:
     Products                                          14,066           7,435
     Services                                           1,396           1,064
     Custom projects                                      728             781
                                                   ----------      ----------
     Total cost of sales and services                  16,190           9,280
                                                   ----------      ----------
     Gross profit                                       4,791           2,327
Selling, general and administrative expenses            4,621           2,619
                                                   ----------      ----------
     Operating income (loss)                              170            (292)
Interest and other income (expense)                       (11)              3
                                                   ----------      ----------
     Income (loss) from continuing
       operations before benefit for
       income taxes                                       159            (289)
Benefit for income taxes                                  (12)           -
                                                   ----------      ----------
     Net income (loss) from continuing
       operations                                         171            (289)
Discontinued operations:
     Gain (loss) on disposal of
       discontinued operations, net of taxes               23              (1)
                                                   ----------      ----------
Net income (loss)                               $         194    $       (290)
                                                   ==========      ==========

Net income (loss) per share:
     Basic:
         Net income (loss) from
           continuing operations                $       0.04     $      (0.08)
         Gain on disposal of discontinued
           operations, net of taxes                     0.01             0.00
                                                   ---------       ----------
              Net income (loss) per share       $       0.05     $      (0.08)
                                                   =========       ==========
     Diluted:
         Net income (loss) from continuing
           operations                           $       0.03     $      (0.08)
         Gain on disposal of discontinued
           operations, net of taxes                     0.01             0.00
                                                   ---------       ----------
              Net income (loss) per share       $       0.04     $      (0.08)
                                                   =========       ==========

Shares used in computing net income (loss)
     per share:
     Basic                                          3,703,206       3,629,525
                                                   ==========      ==========
     Diluted                                        3,974,298       3,629,525
                                                   ==========      ==========

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


<PAGE>


                      I-SECTOR CORPORATION AND SUBSIDIARIES
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
               (In thousands, except share and per share amounts)
                                   (Unaudited)



                                                 Nine Months Ended September 30,

                                                     2003              2002
                                                     ----              ----

Revenues:
     Products                                   $      35,655    $     21,284
     Services                                           5,282           4,220
     Custom projects                                    5,995           5,571
                                                   ----------      ----------
     Total revenue                                     46,932          31,075
Cost of sales and services:
     Products                                          31,181          18,964
     Services                                           3,852           3,355
     Custom projects                                    2,104           2,488
                                                   ----------      ----------
     Total cost of sales and services                  37,137          24,807
                                                   ----------      ----------
     Gross profit                                       9,795           6,268
Selling, general and administrative
     expenses                                          11,556           7,255
                                                   ----------      ----------
     Operating loss                                    (1,761)           (987)
Interest and other income                                  93               1
                                                   ----------      ----------
     Loss from continuing operations before
     benefit for income taxes                          (1,668)           (986)
Benefit for income taxes                                  (93)         (1,189)
                                                   ----------      ----------
     Net (loss) income from continuing
       operations                                      (1,575)            203
Discontinued operations:
     Gain on disposal of discontinued
       operations, net of taxes                            39              17
                                                   ----------      ----------
Net (loss     ) income                          $      (1,536)   $        220
                                                   ==========      ==========

Net (loss) income per share:
     Basic:
         Net (loss) income from continuing
           operations                           $      (0.43)    $       0.05
         Gain on disposal of discontinued
           operations,
          net of taxes                                  0.01             0.01
                                                   ---------       ----------
              Net (loss) income per share       $      (0.42)    $       0.06
                                                   =========       ==========

     Diluted:
         Net (loss) income from continuing
           operations                           $      (0.43)    $       0.05
         Gain on disposal of discontinued
           operations, net of taxes                     0.01             0.01
                                                   ---------       ----------
              Net (loss) income per share       $      (0.42)    $       0.06
                                                   =========       ==========

Shares used in computing net income (loss)
      per share:
         Basic                                      3,643,346       3,736,704
                                                   ==========      ==========
         Diluted                                    3,643,346       3,783,345
                                                   ==========      ==========

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


<PAGE>


                      I-SECTOR CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                   (Unaudited)

                                                Nine Months Ended September 30,
                                                     2003              2002
                                                     ----              ----

Net (loss) income                               $      (1,536)   $        220
Adjustments to reconcile net (loss) income
  to net cash
     provided by (used in) operating activities:
     Gain on disposal of discontinued operations          (39)            (17)
     Depreciation and amortization                        548             425
     (Gain) loss on retirement of assets                 (157)             21
     Bad debt expense (recoveries)                      1,051            (340)
     Current tax benefit on gain on disposal
       of discontinued operations                         (20)             (9)
Changes in assets and liabilities that
  provided (used) cash:
     Accounts receivable-trade                         (4,821)         (1,491)
     Accounts receivable - affiliates                      61              39
     Accounts receivable - other                           27             (92)
     Inventory                                           (661)           (162)
     Income tax receivable                                488             (56)
     Notes receivable                                    (575)           (622)
     Other current assets                                 (38)            (67)
     Cost and estimated earnings in excess
      of billings                                        (661)            393
     Accounts payable                                   4,404           2,319
     Accrued expenses                                   1,354             112
     Billings in excess of cost and
      estimated earnings                                   30             118
     Deferred  revenue                                     76              (5)
                                                   ----------     -----------

Net cash (used in) provided by continuing
       operating activities                              (469)            786
Net cash used in discontinued activities                 (231)           (417)
                                                   ----------     -----------
     Net cash (used in) provided by operating
       activities                                        (700)            369

Cash flows from investing activities:
     Proceeds on sale of fixed assets                      80              -
     Acquisition of Digital Precision, Inc
      (inclusive of acquisition costs)                   (566)             -
     Capital expenditures                                (323)           (265)
                                                   ----------     -----------

     Net cash used in investing activities               (809)           (265)
                                                   ----------     -----------

Cash flows from financing activities:
     Exercise of stock options                             95              -
     Purchase of treasury stock                           -              (186)
     Payments on long-term debt                          (123)           (151)
                                                   ----------     -----------

     Net cash used in financing activities                (28)           (337)
                                                   ----------     -----------

Net decrease in cash and cash equivalents              (1,537)           (233)
Cash and cash equivalents at beginning of period        3,491           3,434
                                                   ----------     -----------
Cash and cash equivalents at end of period      $       1,954    $      3,201
                                                   ==========     ===========
Supplemental disclosures of cash flow informatio
Non-cash items supplemental disclosure:
     Other receivable for proceeds of sale of
       fixed assets                             $          30    $          0
                                                   ==========     ===========
     Options granted for consulting services    $          78    $          0
                                                   ==========     ===========
Supplemental Schedule of Noncash Investing and
     Financing Activities:
     Additional paid in capital from
       expiration of stock warrants             $           0    $        195
                                                   ==========     ===========

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


<PAGE>


                      I-SECTOR CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED 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  network  integration  services  and  certain  managed IT
services  and of selling  associated  network  hardware and  telephony  software
products. I-Sector's operations are conducted through three segments:


o        Internetwork  Experts,  Inc. ("INX"), a wholly-owned  subsidiary,  is a
         network professional  services and integration  organization with areas
         of practice that include  large-scale  enterprise  network  engineering
         consulting, network security, network management,  wireless networking,
         and IP Telephony.

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

o        Valerent,  Inc.  ("Valerent"),  a  wholly  owned  subsidiary,  provides
         information  technology  solutions that lowers its client's  expense by
         utilizing centralized,  remote enabled computing management tools which
         predict,  announce  and  manage  service  interruptions.   Additionally
         Valerent provides customers with traditional  computer services such as
         application  support,  operating system and network migration services,
         turnkey outsourced IT helpdesk solutions,  technical staff augmentation
         for IT helpdesk operations and helpdesk solutions consulting services.

         The condensed  consolidated financial statements presented herein as of
and for the three-month and nine-month periods ended September 30, 2003 and 2002
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. The results of the interim periods are not necessarily
indicative  of results  for the full year.  The  consolidated  balance  sheet at
December 31, 2002 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 disclosures normally included
in the notes to the  financial  statements  have been  condensed  or  omitted as
permitted  by  the  rules  and   regulations  of  the  Securities  and  Exchange
Commission.  These interim  financial  statements  should be read in conjunction
with the  consolidated  financial  statements  and  notes  thereto  included  in
I-Sector's 2002 Annual Report on Form 10-K.

         Reclassifications  - Certain prior period  amounts in the  consolidated
financial  statements  presented  herein  have been  reclassified  to conform to
current period 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  -  I-Sector  has a number  of  different  revenue
components,  which vary between its three reportable  operating  segments.  Each
reportable operating segment has more than one revenue component, and revenue is
recognized  differently  for each  component (or "stream") of revenue  earned by
operating  segment.  The material  revenue  streams earned by I-Sector,  some of
which  are  earned  by more  than one  operating  segment,  and some by only one
operating segment, are:



<PAGE>


                  Products  Revenue.  Three of I-Sector's  segments earn revenue
         from product  shipments.  Product shipment revenue occurs when products
         manufactured  by other  parties are  purchased and resold to a customer
         and  such  products  are  contracted  for   independently  of  material
         services.  I-Sector  recognizes revenue from product shipments when the
         product is shipped or delivered to the customer.  In all three of these
         segments,  the  four  criteria  for  revenue  recognition  has been met
         because: (1) there are written,  executed contracts,  or in the case of
         Valerent in some  situations  there are binding  purchase  orders;  (2)
         delivery  has  occurred or  services  have been  rendered.  Stratasoft,
         however, recognizes revenues on the percentage of completion method, as
         described  below;  (3) the  price  is fixed  or  determinable,  and (4)
         collectibility  is  reasonably  assured.  Each of  I-Sector's  business
         segments  perform  credit  research  prior  to  extending   credit.  In
         Stratasoft's  business  segment,  a  substantial  portion  of the total
         contract price is received in cash or letter of credit when the unit is
         installed.

                  Custom   Project   Revenue.   One  of   I-Sector's   segments,
         Stratasoft,  earns revenues from projects that are recognized using the
         percentage of completion  method of accounting for such  revenues.  The
         majority of Stratasoft's  revenues  consist of system sales in which it
         bundles  its  proprietary  software,  along with  third-party  hardware
         products  and  material   related  software   customization   services,
         installation,  training services, warranty services and incidental post
         contract  support  ("PCS")  together  under a single  contract with the
         customer.  PCS is insignificant on such contracts for one year or less,
         and therefore, we have determined that the value of such PCS should not
         be unbundled  from the project  revenue as set forth in paragraph 59 of
         SOP 97-2. Accordingly, such PCS revenue is recognized together with the
         project revenue,  and the estimated cost to provide the PCS is accrued.
         The value of the PCS is determinable within the contract, which defines
         the  period  that the PCS is  granted  and  offers  renewals  at stated
         amounts,   thereby   defining  the  value  of  the  PCS.  The  software
         customization,   together   with   the   hardware   customization   and
         integration, represent a significant modification, customization and/or
         production of the product and,  therefore,  the entire  arrangement  is
         required to be accounted for using the percentage of completion  method
         of  accounting   pursuant  to  SOP  81-1.  The  percentage  of  revenue
         recognized in any  particular  period is determined  principally on the
         basis of the relationship of the cost of work performed on the contract
         to estimated total costs. The percentage-of-completion method relies on
         estimates of total expected  contract revenue and costs. We follow this
         method since reasonably  dependable  estimates of the revenue and costs
         applicable  to various  stages of a contract can be made.  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.  The  following
         reflects the amounts relating to uncompleted contracts at September 30,
         2003 and December 31, 2002:

                                                 September 30,  December 31,
                                                     2003           2002
                                                 ------------   ------------

         Costs incurred on uncompleted
           contracts                               $     904    $     429
         Estimated earnings                            2,847        1,478
                                                    --------     --------
                                                       3,751        1,907
         Less: Billings to date                        2,492        1,273
                                                    --------     --------
                  Total                            $   1,265    $     634
                                                    ========     ========

         Included in accompanying balance
           sheets under the following captions:
         Cost and estimated earnings in
           excess of billings                      $   1,370    $     709
         Billings in excess of cost and
           estimated earnings                           (105)         (75)
                                                    --------     --------
                  Total                            $   1,265    $     634
                                                    ========     ========

         During  the  quarter  ended  June  30,  2003,   the  Company   recorded
         adjustments to defer revenue for certain custom  projects that had more
         than one year of free PCS and certain  renewals of PCS paid in advance.
         The adjustment  includes  approximately  $152 related to years prior to
         2003.  Management  determined that the effect of these  adjustments was
         not  material  to the  previously  reported  results or to the  results
         expected for 2003.

         During  2002  and  2003  I-Sector  has   recognized   revenues  on  the
         percentage-of-completion basis for several projects associated with one
         reseller in South Asia. For these projects,  Stratasoft  entered into a
         three-party  contract between  Stratasoft,  the South Asia reseller and
         the end-user  customers.  Stratasoft was responsible for performing the
         substantial  majority of the project for the  end-user  customer,  from
         whom  Stratasoft was directly  obligated to be paid for such project by
         the end-user customer.


<PAGE>


         Services  Revenue.   All  of  I-Sector's  segments  earn  revenue  from
         providing  stand-alone  services  revenue.  These  revenues  consist of
         billings for engineering  and technician  time,  programming  services,
         which are provided on either an hourly basis or a flat-fee  basis,  and
         the  service   component  of  maintenance  and  repair  service  ticket
         transactions.  These services are  contracted  for separately  from any
         product sale, and are recognized when the service is performed and when
         collection is reasonably assured.  One of I-Sector's segments sometimes
         earns agency fee revenue from various  sources,  the primary  source of
         which is referring customers to other organizations for which an agency
         fee is received.  These  revenues are recognized at the earlier of when
         payment  is  received  or when  notification  of  amounts  being due is
         received  from the entity paying such agency fee and  collectiblity  is
         reasonably assured.

         Credit Risk - The Company extends credit to its customers in the normal
course of business and generally does not require  collateral or other security.
The Company  performs  ongoing credit  evaluations  of its customers'  financial
condition  and,  in some  instances,  requires  letters of credit or  additional
guarantees  in  support of  contracted  amounts.  Earnings  are  charged  with a
provision for doubtful accounts based on a current review of the  collectibility
of the accounts. Accounts deemed uncollectible are applied against the allowance
for doubtful accounts.

         Warranty  Reserve -  I-Sector  records a  warranty  reserve  related to
certain  software  products sold by its Stratasoft  subsidiary.  This reserve is
classified in accrued  expenses and is amortized  over the life of the warranty,
which is generally  twelve months,  against actual warranty  expenditures.  This
warranty  reserve relates to the estimate of warranty  obligations from sales of
call  center  telephony  systems,   which  consist  of  Stratasoft's   software,
configured  hardware  components  as  well  as  telephone  support  relating  to
Stratasoft's  software  products.  This liability  amount has been  consistently
recorded within each period as a charge to cost of sales based upon 5% of period
revenue.  This  percentage was based upon a review of the costs of providing the
warranty work, which was initially  performed in connection with the acquisition
of the Stratasoft technology.  Stratasoft incurs numerous types of costs related
to the warranty work,  which includes labor cost of technicians and programmers,
hardware cost, the cost of developing and uploading  software patches related to
"bug fixes",  telephone  support,  and hardware  parts cost related to defective
hardware sold as a part of a complete  Stratasoft  system. The majority of these
costs  are  individually   insignificant  amounts  for  which  the  cost/benefit
relationship  does not warrant  tracking,  but which we periodically  assess and
continue to estimate at approximately  five percent of Stratasoft  sales. As the
actual costs are not tracked,  Stratasoft amortizes the recorded amounts to cost
of sales over the average life of the  contractual  warranty period as costs are
believed to be incurred ratably over the warranty period. The difference between
the  actual  warranty  costs  incurred  and the  amount of  amortization  is not
considered  to  be  materially  different.   The  following  table  depicts  the
composition of the warranty reserve at September 30, 2003 and December 31, 2002:

                                             Nine Months Ended    Year Ended
                                                 September 30,   December 31,
                                                     2003           2002
                                                 ------------    -----------

         Balance, beginning of year             $      305      $       263
         Additions to reserve                          270              373
         Expenses offset against reserve              (253)            (331)
                                                 ---------       ----------
         Balance, end of period                 $      322      $       305
                                                 =========       ==========

         Stock-Based  Compensation  - The  Company  has  elected to account  for
stock-based  compensation  using the  intrinsic  value method of  accounting  in
accordance with Accounting  Principles  Bulletin  ("APB") No. 25 "Accounting for
Stock  Issued to  Employees".  Under  this  method no  compensation  expense  is
recognized  when the number of shares granted is known and the exercise price of
the stock  option is equal to or greater than the fair value of the common stock
on the  grant  date.  The  Company  has  recorded  no  stock-based  compensation
associated  with  stock  options  granted  to  employees  and  directors  in its
consolidated  statement of operations.  I-Sector and its subsidiaries  apply the
fair value method as prescribed by SFAS No. 123, as interpreted and amended, for
stock and  stock  options  issued  to  non-employees  and  during  the three and
nine-month  periods  ended  September  30, 2003,  recorded $4 and $7 of expense,
respectively.  If compensation cost for all option issuances had been determined
consistent  with the fair  value  method,  I-Sector's  net loss and net loss per
share would have  increased to the  pro-forma  amounts  indicated  below for the
three and nine-month periods ended September 30, 2003 and 2002, respectively.


<PAGE>


<TABLE>
<CAPTION>
                                                   Three months ended September 30,   Nine Months ended September 30,
                                                        2003              2002                 2003              2002
                                                        ----------------------                 ----------------------

<S>                                                   <C>               <C>                  <C>               <C>
Basic:
Net income (loss) as reported                         $   194           $  (290)             $  (1,536)        $   220
Deduct: Total stock-based employee compensation
     determined under fair value based method for
     all awards, net of related tax effects                 5                 6                     29              26
                                                       ------            ------               --------          -------

Pro forma net income (loss)                           $   189           $  (296)             $  (1,565)        $   194
                                                       ======            ======               ========          =======

Diluted:
Net income (loss) as reported                         $   194           $  (290)             $  (1,536)        $   220
Deduct:
Adjustment for subsidiary dilution                         44                -                      -               -
Total stock-based employee compensation
     determined under fair value based method for
     all awards, net of related tax effects                 5                 6                     29              26
                                                       ------            ------               --------          ------

Pro forma net (loss) income                           $   145           $  (296)             $  (1,565)        $   194
                                                       ======            =======              ========          ======
Earnings per share:
     Basic - as reported                              $  0.05           $ (0.08)             $   (0.42)        $  0.06
     Basic - pro forma                                $  0.05           $ (0.08)             $   (0.43)        $  0.05

     Diluted - as reported                            $  0.04           $ (0.08)             $   (0.42)        $  0.06
     Diluted - pro forma                              $  0.04           $ (0.08)             $   (0.43)        $  0.05
</TABLE>

         Earnings  Per Share - Basic net  income  per share is  computed  on the
basis of the  weighted-average  number of common shares  outstanding  during the
periods.   Diluted   net   income   per  share  is   computed   based  upon  the
weighted-average  number of common  shares plus the  assumed  issuance of common
shares for all potentially  dilutive  securities using the treasury stock method
(See Note 4).

         Fair Value of Financial  Instruments - I-Sector's financial instruments
consist of cash and cash equivalents,  accounts  receivable and accounts payable
for which the  carrying  values  approximate  fair values  given the  short-term
maturity  of  the  instruments.   The  carrying  value  of  the  Company's  debt
instruments  approximate their fair value based on estimates of rates offered to
the  Company  for  instruments   with  the  same  maturity  dates  and  security
structures.

         Accounting Pronouncements -

         In April  2002,  the FASB  issued  Statement  of  Financial  Accounting
Standards No. 145,  "Rescission of FASB Statements No. 4, 44, and 64,  Amendment
of FASB Statement No. 13, and Technical  Corrections." SFAS No. 145, among other
things, amends SFAS No. 4 and SFAS No. 64, to require that gains and losses from
the   extinguishments   of  debt  generally  be  classified   within  continuing
operations.  The  provisions  of SFAS No. 145 are  effective  for  fiscal  years
beginning  after May 15, 2002 and early  application is encouraged.  The Company
adopted SFAS No. 145 on January 1, 2003.  The adoption of this  statement had no
impact on the financial statements.

         In June 2002,  the FASB  issued  SFAS No.  146,  "Accounting  for Costs
Associated  with Exit or Disposal  Activities."  SFAS No. 146 replaces  Emerging
Issues Task Force (EITF Issue 94-3, "Liability  Recognition for Certain Employee
Termination  Benefits  and  Other  Costs  to Exit an  Activity".  This  standard
requires   companies  to  recognize  costs  associated  with  exit  or  disposal
activities  when they are incurred rather than at the date of a commitment to an
exit or disposal plan. The Company  adopted SFAS No. 146 on January 1, 2003. The
adoption of this statement had no impact on the financial statements.



<PAGE>


         In February 2003, the FASB issued SFAS No. 148,  "Accounting  for Stock
Based  Compensation:  A Comparison  of FASB  Statement No. 123,  Accounting  for
Stock-Based  Compensation  and Its Related  Interpretations,  and IASB  Proposed
IFRS, Share-based Payments." SFAS No. 148 amends SFAS 123 to provide alternative
methods of transition for an entity that  voluntarily  changes to the fair value
based method of accounting for stock-based employee compensation. It also amends
the  disclosure  provisions of that  Statement to require  prominent  disclosure
about the  effects on  reported  net  income of an  entity's  accounting  policy
decisions  with respect to stock-based  compensation.  The statement also amends
APB Opinion No. 28, "Interim Financial  Reporting",  to require disclosure about
those effects in interim  financial  information.  The Company has chosen not to
voluntarily change to the fair value based methods of accounting for stock-based
employee compensation but has adopted the disclosure rules of SFAS 148.

         In April 2003 The FASB issued SFAS No. 149, "Amendment of Statement 133
on  Derivative  Instruments  and  Hedging  Activities."  SFAS No. 149 amends and
clarifies when a derivative contains a financing component that warrants special
reporting  in the  statement  of cash flows and amends  certain  other  existing
pronouncements,  resulting in more  consistent  reporting of contracts  that are
derivatives in their entirety or that contain embedded  derivatives that warrant
separate  accounting.  SFAS No. 149 is effective for  contracts  entered into or
modified  after June 30, 2003. The Company does not believe that the adoption of
SFAS No. 149 will have a significant impact on its financial statements.

         In January  2003,  the FASB issued FASB  Interpretation  46 ("FIN 46"),
"Consolidation of Variable Interest Entities - An Interpretation of ARB No. 51".
FIN 46 addresses  consolidation  by business  enterprises  of variable  interest
entities.  This Interpretation applies immediately to variable interest entities
created after January 31, 2003,  and to variable  interest  entities in which an
enterprise  obtains an interest  after that date. It applies in the first fiscal
year or interim  period  beginning  after June 15,  2003,  to variable  interest
entities  in which an  enterprise  holds a variable  interest  that it  acquired
before  February  1, 2003.  On October  9, 2003,  the FASB  issued FSP FIN 46-6,
"Effective  Date  of FASB  Interpretation  No.  46,  Consolidation  of  Variable
Interest  Entities,  providing a deferral of application of FIN 46 for interests
held by public  entities in a variable  interest  entity or  potential  variable
interest  entity until December 31, 2003 for qualified  entities with a calendar
year-end.  The  Company  has not  fully  assessed  the  impact  of FIN 46 on its
financial statements, particularly its relationship with Allstar Equities, Inc.,
but the adoption of this statement is not expected to have a material  impact on
the Company's financial statements.

         In November  2002, the Emerging  Issues Task Force  ("EITF")  reached a
consensus   on  EITF  Issue   00-21,   "Revenue   Arrangements   with   Multiple
Deliverables".  EITF 00-21  addresses  certain  aspects of the  accounting  by a
vendor for arrangements under which it will perform multiple  revenue-generating
activities.  Issue 00-21 is effective for revenue  arrangements  entered into in
fiscal periods  beginning  after June 15, 2003. The Company does not expect that
the  adoption  of EITF 00-21  will have a  significant  impact on the  Company's
financial statements.

         In July 2003,  the EITF reached a preliminary  consensus on EITF 03-05,
"Applicability of AICPA Statement of Position 97-2 to Non-Software  Deliverables
in an Arrangement Containing More-Than-Incidental Software". EITF 03-05 requires
revenue  recognition  under SOP 97-2 for all  arrangements in which the software
sold is essential to the  functionality of the hardware.  The EITF Board has not
ratified the consensus,  but the adoption of the EITF consensus once ratified is
not expected to have a material impact on the Company's financial statements.

2.       DISCONTINUED OPERATIONS

         On November 6, 2001,  I-Sector  approved a plan to sell or close its IT
Staffing business. A sale was finalized on December 31, 2001. Under the terms of
the sale I-Sector  received a note receivable for $52. The note receivable bears
interest at 5% per annum and is collectible in  installments  based on the total
monthly  revenue  of  the  buyer  over  24  months  beginning  in  March,  2002.
Previously,  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.  Additionally on November 2, 1999,  I-Sector  approved a
plan to sell or close its Telecom  Division and that  business was sold on March
16, 2000.



<PAGE>


         During the nine months  ended  September  30,  2003 and 2002,  I-Sector
recognized a gain (loss) on disposal, net of income tax provision (benefit),  of
these three businesses as follows:

                                                      2003         2002

         IT Staffing, Inc.
           (net of taxes of $14 and $0)            $      26    $       1
         Computer Products Division
           (net of taxes of $(27) and $3)                (53)           5
         Telecom Division
           (net of taxes of $33 and $6)                   66           11
                                                     -------      -------
         Net gain on disposal                      $      39    $      17
                                                     =======      =======

         The balance  sheet  caption "Net  Liabilities  related to  discontinued
operations"  contains $600 and $904 at September 30, 2003 and December 31, 2002,
respectively,  of estimated  future expenses related to the winding up of the IT
Staffing business,  the Telecom Division and the Computer Products Division, and
includes  amounts  related to  settlement of pending  litigation  and to Telecom
warranties.

3.       SEGMENT INFORMATION

         I-Sector has four reportable segments:  INX,  Stratasoft,  Valerent and
Corporate. Corporate is not an operating segment. 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 views accounts
receivable  and  inventory  and  not  total  assets  in  their  decision-making.
Inter-segment  sales  and  transfers  are not  significant  and are shown in the
Elimination  column in the following table. The tables below show the results of
the four reportable segments:

For the quarter ended September 30, 2003:
<TABLE>
<CAPTION>
                                               INX        Stratasoft    Valerent    Corporate   Eliminations Consolidated

<S>                                          <C>          <C>          <C>          <C>          <C>          <C>
Revenues:
Products                                     $   15,954   $      -     $      515   $      -     $     (167)  $   16,302
Services                                          1,392          -            877          -             (5)       2,264
Custom projects                                     -          2,415          -            -            -          2,415
                                              ---------    ---------    ---------    ---------    ---------    ---------
Total revenues                                   17,346        2,415        1,392          -           (172)      20,981
                                              ---------    ---------    ---------    ---------    ---------    ---------
Cost of sales and services
Products                                         13,758          -            474          -           (166)      14,066
Service                                             795          -            606          -             (5)       1,396
Custom projects                                     -            728          -            -            -            728
                                              ---------    ---------    ---------    ---------    ---------    ---------
Total cost of sales and service                  14,553          728        1,080          -           (171)      16,190
                                              ---------    ---------    ---------    ---------    ---------    ---------
Gross profit                                      2,793        1,687          312          -             (1)       4,791
     Selling, general and administrative
 expenses                                         2,126        1,754          455          287           (1)       4,621
                                              ---------    ---------    ---------    ---------    ---------    ---------
Operating income (loss)                      $      667   $      (67)  $     (143)  $     (287)  $      -            170
                                              =========    =========    =========    =========    =========    =========
Interest and other income                                                                                            (11)
                                                                                                               ---------
Income from continuing operations
 before benefit for income taxes                                                                                     159
Benefit for income taxes                                                                                             (12)
                                                                                                               ---------
Net income from continuing operations                                                                                171
Net gain on disposal of discontinued
     operations, net of taxes                                                                                         23
                                                                                                               ---------
Net income                                                                                                    $      194
                                                                                                               =========

Accounts receivable, net                     $    9,281   $      795   $      710   $      -     $      -     $   10,786
                                              =========    =========    =========    =========    =========    =========
Accounts receivable retained from
     discontinued operations, net                                                                                    165
                                                                                                               ---------
Total accounts receivable, net                                                                                $   10,951
                                                                                                               =========

Inventory                                    $    812     $      702   $       29   $      -     $      -     $    1,543
                                              =========    =========    =========    =========    =========    =========
</TABLE>




<PAGE>


For the quarter ended September 30, 2002:

<TABLE>
<CAPTION>
                                               INX        Stratasoft    Valerent    Corporate   Eliminations Consolidated
<S>                                          <C>          <C>          <C>          <C>          <C>          <C>
Revenues:
Products                                     $    8,034   $      -     $      303   $      -     $      (11)  $    8,326
Services                                            550                       988          -            -          1,538
Custom projects                                     -          1,743           -           -            -          1,743
                                              ---------    ---------    ---------    ---------    ---------    ---------
      Total revenues                              8,584        1,743        1,291          -            (11)      11,607
                                              ---------    ---------    ---------    ---------    ---------    ---------
Cost of sales and services
Products                                          7,150          -            296          -            (11)       7,435
Service                                             377          -            687          -            -          1,064
Custom projects                                     -            781           -           -            -            781
                                              ---------    ---------    ---------    ---------    ---------    ---------
Cost of sales and services                        7,527          781          983          -            (11)       9,280
                                              ---------    ---------    ---------    ---------    ---------    ---------
Gross profit                                      1,057          962          308                                  2,327
Selling, general and
     administrative expenses                        966          914          569          170          -          2,619
                                              ---------    ---------    ---------    ---------    ---------    ---------
Operating (loss) income                      $       91   $       48   $     (261)  $     (170)  $      -           (292)
                                              =========    =========    =========    =========    =========    =========
Interest and other income (expense)                                                                                    3
                                                                                                               ---------
Loss from continuing operations before
 benefit for income taxes                                                                                           (289)
Benefit for income taxes                                                                                             -
                                                                                                               ---------
Net loss from continuing operations                                                                                 (289)
Net loss on disposal of discontinued
         operations, net of taxes                                                                                     (1)
                                                                                                               ---------
Net loss                                                                                                      $     (290)
                                                                                                               =========

Accounts receivable, net                     $      863   $    3,943   $    1,303   $       23   $      -     $    6,132
                                              =========    =========    =========    =========    =========    =========
Inventory                                    $       60   $      324   $      416   $        0   $      -     $      801
                                              =========    =========    =========    =========    =========    =========
</TABLE>

For the nine months ended September 30, 2003:

<TABLE>
<CAPTION>
                                               INX        Stratasoft    Valerent    Corporate   Eliminations Consolidated

<S>                                          <C>          <C>          <C>          <C>          <C>          <C>
Revenues:
Products                                     $   34,795   $      -     $    1,219   $      -     $     (359)  $   35,655
Services                                          2,725          -          2,562          -             (5)       5,282
Custom projects                                     -          5,995          -            -            -          5,995
                                              ---------    ---------    ---------    ---------    ---------    ---------
Total revenues                                   37,520        5,995        3,781          -           (364)      46,932
                                              ---------    ---------    ---------    ---------    ---------    ---------
Cost of sales and services
Products                                         30,448          -          1,090          -           (357)      31,181
Service                                           2,068          -          1,789          -             (5)       3,852
Custom projects                                     -          2,104                       -            -          2,104
                                              ---------    ---------    ---------    ---------    ---------    ---------
Cost of sales and services                       32,516        2,104        2,879          -           (362)      37,137
                                              ---------    ---------    ---------    ---------    ---------    ---------
Gross profit                                      5,004        3,891          902          -             (2)       9,795
Selling, general and
administrative expenses                           4,518        4,694        1,551          795           (2)      11,556
                                              ---------    ---------    ---------    ---------    ---------    ---------
Operating (loss) income                      $      486   $     (803)  $     (649)  $     (795)  $   -            (1,761)
                                              =========    =========    =========    =========    =========    =========
Interest and other income                                                                                             93
                                                                                                               ---------
Loss from continuing operations
 before benefit for income taxes                                                                                  (1,668)
Benefit for income taxes                                                                                             (93)
                                                                                                               ---------
Net loss from continuing operations                                                                               (1,575)
Net gain on disposal of discontinued
      operations, net of taxes                                                                                        39
                                                                                                               ---------
Net loss                                                                                                      $   (1,536)
                                                                                                               =========
</TABLE>


<PAGE>


For the nine months ended September 30, 2002:

<TABLE>
<CAPTION>
                                               INX        Stratasoft    Valerent    Corporate   Eliminations Consolidated
<S>                                          <C>          <C>          <C>          <C>          <C>          <C>
Revenues:
Product                                      $   20,550   $      -     $      940   $      -     $     (206)  $   21,284
Services                                          1,177          -          3,043          -            -          4,220
Custom projects                                     -          5,571          -            -            -          5,571
                                              ---------    ---------    ---------    ---------    ---------    ---------
Total revenue                                    21,727        5,571        3,983          -           (206)      31,075
                                              ---------    ---------    ---------    ---------    ---------    ---------
Cost of sales and services
Product                                          18,270          -            900          -           (206)      18,964
Service                                           1,208          -          2,147          -            -          3,355
Custom projects                                     -          2,488          -            -            -          2,488
                                              ---------    ---------    ---------    ---------    ---------    ---------
Total cost of sales and services                 19,478        2,488        3,047          -           (206)      24,807
                                              ---------    ---------    ---------    ---------    ---------    ---------
Gross profit                                      2,249        3,083          936          -            -          6,268
Selling, general and
     administrative expenses                      2,446        2,600        1,723          486          -          7,255
                                              ---------    ---------    ---------    ---------    ---------    ---------
Operating (loss) income                      $     (197)  $      483   $     (787)  $     (486)   $     -           (987)
                                              =========    =========    =========    =========    =========    =========
Interest and other income                                                                                              1
                                                                                                               ---------
Loss from continuing operations before
 benefit for income taxes                                                                                           (986)
Benefit for income taxes                                                                                          (1,189)
                                                                                                               ---------
Net income from continuing operations                                                                                203
Net gain on disposal of discontinued
      operations, net of taxes                                                                                        17
                                                                                                               ---------
Net income                                                                                                    $      220
                                                                                                               =========

<FN>
International  sales accounted for $681 or 3.2% and $378 or 3.3% of consolidated
revenues  and 28.2% and 21.7% of the  Stratasoft  segment  revenues in the three
months ended September 30, 2003 and 2002, respectively. In the nine months ended
September 30, 2003 and 2002,  international  sales accounted for $2,627 or 5.6 %
and  $1,247  or  20.0% of  consolidated  revenues  and  43.8%  and  73.9% of the
Stratasoft  segment sales,  respectively.  International  sales are derived from
Southern Asia,  Africa,  United  Kingdom,  Greece,  Europe,  Granada,  Japan and
Canada.
</FN>
</TABLE>


<PAGE>


4.       EARNINGS PER SHARE

         Basic  EPS  is  computed  by   dividing   net  income   (loss)  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.

         The potentially  dilutive options of 134,503 for the three months ended
September 30, 2002, and the potentially dilutive options of 201,473 for the nine
months  ended  September  30, 2003 were not used in the  calculation  of diluted
earnings since the effect of potentially dilutive securities in computing a loss
per share is antidilutive. The potentially dilutive options totaling 271,092 for
the three  months  ended  September  30, 2003 and 46,641 and nine  months  ended
September 30, 2002 were calculated under the treasury stock method.

         The  potentially   dilutive  options  of  the  Company's   wholly-owned
subsidiary,  Internetwork Experts, Inc., (see Note 9) did impact the calculation
of  I-Sector's  earnings per share in the quarter  ended  September  30, 2003 as
indicated  in  the  following  table.   The  potentially   dilutive  options  of
Internetwork  Experts, Inc. were not used in the calculation of diluted earnings
attributable  to the Company for the three months ended  September 30, 2002, and
for the nine months ended September 30, 2003 and 2002,  respectively,  since the
effect would have been antidilutive.

<TABLE>
<CAPTION>
                                                                Three Months               Nine Months
                                                           2003             2002     2003             2002
                                                          -----------------------    -----------------------

<S>                                                       <C>          <C>          <C>          <C>
Numerator:
Basic:
Net income (loss) from continuing operations              $      171   $     (289)  $   (1,575)  $      203
Gain (loss) on disposal of discontinued
     operations, net of taxes                                     23           (1)          39           17
                                                           ---------    ---------    ---------    ---------

Net (loss) income                                         $      194   $     (290)  $   (1,536)  $      220
                                                           =========    =========    =========    =========

Diluted:
Net income (loss) from continuing operations              $      171   $     (289)  $   (1,575)  $      203
Deduct:
Adjustment for subsidiary dilution                                44
                                                           ---------    ---------    ---------    ---------
     Adjusted net income (loss) from continuing
     Operations                                                  127         (289)      (1,575)         203
Gain (loss) on disposal of discontinued
     Operations, net of taxes                                     23           (1)          39           17
                                                           ---------     ---------   ---------    ---------

Net (loss) income adjusted for subsidiary dilution        $      150  $      (290)  $   (1,536)  $      220
                                                           =========    =========    =========    =========


Denominator for basic earnings per share - .
     weighted-average shares outstanding....               3,703,206    3,629,525    3,643,346    3,736,704


Effect of dilutive securities:..............
Shares issuable from assumed conversion of
     common stock options and restricted stock               271,092          -            -         46,641
                                                           ---------    ---------    ---------    ---------

Denominator for diluted earnings per share..               3,974,298    3,629,525    3,643,346    3,783,345
                                                           =========    =========    =========    =========

<FN>
The adjustment for subsidiary  dilution was calculated  using the treasury stock
method of  calculating  the  dilutive  effect of INX's  granted and  outstanding
options on INX's net income.
</FN>
</TABLE>


<PAGE>


         There were warrants to purchase  176,750 shares of common stock for the
six months  ended June 30,  2002 which were not  included in  computing  diluted
earnings per share because the inclusion  would have been  antidilutive.  During
the three months ended September 30, 2002 such warrants expired and the carrying
value of the warrants was recognized as additional paid in capital.

5.       CURRENT DEBT OBLIGATIONS

         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  license  asset and has  recorded
interest  of $4 and $8 in the three  months  and $13 and $24 in the nine  months
ended September 30, 2003 and 2002, respectively.  This note is collateralized by
Stratasoft's  patent  license  assets  and  Stratasoft  has  granted a  security
interest in its pending patent application and the next two patent  applications
filed by  Stratasoft.  In  connection  with  this  note  payable,  I-Sector  has
short-term  debt maturing  within one year of $66 and $144 and long-term debt of
$203 and $236 at September 30, 2003 and December 31, 2002, respectively.

         In October 2001,  I-Sector  signed a non-interest  bearing note payable
for $39 payable in monthly installments through October 2004. In connection with
this note payable,  I-Sector has short-term debt maturing within one year of $13
and $13 and long-term  debt of $0 and $14 at September 30, 2003 and December 31,
2002, respectively.

         In connection  with its credit  agreement for the purchase of inventory
discussed immediately below, $447 of the outstanding balance on such credit line
was interest  bearing at September 30, 2003 and is reflected as short-term  debt
on the accompanying balance sheet.

         On January 31,  2002  I-Sector  entered  into a credit  agreement  with
Textron  Financial  Corporation  ("Textron") for a revolving line of credit (the
"Textron Facility").  The total credit available under the Textron facility,  as
amended,  was $7,500  subject to borrowing base  limitations  that are generally
computed  as  80% of  eligible  accounts  receivable,  and  90% of  identifiable
inventory  purchased  under this agreement and 40% of all other  inventory.  The
borrowing base limitations  restrict the eligibility of accounts  receivable for
collateralization by disallowing as eligible any customer's receivables in their
entirety  that have balances over 90 days old and that exceed 25% of their total
balance.  On  November  6, 2003  Textron  informed  the  Company  that they have
conditionally  approved  an increase  in the credit  facility  from $7,500 to an
inventory  financing  facility  of  $15,000.  The  conditions  of approval to be
satisfied include the execution of certain documents, including syndication loan
documents and an activation of syndication  for $5,000 with Silicon Valley Bank.
Inventory  floor  plan  borrowings  are  reflected  in  accounts  payable on the
accompanying  balance  sheets,  except for $447 that is interest  bearing and is
reflected in short term debt on the accompanying balance sheets at September 30,
2003. I-Sector may use up to $500 of the line for working capital advances under
approved  conditions.  Borrowings accrue interest at the prime rate plus 2.5% on
outstanding balances that extend beyond the vendor approved free interest period
and on  working  capital  advances  from  date of  advance.  This  agreement  is
collateralized  by  substantially  all of  I-Sector's  assets  except its patent
license assets.  The agreement contains  restrictive  covenants measured at each
quarter end, which require us to maintain  minimum  tangible capital funds and a
minimum debt to tangible capital funds ratio. At September 30, 2003 I-Sector was
not  in  compliance  with  all  of  the  loan  covenants,  however  the  Company
subsequently received a waiver on such non-compliance for that date. I-Sector is
in negotiations with Textron to modify the loan covenants and currently believes
it will be able to comply  with the  applicable  covenants  in future  reporting
periods.  In the  event  I-Sector  does  not  maintain  compliance,  it would be
required to seek waivers from Textron for those events,  which, if not obtained,
could  accelerate  repayment  and  require  I-Sector  to seek  other  sources of
finance.  At September 30, 2003,  I-Sector had $7,112  outstanding  on inventory
floor plan finance  borrowings,  $0 outstanding on working capital  advances and
had total credit availability of $388.


<PAGE>


6.       LITIGATION

         In August 2002,  Inacom Corp.  filed a lawsuit in the District Court of
Douglas  County,  Nebraska  styled  Inacom Corp v. I-Sector  Corporation,  f/k/a
Allstar Systems, Inc., claiming that I-Sector owed the sum of approximately $570
to Inacom  Corp.  ("Inacom")  as a result of  Inacom's  termination  of a Vendor
Purchase Agreement between Inacom and I-Sector. I-Sector believes that the claim
is without merit and intends to vigorously contest the demand.

         The Equal Employment  Opportunity Commission ("EEOC") filed a Charge of
Discrimination  against  Stratasoft  on behalf of  Jennifer R. Bond on August 1,
2002 in the EEOC Minneapolis,  Minnesota office. Stratasoft reached agreement to
settle  this  claim,  without  admitting  or  denying,  in  September,  2003 for
$130,000,  and general and administrative  expense of $130,000 was recognized in
the three months ended September 30, 2003.

         I-Sector is also 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,  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.       INCOME TAX BENEFIT

         On March 9, 2002,  President  Bush signed into law the Job Creation and
Worker  Assistance  Act of  2002.  The law  provides  for the  carryback  of net
operating losses for any taxable year ending during 2001 and 2002 to each of the
5 tax years preceding the loss year.  Previously,  a net operating loss was only
eligible  to be carried  back to the 2 years  preceding  the year of loss.  As a
result of the change in the carryback period,  I-Sector recognized a tax benefit
of $73 and $1,179 in the six months ended June 30, 2003 and 2002,  respectively.
On July 26, 2002 the Company  received $1,123 in tax refunds.  Additionally,  on
July 24, 2003 the Company received $561 in tax refunds.

8.       RELATED PARTY TRANSACTIONS

         The Company  leases office space from Allstar  Equities,  Inc., a Texas
corporation  ("Equities"),a company wholly owned by the CEO. On December 1, 1999
Equities purchased the Company's corporate office building and executed a direct
lease with us with an expiration date of December 31, 2004. In conjunction  with
Equities obtaining new financing on the building,  a new lease was executed with
the Company on February 1, 2002 with an expiration date of January 31, 2007. The
new lease has rental rates of $37,192 per month.

         From time to time I-Sector has obtained an  independent  survey of real
estate  rental  rates and has  consulted  with real estate  consulting  firms to
determine  market  rates  of  facilities  that  are  comparable  to the  Houston
headquarters facility. The Company believes that the rental rate and other terms
of our lease from  Equities  are at least as  favorable as those that could have
been obtained in an arms-length transaction with an unaffiliated third party.

         From time to time I-Sector makes  short-term  loans and travel advances
to its  employees.  The balance of  approximately  $2 and $12  relating to these
loans and advances is included in the  Company's  balance  sheet and reported as
part of Accounts receivable - other at September 30, 2003 and December 31, 2002,
respectively.

9.       STOCK OPTION PLANS

         The Company has three  stock-based  option  plans,  the 1996  Incentive
Stock Plan, the 1996  Non-Employee  Director Stock Option Plan and the Incentive
Plan. Under the Incentive Plan, all of I-Sector  employees,  including officers,
consultants and non-employee directors are eligible to participate.

         Additionally,  each of I-Sector's  subsidiaries  has an incentive stock
option  plan in place.  The  subsidiary  plans  have not been  presented  to the
shareholders of I-Sector for approval.  The only subsidiary with options granted
under its plan incurred net income for the three months ended September 30, 2003
and 2002,  respectively.  The net income of the  subsidiary  in the three months
ended  September 30, 2003 were  considered in the  calculation  of the Company's
earnings per share (see Note 4). The net income of the  subsidiary  in the three
months ended September 30, 2002 was  anti-dilutive  since the Company incurred a
net loss. The subsidiary  incurred a net loss for each of the nine month periods
presented,  and as a result I-Sector's share of the subsidiary net loss does not
change for purposes of  computation  of  I-Sector's  earnings per share in those
periods  because  the  effect  of the  net  loss  of  the  subsidiary  would  be
anti-dilutive.


<PAGE>


         Only one of I-Sector's subsidiaries,  INX, has granted incentive awards
under its incentive plan, and such awards have been granted to certain employees
and to management of INX.  Under INX's plan such options vest ratably over three
to five years. The quantity of incentive  options that are eligible to vest each
year for INX's two most senior  executives is determined based on the percentage
of attainment of predefined  financial  goals by INX. Any unvested stock options
may  vest  immediately  upon  the  occurrence  of a  liquidity  event  for  that
subsidiary. The subsidiary options expire ten years after the grant date if they
are not exercised.  The  subsidiary  stock option grants are subject to dilution
when I-Sector  purchases  additional  shares of the subsidiary stock in order to
keep the subsidiary sufficiently capitalized.  INX has 7,381,942 options granted
and outstanding,  of which 3,603,609 are vested at September 30, 2003. There are
1,618,058 shares in INX's plan available to be issued at September 30, 2003. The
tables below  reflect the  ownership INX at September 30, 2003 and summarize the
potential dilutive effect on I-Sector's  ownership in INX if all options granted
at September  30, 2003 were fully vested and option grants were  exercised,  and
include  the  effects  of the  issuance  of  stock  in 2004  relating  to  INX's
acquisition of certain assets and  liabilities of Digital  Precision,  Inc. (See
note 10).

Ownership of INX shares at September 30, 2003:
                                                                       Percent
                                Outstanding Shares of INX Common Stock of Total

     Common Stock owned by I-Sector                     21,834,333     100.0%
                                                                       -----

     Total Common Stock Outstanding                     21,834,333     100.0%
                                                        ==========     =====

Potential Future I-Sector Dilution of Ownership of INX:


     Common Stock owned by I-Sector                     21,834,333      68.4%
         At September 30, 2003
     Options granted and outstanding
         at September 30, 2003 (1)                       7,381,942      23.1%
     Contingent obligation to issue
     Common Stock related to
         acquisition (2)                                 1,800,000       5.6%
     Contingent obligation to grant
         options in April, 2004 (3)                        900,000       2.8%
     Other options promised to new employees                25,000       0.1%
                                                        ----------     -----

         Total                                          31,941,275     100.0%
                                                        ==========     =====

(1)      Options  granted and  outstanding  at September 30, 2003 include option
         grants for 4,100,000 shares of INX granted to the two senior executives
         of INX and vesting of these option grants is performance-based relating
         to the percentage of predefined  financial  goals attained by INX while
         these  two  senior  executives  remain  employed.  Any  of  the  shares
         associated  with this group of option  grants that become  eligible for
         vesting, but do not vest due to financial  performance,  as compared to
         predefined  goals,  are  forfeited  and will no longer be eligible  for
         vesting  unless there is a liquidity  event that returns a  pre-defined
         return on investment to I-Sector. Additionally,  included in the option
         grants  outstanding at September 30, 2003 are grants for 500,000 shares
         granted to key employees  related to an acquisition  (see Note 10), and
         this group of option grants vested  immediately upon grant.  During the
         quarter ended  September  30, 2003 INX granted fully vested  options to
         purchase 1,500,000 shares of INX to the President,  CEO and Chairman of
         the Board of I-Sector Corporation and to a senior executive of INX. The
         remainder  of the  shares  included  in option  grants  outstanding  at
         September  30,  2003 vest over  either  three or five years  based upon
         continued employment by INX of the individuals to whom such grants have
         been  made.  All  options  granted  by  INX  expire  in  ten  years  if
         unexercised.

(2)      In connection with the acquisition of certain assets and liabilities of
         Digital  Precision,  Inc. (see note 10), a portion of the consideration
         given by INX was the contingent obligation to issue 1,800,000 shares of
         INX  Common  Stock to  Digital  Precision,  Inc.  when and if three key
         employees  complete one year of employment with INX. If any of such key
         employees terminates  employment without cause before completion of one
         year of  employment,  the number of shares of Common Stock to be issued
         is decreased by scheduled and agreed upon percentages. (3)

<PAGE>


         INX  entered  into  employment  agreements  with  certain of the former
         owners and employees of Digital Precision,  Inc. that set forth that if
         they met  certain  performance  goals  during  the first  two  calendar
         quarters following the completion of the Digital Precision  transaction
         and for the twelve months  subsequent to the acquisition,  that certain
         option  grants would be made.  As of September  30, 2003,  there is the
         potential  that  options for  900,000  shares of INX will be granted to
         them on or after April 4, 2004 at fair value at that date.

10.  ACQUISITION

         On April 7, 2003, I-Sector's  subsidiary,  INX, acquired certain assets
and liabilities of one of its competitors,  Digital Precision, Inc. ("Digital").
Under  the  terms  of  the  purchase,  INX  acquired  fixed  assets,  inventory,
intellectual property, customer lists, trademarks, tradenames and service marks,
contract  rights and other  intangibles of Digital,  as well as assumed  certain
operating  leases of equipment and office space.  The purchase price was $540 in
cash and, contingent upon the retention of certain key employees, the obligation
to  issue  1,800,000  shares  of INX  common  stock  in April  2004.  When  that
contingency  is  resolved  in April 2004,  I-Sector  could  recognize a minority
interest related to the issuance of INX's common stock (see Note 9). No goodwill
was recognized in the acquisition. The results of operations subsequent to April
7, 2003 are included in I-Sector's consolidated statement of income.



<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, our consolidated  financial statements,  including the
notes thereto included  elsewhere in this Form 10-Q and our Form 10-K previously
filed  with  the  Securities  and  Exchange  Commission.  All  monetary  amounts
discussed in Items 2 through 5 are in thousands.

Overview

         Our revenue is derived from three segments.  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.  Stratasoft, Inc. ("Stratasoft")
develops and markets  proprietary  software that integrates  business  telephone
systems and networked  computer systems.  Stratasoft's  basic products are often
customized to suit a customer's  particular needs and are sometimes bundled with
computer hardware supplied by Stratasoft 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.  Valerent,  Inc.
("Valerent")  provides information  technology solutions that lower the client's
expense by utilizing  centralized,  remote enabled  computing  management  tools
which predict, announce and manage service interruptions.  Additionally Valerent
sells computer products and provides  customers with certain managed IT services
such as application  support,  operating system and network migration  services,
turnkey  outsourced IT helpdesk  solutions,  technical staff augmentation for IT
helpdesk operations and helpdesk solutions consulting services.

         Valerent  and INX market  their  services to  businesses  in Texas from
locations in the Houston and Dallas-Fort Worth  metropolitan  areas.  Stratasoft
markets its products  worldwide  through a direct sales force and an  authorized
dealer  network.  During the nine  months  ended  September  30,  2003,  INX and
Stratasoft  produced 79.9 % and 12.8%,  respectively,  of total revenues,  while
Valerent  produced 8.1 % 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 operations. 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 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 cost related to permanent  employees 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.

         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 does not vary in proportion to
increases in revenue as directly.



<PAGE>


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
that we have little or no control over, may affect the I-Sector'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 I-Sector's annual
report on Form  10-K,  as filed  with the  Securities  and  Exchange  Commission
including the 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, 2003  Compared To Three  Months Ended September
30, 2002

         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, 2003 and 2002.  The  discussion  below
relates only to our continuing operations, unless otherwise noted.

<TABLE>
<CAPTION>
                                                                       Three months ended September 30,
                                                                   2003                      2002
                                                                   ----                      ----
                                                            Amount        %           Amount        %
                                                            ------      -----         ------      -----
<S>                                                       <C>            <C>        <C>            <C>
Revenues:
INX                                                       $   17,346     82.7       $    8,584     74.0
Stratasoft                                                     2,415     11.5            1,743     15.0
Valerent                                                       1,392      6.6            1,291     11.1
         Eliminations                                           (172)    (0.8)             (11)    (0.1)
                                                           ---------    -----        ---------    -----
         Total revenue                                        20,981    100.0           11,607    100.0
Gross profit:
INX                                                            2,793     16.1            1,057     12.3
Stratasoft                                                     1,687     69.9              962     55.2
Valerent                                                         312     22.4              308     23.9
         Eliminations                                             (1)     0.0                0      0.0
                                                           ---------    -----        ---------    -----
         Total gross profit                                    4,791     22.8            2,327     20.0
Selling, general and administrative expenses:
INX                                                            2,126     12.3              966     11.3
Stratasoft                                                     1,754     72.6              914     52.4
Valerent                                                         455     32.7              569     44.1
Corporate                                                        287      N/A              170      N/A
Eliminations                                                      (1)     0.0                0      0.0
                                                           ---------    -----        ---------    -----
         Total selling, general and administrative
              expenses                                         4,621     22.0            2,619     22.6
Operating income (loss):
INX                                                              667      3.8               91      1.1
Stratasoft                                                       (67)   (27.7)              48      2.8
Valerent                                                        (143)   (10.3)            (261)   (20.2)
Corporate                                                       (287)     N/A             (170)     N/A
                                                           ---------    -----        ---------    -----
         Total operating income (loss)                           170      0.8             (292)    (2.5)
Interest and other income (expense)                              (11)    (0.0)               3     (0.0)
                                                           ---------    -----        ---------    -----
Income (loss) before benefit for income taxes                    159      0.8             (289)    (2.5)
Benefit for income taxes                                         (12)    (0.0)                      0.0
                                                           ---------    -----        ---------    -----
Net income (loss) from continuing operations                     171      0.8             (289)    (2.5)
Discontinued operations:
Gain on disposal                                                  23      0.1               (1)    (0.0)
                                                           ---------    -----        ---------    -----
Net income (loss)                                         $      194      0.9       $     (290)    (2.5)
                                                           =========    =====        =========    =====
</TABLE>

         TOTAL  REVENUE.  Total  revenue,  net  of  intercompany   eliminations,
increased by $9,374 (80.8%) to $20,981 in 2003 from $11,607 in 2002.

         INX revenue  increased by $8,762 (102.1%) to $17,346 from $8,584.  As a
percentage of total revenue,  INX revenue  increased to 82.7% from 74.0%. Of the
increase in revenues,  $5,681 was  attributed  to the Houston  office,  $434 was
attributed  to an  increase  in the Federal  government  sector,  and $1,668 was
attributed  to a new  office in  Austin,  Texas,  formerly  a Digital  Precision
office. Additionally,  the Dallas office realized an increase of $978. The total
increase  in revenues  attributable  to the Digital  Precision  acquisition  and
including the revenues of the Austin office is $3,588. The significant  increase
in the Houston office  revenues is attributed to three large projects  involving
both product and service.



<PAGE>


         Stratasoft  revenue  increased  by $672  (38.6%) to $2,415 from $1,743.
Stratasoft  revenue,  as a percentage of total revenue,  decreased to 11.5% from
15.0%. During the quarter ended September 30, 2003, the Company deferred certain
revenue for custom  projects  that  included  fees that we  determined to not be
fixed and determinable,  for certain custom projects that had more than one year
of free PCS,  and for certain  renewals of PCS paid in advance.  The increase in
revenues  relates  primarily  to three  large  projects  that were  begun in the
quarter ended  September 30, 2003 and from an overall  increase in the estimated
revenues  of custom  projects  in process at  September  30, 2003 as compared to
September 30, 2002 of $1,121.  Stratasoft's  international  sales  accounted for
28.2% of  Stratasoft's  revenues  in the  quarter  ended  September  30, 2003 as
compared to 13.1% in the same quarter of 2002.

         Valerent revenue  increased by $101 (7.8%) to $1,392 from $1,291.  As a
percentage of total revenue Valerent  revenue  decreased to 6.6% from 11.1%. The
increase in Valerent  revenue was primarily  attributable  to increased  product
sales of $212 offset by decreased  service revenues of $111 in the quarter ended
September 30, 2003.  The increase in revenue was  attributable  to sales efforts
beginning to come to fruition in the area of specialized  information technology
solutions involving managed services.

         GROSS PROFIT.  Gross profit increased by $2,464 (105.9%) to $4,791 from
$2,327. Gross margin increased to 22.8% from 20.0%,  primarily because a greater
portion of the INX revenues  were from its service  component,  which has higher
margins and because Stratasoft experienced higher margins in the 2003 quarter.

         INX gross profit increased $1,736 (164.2%) to $2,793 from $1,057. Gross
margin for INX  increased to 16.1% from 12.3%.  INX's  product  gross profit has
increased  $1,313 to $2,196 from $883 due to both sales volume  increase and due
to improved  gross  margin  rates.  Improved  product  gross  margin  rates were
partially  due to a vendor  rebate of $313 that was  based  partially  on volume
sales of certain product and partially on customer satisfaction  ratings.  INX's
gross profit on its service  component  increased by $424 to $597 as compared to
$173 due to  increased  revenues  of $842 and because of better  utilization  of
personnel.

         Stratasoft  gross profit  increased by $725 (75.4%) to $1,687 from $962
as revenue increased by 38.6% and gross margin for Stratasoft  improved to 69.9%
from 55.2%.  Gross margin is impacted by the mix of sales between custom systems
sales, which include a hardware  component,  as compared to software only sales,
which do not have a hardware  cost of goods  component.  Stratasoft's  increased
gross  margin rate in the 2003  quarter,  as compared  to the 2002  quarter,  is
primarily due to an increased mix of software only sales.

         Valerent gross profit  increased by $4 (1.3%) to $312 from $308.  Gross
margin for Valerent  decreased to 22.4% from 23.9%.  Valerent's  cost of service
consists primarily of labor cost that has a fixed component. The fixed component
of labor causes gross profit and gross margin not to fluctuate directly with the
change in revenues.  Valerent's  gross profit on product  increased by $34 while
its gross profit on service decreased $30.

         SELLING,  GENERAL AND  ADMINISTRATIVE  EXPENSES.  Selling,  general and
administrative  expenses increased by $2,002 (76.4%) to $4,621 from $2,619. As a
percentage  of revenue,  these  expenses  decreased by 0.6%, to 22.0% of revenue
from 22.6% of revenue.  Sales compensation  increased by $589,  primarily due to
the increased revenue volumes of INX and Stratasoft.  Bad debt expense increased
by $519 and legal and accounting expense increased by $267, the most significant
portion  of  which  is  $130  for  settlement  of   litigation.   Administrative
compensation and related payroll taxes were higher by $248,  primarily due to an
acquisition by INX,  bonuses paid by INX and to Stratasoft  opening an office in
India.  Travel  increased  $63 in 2003 as  compared  to the same period in 2002,
primarily  in INX due to an  increased  level of travel  related  to  management
travel.  Shareholder  relations  expenses  increased  $55  due  to  employing  a
shareholder relations firm, attending investor conferences and visiting investor
groups.  Telephone  expense  increased due to the new offices in both Stratasoft
and INX.  Depreciation  and amortization  expense  increased $59. General office
expenses  increased $27. Rent was $54 higher,  primarily  because of new offices
related to the INX acquisition and the Stratasoft India and Canada office. Other
expenses increased $90.

         INTEREST AND OTHER INCOME (NET). We had interest income of $20 compared
to  interest  income of $18,  primarily  due to  interest  on notes  receivable.
Additionally,  we had interest  expense of $19, loss on disposition of assets of
$7, foreign  exchange expense of $18 and other income of $13 in 2003 as compared
to interest expense of $9 and a loss on disposition of assets of $6 in 2002.



<PAGE>


         DISCONTINUED  OPERATIONS.  During  1999  we  discontinued  our  Telecom
Systems business. 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 these  businesses  are reported as  discontinued  operations.  At
December  31,  2000 we sold our IT Staffing  business.  For the  quarters  ended
September 30, 2003 and 2002,  respectively,  the gain (loss) on disposal related
to these business was $56, $(33),  and $0, net of taxes of $29, $(17) and $0 and
$3, $2 and $(6) (net of taxes of $2, $1 and $(3)).  The gains  and/or  losses on
disposal  related  to these  discontinued  operations  is  primarily  related to
collections of accounts receivables retained when these businesses were sold.

         NET LOSS.  Net income in the quarter ended  September 30, 2003 was $194
and net loss in the quarter  ended  September  30, 2002 was $290. No tax benefit
had been  recorded  for the loss in the three months  ended  September  30, 2002
because, due to our recurring losses, a valuation allowance was recorded.

Nine Months  Ended  September 30, 2003  Compared To Nine  Months Ended September
30, 2002

         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  30, 2003 and 2002.  The  discussion  below
relates only to our continuing operations, unless otherwise noted.

<TABLE>
<CAPTION>
                                                                       Nine months ended September 30,
                                                                   2003                      2002
                                                                   ----                      ----
                                                            Amount        %           Amount        %
                                                            ------      -----         ------      -----
<S>                                                       <C>            <C>        <C>            <C>
Revenue:
INX                                                       $   37,520     79.9       $   21,727     69.9
Stratasoft                                                     5,995     12.8            5,571     17.9
Valerent                                                       3,781      8.1            3,983     12.8
Eliminations                                                   (364)     (0.8)            (206)    (0.6)
                                                           ---------    -----        ---------    -----
         Total revenue                                        46,932    100.0           31,075    100.0
Gross profit:
INX                                                            5,004     13.3            2,249     10.4
Stratasoft                                                     3,891     64.9            3,083     55.3
Valerent                                                         902     23.9              936     23.5
Eliminations                                                      (2)     0.0                0      0.0
                                                           ---------    -----        ---------    -----
         Total gross profit                                    9,795     20.9            6,268     20.2
Selling, general and administrative expenses:
INX                                                            4,518     12.0            2,446     11.3
Stratasoft                                                     4,694     78.3            2,600     46.7
Valerent                                                       1,551     41.0            1,723     43.3
Corporate                                                        795      N/A              486      N/A
Eliminations                                                      (2)     0.0                0      0.0
                                                           ---------    -----        ---------    -----
         Total selling, general and administrative
         Expenses                                             11,556     24.6            7,255     23.3
Operating (loss) income:
INX                                                              486      1.3             (197)    (0.9)
Stratasoft                                                      (803)   (13.4)             483      8.7
Valerent                                                        (649)   (17.2)            (787)   (19.8)
Corporate                                                       (795)     N/A             (486)     N/A
                                                           ---------    -----        ---------    -----
         Total operating loss                                 (1,761)    (3.8)            (987)    (3.2)
Interest and other income                                         93      0.2                1     (0.0)
                                                           ---------    -----        ---------    -----
Loss before benefit for income taxes                          (1,668)    (3.6)            (986)    (3.2)
Benefit for income taxes                                         (93)    (0.2)          (1,189)    (3.8)
                                                           ---------    -----        ---------    -----
Net (loss) income from continuing operations                  (1,575)    (3.4)             203      0.6
Discontinued operations:
Gain on disposal                                                  39      0.1               17      0.1
                                                           ---------    -----        ---------    -----
Net (loss) income                                         $   (1,536)    (3.3)      $      220      0.7
                                                           =========    =====        =========    =====
</TABLE>


<PAGE>


         TOTAL  REVENUE.  Total  revenue,  net  of  intercompany   eliminations,
increased by $15,857 (51.0%) to $46,932 from $31,075.

         INX revenue increased by $15,793 (72.7%) to $37,520 from $21,727.  As a
percentage of total revenue,  INX revenue increased to 79.9 % from 69.9%. Of the
increase in revenues,  $10,911 was attributed to the Houston office,  $2,595 was
attributed  to a new  office  in  Austin,  $553 was  attributed  to sales in the
government  sector and $1,734 was  attributed  to the Dallas  office.  The total
increase  in  revenues  attributable  to  the  Digital  Precision   acquisition,
including the revenues of the acquired  Austin office is $5,570.  INX's revenues
grew rapidly in the nine months ended  September 30 2003  primarily due to large
sales to four  school  districts  totaling  $11,920 and due to synergy of $5,570
resulting from its acquisition of Digital Precision, Inc.

         Stratasoft  revenue  increased  by $424 (7.6%) to $5,995  from  $5,571.
Stratasoft  revenue,  as a percentage of total revenue,  decreased to 12.8% from
17.9%.  During the nine months ended  September 30, 2003,  the Company  deferred
revenue for certain custom  projects that included fees that were  determined to
not be fixed and determinable.  Additionally,  Stratasoft's  increased  revenues
were primarily the result of two large  international  custom projects that were
initiated during the three months ended September 30, 2003 and as compared to no
individually  large  custom  projects  initiated  during the three  months ended
September  30, 2003.  Stratasoft's  international  sales  accounted for 43.8% of
Stratasoft's revenues in the nine months ended September 30, 2003 as compared to
26.4% in the same period of 2002.

         Valerent revenue  decreased by $202 (5.1%) to $3,781 from $3,983.  As a
percentage of total revenue Valerent  revenue  decreased to 8.1% from 12.8%. The
decrease in Valerent  revenue was primarily  attributable  to decreased  service
revenues of $481 offset by  increased  product  sales of $279 in the nine months
ended  September  30,  2003.  The  decrease  in  service  revenue  is  primarily
attributable to the loss of revenue from certain customers of $273.

         GROSS PROFIT.  Gross profit  increased by $3,527 (56.3%) to $9,795 from
$6,268. Gross margin increased to 20.9% from 20.2%,  primarily because a greater
portion of the revenues were  contributed by INX, which increased its margins in
2003 by 2.9% and because Stratasoft increased its margins by 9.6%.

         INX gross profit increased $2,755 (122.5%) to $5,004 from $2,249. Gross
margin for INX  increased to 13.3% from 10.4%.  INX's  product  gross profit has
increased $2,067 to $4,347 from $2,280 due to both the sales volume increase,  a
vendor rebate of $313 and the improved gross margin rates. INX's gross profit on
its  service  component  improved to $657 in 2003 as compared to a gross loss of
$31 in 2002 as a result of  increased  service  revenues of $1,548 and of better
utilization of technical personnel.

         Stratasoft gross profit increased by $808 (26.2%) to $3,891 from $3,083
as revenue  increased by 7.6%.  Gross margin for  Stratasoft  increased to 64.9%
from 55.3 %. 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. Stratasoft's increased gross margin
rate is  primarily  due to changing the mix of system sales to include a reduced
hardware component.

         Valerent gross profit  decreased by $34 (3.6%) to $902 from $936. Gross
margin for  Valerent  increased  to 23.9% from 23.5%.  Valerent  cost of service
consists primarily of labor cost that has a fixed component. The fixed component
of labor causes gross profit and gross margin not to fluctuate directly with the
decrease in revenues.  During the nine months ended September 30, 2003, Valerent
improved its utilization of its labor pool by reducing the number of technicians
employed, which contributed to improved gross margin.



<PAGE>


         SELLING,  GENERAL AND  ADMINISTRATIVE  EXPENSES.  Selling,  general and
administrative expenses increased by $4,301 (59.3%) to $11,556 from $7,255. As a
percentage  of revenue,  these  expenses  increased by 1.3%, to 24.6% of revenue
from 23.3 % of revenue. Sales compensation increased by $739 in 2003 as compared
to 2002. As a percent of revenues,  sales  compensation  decreased from 8.37% in
2002 to 7.11% in 2003.  Bad debt  expense  increased  by  $1,392  and  legal and
accounting expense increased by $471 in 2003 as compared to 2002. Administrative
compensation  increased  by $337 in 2003 as  compared  to 2002 and  payroll  tax
increased  $95 in the same periods.  Contract  labor  increased  $127 in 2003 as
compared to 2002.  Travel increased $239 in 2003 as compared to 2002,  primarily
in Stratasoft due to international travel and in INX due to increased travel for
technical staff and management.  General office expenses  increased $254 in 2003
as compared  to 2002 and  general  insurance  expense  increased  $77 in 2003 as
compared to 2002.  Shareholder  relations  increased  $90 in 2003 as compared to
2002  due  to  employing  a  shareholder   relations  firm,  attending  investor
conferences and visiting investor groups.  Employee  benefits,  depreciation and
rents increased $42, $119 and $113,  respectively,  in 2003 as compared to 2002.
Other Corporate expenses increased $206 in 2003 as compared to 2002.

         INTEREST AND OTHER INCOME (NET). Interest income increased by $8 to $53
in 2003 compared to interest income of $45 in 2002, primarily due to interest on
notes receivable.  Interest income was offset by interest expense of $32 in 2003
as compared to $24 in 2002. A foreign exchange loss of $18 was incurred in 2003,
but no foreign exchange was incurred in 2002. Additionally,  other income of $13
and a gain on disposition of assets of $77 was recorded in 2003 as compared to a
loss of $21 in 2002.

         DISCONTINUED  OPERATIONS.  During  1999  we  discontinued  our  Telecom
Systems business. 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 these  businesses  are reported as  discontinued  operations.  At
December  31, 2000 we sold our IT Staffing  business.  For the nine months ended
September 30, 2003 the gain (loss) on disposal  related to these  businesses was
$65,  $(53) and $26,  net of taxes of $33,  $(27) and $14.  For the nine  months
ended  September  30,  2002,  the  gain  (loss)  on  disposal  related  to these
businesses  was $11, $5 and $0, net of taxes of $6, $3 and $0. The gains  and/or
losses on disposal related to these discontinued operations is primarily related
to collections of accounts receivables retained when these businesses were sold.

         NET LOSS. Net (loss) income in the nine months ended September 30, 2003
and 2002 was $(1,536) and $220. A benefit for income taxes of $81 and $1,189 was
recorded in the nine months ended  September 30, 2003 and 2002  because,  due to
the Job  Creation  and  Worker  Assistance  Act of 2002 which  provided  for the
carryback of net  operating  losses for any taxable  year ending  during 2001 or
2002 to each of the 5 tax years preceding the loss year, we were able to utilize
our net operating  loss  carryback.  Previously,  a net operating  loss was only
eligible to be carried back to the 2 years preceding the year of loss.



<PAGE>


Asset Management

         Our cash flow from operations has been affected primarily by the timing
of our collection of accounts and notes  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,  obtaining  letters  of credit  in  certain
instances,   and  conducting  our  own  collection   efforts.  We  had  accounts
receivable,  net of allowance  for doubtful  accounts,  of $10,951 and $6,525 at
September  30,  2003  and  December  31,  2002,  respectively.   Our  Stratasoft
subsidiary  has  included  notes  receivable  as part of its  consideration  for
certain of its custom  projects  sales.  At September  30, 2003 and December 31,
2002,  Stratasoft had net notes  receivable of $655 and $898,  respectively,  as
reflected in the following table:

                                            September 30, 2003 December 31, 2003
Current portion of notes receivable, gross         $    1,364    $   1,236
Reserve for doubtful notes                                709           338
                                                   ----------     ---------

Current portion of notes receivable, net                  655           898
                                                  -----------     ---------

Long term portion of notes receivable, gross              482            64
Reserve for doubtful notes                                250           -
                                                   ----------     --------

Long-term portion of notes receivable, net                232            64
                                                   ----------     ---------

Total notes receivable, net                        $      887    $      962
                                                    =========     =========

The long-term  portion of notes  receivable,  net is reported in Other assets in
the accompanying balance sheets.



<PAGE>


Critical Accounting Policies

         Revenue  Recognition  -  I-Sector  has a number  of  different  revenue
components,  which vary between its three reportable  segments.  Each reportable
segment  has  more  than  one  revenue  component,  and  revenue  is  recognized
differently  for each component (or "stream") of revenue earned by segment.  The
material  revenue  streams earned by I-Sector,  some of which are earned by more
than one segment, and some by only one segment, are:

         Products  Revenue.  All three of I-Sector's  segments earn revenue from
         product  shipments.  Product  shipment  revenue  occurs  when  products
         manufactured  by other  parties are  purchased and resold to a customer
         and  such  products  are  contracted  for   independently  of  material
         services.  I-Sector  recognizes revenue from product shipments when the
         product is shipped or delivered to the customer.

         Custom Project Revenue. One of I-Sector's segments,  Stratasoft,  earns
         revenues  from  projects that are  recognized  using the  percentage of
         completion  method of  accounting  for such  revenues.  The majority of
         Stratasoft's  revenues  consist of system sales in which it bundles its
         proprietary  software,  along with  third-party  hardware  products and
         material  related  software   customization   services,   installation,
         training  services,  warranty  services and  incidental  post  contract
         services  ("PCS")  together under a single  contract with the customer.
         PCS is  insignificant  on such  contracts  for one  year or  less,  and
         therefore,  we have determined that the value of such PCS should not be
         unbundled from the project  revenue as set forth in paragraph 59 of SOP
         97-2.  Accordingly,  such  PCS  revenue  recognized  together  with the
         project revenue,  and the estimated cost to provide the PCS is accrued.
         The software  customization,  together with the hardware  customization
         and integration,  represent a significant  modification,  customization
         and/or  production of the product and therefore the entire  arrangement
         is required to be  accounted  for using the  percentage  of  completion
         method of accounting  pursuant to SOP 81-1.  The  percentage of revenue
         recognized in any  particular  period is determined  principally on the
         basis of the relationship of the cost of work performed on the contract
         to estimated total costs. The percentage-of-completion method relies on
         estimates of total expected  contract revenue and costs. We follow this
         method since reasonably  dependable  estimates of the revenue and costs
         applicable  to various  stages of a contract can be made.  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.

         During  the  nine  months  ended   September  30,  2003  and  2002  our
         subsidiary,      Stratasoft,     recognized     revenues     on     the
         percentage-of-completion  basis for several  projects  associated  with
         South  Asia.  For  projects  in 2002,  Stratasoft  had  entered  into a
         three-party  contract between  Stratasoft,  the South Asia reseller and
         the end-user  customers.  Stratasoft was responsible for performing the
         substantial  majority of the project for the  end-user  customer,  from
         whom Stratasoft was directly obligated to be paid for such project.

         I-Sector has risk to the extent that this group of  customers  have not
         paid or issued  contractual  letters  of credit up to the level of cost
         and  earnings  recognized.  On our  projects in South Asia we typically
         require a cash payment or letter of credit from the  customer  prior to
         shipping the product. Additionally, Stratasoft has had revenues derived
         from Africa, the United Kingdom, and Canada.

         Services  Revenue.   All  of  I-Sector's  segments  earn  revenue  from
         providing  stand-alone  services  revenues.  These revenues  consist of
         billings for engineering  and technician  time,  programming  services,
         which are provided on either an hourly basis or a flat-fee  basis,  and
         the  service   component  of  maintenance  and  repair  service  ticket
         transactions.  These services are  contracted  for separately  from any
         product sale, and are recognized when the service is performed and when
         collection  is  reasonably  assured.  .  Some  of  I-Sector's  segments
         sometime  earn agency fee revenue  from  various  sources,  the primary
         source of which is referring customers to other organizations for which
         an agency fee is received. These revenues are recognized at the earlier
         of when payment is received or when  notification  of amounts being due
         is received from the entity paying such agency fee and collectiblity is
         reasonably assured.

         We maintain  allowances for doubtful  accounts and notes receivable for
estimated  losses resulting from the inability of our customers to make required
payments.  If the  financial  condition of our  customers  were to  deteriorate,
resulting  in an  impairment  of  their  ability  to make  payments,  additional
allowances may be required.



<PAGE>


         Credit and  Collections  Policy -  Inherent  in the  Company's  revenue
recognition  policy is the  determination of the  collectibility  of amounts due
from its  customers,  which  requires the Company to use  estimates and exercise
judgment.  The Company  routinely  monitors its customer's  payment  history and
current credit worthiness to determine that collectibility is reasonably assured
and,  in some  instances,  requires  letters of credit in support of  contracted
amounts.  This requires the Company to make frequent  judgments and estimates in
order to determine the appropriate  period to recognize a sale to a customer and
the amount of valuation  allowances required for doubtful accounts.  The Company
records  provisions  for  doubtful  accounts  when it becomes  evident  that the
customer will not be able to make the required  payments  either at  contractual
due dates or in the future.  Changes in the financial condition of the Company's
customers, either adverse or positive, could impact the amount and timing of any
additional provision for doubtful accounts that may be required.

Liquidity and Capital Resources

         Our  working  capital was $3,661 and $5,540 at  September  30, 2003 and
December 31, 2002,  respectively.  As of September 30, 2003, we had  outstanding
inventory  floor plan  financings of $7,112 and an available  borrowing  base of
$388 under our Textron Finance Division credit facility. Cash used in continuing
operating  activities  decreased  from cash  provided  of $786 in the first nine
months  of 2002 to cash  used of $469 for the  comparable  period  in  2003.  As
further explained below, cash used in investing  activities  increased from $265
in 2002 to $809 in 2003 due to the acquisition of Digital Precision discussed in
Note 10 to the  Condensed  Consolidated  Financial  Statements.  Cash  used  for
financing  activities  decreased from $337 in 2002 to $28 in 2003, primarily due
to decreased purchases of treasury stock and to stock options exercised.

         On January 31, 2002 we entered  into a credit  agreement  with  Textron
Financial  Corporation  ("Textron") for a revolving line of credit (the "Textron
Facility"). In August, 2003 Textron increased the credit available to $7,500. On
November 6, 2003,  Textron informed us that they had  conditionally  approved an
increase in our credit facility from $7,500 to an inventory  financing  facility
of $15,000.  The conditions of approval to be satisfied include the execution of
certain  documents,  including  syndication  loan  documents  and  activation of
syndication for $5,000 with Silicon Valley Bank. The Textron facility is subject
to  borrowing  base  limitations  that are  generally  computed as 80%  eligible
accounts  receivable  and 90% of  identifiable  inventory  purchased  under this
agreement and 40% of all other inventory. In connection with the increase in the
credit line, a  modification  was made to the borrowing  base  limitations  that
restricted the  eligibility  of accounts  receivable  for  collateralization  by
disallowing as eligible any  customer's  receivables in their entirety that have
balances over 90 days old that exceed 25% of their total balance.  We may use up
to $500 of the line for working  capital  advances  under  approved  conditions.
Borrowings  under the Textron  facility  accrue  interest at the prime rate plus
2.5% on  outstanding  balances  that  extend  beyond  the vendor  approved  free
interest period and on working capital advances from date of advance.  Inventory
floor plan  borrowings  are  reflected in accounts  payable on the  accompanying
balance  sheets,  except for $447 that is interest  bearing and is  reflected in
short term debt on the  accompanying  balance  sheets at September  30, 2003. At
September 30, 2003, we had $7,112  outstanding  on inventory  floor plan finance
borrowings,  $0  outstanding  on working  capital  advances and had total credit
availability of $388.

         This agreement is  collateralized  by  substantially  all of our assets
except our patent license assets. The agreement contains restrictive  covenants,
which require us to maintain  minimum tangible capital funds of $4,000,000 and a
minimum debt to tangible capital funds ratio of 2 to 1. At September 30, 2003 we
were not in  compliance  with all of the loan  covenants;  however.  The Company
subsequently  received a waiver on such  non-compliance for that date. We are in
negotiations  with Textron to modify the loan covenant  agreement and we believe
we will be able to comply with these covenants in future reporting  periods.  In
the event we do not  maintain  compliance,  we would be required to seek waivers
from  Textron  for  those  events,  which,  if not  obtained,  could  accelerate
repayment and require us to seek other sources of finance.



<PAGE>


         Operating activities used net cash totaling $700 during the nine months
ended  September 30, 2003,  including $231 related to  discontinued  operations.
Operating activities used net cash during the period primarily due to a net loss
of $1,536,  an  increase  in  accounts  receivable  of $4,821 and an increase in
inventory  of  $661,  offset  by a  increase  in  accounts  payable  of  $4,404.
Additionally,  the uses of cash were  offset  by cash  produced  from  increased
billings  in excess of cost and  estimated  earnings  of $30 and an  increase in
accrued  expenses of $1,354,  and increased by an increase in cost and estimated
earnings in excess of billings of $661.  The increase in accounts  receivable of
$4,821 was primarily due to an increase in INX receivables of $4,827 (108.4%) to
$9,281 from $4,454, which was due to the significant growth in its revenues. Our
Stratasoft accounts receivables decreased by $329 primarily due to increased bad
debt reserves of $302 for the nine months ended September 30, 2003. Our Valerent
accounts  receivables  increased by $310 due to increased  revenues of $383 over
revenues for our quarter ended December 31, 2002. Additionally,  our receivables
from discontinued  operations  decreased by $267 from December 31, 2002. This is
primarily attributed to settlements with customers of our discontinued  Computer
Products  Division and our Telecom  Division late in 2002 of which some was paid
in 2003. These receivables had previously been fully reserved, but such reserves
were reversed when the settlements, were reached.

         The increase in inventory of $762 from  December 31, 2003 was primarily
due to growth of inventory in our INX and our Stratasoft subsidiary. Such growth
in INX  inventory was primarily  attributable  to increases in INX  transactions
that occurred in late  September,  2003,  which created an increase in inventory
that was in the process of being  prepared  for  delivery to customers by INX at
September 30, 2003. The growth in the  Stratasoft  inventory is due to purchases
of inventory just prior to September 30, 2003 for projects that were in progress
at that time.

         The increase in accounts  payable of $3,957 from $4,844 at December 31,
2003 was  primarily  due to growth  of INX,  which  resells  Cisco  Systems  and
purchases  such  products  either  directly  from Cisco  Systems,  in which case
accounts payable are outstanding  under our Textron credit facility,  or through
various  suppliers,  in which case such accounts  payable are outstanding  under
either our Textron credit  facility or credit  facilities  established  directly
with such suppliers.  Under our Textron credit facility the Company is typically
obligated to pay for purchases  within 60 days following such  purchases.  Under
credit  facilities  established  with  distribution  channel  suppliers,  we are
typically  obligated to pay for purchases  within 30 days of such purchases.  We
expect INX revenue to continue to grow. Such INX revenue growth impacts our cash
flow if the growth  exceeds  increases in available  credit under our  available
credit facilities utilized to finance our product purchases and this could cause
the  Company to seek  other  sources of  financing  such as through  the sale of
stock.  At September  30, 2003,  $484 of our  outstanding  balance began to bear
interest and, therefore,  is classified in the our balance sheet at that date as
short term debt.

         Our negative cash flows from  operations have been in large part due to
discretionary  ongoing  expenditures in the areas of sales and marketing related
to attempts to produce rapid  growth,  which we believe is a key to our business
strategy.  These negative cash flows from  operations have been balanced by cash
flows  generated  from  financing  activities,  as we have  utilized our growing
short-term  asset base of accounts  receivables  and  inventory to  securitize a
growing  credit  facility  with  Textron,  our primary  provider of  operational
financing.

         We believe our working  capital  needs during the remainder of 2003 can
be met from our existing cash  balances,  cash  generated by our  operations and
borrowings under our credit  facilities.  Continued  revenue growth is likely to
create a need for increased  debt and/or  equity  capital  financing  resources.
There  can be no  assurance  that we will be  able  to  obtain  such  resources,
however, while we have not engaged an investment bank, we have maintained dialog
with a number of sources of both equity and debt financing, and we believe that,
so long as we produce reasonably  improving results from this point forward,  we
will be successful in obtaining at least the minimal required debt and/or equity
capital necessary to sustain continued growth.  Assuming we operate  profitably,
we expect such profits to mitigate the need for equity  financing,  as we should
be able to leverage our growing  asset base to obtain  additional  required debt
financing necessary to finance continued growth as necessary.

         We are  aware of no  other  substantial  changes  in  trends,  or other
events,  that will  materially  change our liquidity  situation other than those
that are normal as a part of growth,  such as increasing  assets and liabilities
associated directly with such growth, such as growth in accounts receivables and
inventory  and  settlement  of  litigation.  We have no  substantial  short-term
balloon  payments,  planned  significant  capital  expenditures,  or  any  other
out-of-the-ordinary substantial known requirements to be satisfied.



<PAGE>


Related Party Transactions

         We have from time to time made payments on behalf of Allstar  Equities,
Inc., a Texas corporation  ("Equities"),  which is wholly-owned by our President
and Chief Executive Officer, on his behalf personally,  for taxes,  property and
equipment.  Effective  on December 1, 1999 a note payable by Equities was signed
for $336 for 60 monthly  installments  of $7. The note bears  interest at 9% per
year.  At September 30, 2003 and December 31, 2002,  the  Company's  receivables
from Equities amounted to approximately $37 and $87, respectively. Additionally,
from time to time the Company has made payments to unrelated parties,  primarily
for use of a credit  card,  for  transactions  that either  wholly or  partially
benefit  our  President  and Chief  Executive  Officer and which  therefore  are
accounted  for as  indebtedness  from  him to the  Company  and on which he paid
interest of 6% per annum on the average outstanding balance. During August 2002,
in order to be in complete  compliance with the  Sarbanes-Oxley Act of 2002, the
Company made a demand for repayment of the  outstanding  balance at that time of
$94 related to the President and CEO's personal credit card usage. The President
and CEO paid the entire  balance in December 2002 and there is no balance due at
September 30, 2003 or at December 31, 2002.

         We lease  office  space from  Equities.  On December  1, 1999  Equities
purchased  our building  and executed a direct lease with us with an  expiration
date of December 31, 2004. In conjunction with Equities  obtaining new financing
on the  building,  a new lease was executed  with us on February 1, 2002 with an
expiration  date of January 31, 2007.  The new lease has rental rates of $37,192
per month.

         From time to time we have obtained an independent survey of real estate
rental rates and have consulted with real estate  consulting  firms to determine
market  rates of  facilities  that are  comparable  to our Houston  headquarters
facility.  We  believe  that the rental  rate and other  terms of our lease from
Equities  are at least  as  favorable  as those  that  could be  obtained  in an
arms-length transaction with an unaffiliated third party.

         From time to time we make  short-term  loans and travel advances to our
employees.  The balance of  approximately $2 and $12 relating to these loans and
advances is  included in the  Company's  balance  sheet and  reported as part of
Accounts  receivable  -other  at  September  30,  2003 and  December  31,  2002,
respectively.

         We have three stock-based  option plans, the 1996 Incentive Stock Plan,
the 1996  Non-Employee  Director Stock Option Plan and the 2000 Stock  Incentive
Plan. Under the 2000 Incentive Plan, all of our employees,  including  officers,
consultants and non-employee directors are eligible to participate.

         Additionally,  each of our  subsidiaries  has an incentive stock option
plan in place.  The subsidiary plans have not been presented to the shareholders
of I-Sector for approval.  The only  subsidiary  with options  granted under its
plan incurred net income for the three months ended September 30, 2003 and 2002,
respectively.  The net  income  of the  subsidiary  in the  three  months  ended
September 30, 2003 were considered in the calculation of the Company's  earnings
per share  (see Note 4). The net income of the  subsidiary  in the three  months
ended  September  30, 2002 was  anti-dilutive  since the Company  incurred a net
loss.  The  subsidiary  incurred a net loss for each of the nine  month  periods
presented,  and as a result I-Sector's share of the subsidiary net loss does not
change for purposes of  computation  of  I-Sector's  earnings per share in those
periods  because  the  effect  of the  net  loss  of  the  subsidiary  would  be
anti-dilutive.

         Only one of our  subsidiaries,  INX, has granted incentive awards under
its incentive  plan, and such awards have been granted to certain  employees and
to management  of INX.  Under INX's plan such options vest ratably over three to
five years.  The  quantity of  incentive  options that are eligible to vest each
year for INX's two most senior  executives is determined based on the percentage
of attainment of predefined  financial  goals by INX. Any unvested stock options
vest  immediately  upon the occurrence of a liquidity event for that subsidiary.
The  subsidiary  options  expire ten years  after the grant date if they are not
exercised.  The  subsidiary  stock  option  grants are subject to dilution  when
I-Sector  purchases  additional  shares of the subsidiary stock in order to keep
the subsidiary sufficiently  capitalized.  INX has 7,381,942 options granted and
outstanding,  of which  3,603,609  are vested at September  30, 2003.  There are
1,618,058 shares in INX's plan available to be issued at September 30, 2003. The
tables below  reflect the  ownership INX at September 30, 2003 and summarize the
potential dilutive effect on I-Sector's  ownership in INX if all options granted
at September  30, 2003 were fully vested and option grants were  exercised,  and
include  the  effects  of the  issuance  of  stock  in 2004  relating  to  INX's
acquisition of certain assets and  liabilities of Digital  Precision,  Inc. (See
note  10.)  See  Note 4 in the  Notes to the  Condensed  Consolidated  Financial
Statements for the impact of INX dilution on our earnings per share  calculation
for the quarter ended September 30, 2003.



<PAGE>


Ownership of INX at September 30, 2003:

                                                   Outstanding      Percent of
                                                       Shares of   Common Stock
                                           INX Common StockOwned and Outstanding

     Common Stock owned by I-Sector                21,834,333        100.0%
                                                   ----------        -----

     Total Common Stock Outstanding                21,834,333        100.0%
                                                   ==========        =====

Potential Future I-Sector Dilution of Ownership
      of INX:

     Common Stock owned by I-Sector                21,834,333         68.4%
         At September 30, 2003
     Options granted and outstanding
         at September 30, 2003 (1)                  7,381,942         23.1%
     Contingent obligation to issue
     Common Stock related to
         acquisition (2)                            1,800,000          5.6%
     Contingent obligation to grant
         options in April, 2004 (3)                   900,000          2.8%
     Other options promised to new employees           25,000          0.1%
                                                   ----------        -----

         Total                                     31,941,275        100.0%
                                                   ==========        =====

1)       Options  granted and  outstanding  at September 30, 2003 include option
         grants for 4,100,000 shares of INX granted to the two senior executives
         of INX and vesting of these option grants is performance-based relating
         to the percentage of predefined  financial  goals attained by INX while
         these  two  senior  executives  remain  employed.  Any  of  the  shares
         associated  with this group of option  grants that become  eligible for
         vesting, but do not vest due to financial  performance,  as compared to
         predefined  goals,  are  forfeited  and will no longer be eligible  for
         vesting  unless there is a liquidity  event that returns a  pre-defined
         return on investment to I-Sector. Additionally,  included in the option
         grants  outstanding at September 30, 2003 are grants for 500,000 shares
         granted to key employees  related to an acquisition  (see Note 10), and
         this group of option grants vested  immediately upon grant.  During the
         quarter ended  September  30, 2003 INX granted fully vested  options to
         purchase 1,500,000 shares of INX to the President,  CEO and Chairman of
         the Board of I-Sector Corporation and to a senior executive of INX. The
         remainder  of the  shares  included  in option  grants  outstanding  at
         September  30,  2003 vest over  either  three or five years  based upon
         continued employment by INX of the individuals to whom such grants have
         been  made.  All  options  granted  by  INX  expire  in  ten  years  if
         unexercised.

2)       In connection with the acquisition of certain assets and liabilities of
         Digital  Precision,  Inc. (see note 10), a portion of the consideration
         given by INX was the contingent obligation to issue 1,800,000 shares of
         INX  Common  Stock to  Digital  Precision,  Inc.  when and if three key
         employees  complete one year of employment with INX. If any of such key
         employees terminates  employment without cause before completion of one
         year of  employment,  the number of shares of Common Stock to be issued
         is decreased by scheduled and agreed upon percentages.

3)       INX  entered  into  employment  agreements  with  certain of the former
         owners and employees of Digital Precision,  Inc. that set forth that if
         they met  certain  performance  goals  during  the first  two  calendar
         quarters following the completion Digital Precision transaction and for
         the twelve months  subsequent to the  acquisition,  that certain option
         grants would be made. As of September 30, 2003,  there is the potential
         that  options for  900,000  shares of INX will be granted to them on or
         after April 4, 2004 at fair value at that date.



<PAGE>


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 three months  ended  September  30, 2003, a  one-percent
increase  in  interest  rates  paid by us on our  floating  rate debt would have
resulted in an increase in interest of $2 for the period.

         Our business  depends upon our ability to obtain an adequate  supply of
products at competitive  prices and on reasonable  terms.  Our suppliers are not
obligated  to have  product  on hand  for  timely  delivery  to us nor can  they
guarantee  product  availability  in sufficient  quantities to meet our demands.
INX's  business  is Cisco  centric.  Any  material  disruption  in our supply of
products  could have a material  adverse  effect on our financial  condition and
results of operations.

ITEM 4.  Controls and Procedures

         Under the  supervision  and with the  participation  of our management,
including our Chief Executive Officer,  Chief Financial  Officer,  President and
Chairman of the Board, we conducted an evaluation of our disclosure controls and
procedures,  as such term is defined under Rule 13a-14(c)  promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), within 90 days
of the  filing  date of this  report.  Based  on  their  evaluation,  our  Chief
Executive Officer, Chief Financial Officer,  President and Chairman of the Board
concluded that I-Sector's disclosure controls and procedures are effective.

         There have been no significant  changes  (including  corrective actions
with regard to significant  deficiencies or material weaknesses) in our internal
controls or in other  factors that could  significantly  affect  these  controls
subsequent to the date of the evaluation  referenced in the immediate  paragraph
above.

PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         In August 2002,  Inacom Corp.  filed a lawsuit in the District Court of
Douglas  County,  Nebraska  styled Inacom Corp. v. I-Sector  Corporation,  f/k/a
Allstar Systems,  Inc.,  claiming that we owed the sum of approximately  $570 to
Inacom as a result of termination of a Vendor Purchase  Agreement between Inacom
and us. We believe  that the demand is  without  merit and intend to  vigorously
contest the demand.

         The Equal Employment  Opportunity Commission ("EEOC") filed a Charge of
Discrimination  against  Stratasoft  on behalf of  Jennifer R. Bond on August 1,
2002 in the EEOC Minneapolis, Minnesota office. Stratasoft agreed to settle this
claim in September, 2003 for $130,000, without admitting or denying, and general
and administrative  expense of $130,000 was recognized in the three months ended
September 30, 2003.


         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 2.           OTHER INFORMATION

         We disclosed  in our Proxy  Statement  and Notice of Annual  Meeting of
Stockholders  to be held August 20, 2003,  that our Secretary of the Board,  our
retired former Chief Financial Officer, Mr. Donald R. Chadwick,  is serving as a
member of our Audit Committee. Mr. Chadwick does not yet meet the three years of
non-employee  status  requirement  for  independence.  We  are  relying  on  the
Marketplace  Rule 4350D2B for his appointment to the Audit Committee since he is
not a current employee.


<PAGE>



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

         The annual meeting of stockholders was held on August 20, 2003. At that
meeting the  stockholders  elected the slate of directors  listed in its proxies
solicited  for  the  meeting  pursuant  to  Regulation  14.  Additionally,   the
stockholders  approved the amendment and restatement of the 2000 Stock Incentive
Plan,  increasing  the number of shares  available  under the Plan from  400,000
shares of common  stock to 600,000  shares of common stock and changing the name
of the Plan to I-Sector Corporation  Incentive Stock Plan. No other matters were
voted upon at the meeting.

         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 7, 2003                       By:      /s/ JAMES H. LONG
                                                -----------------
Date                                   James H. Long, Chief Executive Officer,
                                       Chief Financial Officer, President and
                                       Chairman of the Board

                                        By:     /s/ PATRICIA L. WINSTEAD
                                                ------------------------
                                        Patricia L. Winstead, Vice President and
                                        Controller, Chief Accounting Officer



<PAGE>


Item 6.  Exhibits

         Exhibit 31 - Certification
         Exhibit  32  -   Certification   pursuant   to   Section   906  of  the
                          Sarbanes-Oxley Act of 2002


<PAGE>


Exhibit 31

CERTIFICATIONS

I, James H. Long, Chief Executive Officer,  Chief Financial  Officer,  President
and Chairman of the Board, certify that:

1.       I have  reviewed  this  quarterly  report  on  Form  10-Q  of  I-Sector
         Corporation ("I-Sector").

2.       Based on my  knowledge,  this  quarterly  report  does not  contain any
         untrue  statement of a material  fact or omit to state a material  fact
         necessary  in  order  to make  the  statements  made,  in  light of the
         circumstances  under which such  statements  were made,  not misleading
         with respect to the period covered by this quarterly report;

3.       Based on my knowledge,  the financial  statements,  and other financial
         information  included in this quarterly  report,  fairly present in all
         material  respects the financial  condition,  results of operations and
         cash flows of the  registrant as of, and for, the periods  presented in
         this quarterly report;

4.       I am responsible for establishing and maintaining  disclosure  controls
         and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
         I-Sector and I have:

         a.       designed  such  disclosure  controls and  procedures to ensure
                  that material information relating to I-Sector,  including its
                  consolidated  subsidiaries,  is  made  known  to me by  others
                  within those entities, particularly during the period in which
                  this quarterly report is being prepared.

         b.       evaluated the effectiveness of I-Sector's  disclosure controls
                  and procedures as of a date within 90 days prior to the filing
                  date of this quarterly report (the "Evaluation Date"); and

         c.       presented in this quarterly  report my  conclusions  about the
                  effectiveness of the disclosure  controls and procedures based
                  on my evaluation as of the Evaluation Date.

5.       I  have  disclosed,   based  on  my  most  recent  evaluation,  to  the
         registrant's  auditors and the audit  committee of I-Sector's  board of
         directors (or persons performing the equivalent function):

         a.       all  significant  deficiencies  in the design or  operation of
                  internal  controls  which could  adversely  affect  I-Sector's
                  ability to record,  process,  summarize  and report  financial
                  data and have identified for I-Sector's  auditors any material
                  weaknesses in internal controls; and

         b.       any fraud,  whether or not material,  that involves management
                  or other  employees who have a significant  role in I-Sector's
                  internal controls; and

6.       I have  indicated in this  quarterly  report  whether or not there were
         significant changes in internal controls or in other factors that could
         significantly  affect the internal  controls  subsequent to the date of
         our most recent  evaluation,  including  any  corrective  actions  with
         regard to significant deficiencies and material weaknesses.

         Dated:  November 7, 2003      /s/ James H. Long
                                       --------------------------------------
                                       James H. Long, Chief Executive Officer,
                                       Chief Financial Officer, President and
                                       Chairman of the Board



<PAGE>


Exhibit 32

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

         In connection with the Quarterly  Report of I-Sector  Corporation  (the
"Company") on Form 10-Q for the period  ending  September 30, 2003 as filed with
the Securities  and Exchange  Commission on the date hereof (the  "Report"),  I,
James H. Long, Chief Executive Officer,  Chief Financial Officer,  President and
Chairman of the Board,  certify,  pursuant  to 18 U.S.C.  ss.  1350,  as adopted
pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

1) The Report fully complies with the  requirements  of section 13 (a) or 15 (d)
of the Securities Exchange Act of 1934; and 2) The information  contained in the
Report fairly presents,  in all material respects,  the financial  condition and
result of operations of the Company.


                                            I-Sector Corporation.

November 7, 2003                       By:      /s/ JAMES H. LONG
                                                -----------------
Date                                   James H. Long, Chief Executive Officer,
                                       Chief Financial Officer, President and
                                       Chairman of the Board