FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                                                     WASHINGTON, D.C. 20549
(Mark One)

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

For the quarterly period ended June 30, 2002
                                       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 August 13, 2001
                                                 3,629,525 shares outstanding



<PAGE>


PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                      I-SECTOR CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

               (In thousands, except share and par value amounts)

                                                           June 30, December 31,
                                                             2002       2001
                                                             (Unaudited)
ASSETS

Current assets:
     Cash and cash equivalents                            $   1,616   $   3,434
     Accounts receivable, net                                 5,921       4,302
     Accounts receivable - affiliates                           225         250
     Accounts receivable - other                                 56          21
     Notes Receivable                                           901         169
     Inventory                                                  723         587
     Cost and estimated earnings in excess of billings        1,001       1,695
     Income taxes receivable                                  1,330         151
     Other current assets                                       215         302
         Total current assets                                11,988      10,911
Property and equipment                                        1,233       1,226
Intangible assets                                             1,258       1,356
Other assets                                                     54          55
Total                                                     $  14,533   $  13,548

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Current portion of long term debt                    $     237   $     213
     Accounts payable                                         2,749       1,772
     Billings in excess of cost and estimated earnings           53          72
     Accrued expenses                                         2,118       2,091
     Net liabilities related to discontinued operations         438         654
     Deferred service revenue                                    98         126
         Total current liabilities                            5,693       4,928
Long term debt                                                  306         410
Deferred credit - stock warrants                                195         195

Commitments and contingencies
Stockholders' equity:

     Preferred stock, $.01 par value, 5,000,000 shares
         authorized, no shares issued
     Common stock:
         $.01 par value, 15,000,000 shares authorized,
         4,441,325 and 4,441,325 shares issued at
         June 30, 2002 and December 31, 2001                     44          44
     Additional paid in capital                              10,184      10,184
     Treasury stock (811,800 and 591,800 shares, at cost)
         at June 30, 2002 and December 31, 2001              (1,373)     (1,187)
     Retained earnings                                         (516)     (1,026)
         Total stockholders' equity                           8,339       8,015
Total                                                     $  14,533   $  13,548
                 See notes to consolidated financial statements


<PAGE>


                      I-SECTOR CORPORATION AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME

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

                                                    Three Months Ended June 30,

                                                               2002        2001


Total revenue                                             $  10,260   $   5,399
Cost of sales and services                                    8,553       4,119
Gross profit                                                  1,707       1,280
Selling, general and administrative expenses                  2,014       2,544
Operating loss                                                 (307)     (1,264)
Interest and other income                                        (7)         61
Loss from continuing operations before
     benefit for income taxes                                  (314)     (1,203)
Benefit for income taxes                                         (7)       (159)
Net loss from continuing operations                            (307)     (1,044)
Discontinued Operations:
     Net loss from discontinued operations, net of taxes                    (41)
     Gain on disposal, net of taxes                              12         348
Net loss                                                  $    (295)  $    (737)


Net income (loss) per share:
Basic and Diluted:
         Net loss from continuing operations              $  (0.08)   $   (0.26)
         Net loss from discontinued operations                            (0.02)
         Gain on disposal, net of taxes                       0.00         0.09
              Net loss per share                          $  (0.08)   $   (0.19)

Weighted average shares outstanding:

         Basic and Diluted                                3,733,481   3,905,944


                 See notes to consolidated financial statements


<PAGE>


                      I-SECTOR CORPORATION AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME

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

                                                      Six Months Ended June 30,

                                                               2002        2001


Total revenue                                             $  19,468   $  10,000
Cost of sales and services                                   15,527       7,626
Gross profit                                                  3,941       2,374
Selling, general and administrative expenses                  4,636       5,363
Operating loss                                                 (695)     (2,989)
Interest and other income                                        (2)        157
Loss from continuing operations before
     (benefit ) for income taxes                               (697)     (2,832)
Benefit for income taxes                                     (1,189)       (122)
Net income (loss)  from continuing operations                   492      (2,710)
Discontinued Operations:
     Net loss from discontinued operations, net of taxes                   (112)
     Gain on disposal, net of taxes                              18         348
Net income (loss)                                         $     510   $  (2,474)


Net income (loss) per share:
Basic:
         Net income (loss) from continuing operations     $    0.13   $   (0.69)
         Net loss from discontinued operations                            (0.03)
         Gain on disposal, net of taxes                        0.00        0.09
              Net income (loss) per share                 $    0.13   $   (0.63)
Diluted:
         Net income (loss) from continuing operations     $    0.13   $   (0.69)
         Net loss from discontinued operations                            (0.03)
         Gain on disposal, net of taxes                        0.00        0.09
              Net income (loss) per share                 $    0.13   $   (0.63)

Weighted average shares outstanding:

         Basic                                            3,791,182   3,926,002
         Diluted                                          3,794,563   3,926,002


                 See notes to consolidated financial statements


<PAGE>



                      I-SECTOR CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (In thousands)

                                   (Unaudited)

                                                      Six Months Ended June 30,
                                                               2002        2001

Net income (loss)                                         $     510   $  (2,474)
Adjustments to reconcile net income (loss) to net cash
     provided by (used in) operating activities:
     Net loss from discontinued operations                                  112
     Gain on disposal of discontinued operations                (18)       (348)
     Depreciation and amortization                              324         300
     Loss on retirement of assets                                15
     Current tax benefit                                        (10)       (179)

Changes in assets and liabilities that provided
     (used) cash:
     Accounts receivable, net                                (1,619)       (418)
     Accounts receivable - affiliates                            25          22
     Accounts receivable - other                                (35)         61
     Inventory                                                 (113)        212
     Income tax receivable                                   (1,179)
     Notes receivable                                          (756)
     Other current assets                                        87          72
     Cost and estimated earnings in excess of billings          694
     Other assets                                                            60
     Accounts payable                                           977        (806)
     Accrued expenses                                            27         573
     Billings in excess of cost and estimated earnings          (19)         70
     Deferred service revenue                                   (28)        (21)

Net cash  used in continuing operating
     activities                                              (1,119)     (2,764)
Net operating activities from discontinued activities          (211)       (319)
     Net cash used in operating activities                   (1,330)     (3,083)

Cash flows from investing activities:

     Acquisition costs                                                      (50)
     Capital expenditures                                      (223)       (136)
     Proceeds from sales of discontinued operations                         525

     Net cash used in investing activities:                    (223)        339

Cash flows from financing activities:

     Purchase of treasury stock                                (186)       (162)
     Payments on long-term debt                                 (80)

     Net cash used in financing activities:                    (266)       (162)

Net decrease in cash and cash equivalents                    (1,818)     (2,906)
Cash and cash equivalents at beginning of period              3,434       8,346
Cash and cash equivalents at end of period                $   1,616   $   5,440
Supplemental disclosures of cash flow information:
     Cash paid for interest                               $       0   $       0
     Cash paid for taxes                                  $       0   $       0


                 See notes to consolidated financial statements


<PAGE>


                      I-SECTOR CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               (In thousands, except share and per share amounts)

1.   DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

o    Allstar Solutions,  Inc. ("Allstar"),  a wholly-owned subsidiary,  provides
     customers  with  turn-key  outsourced  IT  helpdesk   solutions,   helpdesk
     solutions  consulting  services,  on-site  and  carry-in  computer  repair,
     application  support,   operating  system  support  and  network  migration
     services,   network   support   and   management,    network   design   and
     implementation, IT project management, and technical staff augmentation for
     IT helpdesk operations.

o    Internetwork Experts, Inc. ("INX"), a wholly-owned subsidiary, is a network
     infrastructure  professional services provider and an integrator of network
     infrastructure  products  manufactured  by Cisco Systems,  Inc.  ("Cisco").
     INX's  areas of  practice  include  network  baseline  assessment,  network
     design/architecture,  implementation,  network security audits and firewall
     design, network management, project management and knowledge transfer.

o    Stratasoft,  Inc. ("Stratasoft"),  a wholly-owned  subsidiary,  creates and
     markets  software  related to the  integration  of computer  and  telephone
     technologies.  Stratasoft's products are designed to improve the efficiency
     of a  professional  call  center  or  other  type  of high  volume  calling
     application, for both inbound and outbound calls.

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

     The condensed  consolidated financial statements presented herein as of and
for the three months and six months ended June 30, 2002 and 2001 are  unaudited;
however, all adjustments which are, in the opinion of management,  necessary for
a fair  presentation of the financial  position,  results of operations and cash
flows for the  periods  covered  have  been made and are of a normal,  recurring
nature.  Accounting  measurements  at interim dates  inherently  involve greater
reliance on estimates than at year-end.  The results of the interim  periods are
not  necessarily  indicative  of  results  for the full year.  The  consolidated
balance  sheet  at  December  31,  2001 is  derived  from  audited  consolidated
financial statements but does not include all disclosures required by accounting
principles  generally  accepted  in  the  United  States  of  America.  Although
management  believes the  disclosures  are  adequate,  certain  information  and
disclosure  normally included in the notes to the financial  statements has been
condensed or omitted as permitted by the rules and regulations of the Securities
and Exchange Commission.


<PAGE>

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

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

     Revenue  Recognition - Revenue from the sale of products is recognized when
the  product is  shipped.  Service  income is  recognized  as the  services  are
performed.  Revenues resulting from installations of systems including equipment
and  software  for which  duration is in excess of three months and that require
substantial   modification   or   customization   are   recognized   using   the
percentage-of-completion  method.  The percentage of revenue  recognized on each
contract is determined  principally on the basis of the relationship of the cost
of work  performed  on the  contract to  estimated  total  costs.  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
June 30, 2002 and December 31, 2001:

        Costs incurred on uncompleted contracts           $     730   $     995
        Estimated earnings                                    1,518       1,930

                                                              2,248       2,925
        Less: Billings to date                                1,300       1,158

        Cost and estimated earnings in excess of billings $   1,001   $   1,695
        Billings in excess of cost and estimated earnings $      53   $      72


<PAGE>

     Accounting Pronouncements -

     In April 2002, The Financial  Accounting  Standards  Board ("FASB")  issued
Statement of Financial  Accounting  Standards  ("SFAS") 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  does not believe that the adoption of
SFAS No. 145 will have a significant impact on its 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  recognized  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.  This  statement  is  effective  for  exit or  disposal
activities  that are  initiated  after  December 31, 2002.  The Company does not
believe that the adoption of SFAS No. 146 will have a significant  impact on its
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,  $50 for the  ongoing
operations of IT Staffing, Inc. and $2 for certain fixed assets of I-Sector. 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.  A  disposal  loss,  including  an  estimate  of the
operating  results from the  measurement  date,  November 6, 2001 to the closing
date of the sale of $17, and  estimates  for  impairment of assets caused by the
disposal  decision of $43,  totaling  $11 (net of income tax savings of $5), was
recognized  in 2001. A loss of $1 (net of tax benefit of $1)  recognized  in the
quarter ended June 30, 2002.  I-Sector has retained  accounts  receivable of $82
and $0, net of reserves,  at December 31, 2001 and June 30, 2002,  respectively.
The balance sheet caption "Net Liabilities  related to discontinued  operations"
contains $80 and $37 at December 31, 2001 and June 30, 2002, respectively.

     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.

     During the quarter  ended June 30,  2002,  I-Sector  recognized  a net gain
(loss) on disposal of these three businesses as follows:

         IT Staffing, Inc. (net of tax benefit of $1)                 $ (1)
         Computer Products Division (net of taxes of $4)                 8
         Telecom Division (net of tax of $3)                             5

         Net gain on disposal                                         $ 12

     The  balance  sheet  caption  "Net  Liabilities   related  to  discontinued
operations"  contains  $438 and $654 at June 30,  2002 and  December  31,  2001,
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.


<PAGE>

3.   SEGMENT INFORMATION

     I-Sector  has  four  reportable  segments:  Allstar,  INX,  Stratasoft  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:


<TABLE>
<CAPTION>
For the quarter ended June 30, 2002:
                                             Allstar      INX    Stratasoft Corporate Elimination Consolidated

<S>                                          <C>        <C>        <C>        <C>        <C>        <C>
Total  revenue                               $ 1,227    $ 7,430    $ 1,657    $          $   (54)   $10,260
Cost of sales and services                       914      6,822        871                   (54)     8,553
Gross profit                                     313        608        786                     0      1,707
Selling, general and
     administrative expenses                     501        691        675        147          0      2,014
Operating (loss) income                      $  (188)   $   (83)   $   111    $  (147)   $     0       (307)
Interest and other income                                                                                (7)
Loss before benefit for income tax                                                                     (314)
Benefit for income tax                                                                                   (7)
Net loss from continuing operations                                                                    (307)
Net gain on disposal, net of taxes                                                                       12
Net loss                                                                                            $  (295)

Accounts receivable, net                     $   717    $ 4,080    $ 1,122    $     2    $     0    $ 5,921
Inventory                                    $    63    $   168    $   492    $     0    $     0    $   723
</TABLE>
<PAGE>

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

<S>                                          <C>        <C>        <C>        <C>        <C>        <C>
Total  revenue                               $ 1,178    $ 2,646    $ 1,590    $     1    $   (16)   $ 5,399
Cost of sales and services                       982      2,326        826        (14)        (1)     4,119
Gross profit (loss)                              196        320        764         15        (15)     1,280
Selling, general and
     administrative expenses                     741        783        653        382        (15)     2,544
Operating (loss) income                      $  (545)   $  (463)   $   111    $  (367)   $     0     (1,264)
Interest and other income                                                                                61
Loss before provision for income tax                                                                 (1,203)
Benefit for income tax                                                                                 (159)
Net loss from continuing operations                                                                  (1,044)
Net loss from discontinued operations,
     net of taxes                                                                                       (41)
Net gain on disposal, net of taxes                                                                      348
Net loss                                                                                            $  (737)

Accounts receivable, net                     $   812    $ 1,856    $ 1,992    $    (4)   $     0    $ 4,656
Accounts receivable retained from
     discontinued operations, net                                                                       235
Total accounts receivable, net                                                                      $ 4,891
Inventory                                    $    61    $    84    $   545    $     0    $     0    $   690
Inventory retained from discontinued
     operations                                                                                           2
Total Inventory                                                                                     $   692
</TABLE>
<TABLE>
<CAPTION>
For the six months ended June 30, 2002:

                                             Allstar      INX   Stratasoft Corporate Elimination Consolidated

<S>                                          <C>        <C>        <C>        <C>        <C>        <C>
Total  revenue                               $ 2,692    $13,143    $ 3,828    $          $  (195)   $19,468
Cost of sales and services                     2,064     11,950      1,708                  (195)    15,527
Gross profit                                     628      1,193      2,120                     0      3,941
Selling, general and
     administrative expenses                   1,154      1,480      1,686        316          0      4,636
Operating (loss) income                      $  (526)   $  (287)   $   434    $  (316)   $     0       (695)
Interest and other income                                                                                (2)
Loss before benefit for income tax                                                                     (697)
Benefit for income tax                                                                               (1,189)
Net income from continuing operations                                                                   492
Net gain on disposal, net of taxes                                                                       18
Net income                                                                                          $   510
</TABLE>
<TABLE>
<CAPTION>
For the six months ended June 30, 2001:

                                             Allstar      INX   Stratasoft Corporate Elimination Consolidated

<S>                                          <C>        <C>        <C>        <C>        <C>        <C>
Total  revenue                               $ 2,394$     4,364    $ 3,272    $    (3)   $   (27)   $10,000
Cost of sales and services                     2,062      4,040      1,536                   (12)     7,626
Gross profit (loss)                              332        324      1,736         (3)       (15)     2,374
Selling, general and
     administrative expenses                   1,681      1,391      1,399        907        (15)     5,363
Operating (loss) income                      $(1,349)   $(1,067)   $   337    $  (910)   $     0     (2,989)
Interest and other income                                                                               157
Loss before provision for income tax                                                                 (2,832)
Benefit for income tax                                                                                 (122)
Net loss from continuing operations                                                                  (2,710)
Net loss from discontinued operations,
     net of taxes                                                                                      (112)
Net gain on disposal, net of taxes                                                                      348
Net loss                                                                                            $(2,474)
</TABLE>


<PAGE>

International   sales  accounted  for  $716  or  7.0%  and  $1,458  or  7.5%  of
consolidated  revenues and 43.2% and 45.7% of the Stratasoft segment revenues in
the three months and six months ended June 30, 2002, respectively.  In the three
months and six months ended June 30, 2001 international sales accounted for $204
or 3.8% and $478 or 1.8% of  consolidated  revenues  and  12.8% and 14.6% of the
Stratasoft segment revenues. International sales are derived from Southern Asia,
Africa, United Kingdom and Canada.

The  following  table  represents  the  reconciliation  of products and services
included in total revenues:

                     Reconciliation of Products and Services

                                                Three Months Ended June 30,
                                                 2002              2001

   Product revenue                           $ 8,924           $  3,784
  Service revenues                             1,336              1,615

    Total revenues                           $10,260           $  5,399


                                                 Six Months Ended June 30,
                                                2002               2001

   Product revenue                           $16,563           $  6,917
  Service revenues                             2,905              3,083

    Total revenues                           $19,468           $ 10,000


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 30,817 for the three months ended June
30, 2002 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 1,190 for the six months
ended June 30, 2002 were calculated under the treasury stock method.

     There were  warrants to  purchase  176,750  shares of common  stock for the
three  months and six ended June 30,  2002 and 2001 which were not  included  in
computing  diluted  earnings  per share  because the  inclusion  would have been
antidilutive.


<PAGE>

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 asset and has recorded interest of
$8 and $16 in the three months and six months ended June 30, 2002.  This note is
collaterized by Stratasoft's patent assets and Stratasoft has granted a security
interest to its pending patent application and the next two patent  applications
filed by Stratasoft. In connection with this note payable, I-Sector has reported
short-term  debt maturing  within one year of $224 and long-term debt of $289 at
June 30, 2002.

     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 reported  short-term  debt maturing  within one
year of $13 and long-term debt of $17 at June 30, 2002.

     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 initial total credit  available under the Textron  facility was
$2,500 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.  On June 19, 2002 Textron
increased the total credit  available under the Textron  facility to $4,000.  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 and that
exceed 25% of their total  balance.  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 collaterized by  substantially  all of I-Sector's
assets except its patent assets. The agreement contains  restrictive  covenants,
which require us to maintain  minimum  tangible capital funds and a minimum debt
to tangible capital funds ratio. At June 30, 2002 I-Sector was in compliance its
loan  covenants.  Inventory  floor plan  borrowings  are  reflected  in accounts
payable on the accompanying  balance sheets. At June 30, 2002, I-Sector had $337
outstanding  on  inventory  floor plan finance  borrowings,  $0  outstanding  on
working capital advances and had total credit availability of $3,663.


<PAGE>

6.   LITIGATION

     In July 2000,  Benchmark Research and Technology,  Inc. made a verbal claim
against  I-Sector,  claiming that I-Sector breached its contract with Benchmark,
and that I-Sector was negligent and breached various warranties, committed fraud
and  violated  the  Deceptive  Trade  Practices  Act.  The case was  mediated in
November 2000 but no agreement was reached.  I-Sector  knows of no lawsuit being
filed.  In July,  2002  Benchmark  offered to settle with  I-Sector  for $40 and
I-Sector  is  studying  the  offer.  In the  event  that the  settlement  is not
accepted, I-Sector intends to vigorously contest the demand.

     In October 2000,  I-Sector's  wholly-owned  subsidiary,  Stratasoft,  Inc.,
filed suit in the Harris  County  Texas County Court of Law against its customer
Accelerated  Telemarketing  for a  remaining  balance  of $47  on its  contract.
Thereafter,  Accelerated  Telemarketing  filed a separate legal action  claiming
breach of  contract,  breach  of  warranty,  violation  of the  Deceptive  Trade
Practices  Act and  other  claims.  In July  2002,  Stratasoft  and  Accelerated
Telemarketing  reached  agreement  in  principle  to settle  the  legal  actions
pending.  Such  settlement  agreement is anticipated to have no future impact to
net income.

     In October 2001,  Inacom Corp. wrote a demand letter claiming that I-Sector
owed the sum of approximately $570 to Inacom as a result of Inacom's termination
of a Vendor Purchase Agreement between Inacom and I-Sector.  I-Sector is unaware
of a formal  lawsuit  being filed,  although one has been  threatened.  I-Sector
believes that the demand is without merit and intends to vigorously  contest the
demand.

     I-Sector  had filed a claim to collect on a note  receivable  from E Z Talk
Communications   ("E  Z  Talk")  and  had  recently   entered  into  arbitration
discussions  with E Z Talk. In July,  2002 E Z Talk filed a lawsuit to set aside
the arbitration  and claiming  damages of $250.  I-Sector  intends to vigorously
contest the suit.

     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 new 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 $1,179 in the six months  ended June 30,  2002.  On July 26, 2002 the Company
received $1,123 in tax refunds.


<PAGE>

8.   RELATED PARTY TRANSACTIONS

     I-Sector has from time to time made payments on behalf of Allstar Equities,
Inc., a Texas corporation  ("Equities"),  which is wholly-owned by its 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 June 30, 2002 and December 31, 2001,  the Company's  receivables  from
Equities amounted to approximately  $122 and $159,  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 the Company's  President and Chief Executive Officer and which therefore
are accounted for as  indebtedness  from him to the Company and on which he pays
interest  of 6% per annum on the  average  outstanding  balance.  The balance of
approximately  $95  and $80 is  included  in the  Company's  balance  sheet  and
reported  as part of  Accounts  receivable  -  affiliates  at June 30,  2002 and
December 31, 2001, respectively.

     In order to comply  with the  Sarbanes-Oxley  Act of 2002,  the Company has
determined that the payments for the President and Chief Executive Officer's use
of a credit card for  transactions  that wholly or partially  benefit him may be
deemed  to  constitute  a demand  loan.  Therefore,  in order to be in  complete
compliance,  the Company has  recently  made a demand for  repayment of the such
balances related to the President and CEO's personal credit card usage, which is
discussed  above and is  classified  in Accounts  Receivable - affiliates in the
Company's balance sheet at June 30, 2002 and December 31, 2001.

     The Company leases office space from Equities. 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 reduced from $37,692 to $37,192 per month.

     From time to time  I-Sector  obtains an  independent  survey of real estate
rental rates and consult 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 be  obtained  in an
arms-length transaction with an unaffiliated third party.

     The Company  furnishes a  company-owned  automobile  for the  President and
Chief Executive Officer's business and personal use.

     From time to time I-Sector makes  short-term  loans and travel  advances to
its employees.  The balance of  approximately $8 and $11 relating to these loans
and advances is included in the Company's  balance sheet and reported as part of
Accounts  receivable  -  affiliates  at June 30,  2002 and  December  31,  2001,
respectively.

     Each of I-Sector's subsidiaries has a stock incentive plan in place. One of
the  subsidiaries  has granted to certain  employees  and to  management of such
subsidiary as an incentive award.  Under its plan such options vest ratably over
three to five years.  The quantity of incentive  options  granted to  management
personnel are  determined  based on the  percentage of  predetermined  financial
goals that they attain.  Any unvested  stock options vest  immediately  upon the
occurrence  of a liquidity  event for that  subsidiary.  The options  expire ten
years after the grant date if they are not  exercised.  The stock option  grants
are  subject  to  dilution  when  I-Sector  purchases  additional  shares of the
subsidiary stock in order to keep the subsidiary capitalized.  At June 30, 2002,
5,449,500 options granted by that subsidiary are outstanding with an issue price
of $ .01, which represents  potential  dilution of I-Sectors  investment in that
subsidiary of 22.9%.


<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.  Allstar  Solutions,  Inc.
("Allstar")  provides  customers  with  on-site and  carry-in  computer  repair,
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.  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
sometimes  customized  to suit a customer's  particular  needs and are sometimes
bundled  with  computer  hardware  supplied  by us at  the  customer's  request.
Stratasoft  products include software for call center management,  both in-bound
and out-bound, as well as interactive voice response software.

     Allstar and INX market our 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 three months ended June 30, 2002,  Allstar and INX produced
12.0% and 72.4% of total  revenues,  while  Stratasoft  produced  16.1% of total
revenues.  During the six months ended June 30,  2002,  Allstar and INX produced
13.8% and 67.5% of total  revenues,  while  Stratasoft  produced  19.7% of total
revenues.  Gross margin  varies  substantially  between  each of these  business
segments.

     On  November  6,  2001 we  determined  to exit  the IT  Staffing  business.
Effective December 31, 2001, the business was sold to Echelon Staffing,  Inc., a
corporation  formed by the former  President of It Staffing.  Under the terms of
the sale we received a note for $52, of which $50 was for the ongoing operations
and $2 for  certain  fixed  assets  relating  to this  business.  The note 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.  In the
three month period ended December 31, 2001, we recognized a disposal loss of $11
(net of tax of $5),  including an estimated loss for the operating  results from
the measurement  date,  November 6, 2001 to the closing date of the sale of $37,
and estimates for  impairment of assets caused by the disposal  decision of $34.
We retained accounts  receivable of $82, net of reserves and liabilities related
to the IT Staffing business at December 31, 2001.  Retained accounts  receivable
are $0 at June 30, 2002.

     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 addition, the competition for high
quality personnel has generally intensified,  causing both our and other service
provider's  personnel  costs to  increase.  In markets  where we do not maintain
branch offices, we often subcontract for necessary technical personnel.


<PAGE>

     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.

     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 June 30, 2002 Compared To Three Months Ended June 30, 2001


     The  following  table  sets  forth,  for  the  periods  indicated,  certain
financial data derived from our unaudited consolidated  statements of operations
for the three months ended June 30, 2002 and 2001. The discussion  below relates
only to our continuing operations, unless otherwise noted.

                                                Three months ended June 30,
                                                   2002             2001
                                              Amount      %     Amount     %
Revenue

Allstar                                      $ 1,227     12.0  $ 1,178     21.8
  INX                                          7,430     72.4    2,646     49.0
Stratasoft                                     1,657     16.1    1,590     29.4
Corporate                                                            1      0.0
Elimination                                      (54)    (0.5)     (16)    (0.2)
         Total revenue                        10,260    100.0    5,399    100.0
Gross profit (loss):
Allstar Systems, Inc.                            313     25.5      196     16.6
  INX                                            608      8.2      320     12.1
Stratasoft                                       786     47.4      764     48.1
Corporate                                          0      N/A       15      N/A
Elimination                                        0      0.0      (15)    93.8
         Total gross profit                    1,707     16.6    1,280     23.7
Selling, general and administrative expenses:
Allstar                                          501     40.8      741     62.9
  INX                                            691      9.3      783     29.6
Stratasoft                                       675     40.8      653     41.1
Corporate                                        147      N/A      382      N/A
Elimination                                        0      0.0      (15)    93.8
         Total selling, general and
         administrative Expenses               2,014     19.6    2,544     47.1
Operating (loss) income:
Allstar                                         (188)   (15.3)    (545)   (46.3)
INX                                              (83)    (1.1)    (463)   (17.5)
Stratasoft                                       111      6.7      111      7.0
Corporate                                       (147)     N/A     (367)     N/A
         Total operating (loss) income          (307)    (3.0)  (1,264)   (23.4)
Interest and other income                          7     (0.1)      61      1.1
Loss before benefit for income taxes            (314)    (3.1)  (1,203)   (22.3)
Benefit for income taxes                          (7)    (0.1)    (159)    (2.9)
Net loss  from continuing operations            (307)    (3.0)  (1,044)   (19.3)
Discontinued operations:
Net loss from discontinued operations                              (41)    (0.8)
Gain on disposal                                  12      0.1      348      6.4
Net loss                                     $  (295)    (2.9) $  (737)   (13.7)



<PAGE>


     TOTAL REVENUE. Total revenue, net of intercompany  eliminations,  increased
by $4,861 (90.0%) to $10,260 in 2002 from $5,399 in 2001.

     Allstar  revenue  increased  by $49 (4.2%) to $1,227 in 2002 from $1,178 in
2001.  As a percentage of total revenue  Allstar  revenue  decreased to 12.0% in
2002  from  21.8% in  2001.  The  increase  in  Allstar  revenue  was  primarily
attributable to increased  software  product sales in the quarter ended June 30,
2002.

     INX revenue  increased by $4,784  (180.8%) to $7,430 in 2002 from $2,646 in
2001. As a percentage of total revenue,  INX revenue  increased to 72.4% in 2002
from 49.0% in 2001.  Of the increase in revenues,  $3,271 was  attributed to the
Houston  office where INX put in place new  management  and new sales team,  and
$1,513 was attributed to the Dallas office.  The achievement of gold status with
Cisco,  its primary  product  line  manufacturer,  which  allows INX to purchase
directly  from  Cisco  at  lower  pricing   levels  and  which   enhances  INX's
relationship  with Cisco in the areas of lead  generation,  joint  marketing and
technical  support also  contributed  to increased  sales volume for the overall
company.  While INX expects continued revenue growth, it does not anticipate the
same growth rate it experienced in the three months ended June 30, 2002.

     Stratasoft revenue increased by $67 (4.2%) to $1,657 in 2002 from $1,590 in
2001.  Stratasoft revenue, as a percentage of total revenue,  decreased to 16.1%
in 2002 from 29.4% in 2001.  Stratasoft's  increased revenues were primarily the
result of increased sales in the  international  sector,  better  recognition of
Stratasoft  products in the market  place,  the expansion of the sales staff and
dealer network and to increased advertising and marketing efforts.  Stratasoft's
international sales accounted for 43.2% of Stratasoft's  revenues in the quarter
ended June 30, 2002 as compared to 12.8% in the same quarter of 2001.

     GROSS PROFIT. Gross profit increased by $427 (33.4%) to $1,707 in 2002 from
$1,280 in 2001. Gross margin decreased to 16.6% in 2002 from 23.8% in 2001.

     Allstar gross profit increased by $117 (59.7%) to $313 in 2002 from $196 in
2001.  Gross  margin for Allstar  increased to 25.5% in 2002 from 16.6% in 2001.
Allstar  cost  of  service  consists  primarily  of  labor  cost  for  which  we
experienced improved labor utilization in 2002.

     INX gross profit  increased $288 (90.0%) to $608 in 2002 from $320 in 2001.
Gross margin for INX decreased to 8.2% in 2002 from 12.1% in 2001. INX's product
gross  profit has  increased  $369 to $706 in 2002 from $337 in 2001 due to both
sales volume  increase offset by lower gross margin rates (9.8% in 2002 compared
to 15.7% in 2001).  INX's gross profit on its service  component  decreased to a
loss of $98 in 2002 as  compared  to $17 in 2001  with  gross  margin  rates  of
(38.9%)  in 2002 as  compared  to (3.4%) in 2001.  The cause of the 2002 loss is
primarily due to customers delaying planned service projects.

     Stratasoft  gross profit  increased by $22 (2.9%) to $786 in 2002 from $764
in 2001 as revenue  increased by 4.2%. Gross margin for Stratasoft  decreased to
47.4% in 2002 from 48.1% in 2001. The increased  gross profit is consistent with
the increased  sales  volume.  Gross margin is also impacted by the mix of sales
between  systems  sales,  which  include a hardware  component,  as  compared to
software  only  sales,  which do not have a  hardware  cost of goods  component.
Stratasoft's decreased gross margin rate is primarily due to changing the mix of
product sales to include a reduced hardware component.


<PAGE>

     SELLING,  GENERAL  AND  ADMINISTRATIVE   EXPENSES.   Selling,  general  and
administrative  expenses decreased by $530 (20.8%) to $2,014 in 2002 from $2,544
in 2001. As a percentage of revenue, these expenses decreased by 27.5%, to 19.6%
of revenue in 2002 from 47.1% of revenue in 2001. Bad debt expense  decreased by
$237 and legal expense  decreased by $129 in 2002 as compared to 2001.  Overall,
our  sales   compensation  was  down  by  $69  in  2002  as  compared  to  2001.
Administrative wages decreased by $58 in 2002 as compared to 2001, primarily due
to efforts to reduce  overhead at Corporate  and  throughout  the  subsidiaries.
General office expenses decreased $43 in 2002 as compared to 2001.

     INTEREST AND OTHER INCOME (NET). Interest income decreased by $46 to $15 in
2002 compared to interest income of $61 in 2001,  primarily due to the reduction
of invested available cash, lower interest rates on invested cash. Additionally,
imputed  interest  expense of $8 and loss on  disposition  of assets of $14 were
incurred in 2002 as compared to $0 in 2001.

     DISCONTINUED  OPERATIONS.  On  December  31,  2001 we sold our IT  Staffing
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.  During 1999 we sold our  Telecom  Systems
business.  As a consequence of these events,  the operations of these businesses
are reported as  discontinued  operations.  For the quarters ended June 30, 2002
and 2001,  respectively,  loss from discontinuing operations was $0 and $41 (net
of tax benefit of $0 and $18) and the gain on disposal related to these business
was $12 and $348, net of taxes of $7 and $179.

     NET INCOME (LOSS). Net loss on continuing  operations in the quarters ended
June 30,  2002 and 2001 was $307 and  $1,044,  respectively.  No tax benefit had
been  recorded  for the loss in the three  months  ended June 30,  2002 and 2001
because, due to our recurring losses, a valuation allowance was recorded.


<PAGE>

Six Months Ended June 30, 2002 Compared To Six Months Ended June 30, 2001

     The  following  table  sets  forth,  for  the  periods  indicated,  certain
financial data derived from our unaudited consolidated  statements of operations
for the six months ended June 30, 2002 and 2001.  The  discussion  below relates
only to our continuing operations, unless otherwise noted.

                                                   Six months ended June 30,
                                                   2002              2001
                                              Amount     %      Amount     %
Revenue

Allstar                                      $ 2,692     13.8  $ 2,394     23.9
  INX                                         13,143     67.5    4,364     43.6
Stratasoft                                     3,828     19.7    3,272     32.7
Corporate                                                           (3)    (0.0)
Elimination                                     (195)    (1.0)     (27)    (0.2)
         Total revenue                        19,468    100.0   10,000    100.0
Gross profit (loss):
Allstar Systems, Inc.                            628     23.3      332     13.9
  INX                                          1,193      9.1      324      7.4
Stratasoft                                     2,120     55.4    1,736     53.1
Corporate                                          0      N/A       (3)     N/A
Elimination                                        0      0.0      (15)   (55.6)
         Total gross profit                    3,941     20.2    2,374     23.7
Selling, general and administrative expenses:
Allstar                                        1,154     42.9    1,681     70.2
  INX                                          1,480     11.3    1,391     31.9
Stratasoft                                     1,686     44.0    1,399     42.8
Corporate                                        316      N/A      907      N/A
Elimination                                        0      0.0      (15)   (55.6)
         Total selling, general and
         administrative Expenses               4,636     23.8    5,363     57.6
Operating (loss) income:
Allstar                                         (526)   (19.5)  (1,349)   (56.3)
  INX                                           (287)    (2.2)  (1,067)   (24.5)
Stratasoft                                       434     11.3      337     10.3
Corporate                                       (316)     N/A     (910)     N/A
         Total operating (loss) income          (695)    (3.6)  (2,989)   (29.9)
Interest and other income                          2      0.0      157      1.6
Loss before benefit for income taxes            (697)    (3.6)  (2,832)   (28.3)
Benefit for income taxes                      (1,189)    (6.1)    (122)    (1.2)
Net income (loss) from continuing operations     492      2.5   (2,710)   (27.1)
Discontinued operations:
Net loss from discontinued operations                             (112)    (1.1)
Gain on disposal                                  18      0.1      348      3.5
Net income (loss)                            $   510      2.6  $(2,474)   (24.7)


<PAGE>


     TOTAL REVENUE. Total revenue increased by $9,468 (94.7%) to $19,468 in 2002
from $10,000 in 2001.

     Allstar revenue  increased by $298 (12.4%) to $2,692 in 2002 from $2,394 in
2001.  As a percentage of total revenue  Allstar  revenue  decreased to 13.8% in
2002  from  23.9% in  2001.  The  increase  in  Allstar  revenue  was  primarily
attributable  to increased  software  product sales in the six months ended June
30, 2002.

     INX revenue  increased by $8,779 (201.2%) to $13,143 in 2002 from $4,364 in
2001. As a percentage of total revenue,  INX revenue  increased to 67.5% in 2002
from 43.6% in 2001.  Of the increase in revenues,  $6,213 was  attributed to the
Houston  office where INX put in place new  management  and new sales team,  and
$2,566 was attributed to the Dallas office.  The achievement of gold status with
Cisco,  its primary  product  line  manufacturer,  which  allows INX to purchase
directly  from  Cisco  at  lower  pricing   levels  and  which   enhances  INX's
relationship  with Cisco in the areas of lead  generation,  joint  marketing and
technical  support also  contributed  to increased  sales volume for the overall
company.  While INX does expect continued  revenue growth, it is not anticipated
that its growth will be at the same rate as it has  experience  in the six month
period ended June 30, 2002.

     Stratasoft  revenue increased by $556 (17.0%) to $3,828 in 2002 from $3,272
in 2001.  Stratasoft  revenue,  as a percentage of total  revenue,  decreased to
19.7% in 2002 from 32.7% in 2001. Stratasoft's increased revenues were primarily
the result of increased sales in the international sector, better recognition of
Stratasoft  products in the market  place,  the expansion of the sales staff and
dealer network and to increased advertising and marketing efforts.  Stratasoft's
international  sales  accounted  for 38.1% of  Stratasoft's  revenues in the six
months ended June 30, 2002 as compared to 14.6% in the same six months of 2001.

     GROSS PROFIT.  Gross profit  increased by $1,567  (66.0%) to $3,941 in 2002
from $2,374 in 2001. Gross margin decreased to 20.2% in 2002 from 23.7% in 2001.

     Allstar gross profit increased by $296 (89.2%) to $628 in 2002 from $332 in
2001.  Gross  margin for Allstar  increased to 23.3% in 2002 from 13.9% in 2001.
Allstar  cost  of  service  consists  primarily  of  labor  cost  for  which  we
experienced improved labor utilization in 2002.

     INX gross  profit  increased  $869  (268.2%) to $1,193 in 2002 from $324 in
2001.  Gross margin for INX  increased to 9.1% in 2002 from 7.4% in 2001.  INX's
product gross profit increased due to both sales volume increase offset by lower
gross margin rates.  INX's gross profit on its service component  decreased to a
loss of $203 in 2002 as  compared  to a loss of $176 in 2001 with  gross  margin
rates of (32.3%) in 2002 as compared  to (21.4%) in 2001.  The cause of the 2002
loss is primarily due to customers delaying planned service projects.

     Stratasoft  gross  profit  increased by $384 (22.1%) to $2,120 in 2002 from
$1,736 in 2001 as  revenue  increased  by 17.0%.  Gross  margin  for  Stratasoft
increased  to 55.4% in 2002 from 53.1% in 2001.  The  increased  gross profit is
consistent with the increased sales volume. Gross margin is also impacted by the
mix of sales  between  systems  sales,  which include a hardware  component,  as
compared to  software  only  sales,  which do not have a hardware  cost of goods
component. Stratasoft's increased gross margin rate is primarily due to changing
the mix of product sales to include a reduced hardware component.

<PAGE>

     SELLING,  GENERAL  AND  ADMINISTRATIVE   EXPENSES.   Selling,  general  and
administrative  expenses decreased by $727 (13.6%) to $4,636 in 2002 from $5,363
in 2001. As a percentage of revenue, these expenses decreased by 33.8%, to 23.8%
of revenue in 2002 from 57.6% of revenue in 2001. Bad debt expense  decreased by
$46 and legal  expense  decreased by $161 in 2002 as compared to 2001.  Overall,
our  sales   compensation   was  up  by  $202  in  2002  as  compared  to  2001.
Administrative  wages,  contract labor and benefits  decreased by $447,  general
office  expenses  decreased  by  $124,  employee  education  decreased  by  $74,
utilities  decreased by $40, auto expenses decreased by $21 and travel decreased
by $15 in 2002 as compared to 2001,  primarily due to efforts to reduce overhead
at Corporate and throughout the subsidiaries.

     INTEREST AND OTHER INCOME (NET).  Interest income  decreased by $126 to $27
in 2002  compared  to  interest  income  of $153 in 2001,  primarily  due to the
reduction of invested  available  cash,  lower  interest rates on invested cash.
Additionally,  imputed interest expense of $15 and loss on disposition of assets
of $16 were incurred in 2002 as compared to $0 in 2001.

     DISCONTINUED  OPERATIONS.  On  December  31,  2001 we sold our IT  Staffing
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.  During 1999 we sold our  Telecom  Systems
business.  As a consequence of these events,  the operations of these businesses
are reported as discontinued operations.  For the six months ended June 30, 2002
and 2001, respectively,  loss from discontinuing operations was $0 and $112 (net
of tax benefit of $0 and $55) and the gain on disposal related to these business
was $18 and $348, net of taxes of $10 and $179.

     NET INCOME  (LOSS).  Net income on continuing  operations in the six months
ended June 30,  2002 was $492.  The net loss for the six  months  ended June 30,
2001 was $2,710. No tax provision (benefit) had been recorded for the six months
ended June 30, 2002 and 2001 because,  due to our recurring  losses, a valuation
allowance was recorded.

Liquidity and Capital Resources

     Our working capital was $6,295 and $5,983 at June 30, 2002 and December 31,
2001, respectively. As of June 30, 2002, we had outstanding inventory floor plan
financings  of $337 and  available  borrowing  base of $3,663  under our Textron
Finance  Division  credit  facility.  We expect to satisfy  our capital and debt
requirements  from our existing cash balances,  cash generated by our operations
through  collection of our accounts  receivables and borrowings under our credit
facilities.

Cash Flow

     Operating  activities  used net cash totaling  $1,330 during the six months
ended  June 30,  2002.  Operating  activities  used net cash  during  the period
primarily  due to an  increase  in accounts  receivable  of $1,619,  increase in
income tax receivable of $1,179, and increase in notes receivable of $756 and an
increase  in  inventory  of $113,  offset by a  decrease  in cost and  estimated
earnings in excess of billings  of $694,  and a increase in accounts  payable of
$977.  Additionally,  the  uses of  cash  were  offset  by  cash  produced  from
continuing operations of $795 and used by discontinued operations of $179.

     Investing  activities  used cash  totaling $223 during the six months ended
June 30, 2002 and financing activities used cash totaling $266.


<PAGE>

Asset Management

     Our cash flow from operations has been affected  primarily by the timing of
our collection of accounts  receivable.  We have typically sold our products and
services on  short-term  credit  terms and seek to  minimize  our credit risk by
performing  credit checks and  conducting  our own  collection  efforts.  We had
accounts  receivable,  net of  allowance  for doubtful  accounts,  of $4,302 and
$5,921 at June 30, 2002 and  December  31,  2001,  respectively.  We have a note
receivable  from  Echelon  Staffing,  Inc., a  corporation  formed by the former
President  of It  Staffing.  The  balance  on the note at June 30,  2002 is $49.
Collections on the note as contingent on the operating  revenues of Echelon.  We
intend to monitor  the note and will  record a reserve if and when it appears to
be uncollectible.

Current Debt Obligations

     Historically,  we have satisfied our cash requirements  principally through
borrowings under our lines of credit and through operations. On January 31, 2002
we  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 is $4,000 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 and 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 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.  At June 30,
2002, we had $337  outstanding on inventory  floor plan finance  borrowings,  $0
outstanding on working  capital  advances and had total credit  availability  of
$3,663.

     This agreement is  collaterized by  substantially  all of our assets except
our patent 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  June  30,  2002  we were in
compliance with all of the loan covenants.

Critical Accounting Policy

     Revenue  Recognition - Revenue from the sale of products is recognized when
the product is shipped. Service income is recognized as the services are earned.
Revenues  resulting from  installations of equipment and software  contracts for
which  duration  is in  excess  of three  months  and that  require  substantial
modification or customization are recognized using the  percentage-of-completion
method.  The percentage of revenue  recognized is determined  principally on the
basis of the  relationship  of the cost of work  performed  on the  contract  to
estimated  total costs.  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
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.

     During 2002 and 2001 our subsidiary, Stratasoft, recognized revenues on the
percentage-of-completion basis for several projects associated with one reseller
in South Asia 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 the projects in South Asia we required 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.


<PAGE>

     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.

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 June 30, 2002 and December 31, 2001,  the Company's  receivables  from
Equities amounted to approximately  $122 and $159,  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 pays
interest  of 6% per annum on the  average  outstanding  balance.  The balance of
approximately  $95  and $80 is  included  in the  Company's  balance  sheet  and
reported  as part of  Accounts  receivable  -  affiliates  at June 30,  2002 and
December 31, 2001, respectively.

     In order to comply with the  Sarbanes-Oxley Act of 2002, we have determined
that the payments  for the  President  and Chief  Executive  Officer's  use of a
credit card for transactions  that wholly or partially benefit him may be deemed
to constitute a demand loan.  Therefore,  in order to be in complete compliance,
the  Company  has  recently  made a demand for  repayment  of the such  balances
related  to the  President  and  CEO's  personal  credit  card  usage,  which is
discussed  above and is  classified  in Accounts  Receivable - affiliates in the
Company's balance sheet at June 30, 2002 and December 31, 2001.

     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 reduced from
$37,692 to $37,192 per month.

     From time to time we obtain an  independent  survey of real  estate  rental
rates and consult 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.

     We furnish a company-owned automobile for the President and Chief Executive
Officer's business and personal use.


<PAGE>

     From time to time we make  short-term  loans  and  travel  advances  to our
employees.  The balance of  approximately $8 and $11 relating to these loans and
advances is  included in the  Company's  balance  sheet and  reported as part of
Accounts  receivable  -  affiliates  at June 30,  2002 and  December  31,  2001,
respectively.

     Each of our  subsidiaries  has a stock incentive plan in place.  One of our
subsidiaries  has  granted  to  certain  employees  and to  management  of  such
subsidiary as an incentive award.  Under its plan such options vest ratably over
three to five years.  The quantity of incentive  options  granted to  management
personnel are  determined  based on the  percentage of  predetermined  financial
goals that they attain.  Any unvested  stock options vest  immediately  upon the
occurrence  of a liquidity  event for that  subsidiary.  The options  expire ten
years after the grant date if they are not  exercised.  The stock option  grants
are  subject  to  dilution  when  I-Sector  purchases  additional  shares of the
subsidiary stock in order to keep the subsidiary capitalized.  At June 30, 2002,
5,449,500 options granted by that subsidiary are outstanding with an issue price
of $ .01, which represents  potential  dilution of I-Sectors  investment in that
subsidiary of 22.9%.

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 June 30, 2002, a one-percent  increase in interest
rates  paid by us on our  floating  rate  debt  would  not have  resulted  in an
increase in interest for the period.


<PAGE>


PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

     In July 2000,  Benchmark Research and Technology,  Inc. made a verbal claim
against  I-Sector,  claiming that we breached our contract with  Benchmark,  and
that we were  negligent and breached  various  warranties,  committed  fraud and
violated the Deceptive  Trade  Practices  Act. The case was mediated in November
2000 but no agreement was reached.  We know of no lawsuit being filed.  In July,
2002 Benchmark  offered to settle with us for $40 and we are studying the offer.
In the event  that the  settlement  is not  accepted,  we  intend to  vigorously
contest the demand.

     In October 2000, our wholly-owned subsidiary, Stratasoft, filed suit in the
Harris  County  Texas  County  Court of Law  against  its  customer  Accelerated
Telemarketing  for a  remaining  balance  of $47 on  its  contract.  Thereafter,
Accelerated  Telemarketing  filed a separate  legal  action  claiming  breach of
contract, breach of warranty, violation of the Deceptive Trade Practices Act and
other claims.  In July 2002, we reached  agreement in principle with Accelerated
Telemarketing to settle the legal actions pending.  Such settlement agreement is
anticipated to have no future impact to net income.

     In October 2001,  Inacom Corp.  wrote a demand letter 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 are unaware of a formal  lawsuit
being  filed,  although one has been  threatened.  We believe that the demand is
without merit and intend to vigorously contest the demand.

     We  had  filed  a  claim  to  collect  on a note  receivable  from E Z Talk
Communications   ("E  Z  Talk")  and  had  recently   entered  into  arbitration
discussions  with E Z Talk. In July,  2002 E Z Talk filed a lawsuit to set aside
the arbitration  and claiming  damages of $250.  I-Sector  intends to vigorously
contest the suit.

     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 5.           OTHER INFORMATION

     We  disclosed  in our Proxy  Statement  and  Notice of  Annual  Meeting  of
Stockholders  to be held August 8, 2002,  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.

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

                                     I-Sector Corporation.

August 13, 2002                      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>


                                                                    Exhibit 99.1



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  June 30, 2002 as filed with the
Securities and Exchange  Commission on the date hereof (the "Report"),  I, James
H. Long, Chief Executive Officer of the Company,  certify, pursuant to 18 U.S.C.
1350, as adopted pursuant to 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.

August 13, 2002                      By:      /s/ JAMES H. LONG
Date                                 James H. Long, Chief Executive Officer,
                                     Chief Financial Officer, President and
                                     Chairman of the Board