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, 2000
                                       OR

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

For the transition period from ________ to ___________

Commission file number: 0-21479

                              I-SECTOR CORPORATION

             (Exact name of Registrant as specified in its charter)

           DELAWARE                                      76-0515249
   (State of incorporation)                 (I.R.S. Employer Identification No.)
    6401 SOUTHWEST FREEWAY
         HOUSTON, TEXAS                                    77074
Address of principal executive offices)                  (Zip code)

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

                              Allstar Systems, Inc.

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

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

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

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

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

Title                                           Outstanding

Common Stock, $.01 par value per share          As of August 14, 2000
                                                4,049,525 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
                                                  2000               1999
                                                       (Unaudited)
ASSETS

Current assets:
     Cash and cash equivalents                  $   7,255        $   4,647
     Accounts receivable, net                      14,682           37,726
     Accounts receivable - affiliates                 462              423
     Inventory                                      1,281            7,442
     Deferred taxes                                 1,076              836
     Other current assets                             183              384
         Total current assets                      24,939           51,458
Property and equipment                              1,164            2,280
Other assets                                          162              178
Total                                           $  26,265        $  53,916

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Notes payable                              $                $  15,869
     Accounts payable                               4,628           21,687
     Accrued expenses                               2,122            3,896
     Net liabilities related to                     1,024              199
          discontinued operations
     Income taxes payable                           2,341
     Deferred service revenue                          91              240
         Total current liabilities                 10,206           41,891
     Deferred credit - stock warrants                 195              195

Commitments and contingencies
Stockholders' equity:

     Preferred stock, $.01 par value,
         5,000,000 shares authorized,
         no shares issued
     Common stock:
         $.01 par value, 15,000,000
         shares authorized, 4,441,325
         and 4,442,325 shares issued at
         June 30, 2000 and December 31, 1999           44               44
     Additional paid in capital                    10,037           10,037
     Unearned equity compensation                      (1)              (1)
     Treasury stock (391,800 and 381,800
         shares, at cost)at June 30, 2000
         and December 31, 1999                       (986)            (972)

     Retained earnings                              6,770            2,722
         Total stockholders' equity                15,864           11,830
Total                                           $  26,265        $  53,916


                 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,
                                                     2000             1999


Total revenue                                   $   4,228        $   4,516
Cost of sales and services                          3,494            2,892
Gross profit                                          734            1,624
Selling, general and administrative expenses        1,951            1,675
Operating loss                                     (1,217)             (51)
Interest expense (income), net of other income        (50)               8
Loss from continuing operations before
     benefit for income taxes                      (1,167)             (59)
Benefit for income taxes                             (386)              (6)
Net loss from continuing operations                  (781)             (53)
Discontinued Operations:
     Net loss from discontinued operations,
         net of taxes                                                 (317)
     Loss on disposal, net of taxes                  (387)
Net loss                                        $  (1,168)       $    (370)


Net loss per share:
     Basic and Diluted:
         Net loss from continuing operations    $   (0.20)        $  (0.01)
         Net loss on discontinued operations                         (0.08)
         Loss on disposal, net of taxes             (0.09)
              Net loss per share                $   (0.29)        $  (0.09)


Weighted average shares outstanding:

         Basic and Diluted                      4,048,525        4,232,211



                 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,
                                                     2000              1999

Total revenue                                   $  10,212        $   8,834
Cost of sales and services                          7,093            5,754
Gross profit                                        3,119            3,080
Selling, general and administrative expenses        4,260            3,308
Operating loss                                     (1,141)            (228)
Interest expense (income), net of other income        (35)              15
Loss from continuing operations before
     benefit for income taxes                      (1,106)            (243)
Benefit for income taxes                             (367)             (63)
Net loss from continuing operations                  (739)            (180)
Discontinued Operations:
     Net income (loss) from discontinued
          operations, net of taxes                    301             (244)
     Gain on disposal, net of taxes                 4,486
Net income (loss)                               $   4,048        $    (424)


Net income (loss) per share:
     Basic and Diluted:
         Net loss from continuing operations    $   (0.18)       $   (0.04)
         Net income (loss) on discontinued
            operations                               0.07            (0.06)
         Gain on disposal, net of taxes              1.11
              Net income (loss) per share       $    1.00        $   (0.10)

Weighted average shares outstanding:

         Basic and Diluted                      4,048,965        4,232,211

                 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,
                                                     2000             1999

Net loss from continuing operations             $    (739)       $    (180)
Adjustments to reconcile net loss to net cash
     provided by (used in) operating activities:
     Depreciation and amortization                    260              427
     Deferred tax provision                            37
Changes in assets and liabilities that provided
     (used) cash:

     Accounts receivable, net                      23,044             (670)
     Accounts receivable - affiliates                 (39)             (90)
     Inventory                                        286             (158)
     Income Taxes Receivable                                          (176)
     Other current assets                                              212
     Other assets                                      16
     Accounts payable                             (17,059)           6,524
     Accrued expenses                              (1,774)             119
     Income taxes payable                             277
     Deferred service revenue                        (149)             (90)

Net cash provided by continuing operating
     activities                                     4,160            5,918
Net operating activities from discontinued
          activities                               14,141             (127)
     Net cash provided by operating activities     18,301            5,791

Cash flows from investing activities:

     Proceeds from sale of fixed assets               279
     Capital expenditures                             (89)            (473)

         Net cash provided by (used in)
           investing activities:                      190             (473)

Cash flows from financing activities:

     Purchase of treasury stock                       (14)
     Net decrease in notes payable                (15,869)          (1,122)

         Net cash used in financing activities:   (15,883)          (1,122)

Net increase in cash and cash equivalents           2,608            4,196
Cash and cash equivalents at beginning of period    4,647            2,538
Cash and cash equivalents at end of period      $   7,255        $   6,734
Supplemental disclosures of cash flow
          information:
     Cash paid for interest                     $     375        $     503
     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"),   formerly  Allstar
Systems, Inc., has historically been engaged in the sale and service of computer
and  telecommunication  hardware  and  software  products in the United  States.
During 1995, I-Sector formed and incorporated Stratasoft, Inc., ("Stratasoft") a
wholly  owned  subsidiary,   to  create  and  market  software  related  to  the
integration of computer and telephone  technologies.  In January 1997,  I-Sector
formed IT Staffing Inc. ("IT Staffing"),  a wholly owned subsidiary,  to provide
temporary   and  permanent   placement   services  of   information   technology
professionals.  In March 1998, I-Sector formed Allstar Systems Rio Grande, Inc.,
a wholly  owned  subsidiary,  to  engage  in the sale and  service  of  computer
products  in  western  Texas and New  Mexico.  In July  2000,  the  shareholders
approved the name change from Allstar Systems,  Inc. to I-Sector  Corporation in
order to better  communicate  the  business  purpose and mission of the Company,
that of owning,  operating  or  investing  in  companies  which are  expected to
benefit  from  the  manner  in which  the  Internet  is  changing  commerce  and
communications.  Recently, in July 2000 I-Sector formed and incorporated two new
wholly owned  corporations,  Synergy Helpdesk  Solutions,  Inc.  ("Synergy") and
Allstar Computer Service,  Inc. ("ACS") and contributed certain operating assets
associated   with  its   previously   reported  IT  Services   segment  to  such
corporations.  Also in July 2000,  I-Sector formed and incorporated a new wholly
owned subsidiary, Internetworking Sciences Corporation ("INS") to meet the needs
of customers in the area of large-scale network infrastructure requirements that
are Cisco centric.

     Some of I-Sector's  services are authorized under arrangements with product
manufacturers  and such  operations are dependent upon  maintaining its approved
status with such manufacturers.

     The condensed  consolidated financial statements presented herein as of and
for the three and six months  ended June 30, 2000 are  unaudited;  however,  all
adjustments  which are,  in the  opinion  of  management,  necessary  for a fair
presentation of the financial position, results of operations and cash flows for
the  periods  covered  have  been made and are of a  normal,  recurring  nature.
Accounting  measurements at interim dates inherently involve greater reliance on
estimates  than  at  year-end.  The  results  of the  interim  periods  are  not
necessarily  indicative of results for the full year. The  consolidated  balance
sheet at  December  31,  1999 is derived  from  audited  consolidated  financial
statements but does not include all disclosures  required by generally  accepted
accounting   principles.   Although  management  believes  the  disclosures  are
adequate,  certain  information and disclosure normally included in the notes to
the financial statements has been condensed or omitted as permitted by the rules
and regulations of the Securities and Exchange Commission.

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

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

     Accounting   Pronouncements  -  In  June  1998,  the  Financial  Accounting
Standards  Board issued  Statement of Financial  Accounting  Standards  No. 133,
"Accounting for Derivative Instruments and Hedging Activities- ("SFAS No. 133").
SFAS No. 133, as amended,  is effective for all fiscal  quarters of fiscal years
beginning  after  June 15,  2000.  Management  is  evaluating  what  impact  the
pronouncement  might have, if any, and additional  adjustment or disclosures may
be required when this statement is implemented.

     In December 1999, the  Securities  and Exchange  Commission  ("SEC") issued
Staff  Accounting  Bulletin ("SAB") No. 101,  "Revenue  Recognition in Financial
Statements." SAB 101 summarizes certain of the SEC's views in applying generally
accepted accounting  principles to revenue recognition in financial  statements.
The Company is required to adopt SAB 101, as amended,  in the fourth  quarter of
fiscal  2000.  The  Company  does not expect the  adoption  of SAB 101 to have a
material effect on its financial position or results of operations.


<PAGE>


2.   DISCONTINUED OPERATIONS

     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 stockholder  approval was obtained and
other  required  conditions  of closing were  satisfied.  Under the terms of the
agreement,  I-Sector  received a cash purchase price at closing of approximately
$16,440,  including  $1,952  attributable to inventory and $279  attributable to
equipment,  plus the contingent  right to receive up to $500 in proceeds from an
escrow account  established to satisfy the Company's  liability for any breaches
of the Company's  representations  and warranties under the agreement.  The cash
purchase price was subject to certain post-closing  adjustments that resulted in
a credit to the purchaser of approximately  $384. The transaction was recognized
for financial  reporting purposes in the quarter ended March 31, 2000 and pretax
income from the discontinued  operations of the Computer  Products Division (net
of taxes of $156) was $302 for the three  months  ended March 31,  2000.  In the
quarter  ended  March 31,  2000,  a gain on  disposal of $5,091 (net of taxes of
$2,625) was  recognized,  which included an estimated loss of $604 (net of taxes
of $311) for the operating  results from the measurement date, March 16, 2000 to
the closing date of the sale,  as well as a loss on the  equipment  sold of $352
(net of taxes of $181) and estimates for the  impairment of assets caused by the
disposal  decision of $2,593 (net of taxes of $1,336).  During the quarter ended
June 30, 2000,  I-Sector  revised its  estimates  relating to the  impairment of
assets  and  recognized  a loss on  disposal  of $387  (net of taxes  of  $199).
I-Sector  retained  accounts  receivable  attributable to the Computer  Products
Division,  which, at June 30, 2000, was approximately  $10,047, net of reserves.
I-Sector  also  retained  fixed  assets of $255 and  liabilities  related to the
Computer Products Division. Fixed assets that were not sold are being redeployed
in the continuing operations. The balance sheet caption "Net liabilities related
to  discontinued  operations"  at June 30, 2000  includes  $793,000 of estimated
expenses  relating to the disposal and $187,000 for cash remitted to I-Sector by
customers  that  belongs to the  purchaser of the  Computer  Products  Division.
Revenue for the Computer  Products  Division for the three and six month periods
ending June 30, 2000  through the date of  disposition  was $14,703 and $44,026,
respectively  and $44,611 and $86,865 for the same periods in 1999.  The Company
allocates  interest  expense to its various  divisions on a  proportional  basis
based  on  accounts  receivable.  Interest  expense  allocated  to the  Computer
Products  Division  for the six months  ended June 30, 1999 and 2000 and for the
period from April 1, 2000 to May 19, 2000 was $416, $237 and $62,  respectively.
In connection  with the sale of the Computer  Products  Division,  I-Sector also
sold the El Paso portion of the IT Services business.  The El Paso branch office
portion of the IT Services business  accounted for revenues of $889 and $941 and
operating  loss of $68 and $569 in the six months  ended June 30, 1999 and 2000,
respectively.  The El Paso services business has been included in the continuing
operations  for the six months ended June 30, 2000 through the close date of May
19, 2000.

     On November 2, 1999,  I-Sector approved a plan to sell or close its Telecom
division.  This was the  measurement  date.  The sale was finalized on March 16,
2000. Under the terms of the sale I-Sector received $250 cash and the ability to
obtain restricted stock in the purchaser  contingent upon the performance of the
acquired  operations  during a period  ending six months after the closing date.
Additionally, the purchaser assumed all telephone equipment warranty obligations
of I-Sector up to a maximum of $30. Any excess  warranty  costs  incurred by the
purchaser  will be billed to I-Sector  at an agreed upon rate.  Pretax loss from
discontinued  operations  (net of  benefit  of $209) was $406 for the six months
ended June 30, 1999.  A disposal  loss,  including an estimate of the  operating
results from the measurement  date,  November 2, 1999 to the closing date of the
sale,  as well as  estimates  for  impairment  of assets  caused by the disposal
decision were recognized at December 31, 1999.  During the six months ended June
30, 2000,  I-Sector revised its estimate of the loss on disposal and recorded an
additional  loss (net of tax  savings of $112) of $218.  I-Sector  has  retained
accounts  receivable of approximately  $489, net of reserves,  at June 30, 2000,
related to the Telecom  Division.  The Revenue for the Telecom  Division for the
three  and  six  month  periods  ending  June  30,  2000  through  the  date  of
disposition,  March 16,  2000,  was $0 and $752,  respectively,  and  $1,164 and
$2,460 for the same periods in 1999.

3.   INCENTIVE STOCK PLANS

     In  September  1996  I-Sector  adopted the 1996  Incentive  Stock Plan (the
"Incentive  Plan"') and the 1996  Non-Employee  Director  Stock Option Plan (the
"Director Plan"). Under the Incentive Plan,  I-Sector's  Compensation  Committee
may grant up to 442,500  shares of common  stock,  which have been  reserved for
issuance to certain key employees of I-Sector.  The Incentive  Plan provides for
the granting of incentive awards in the form of stock options, restricted stock,
phantom stock,  stock bonuses and cash bonuses in accordance with the provisions
of the plan.
<PAGE>

     Additionally,  no shares may be granted after the tenth  anniversary of the
Incentive  Plan's  adoption.  I-Sector  has  reserved  for  issuance,  under the
Director Plan, 100,000 shares of common stock,  subject to certain  antidilution
adjustments.

     Historically  the Director  Plan  provided  for a one-time  option by newly
elected  directors to purchase up to 5,000 shares of common  stock,  after which
each  director  was entitled to receive an option to purchase up to 2,000 common
shares upon each date of reelection to I-Sector's Board of Directors.  On May 2,
2000, the I-Sector Board of Directors  amended the  Non-Employee  Director Stock
Option Plan to provide for the  issuance of options to purchase  5,000 shares of
common stock to each Non-employee  Director upon his election as a director.  In
addition, the Board of Directors authorized the issuance of 5,000 shares to each
of the Non-employee Directors, who was\

 serving  as a director  at that  date,  as  additional  compensation  for prior
periods, each such additional option to be issued at the time of that Director's
next election as an I-Sector director.

     Options  granted  under the Director  Plan and the  Incentive  Plan have an
exercise price equal to the fair market value on the date of grant and generally
expire ten years after the grant date.  The  Incentive  Plan stock option grants
will vest ratably over the five-year period from the date of issuance.

     In May 2000,  I-Sector  adopted  the 2000 Stock  Incentive  Plan (the "2000
Incentive  Plan").  Under  the  2000  Incentive  Plan,  I-Sector's  Compensation
Committee  may grant up to the greater of 400,000  shares of common stock or 10%
of the number of shares of common stock issued and  outstanding on the first day
of the then preceding calendar quarter. The 2000 Incentive Plan provides for the
granting of incentive  awards in the form of stock options,  stock  appreciation
rights,  restricted  stock,  performance  units and  performance  shares,  other
stock-based  awards and cash bonuses in  accordance  with the  provisions of the
plan.  All employees,  including  officers,  and  consultants  and  non-employee
directors  are  eligible  to  participate  in the  2000  Stock  Incentive  Plan.
Generally,  the  Compensation  Committee  has the  discretion  to determine  the
exercise price of each stock option under the 2000 Incentive Plan, and they must
be  exercised  within ten years of the grant date,  except those  classified  as
Incentive  Stock  Option  ("ISO")  grants to a 10% or greater  stockholder.  ISO
options  grants to a 10% or greater  stockholder  must be exercised  within five
years of the grant date.  The exercise price of each ISO option grant may not be
less than 100% of the fair market  value of a share of common  stock on the date
of grant (110% in the case of a 10% or greater stockholder).

     The number of options  outstanding and the exercise price under each of the
three Plans were as follows at June 30, 2000:

                                         1996              2000
  Exercise Price     Director Plan  Incentive Plan    Incentive Plan
      $1.063                           190,972
      $1.375                             4,600
      $1.500             28,000        193,940             17,600
      $1.563                            17,900
      $1.750              9,000          1,900
      $2.188                                                5,000
      $2.266                                               35,800
      $2.938                                                  600
      $6.000                             8,000                  0

 Total granted           37,000        417,312             59,000

     In addition,  incentive awards in the form of restricted stock were granted
for 14,286 shares that would have vested ratably over the two-year period ending
July 7, 1999,  and 50,000  shares,  which  would have  vested  ratably  over the
five-year  period  ending May 20, 2004.  During the quarter  ended June 30, 1999
I-Sector  exchanged  restricted  stock awards for 62,086 shares for stock option
grants on 126,172  shares at an  exercise  price of $1.06 per  share.  The stock
option  grants  vest over the same  period  as the  exchanged  restricted  stock
awards.  As of June 30, 2000,  I-Sector had restricted stock awards  outstanding
for 1,200 shares.


<PAGE>


4.   SEGMENT INFORMATION

     I-Sector  has  five  reportable   segments:   ACS,  Synergy,  IT  Staffing,
Stratasoft and Corporate.  Corporate includes the operations of the Company's El
Paso service  operations which were sold on May 19, 2000, and service operations
relating to computer installations for a certain customer. The installations for
this  customer  ceased when the Computer  Products  Division was sold on May 19,
2000. ACS,  Synergy and IT Staffing were previously  reported as the IT Services
segment.  ACS provides  customers  with on-site and  carry-in  computer  repair,
application support and operating system and network migration services. Synergy
provides  customers  with turnkey  outsourced IT helpdesk  solutions,  technical
staff augmentation for IT helpdesk  operation and helpdesk solutions  consulting
services.   IT  Staffing   provides  IT   professionals  to  work  on  temporary
assignments.  Stratasoft,  previously  reported  as the  CTI  Software  segment,
produces  software products that facilitate  telephony and computer  integration
primarily  for  telemarketing  and  call  center  applications.  The  accounting
policies of the business  segments are the same as those for I-Sector.  I-Sector
evaluates performance of each segment based on operating income. Management only
views  accounts   receivable,   and  not  total  assets,  by  segment  in  their
decision-making.  Intersegment  sales and  transfers  are not  significant.  The
tables below show the results of the five reportable segments:

<TABLE>
<CAPTION>
For the quarter ended June 30, 2000:                             IT
                                       ACS         Synergy     Staffing  Stratasoft Corporate  Consolidated

<S>                                    <C>         <C>        <C>        <C>        <C>        <C>
Total  revenue                         $      656  $   1,323  $     315  $   1,172  $     762  $   4,228
Cost of sales and services                    531      1,070        231        674        988      3,494
Gross profit (loss)                           125        253         84        498       (226)       734
Selling, general and
     administrative expenses                  279        562         70        747        293      1,951
Operating income (loss)                $     (154) $    (309) $      14  $    (249) $    (519)    (1,217)
Interest expense (income), net of
     other income                                                                                    (50)
Loss before benefit for income tax                                                                (1,167)
Benefit for income tax                                                                              (386)
Net loss from continuing operations                                                                 (781)
Net loss on disposal, net of taxes                                                                  (387)
Net loss                                                                                       $  (1,168)

Accounts receivable, net               $      541  $   1,047  $     136  $   1,670  $     752  $   4,146
Accounts receivable retained from
     discontinued operations, net                                                                 10,536
Total accounts receivable, net                                                                 $  14,682

For the quarter ended June 30, 1999:

Total revenues                         $      912  $   2,034  $     252  $     825  $     493  $   4,516
Cost of sales and services                    623      1,391        126        413        339      2,892
Gross profit                                  289        643        126        412        154      1,624
Selling, general and
     administrative expenses                  284        633        105        448        205      1,675
Operating income (loss)                $        5  $      10  $      21  $     (36) $      51)       (51)
Interest expense (income), net of
     other income                                                                                      8
Loss before benefit for income tax                                                                   (59)
Benefit for income tax                                                                                (6)
Net loss from continuing operations                                                                  (53)
Net loss from
     discontinued operations, net
       of tax                                                                                       (317)
Net loss                                                                                       $    (370)

Accounts receivable, net               $    1,336  $     599  $     130  $     611  $     303  $   2,979
Accounts receivable retained from
     discontinued operations, net                                                                 32,584
Total accounts receivable, net                                                                 $  35,563
</TABLE>


<PAGE>

<TABLE>
<CAPTION>
For the six months ended June 30, 2000:                          IT
                                       ACS         Synergy     Staffing  Stratasoft Corporate  Consolidated

<S>                                    <C>         <C>        <C>        <C>        <C>        <C>
Total revenue                          $    1,383  $   2,884  $     636  $   3,645  $   1,664  $  10,212
Cost of sales and services                  1,040      2,165        472      1,825      1,591      7,093
Gross profit                                  343        719        164      1,820         73      3,119
Selling, general and
     administrative expenses                  536      1,113        174      1,808        629      4,260
Operating income (loss)                $     (193) $    (394) $     (10) $      12  $    (556) $  (1,141)
Interest expense (income), net of
     other income                                                                                    (35)
Income before benefit for income tax                                                              (1,106)
Benefit for income tax                                                                              (367)
Net loss from continuing operations                                                                 (739)
Net income from discontinued operations,
net of taxes                                                                                         301
Net gain on disposal, net of taxes                                                                 4,486
Net income                                                                                     $   4,048

Accounts receivable, net               $      541  $   1,047  $     136  $   1,670  $     752  $   4,146
Accounts receivable retained from
     discontinued operations, net                                                                 10,536
Total accounts receivable, net                                                                 $  14,682

For the six months ended June 30, 1999:

Total revenues                         $    1,815  $   3,998  $     506  $   1,595  $     920  $   8,834
Cost of sales and services                  1,270      2,797        309        744        634      5,754
Gross profit                                  545      1,201        197        851        286      3,080
Selling, general and
     administrative expenses                  552      1,215        252        945        344      3,308
Operating loss                         $       (7) $     (14) $     (55) $     (94) $     (58)      (228)
Interest expense (income), net of
     other income                                                                                     15
Loss before benefit for income tax                                                                  (243)
Benefit for income tax                                                                               (63)
Net loss from continuing operations                                                                 (180)
Net loss from

     discontinued operations, net of tax                                                            (244)
Net loss                                                                                       $    (424)

Accounts receivable, net               $    1,336  $     599  $     130  $     611  $     303  $   2,979
Accounts receivable retained from
     discontinued operations, net                                                                 32,584
Total accounts receivable, net                                                                 $  35,563
</TABLE>

<PAGE>


5.   EARNINGS PER SHARE

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

     The potentially  dilutive  options  totaling 211,660 and 266,082 shares for
the three and six months ended June 30, 2000 and 86,442 shares for the three and
six months  ended June 30,  1999,  respectively,  calculated  under the treasury
stock method,  were not used in the  calculation  of diluted  earnings per share
since the effect of  potentially  dilutive  securities  in  computing a loss per
share on continuing operations is antidilutive.

     There were warrants to purchase  176,750 shares of common stock for the six
months  ended June 30, 2000 and 1999 which were not  included in  computing  the
effect  of  dilutive   securities   because  the   inclusion   would  have  been
antidilutive.

6.   LITIGATION

     On  February  1,  2000,  a  competitor  brought  a  suit  against  I-Sector
Corporation's  wholly owned  subsidiary  Stratasoft,  Inc. in the United  States
District  Court for the  Northern  District of Georgia.  The  plaintiff  alleges
infringement  of  certain  patents  owned  by  the  competitor  and  is  seeking
unspecified monetary damages.  Management of I-Sector believes that this suit is
without merit and intends to vigorously defend such action.

     On May 16, 2000,  Jack B. Corey ("Corey") filed suit against the Company in
JACK B. COREY V. ALLSTAR SYSTEMS,  INC., Cause No.  2000-24796,  in the District
Court of Harris County,  Texas, 113th Judicial  District,  seeking to enjoin the
sale of its  computer  product  division  and  certain  other  assets to Amherst
Technologies,  and for unspecified damages. On Wednesday,  May 17, 2000, a state
court denied Corey's Application for Temporary  Restraining Order and on Monday,
May 22,  2000,  a second  state  court  denied his  Application  for a Temporary
Injunction  and for  Expedited  Discovery as moot.  The present  pleadings  lack
specificity  as to  Corey's  claim for  damages  and it is  unclear at this time
whether Corey will pursue such a claim.  However,  the Company  strongly  denies
that it engaged in any  improper  conduct  with regard to the sale of its assets
and intends to vigorously defend any claim that might be pursued by Corey.

     I-Sector is party to litigation  and claims which  management  believes are
normal in the course of its operations; while the results of such litigation and
claims cannot be predicted with certainty,  I-Sector  believes the final outcome
of such  matters  will not have a  materially  adverse  effect on its results of
operations or financial position.


<PAGE>


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

                              I-SECTOR CORPORATION
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The  following  discussion  is  qualified in its entirety by, and should be
read in  conjunction  with,  the Company's  consolidated  financial  statements,
including  the  notes  thereto  included  elsewhere  in this  Form  10-Q and the
Company's  Form  10-K,   previously  filed  with  the  Securities  and  Exchange
Commission.

Overview

     I-Sector  Corporation  ("I-Sector")  has  historically  been engaged in the
business of providing  its customers  with  solutions to their  information  and
communications technology needs.  Historically,  our revenue was derived through
four primary areas of business, IT Services, CTI Software, Computer Products and
Telecom Systems,  each of which have historically been reported as a segment. We
recently sold our Telecom Systems and Computer  Products  businesses.  After the
sale of these  businesses,  we separated what was the IT Services  business into
three  separate  businesses,   each  of  which  is  a  wholly  owned  subsidiary
corporation.  One of  these  subsidiary  companies  is IT  Staffing,  Inc.  ("IT
Staffing"),  which had already been  operated as a wholly owned  subsidiary.  We
contributed the remaining  components of the former IT Services  business to two
newly formed wholly owned corporations,  Allstar Computer Services, Inc. ("ACS")
and Synergy Helpdesk Solutions, Inc. ("Synergy").  Our CTI Software business was
not  affected by the recent sale of the Computer  Products  and Telecom  Systems
business  units,  however we are now  referring to this segment by its corporate
name,  "Stratasoft" rather than "CTI Software" as we have in the past. We market
our services businesses in Texas from four locations in the Houston, Dallas-Fort
Worth,  Austin  and San  Antonio  metropolitan  areas.  Stratasoft  markets  its
products  worldwide  through  a direct  sales  force  and an  authorized  dealer
network.

Recent Developments

     On March 16, 2000 we entered into separate  agreements  whereby (i) we sold
certain  key assets of, and the  ongoing  business  operations  of, our  Telecom
Systems business and (ii) we agreed to sell the ongoing  business  operations of
our  Computer  Products  business,  together  with  certain key assets of our IT
Services  business located in El Paso,  Texas. We retained  accounts  receivable
related to the businesses  that were sold. The sale of Computer  Products closed
on May 19,  2000. A disposal  loss (net of taxes),  including an estimate of the
operating  results from the  measurement  date,  November 2, 1999 to the closing
date of the sale of Telecom  Systems was recognized at December 31, 1999. A gain
on disposal of the Computer  Products  Division has been  recognized as of March
31,  2000.  We  retained  the other  assets of our IT Services  business,  which
provides a variety of  services  related to the use of  information  technology,
and, as discussed above,  contributed  those assets to newly formed wholly owned
subsidiaries.   By  operating   through  these  highly   focused   wholly  owned
subsidiaries,  we believe that we will offer better customer service and improve
our financial  performance.  We also  retained our  Stratasoft  business,  which
develops and markets telecommunications  software. During the quarter ended June
30, 2000,  Stratasoft produced 27.7% of total revenues while ACS, Synergy and IT
Staffing  contributed  15.5%,  31.3%  and 7.5% of  revenues,  respectively.  Our
Corporate  segment,  which includes  operations that are not on-going because of
the sale of the Computer  Products  Division,  comprised the remaining  18.0% of
revenues.

     We believe the sale of our Computer Products  Division provides  sufficient
cash to initiate a fundamental  change in our business  strategy that will allow
us to deploy our liquid  capital in endeavors  that we believe  will  ultimately
result in improved  stockholder  value.  We believe we will  produce  more rapid
growth, and better financial performance,  by separating our various information
technology  services  into  focused,  specialized  companies  with each led by a
separate  management  team  with  personal  financial  incentives  tied to their
company's financial performance. Additionally, we plan to continue to expand our
Stratasoft business through our wholly owned subsidiary, Stratasoft, Inc.

     We also intend to pursue  starting,  acquiring or investing  in,  including
taking significant stakes in, other companies that we expect to benefit from the
manner in which the Internet is changing commerce and  communications.  Targeted
businesses  are  expected to include B2B  E-Commerce  product or services  sales
companies,  companies providing IT services related to network,  Web development
and other Internet related IT services,  and companies  involved in the enabling
of E-Commerce and E-Business.

<PAGE>

     ACS will  provide  customers  with on-site and  carry-in  computer  repair,
application support and operating system and network migration services. Synergy
will provide customers with turnkey outsourced IT helpdesk solutions,  technical
staff augmentation for IT helpdesk operations and helpdesk solutions  consulting
services.  IT  Staffing  will  continue  its  established  business  placing  IT
professionals on temporary assignments and permanent placements. In July 2000 we
also formed an  additional  wholly owned  subsidiary,  Internetworking  Sciences
Corporation  ("INS") that,  will focus on the design,  deployment and support of
networking  infrastructure.  INS will focus on customers  that have  large-scale
network  infrastructure  requirements  that  are  Cisco  centric.  The  areas of
practice  for INS  include  network  design,  implementation,  turnkey  support,
security  audits and firewall  design,  network  infrastructure  management  and
network infrastructure consulting services.

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

     Our  cost of  services  for each of our  service  businesses  is  primarily
comprised  of labor.  Labor has a more fixed  nature such that higher  levels of
service  revenues  produce  higher  gross  margin  while lower levels of service
revenues  produce less gross  margin.  Management  of labor cost is important in
order to prevent erosion of gross margins.

     Stratasoft  develops  and  markets  proprietary  software  that  integrates
business  telephone systems and networked  computer systems.  Stratasoft's basic
products are typically 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.

     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  more fixed and,  while still  somewhat
variable,  do not  vary  with  increases  in  revenue  as  directly  as do sales
commissions.

Sale Of Computer Products Division

      As discussed above we entered into an agreement on March 16, 2000, whereby
we sold  certain  key assets of, and the  ongoing  business  operations  of, our
Computer Products  business.  The sale transaction  closed on May 19, 2000 after
stockholder   approval  was  obtained  and  other  conditions  to  closing  were
satisfied.  The terms of the  agreement  included  cash  consideration  of $16.4
million,  plus the  possibility  of receiving a future payment of up to $500,000
from an escrow account.  The terms of the agreement also include possible future
cash payments  contingent upon future  performance of the operations being sold.
We recognized a gain of approximately $4.5 million, net of taxes, on the sale.

Special notice regarding forward-looking statements

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

  Three Months Ended June 30, 2000 Compared To Three Months Ended June 30, 1999
                             (Dollars in thousands)

     The  following  table  sets  forth,  for  the  periods  indicated,  certain
financial data derived from our unaudited consolidated  statements of operations
for the three months ended June 30, 2000 and 1999. The discussion  below relates
only to our continuing operations, unless otherwise noted.

                                                  Three months ended June 30,
                                                  2000              1999
                                                 Amount     %      Amount    %
Revenue

  ACS                                           $   656   15.5   $   912   20.2
  Synergy                                         1,323   31.3     2,034   45.0
  IT Staffing                                       315    7.5       252    5.6
  Stratasoft                                      1,172   27.7       825   18.3
  Corporate                                         762   18.0       493   10.9
         Total revenue                            4,228  100.0     4,516  100.0
Gross profit (loss):
  ACS                                               125   19.1       289   31.7
  Synergy                                           253   19.1       643   31.6
  IT Staffing                                        84   26.7       126   50.0
  Stratasoft                                        498   42.5       412   49.9
  Corporate                                        (226) (29.7)      154   31.2
         Total gross profit                         734   17.4     1,624   36.0
Selling, general and administrative
    expenses:
  ACS                                               279   42.5       284   31.1
  Synergy                                           562   42.5       633   31.1
  IT Staffing                                        70   22.2       105   41.7
  Stratasoft                                        747   63.7       448   54.3
  Corporate                                         293   38.5       205   41.6
         Total selling, general and
         administrative Expenses                  1,951   46.1     1,675   37.1
Operating income (loss):
  ACS                                              (154) (23.5)        5    0.5
  Synergy                                          (309) (23.4)       10    0.5
  IT Staffing                                        14    4.4        21    8.3
  Stratasoft                                       (249) (21.2)      (36)  (4.4)
  Corporate                                        (519) (68.1)      (51) (10.3)
         Total operating loss                    (1,217) (28.8)      (51)  (1.1)
Interest expense (income) net of
     other income                                   (50)  (1.2)        8    0.2
Loss before benefit for income taxes             (1,167) (27.6)      (59)  (1.3)
Benefit for income taxes                           (386)  (9.1)       (6)  (0.1)
Net loss from continuing operations                (781) (18.5)      (53)  (1.2)
Discontinued operations:
Net loss from discontinued operations                               (317)  (7.0)
Loss on disposal                                   (387)  (9.1)        0    0.0
Net loss                                        $(1,168) (27.6)  $  (370)  (8.2)


<PAGE>

     TOTAL  REVENUE.  Total  revenue  decreased by $288 (6.4%) to $4,228 in 2000
from $4,516 in 1999.

     ACS revenue decreased by $256 (28.1%) to $656 in 2000 from $912 in 1999. As
a percentage of total revenue ACS revenue  decreased to 15.5% in 2000 from 20.2%
in 1999.  The  decrease in ACS  revenues was  primarily  attributable  to issues
related to the  separation of our former IT Services  division from the Computer
Products  Division  which was sold  recently  and the  reorganization  of the IT
Services Division into two newly formed corporations, one of which is ACS.

     As the reorganization efforts subside during the remainder of the year, the
focus of ACS will progressively shift towards the selling of services to produce
revenue growth.

     Synergy revenue  decreased by $711 (35.0%) to $1,323 in 2000 from $2,034 in
1999.  As a percentage of total revenue  Synergy  revenue  decreased to 31.3% in
2000 from 45.0% in 1999.  Like ACS,  Synergy's  efforts during the quarter ended
June 30,  2000 were on  reorganization  and the  segregation  of the IT Services
division  into two newly formed  corporations,  one of which is Synergy.  As the
reorganization  efforts  subside  during the remainder of the year, the focus of
Synergy  will  progressively  shift  towards  the selling of services to produce
revenue growth.

     IT Staffing  revenue  increased by $63 (25.0%) to $315 in 2000 from $252 in
1999. As a percentage of total revenue IT Staffing revenue  increased to 7.5% in
2000 from 5.6% in 1999.  Of the  various  components  of our former IT  Services
division,  IT Staffing's  revenue was least affected by the sale of the Computer
Products  Division.  A new CEO was recently  hired to lead IT  Staffing,  who is
intensifying  both selling and recruiting  efforts in anticipation of increasing
the revenue growth through the remainder of the year.

     Stratasoft revenue increased by $347 (42.1%) to $1,172 in 2000 from $825 in
1999.  The  increase in  Stratasoft  revenues was due to 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,
as a percentage of total revenue, increased to 27.7% in 2000 from 18.3% in 1999.

     The Corporate segment includes operations which are not on-going because of
the sale of the Computer Products Division and includes the loss of installation
revenues  that were  related  to a certain  customer  of our  Computer  Products
Division  and the  accompanying  sale of the  service  business  for the El Paso
branch office.  As these  operations  have ceased or are winding up we expect an
insignificant  amount of revenue  in the  quarter  ending  September  30,  2000.
Corporate  revenue  increased by $269 (54.6%) to $762 in 2000 from $493 in 1999.
As a percentage of total revenue  Corporate  revenue  increased to 18.0% in 2000
from 10.9% in 1999. The El Paso branch office  service  business had revenues of
$230 and $464 in the quarters ended June 30, 2000 and 1999, respectively. The El
Paso  service  business  has  been  included  in the  Corporate  segment  of the
continuing  operations  for the quarter  ended June 30, 2000 through the date of
the sale of these assets which occurred on May 19, 2000.  Installation  revenues
for the certain customer of the Computer  Products  Division (also  discontinued
effective  May 19,  2000)  contributed  revenues of $532 and $29 in the quarters
ended June 30, 2000 and 1999, respectively.

     GROSS PROFIT.  Gross profit  decreased by $890 (54.8%) to $734 in 2000 from
$1,624 in 1999. Gross margin decreased to 17.4% in 2000 from 36.0% in 1999.

     ACS gross  profit  decreased  by $164  (56.7%) to $125 in 2000 from $289 in
1999 as revenues  decreased by 28.1%. Gross margin for ACS decreased to 19.1% in
2000 from 31.7% in 2000. ACS' cost of service consists  primarily of labor cost.
Labor has a more  fixed  nature  such that  higher  levels of  service  revenues
produce  higher  levels of gross margin  while lower levels of service  revenues
produce  lower gross  margin.  In periods when  service  revenues  decrease,  it
becomes more important to manage labor cost in order to prevent erosion of gross
margin.  Because ACS was internally focused due to the  reorganization,  we were
not  focused on  maximizing  gross  margin  through  selling  services or by the
reduction  of labor cost.  In  addition,  gross profit was impacted by increased
employee  benefit costs for technical staff related to changing from a partially
self-funded  health insurance plan to a fully funded plan.  During the remainder
of 2000, with  reorganization  efforts completed,  the focus of ACS will turn to
selling service and managing labor in order to increase gross profit.


<PAGE>

     Synergy's gross profit  decreased by $390 (60.6%) to $253 in 2000 from $643
in 1999 as revenues  decreased by 35.0%. Gross margin decreased to 19.1% in 2000
from 31.6% in 1999.  As with ASC our cost of service is labor  intensive.  Labor
has a more fixed  nature such that  higher  levels of service  revenues  produce
higher gross margin  while lower levels of service  revenues  produce less gross
margin. In periods when service revenues decrease,  it becomes more important to
manage labor cost in order to prevent  erosion of gross margin.  Because Synergy
was  internally  focused  due to the  reorganization,  we were  not  focused  on
maximizing  gross margin through  selling  services or by the reduction of labor
cost. In addition, gross profit was impacted by increased employee benefit costs
for  technical  staff related to changing  from a partially  self-funded  health
insurance  plan to a fully  funded  plan.  During the  remainder  of 2000,  with
reorganization  efforts  completed,  the focus of  Synergy  will turn to selling
service and managing labor in order to increase gross profit.

     IT  Staffing's  gross  profit  decreased by $42 (33.3%) to $84 in 2000 from
$126 in 1999 as revenues  increased by 25.0%. Gross margin decreased to 26.7% in
2000 from 50.0% in 1999.  The  decrease  in gross  profit  and gross  margin was
primarily due to a contract with a major customer that limits the rates for such
customer.  Additionally, in the same quarter of 1999 IT Staffing realized higher
levels of higher margin placement fees for permanent placements than in 2000. We
undertook a  significant  restructuring  of the  management  team of IT Staffing
during the quarter,  resulting in a new CEO being hired late in June 2000.  Such
management  restructuring  caused a lack of focus on sales and marketing  during
the  quarter.  In addition,  gross  profit was  impacted by  increased  employee
benefit  costs  for  technical  staff  related  to  changing  from  a  partially
self-funded  health  insurance  plan  to a  fully  funded  plan.  The new CEO is
currently  replacing the recruiting  staff and is increasing sales and marketing
efforts  such  that we expect  improved  results  from IT  Staffing  during  the
remainder of 2000.

     Stratasoft  gross profit increased by $86 (20.9%) to $498 in 2000 from $412
in 1999.  Gross margin for  Stratasoft  decreased to 42.5% in 2000 from 49.9% in
1999.  The decreased  gross margins were primarily due to higher product cost on
sales  because of upgrading  the quality of hardware  product  used,  along with
increased  travel costs for technicians  traveling  internationally  for project
installations.  Gross margin was also  negatively  impacted by the mix of sales,
with a higher  proportion  of total  systems  sales,  which  include a  hardware
component, as compared to software only sales, which do not have a hardware cost
of goods component. In addition, gross profit was impacted by increased employee
benefit  costs  for  technical  staff  related  to  changing  from  a  partially
self-funded health insurance plan to a fully funded plan.

     Corporate's  gross profit  decreased by $380  (246.8%) to a loss of $226 in
2000 from a gross profit of $154 in 1999 as revenues  increased by 54.6%.  Gross
margin  decreased  to (29.7%) in 2000 from  31.2% in 1999.  The El Paso  service
business  that was sold on May 19, 2000  produced  gross loss of $183 in 2000 as
compared to a gross profit of $139 in the same quarter in 1999.  We  experienced
certain costs related to winding up our service operations in the El Paso branch
office  that  negatively  impacted  gross  profit.  In  addition,  this  service
operation lost focus in the service  business when the  announcement was made on
March 16, 2000 that it was being sold along with the Computer  Products Division
and  this  lack  of  focus  negatively  impacted  services  revenues  without  a
corresponding  reduction of cost of service,  which reduced gross profit. The El
Paso  service  business'  gross  profit was also  impacted  by the same costs of
changing from a partially  self-funded employee health insurance plan to a fully
funded plan.  Augmenting those results the gross margin on installations for the
customer that was lost in the Computer  Products  Division sale produced a gross
loss of $43 in 2000 as compared to a gross profit of $15 in 1999.


<PAGE>

     SELLING,  GENERAL  AND  ADMINISTRATIVE   EXPENSES.   Selling,  general  and
administrative  expenses increased by $276 (16.5%) to $1,951 in 2000 from $1,675
in 1999. As a percentage of revenue, these expenses increased by 9%, to 46.1% of
revenue in 2000 from 37.1% of revenue in 1999. The increase in selling,  general
and  administrative  expenses as a percentage  of revenue was  primarily  due to
increased  legal  expenses  relating to litigation,  higher sales  compensation,
increased  travel  expenses  and  increased   administrative   compensation  for
Stratasoft.  ACS, Synergy and IT Staffing all experienced reductions in selling,
general and  administrative  expenses in 2000 as compared to the same quarter of
1999 primarily due to decreased  recruiting staff and management salaries for IT
Staffing along with reduced sales  compensation  for ACS and Synergy.  We expect
that selling,  general and administrative expenses for IT Staffing will increase
from the hiring of a new CEO and from expected increases in recruiting staff. We
had  consolidated  the sales staff for the service  companies  and the  Computer
Products  Division in 1998. With the sale of the Computer  Products Division our
sales  staff that had been  selling  service  was  eliminated,  necessitating  a
rebuilding of the sales staff for ACS and Synergy.  Corporate's selling, general
and  administrative  expenses  were  $88  higher  in 2000  than  in 1999  due to
increased  administrative  and  collection  efforts and on the winding up of the
installations  for  the  customer  mentioned  under  Corporate  revenues  above.
Consolidated   selling,   general   and   administrative   expenses   were  also
approximately  $132 higher in the three month  period of 2000 as compared to the
same  period  of 1999 due to costs  related  to  changing  our  employee  health
insurance  plan from a partially  self-funded  plan to a fully funded  plan.  In
addition,  we  experienced  higher  than  expected  costs  related to  finishing
projects  that  were  not  transferred  in the  sale  of the  Computer  Products
Division. Bad debt expense, on a consolidated basis, was $67 higher in the three
month  period of 2000 as compared to the same period of 1999 due to  charge-offs
and reserve changes.

     OPERATING LOSS FROM CONTINUING OPERATIONS.  Our operating loss increased by
$1,166 (2,286.0%) to a loss of $1,217 in 2000 from $51 in 1999 due, principally,
to the  decrease in  Corporate's  gross profit of $380,  Synergy's  gross profit
reduction  of  $390  and  of  Stratasoft's  increase  in  selling,  general  and
administrative expense of $299.

     INTEREST EXPENSE (INCOME),  NET OF OTHER INCOME.  Interest expense,  net of
other  income,  decreased  by $58 to  $(50)  in  2000  compared  to $8 in  1999,
primarily  due to the  reduction of notes  payable and  investment  of available
cash.

     DISCONTINUED OPERATIONS.  On November 2, 1999 we approved a plan to sell or
close our Telecom Systems Division. A sale of certain assets of the division and
its ongoing  operations  closed on March 16,  2000.  As a  consequence  of these
events,   the  operations  of  Telecom  Systems  are  reported  as  discontinued
operations.  The loss on discontinued  operations  related to Telecom Systems in
the quarter ended June 30, 1999 was $387, net of a tax benefit of $194.

     On March 16, 2000 we entered into an  agreement to sell certain  assets of,
and  the  ongoing  operation  of,  our  Computer  Products  Division.  The  sale
transaction  closed on May 19,  2000.  As a  consequence  of these  events,  the
operations of Computer  Products are reported as  discontinued  operations.  The
sale  transaction  was  reported in the quarter  ended March 31,  2000.  For the
quarter  ended June 30, 2000 the company  experienced a loss on disposal of $387
(net of taxes of $199)  related  to the  transaction.  The loss on  discontinued
operations  related to Computer  Products in the quarter ended June 30, 1999 was
$317, net of taxes of $163.

     NET LOSS.  Net loss on  continuing  operations,  after a benefit for income
taxes totaling $386  (reflecting an effective tax rate of 33.1% in 2000 compared
to 5.1% in 1999), increased by $728 to $781 in 2000 compared to a loss of $53 in
1999. The Company also had a net loss from discontinued  operations of $317, net
of taxes of $163,  in the quarter ended June 30, 1999.  Additionally,  a loss on
disposal of $387,  net of taxes of $199 was recognized in the quarter ended June
30, 2000.


<PAGE>


   Six Months Ended June 30, 2000 Compared To Three Months Ended June 30, 1999
                             (Dollars in thousands)

     The  following  table  sets  forth,  for  the  periods  indicated,  certain
financial data derived from our unaudited consolidated  statements of operations
for the six months ended June 30, 2000 and 1999.  Likewise the discussion  below
relates only to our continuing operations, unless otherwise noted.

                                                  Six months ended June 30,
                                                      2000             1999
                                                 Amount    %      Amount    %

Revenue

  ACS                                          $  1,383   13.5   $ 1,815   20.5
Synergy                                           2,884   28.3     3,998   45.3
IT Staffing                                         636    6.2       506    5.7
Stratasoft                                        3,645   35.7     1,595   18.1
Corporate                                         1,664   16.3       920   10.4
         Total revenue                           10,212  100.0     8,834  100.0
Gross profit:
  ACS                                               343   24.8       545   30.0
Synergy                                             719   24.9     1,201   30.0
IT Staffing                                         164   25.8       197   38.9
Stratasoft                                        1,820   49.9       851   53.4
Corporate                                            73    4.4       286   31.1
         Total gross profit                       3,119   30.5     3,080   34.9
Selling, general and administrative
     expenses:
  ACS                                               536   38.8       552   30.4
Synergy                                           1,113   38.6     1,215   30.4
IT Staffing                                         174   27.4       252   49.8
Stratasoft                                        1,808   49.6       945   59.2
Corporate                                           629   37.8       344   37.4
         Total selling, general and
         administrative Expenses                  4,260   41.7     3,308   37.4
Operating income (loss):
  ACS                                              (193) (14.0)       (7)  (0.4)
Synergy                                            (394) (13.7)      (14)  (0.4)
IT Staffing                                         (10)  (1.6)      (55) (10.9)
Stratasoft                                           12    0.3       (94)  (5.9)
Corporate                                          (556) (33.4)      (58)  (6.3)
         Total operating loss                    (1,141) (11.1)     (228)  (2.5)
Interest expense, net of interest income            (35)   (0.3)      18    0.2
Loss  before benefit for income taxes            (1,106)  (10.8)    (243)  (2.7)
Benefit  for income taxes                          (367)   (3.6)     (63)  (0.7)
Net loss from continuing operations                (739)   (7.2)    (180)  (2.0)
Discontinued operations:
Net income (loss) from discontinued operations      301     2.9     (244)  (2.8)
Gain on disposal                                  4,486    43.9        0    0.0
Net income (loss)                               $ 4,048    39.6  $  (424)  (4.8)

<PAGE>

     TOTAL REVENUE. Total revenue increased by $1,378 (15.6%) to $10,212 in 2000
from $8,834 in 1999.

     ACS  revenue  decreased  by $432  (23.8%) to $1,383 in 2000 from  $1,815 in
1999. As a percentage  of total  revenue ACS revenue  decreased to 13.5% in 2000
from  20.5% in 1999.  The  decrease  in ACS  revenues  was  attributable  to the
reorganization  of the IT Service  Division into two newly formed  corporations,
one of which is ACS, in the quarter  ended June 30, 2000.  Those  reorganization
efforts  spanned  the  entire  first six months of 2000.  As the  reorganization
efforts  subside  during  the  remainder  of the  year,  the  focus  of ACS will
progressively shift towards the selling of services to produce revenue growth.

     Synergy  revenue  decreased by $1,114 (27.9%) to $2,884 in 2000 from $3,998
in 1999. As a percentage of total revenue Synergy revenue  decreased to 28.3% in
2000 from 45.3% in 1999. Like ACS, Synergy's efforts during the six months ended
June  30,  2000  were on  reorganization  and the  break  up of the IT  Services
Division  into two newly formed  corporations,  one of which is Synergy.  As the
reorganization  efforts  subside  during the remainder of the year, the focus of
Synergy  will  progressively  shift  towards  the selling of services to produce
revenue growth.

     IT Staffing revenue  increased by $130 (25.6%) to $636 in 2000 from $506 in
1999. As a percentage of total revenue IT Staffing revenue  increased to 6.2% in
2000 from 5.7% in 1999. IT Staffing  revenues were least affected by the sale of
the Computer Products  Division.  A new CEO has been hired for this division who
is  intensifying  both  selling  and  recruiting   efforts  in  anticipation  of
increasing the revenue growth through the remainder of the year.

     Stratasoft  revenue  increased  by $2,050  (128.5%)  to $3,645 in 2000 from
$1,595 in 1999.  The  increase  in  Stratasoft  revenues  was due to both better
recognition of Stratasoft  products in the market place, to the expansion of the
sales staff and dealer  network,  and to  increased  advertising  and  marketing
efforts.  Stratasoft,  as a percentage of total  revenue,  increased to 35.7% in
2000 from 18.1% in 1999.

     The Corporate segment includes operations which are not on-going because of
the sale of the Computer Products Division and includes the loss of installation
revenues  that were  related  to a certain  customer  of our  Computer  Products
Division  and the  accompanying  sale of the  service  business  for the El Paso
branch office.  As these  operations  have ceased or are winding up we expect an
insignificant  amount of revenue  in the  quarter  ending  September  30,  2000.
Corporate revenue increased by $744 (80.9%) to $1,664 in 2000 from $920 in 1999.
As a percentage of total revenue  Corporate  revenue  increased to 16.3% in 2000
from 10.4% in 1999. The El Paso branch office  service  business had revenues of
$941and $888 in the six months ended June 30, 2000 and 1999,  respectively.  The
El Paso  service  business  has been  included in the  Corporate  segment of the
continuing  operations  for the quarter  ended June 30, 2000 through the sale of
these  assets  which  occurred on May 19,  2000.  Installation  revenues for the
certain customer of the Computer Products Division (also discontinued  effective
May 19, 2000) contributed  revenues of $723 and $32 in the six months ended June
30, 2000 and 1999, respectively.

     GROSS PROFIT.  Gross profit  increased by $39 (1.3%) to $3,119 in 2000 from
$3,080 in 1999. Gross margin decreased to 30.5% in 2000 from 34.9% in 1999.

     ACS gross  profit  decreased  by $202  (37.0%) to $343 in 2000 from $545 in
1999 as revenues  decreased by 23.8%.  ACS' cost of service is labor  intensive.
Labor has a more  fixed  nature  such that  higher  levels of  service  revenues
produce  higher  levels of gross margin  while lower levels of service  revenues
produce  lower gross  margin.  In periods when  service  revenues  decrease,  it
becomes more important to manage labor cost in order to prevent erosion of gross
margin.  Because ACS was internally focused due to the  reorganization,  we were
not focused on maximizing  gross margin through selling  services or by reducing
labor cost. In addition, gross profit was impacted by increased employee benefit
costs for  technical  staff  related to changing  from a  partially  self-funded
health insurance plan to a fully funded plan. During the remainder of 2000, with
reorganization efforts completed,  the focus of ACS will turn to selling service
and managing labor in order to increase gross profit.

<PAGE>

     Synergy's  gross  profit  decreased  by $482  (40.1%)  to $719 in 2000 from
$1,201 in 1999 as revenues  decreased by 27.9%. As with ASC, our cost of service
is labor  intensive.  Labor has a more fixed  nature such that higher  levels of
service  revenues  produce  higher  gross  margin  while lower levels of service
revenues produce less gross margin.  In periods when service revenues  decrease,
it  becomes  more  important  for  management  of labor cost in order to prevent
erosion of gross  margin.  Because  Synergy  was  internally  focused due to the
reorganization,  we were not focused on maximizing  gross margin through selling
services or by reducing  labor cost.  In addition,  gross profit was impacted by
increased  employee benefit costs for technical staff related to changing from a
partially  self-funded  health insurance plan to a fully funded plan. During the
remainder of 2000, with reorganization  efforts completed,  the focus of Synergy
will turn to selling  service  and  managing  labor in order to  increase  gross
profit.

     IT  Staffing's  gross profit  decreased by $33 (16.8%) to $164 in 2000 from
$197 in 1999 as revenues  increased  by 25.6%.  The  decrease in gross profit is
primarily  due to a contract with a major  customer,  which limits the rates for
that particular customer.  Additionally, in the same quarter of 1999 IT Staffing
realized higher levels of higher margin placement fees for permanent  placements
than in 2000. We undertook a significant restructuring of the management team of
IT Staffing during the quarter,  resulting in a new CEO being hired late in June
2000.  Such  management  restructuring  caused  a lack of  focus  on  sales  and
marketing  during  the  quarter.  In  addition,  gross  profit was  impacted  by
increased  employee benefit costs for technical staff related to changing from a
partially  self-funded  plan to a fully  funded  plan.  The new CEO is currently
replacing the  recruiting  staff and is increasing  sales and marketing  efforts
such that we expect  improved  results from IT Staffing  during the remainder of
2000.

     Stratasoft  gross profit  increased by $969 (113.9%) to $1,820 in 2000 from
$851 in 1999. Gross margin for Stratasoft  decreased to 49.9% in 2000 from 53.4%
in 1999 but were in line with  expectations  for this  business.  The  decreased
gross  margins were  primarily  due to higher  product cost on sales  because of
upgrading the quality of hardware  product  used,  along with  increased  travel
costs for technicians traveling internationally for project installations. Gross
margin  was  also  negatively  impacted  by the  mix  of  sales,  with a  higher
proportion  of total  systems  sales,  which  include a hardware  component,  as
compared to  software  only  sales,  which do not have a hardware  cost of goods
component.

     Corporate's gross profit decreased by $213 (74.4%) to $73 in 2000 from $286
in 1999 as revenues  increased by 80.9%.  Corporate's  gross margin decreased to
4.4% in 2000 from 31.1% in 1999. The El Paso service business, which was sold on
May 19, 2000, produced a gross loss of $26 in 2000 as compared to a gross profit
of $268 in the same six  months in 1999,  a  decrease  in  profits  of $294.  We
experienced certain costs related to winding up our service operations in the El
Paso branch office that  negatively  impacted  gross profit.  In addition,  this
service  operation lost focus in the service  business when the announcement was
made on March 16, 2000 that it was being sold along with the  Computer  Products
Division and this lack of focus negatively  impacted services revenues without a
corresponding  reduction of cost of service,  which reduced gross profit. The El
Paso  service  business'  gross  profit was also  impacted  by the same costs of
changing from a partially  self-funded employee health insurance plan to a fully
funded plan.  Augmenting those results the gross margin on installations for the
customer that was lost in the Computer  Products  Division  sale produced  gross
profit of $99 in 2000 as compared to $18 in 1999.

     SELLING,  GENERAL  AND  ADMINISTRATIVE   EXPENSES.   Selling,  general  and
administrative  expenses increased by $952 (28.8%) to $4,260 in 2000 from $3,308
in 1999. As a percentage of revenue,  these expenses increased by 4.3%, to 41.7%
of  revenue in 2000 from 37.4% of revenue  in 1999.  The  increase  in  selling,
general and administrative expenses as a percentage of revenue was primarily due
to increased legal expenses  relating to litigation,  higher sales  compensation
due  to  increased  sales  staff,   increased   travel  expenses  and  increased
administrative compensation for Stratasoft.  Selling, general and administrative
expenses  for ACS,  Synergy and IT  Staffing  are lower in 2000 than in the same
six-month period of 1999 primarily due to  reorganization  of the management and
administrative  staffs.  We expect  that  selling,  general  and  administrative
expenses  for IT Staffing  will  increase  from the hiring of a new CEO and from
expected  increases in recruiting  staff.  Selling,  general and  administrative
expenses for the Corporate  segment increased by $285 (82.8%) to $629 in 2000 as
compared to $344 in the same six month period of 1999  primarily  because of the
administrative  costs associated with billing and collecting of the installation
revenues to wind up services for the  customer  lost in the sale of the Computer
Products Division.  Consolidated  selling,  general and administrative  expenses
were also $132  higher in the six month  period of 2000 as  compared to the same
period of 1999 due to costs  related to changing our employee  health  insurance
plan from a partially self-funded plan to a fully funded plan. Bad debt expense,
on a  consolidated  basis,  was $22  higher in the six  month  period of 2000 as
compared to the same period of 1999 due to charge-offs and reserve changes


<PAGE>

     OPERATING LOSS FROM CONTINUING  OPERATIONS.  Our operating income increased
by $913 (400.4%) to $1,141 in 2000 from $228 in 1999 due, principally, to losses
experienced of $558 in 2000 in the Corporate segment attributable to the loss of
focus of the El Service  business  that was sold in May 19, 2000.  Additionally,
Synergy  experienced a loss in the six-month  period of $394 in 2000 as compared
to $15 in the same period of 1999 due to reduced revenues and gross profit while
being  internally  focused on  reorganization.  ACS experienced the same type of
losses,  $193 in 2000 as compared to $7 in the same six-month period of 1999 for
the same  reasons as Synergy.  These  operating  losses were offset by operating
income of  Stratasoft  of $12 in 2000 as compared  to a loss of $94 in 1999,  an
increase of $106  attributable  primarily  to an increase in revenues  and gross
profit.

     INTEREST EXPENSE (INCOME), NET OF OTHER INCOME.  Interest expense (income),
net of other income,  decreased by $53 to $(35) in 2000 compared to $18 in 1999.
The decrease in expense is  attributable  to both the reduction of notes payable
subsequent to the sale of the Computer  Products  Division and the investment of
available cash.

     DISCONTINUED OPERATIONS.  On November 2, 1999 we approved a plan to sell or
close our Telecom Systems Division. A sale of certain assets of the division and
its ongoing  operations  closed on March 16,  2000.  As a  consequence  of these
events,   the  operations  of  Telecom  Systems  are  reported  as  discontinued
operations.  The company experienced a loss on disposal of $218 (net of taxes of
$112) in the six months  ended June 30, 2000 from this  discontinued  operation.
The loss on discontinued operations related to Telecom Systems in the six months
ended June 30, 1999 was $406, net of a tax benefit of $209.

     On March 16, 2000 we entered into an  agreement to sell certain  assets of,
and  the  ongoing  operation  of,  our  Computer  Products  Division.  The  sale
transaction  closed on May 19,  2000.  As a  consequence  of these  events,  the
operations of Computer Products are reported as discontinued operations. For the
six  months  ended  June 30,  2000 the  company  experienced  net  income on the
discontinued  operations of the Computer Products Division of $301 (net of taxes
of $156) In addition,  we experienced a gain on disposal of $4,704 (net of taxes
of $2,426) related to the transaction.  The income from discontinued  operations
related to Computer Products in the six months ended June 30, 1999 was $162, net
of taxes of $83.

     NET INCOME.  Net income increased $4,472 to $4,048 in 2000 as compared to a
loss of $424 for the same  six-month  period  in  1999.  Net loss on  continuing
operations,  after a benefit  for income  taxes  totaling  $367  (reflecting  an
effective  tax rate of 33.2% in 2000  compared to 25.9% in 1999),  decreased  by
$559 to a loss of $739 in 2000 compared to a loss of $180 in 1999. Additionally,
a gain on disposal of $4,486,  net of taxes of $2,313 was  recognized in the six
months ended June 30, 2000.


<PAGE>

Liquidity and Capital Resources

     Our working  capital  was $14,733 and $9,567 at June 30, 2000 and  December
31, 1999,  respectively.  As of June 30, 2000, we had outstanding  borrowings of
$2,196 and we had excess  available  borrowing base of $6,894under  our Deutsche
Financial  Services credit  facility.  We used the proceeds from the sale of our
Computer Products Division and certain assets of IT services business located in
El Paso,  Texas to repay $9,300 in debt,  which  represented  all of our secured
debt, to Deutsche Financial  Services ("DFS").  We expect to satisfy our capital
requirements  from  our  existing  cash  balances,  collection  of our  accounts
receivables and borrowings under our credit facilities.

Cash Flow

     Operating  activities  provided net cash  totaling  $18,301  during the six
months ended June 30, 2000.  Operating  activities  provided net cash during the
period primarily  because of cash provided by a decrease in accounts  receivable
($23,044) as well as proceeds from the sale of the Computer Products Division of
($16,161)  offset by a  decrease  in  accounts  payable  ($17,059)  and  accrued
expenses ($1,774).  The decrease in accounts payable was primarily the result of
normal  payment of payables,  which had swelled due to the higher level of sales
in the fourth quarter of 1999. The decrease in accrued  liabilities results from
lower  accruals  for  personnel  costs  resulting  from the sale of the Computer
Products Division.  The decrease in accounts receivable was primarily the result
of lower sales and  ultimately a ceasing of sales in our  discontinued  Computer
Product Division and an increased emphasis on collections thereafter.

     Investing  activities  provided  cash  totaling  $190 during the six months
ended June 30, 2000 consisted of proceeds of the sale of fixed assets related to
the sale of the Computer Products Division offset by capital expenditures.

     Financing   activities  used  cash  totaling  $15,883   primarily   because
borrowings  were reduced under our credit  facility  during the six months ended
June 30, 2000.

Asset Management

     We had accounts  receivable,  net of allowance  for doubtful  accounts,  of
$14,682 at June 30,  2000.  The number of days'  sales  outstanding  in accounts
receivable from our continuing  operations was 63.48 days,  which is higher than
the 60 days  outstanding at December 31, 1999. The number of days outstanding in
accounts receivable retained from our discontinued  operations was 75.03 days as
calculated  based on the sales for the  discontinued  operations.  The number of
days  outstanding  for both  the  continuing  and  discontinued  operations  has
increased  because of a slowdown of collections from a large customer.  Bad debt
expense as a  percentage  of total  revenue was 3.5% and 0.3% for the six months
ended  June 30,  2000 and  1999.  Our  allowance  for  doubtful  accounts,  as a
percentage  of  accounts  receivable,  was  22.5% at June  30,  2000 and 1.0% at
December 31, 1999.

Current Debt Obligations

     Historically,  we have satisfied our cash requirements  principally through
borrowings under our lines of credit and through operations.  We maintain a cash
position  sufficient to pay due obligations  and expenses.  Should the amount of
cash  available  fall below our immediate  needs,  we request  advances  under a
credit facility provided by the DFS facility.

     On May 19,  2000,  the day we  closed  the  sale  of our  Computer  Product
Division,  we amended our DFS Facility to decrease  the total  credit  available
under the facility from $30,000 to $10,000 subject to borrowing base limitations
that are  generally  computed  as a  percentage  of various  classes of eligible
accounts  receivable and qualifying  inventory.  Credit  available under the DFS
Facility for floor plan financing of inventory from approved  manufacturers (the
"Inventory  Line") is $5,000.  Available  credit under the DFS Facility,  net of
Inventory  Line advances,  is $5,000,  which is used primarily to carry accounts
receivable  and for other working  capital and general  corporate  purposes (the
"Accounts  Line").  Borrowings  under the  Accounts  Line bear  interest  at the
fluctuating prime rate minus 1.0% per annum.  Under the Inventory Line, DFS pays
our inventory vendors directly,  generally in exchange for negotiated  financial
incentives.  Typically, the financial incentives received are such that DFS does
not charge us interest until 40 days after the transaction is financed, at which
time we are  required  to either pay the full  invoice  amount of the  inventory
purchased  from  corporate  funds or to borrow under the  Accounts  Line for the
amount due to DFS.  Inventory  Line  advances  not paid within 40 days after the
financing  date bear  interest  at the  fluctuating  prime rate plus  5.0%.  For
purposes of  calculating  interest  charges the minimum prime rate under the New
DFS Facility is 7.0%.

     The DFS Facility is  collateralized by a security interest in substantially
all of our assets, including our accounts receivable,  inventory,  equipment and
bank accounts. Collections of our accounts receivable are required to be applied
through a lockbox  arrangement to repay  indebtedness to DFS;  however,  DFS has
amended the lockbox agreement to make such arrangements  contingent upon certain
financial  ratios.  Provided we are in compliance  with its debt to tangible net
worth  covenant,  we have  discretion  over the use and application of the funds
collected in the lockbox.  If we exceed that  financial  ratio,  DFS may require
that lockbox  payments be applied to reduce our  indebtedness  to DFS. If in the
future  DFS  requires  that all  lockbox  payments  be  applied  to  reduce  our
indebtedness,  we would be required to seek funding from DFS or other sources to
meet substantially all of our cash needs.


<PAGE>

     Under the DFS Facility we are required to maintain (i) a tangible net worth
of  $10,000,  defined  under the  agreement  as book value of assets  (excluding
intangibles   such  as   receivables   from  officers,   directors,   employees,
stockholders  and  affiliates,  net leasehold  improvements,  goodwill,  prepaid
expenses,  franchise fees and other similar items) less liabilities (ii) a ratio
of debt  minus  subordinated  debt to  tangible  net worth of 4 to 1 and (iii) a
ratio of current tangible assets to current liabilities of not less than 1.25 to
1.

     We have a $2,000 credit  facility with IBM Credit  Corporation  (the "IBMCC
Facility")  for the purchase of IBM branded  inventory  from certain  suppliers.
Advances under the IBMCC Facility are typically  interest free for 30 days after
the financing date for transactions in which adequate  financial  incentives are
received by IBMCC from the vendor.  Within 30 days after the financing date, the
full amount of invoices for inventory  financed  through IBMCC is required to be
paid. Amounts remaining outstanding  thereafter bear interest at the fluctuating
prime rate (but not less than 6.5%) plus 6.0%. IBMCC retains a security interest
in the inventory financed and is immediately terminable by either party.

     Both of our borrowing  facilities  prohibit the payment of dividends unless
consented to by the lender.


<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 six months ended June 30, 2000,  a  one-percent  increase in interest
rates paid by us on our debt would have  resulted  in an  increase  in  interest
expense of approximately $49 for the period.

PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

     On  September  22, 1998 we filed suit against  Ragheed W. Nounou,  a former
employee,  in ALLSTAR SYSTEMS,  INC. V RAGHEED W. NOUNOU,  Cause No. 98-45194 in
the District Court for Harris County,  Texas, 129th Judicial  District,  seeking
recovery of  approximately  $98,000 in  commissions  paid in error.  Said former
employee has filed a counter-claim  against us on October 26, 1998. We intend to
vigorously  defend such  counter  claim.  We are unable to estimate the range of
possible  recovery by the former employee because the suit is still in the early
stages of discovery.

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

On May 16, 2000,  Jack B. Corey ("Corey") filed suit against the Company in JACK
B. COREY V. ALLSTAR SYSTEMS,  INC., Cause No. 2000-24796,  in the District Court
of Harris County, Texas, 113th Judicial District,  seeking to enjoin the sale of
its computer product division and certain other assets to Amherst  Technologies,
and for unspecified  damages.  On Wednesday,  May 17, 2000, a state court denied
Corey's Application for Temporary Restraining Order and on Monday, May 22, 2000,
a second state court denied his Application  for a Temporary  Injunction and for
Expedited  Discovery  as moot.  The present  pleadings  lack  specificity  as to
Corey's  claim for  damages  and it is unclear at this time  whether  Corey will
pursue such a claim. However, the Company strongly denies that it engaged in any
improper conduct with regard to the sale of its assets and intends to vigorously
defend any claim that might be pursued by Corey.

         We are party to other litigation and claims which  management  believes
are normal in the course of its operations; while the results of such litigation
and claims cannot be predicted with  certainty,  We believe the final outcome of
such  matters  will not have a  materially  adverse  effect  on its  results  of
operations or financial position.


<PAGE>


ITEM 4. Submission of Matters to a vote of Security Holders

         A  Special  Meeting  of the  shareholders  was held on May 19,  2000 to
consider  and  approve the sale of certain  assets  consisting  of the  Computer
products  Division and specified assets of our Information  Technology  Services
("IT Services")  Division  related to our El Paso,  Texas office and to consider
and approve the 2000 Stock Incentive Plan.

         A total of 4,060,525  shares of the Company's  common stock,  $0.01 per
share par value, were entitled to vote at the meeting. Of these shares 2,479,173
or 61.01% were present and voted as set forth in the table below.

                              Shares Voted  Shares Voted  Shares Voted   Votes
                                                For         Against     Withheld
Approval of the sale of
assets of the Computer
Products Division and
specified assets of the
IT Services related to the
El Paso, Texas office           2,479,173    2,469,706        9,267        200

Approval and adoption of
2000 Stock Incentive Plan       2,479,173    2,416,660       60,263      2,250

     The annual meeting of the  shareholders  was held on July 10, 2000. A total
of 4,048,525  shares of the Company's  common stock,  $0.01 per share par value,
were  entitled to vote at the meeting.  Of these shares  2,070,897 or 51.2% were
present and voted as set forth in the table below.

Director                      Shares Voted  Shares Voted                 Votes
                                                For                     Withheld

James H Long                    2,070,897    2,069,697                   1,200
Donald R. Chadwick              2,070,897    2,069,697                   1,200
Richard D. Darrell              2,070,897    2,069,697                   1,200
Jack M. Johnson, Jr.            2,070,897    2,069,697                   1,200
Mark T. Hilz                    2,070,897    2,069,697                   1,200

Additionally,  at this meeting 2,070,297 shareholders,  with 600 votes withheld,
voted to approve an amendment to the company's  Certificate of  Incorporation to
change  the  name  of  the  company  from  Allstar  Systems,  Inc.  to  I-Sector
Corporation.

ITEM 6. Exhibits and Reports on Form 8-K

     Form  8-K,  April 11,  2000,  related  to an  Amendment  of the  previously
announced  Asset  Purchase  Agreement  for  the  sale of the  Computer  Products
Division.

     Form 8-K, June 5, 2000, related to Shareholder  approval of the sale of the
Computer  Products  Division  under the  previously  announced and amended Asset
Purchase Agreement


<PAGE>


SIGNATURES

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

                                     I-Sector Corporation.

August, 2000                         By:      /s/ JAMES H. LONG
Date                                 James H. Long, Chief Executive Officer,
                                     President and Chairman of the Board
                                     (Principal Financial and Accounting Officer