FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

(Mark One)

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

For the quarterly period ended September 30, 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 November 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)

                                                   September 30,    December 31
                                                        2000              1999
                                                        ----              ----
                                                                 (Unaudited)
ASSETS

Current assets:
     Cash and cash equivalents                     $    8,762        $   4,647
     Accounts receivable, net                           5,630           37,726
     Accounts receivable - affiliates                     467              423
     Inventory                                            962            7,442
     Deferred taxes                                     2,400              836
     Other current assets                                 181              384
                                                      -------          -------
         Total current assets                          18,402           51,458
Property and equipment                                  1,252            2,280
Other assets                                              149              178
                                                      -------          -------
Total                                              $   19,803        $  53,916
                                                      =======          =======

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Notes payable                                 $                 $  15,869
     Accounts payable                                   1,786           21,687
     Accrued expenses                                   2,138            3,896
     Net liabilities related
       to discontinued operations                       1,051              199
     Income taxes payable                               1,383
     Deferred service revenue                              97              240
                                                      -------          -------
         Total current liabilities                      6,455           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
         September 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 September 30, 2000 and
       December 31, 1999                                 (986)            (972)
     Retained earnings                                  4,059            2,722
                                                      -------          -------
         Total stockholders' equity                    13,153           11,830
                                                      -------          -------
Total                                              $   19,803        $  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 September 30,

                                                      2000              1999
                                                      ----              ----


Total revenue                                      $   4,173         $  4,920
Cost of sales and services                             3,314            3,038
                                                    --------          -------
Gross profit                                             859            1,882
Selling, general and administrative expenses           3,282            1,725
                                                    --------          -------
Operating (loss) income                               (2,423)             157
Interest expense (income), including other income       (100)             (19)
                                                    --------          --------
(Loss) income from continuing operations before
     (benefit) provision  for income taxes            (2,323)             176
(Benefit) provision for income taxes                    (708)              60
                                                    --------          -------
Net (loss) income from continuing operations          (1,615)             116
Discontinued Operations:
     Net income from discontinued operations,
       net of taxes                                                       216
     Loss on disposal, net of taxes                   (1,095)
                                                    --------          -------
Net (loss) income                                  $  (2,710)        $    332
                                                    ========          =======


Net (loss) income per share:
     Basic and diluted:
         Net (loss) income from continuing
           operations                              $  (0.40)         $   0.03
         Net income from discontinued operations                         0.05
         Loss on disposal, net of taxes               (0.27)
                                                    -------           -------
              Net (loss) income per share          $  (0.67)         $   0.08
                                                    =======           =======

Weighted average shares outstanding:

         Basic and diluted                           4,048,525        4,169,125
                                                    ==========       ==========


                 See notes to consolidated financial statements

<PAGE>

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

                                                 Nine Months Ended September 30,

                                                        2000             1999
                                                        ----             ----

Total revenue                                      $   14,386        $ 13,754
Cost of sales and services                             10,407           8,792
                                                      -------          ------
Gross profit                                            3,979           4,962
Selling, general and administrative expenses            7,544           5,033
                                                      -------          ------
Operating loss                                         (3,565)            (71)
Interest expense (income), net of other income           (135)             (4)
                                                      -------          ------
Loss from continuing operations before
     benefit for income taxes                          (3,430)            (67)
Benefit for income taxes                               (1,075)             (3)
                                                      -------          ------
Net loss from continuing operations                    (2,355)            (64)
Discontinued Operations:
     Net income (loss) from discontinued
       operations, net of taxes                           300             (28)
     Gain on disposal, net of taxes                     3,392
                                                      -------          ------
Net income (loss)                                  $    1,337        $    (92)
                                                      =======          ======

Net income (loss) per share:
     Basic and diluted:
         Net loss from continuing operations       $    (0.58)       $   (0.01)
         Net income (loss) on discontinued
           operations                                    0.07            (0.01)
         Gain on disposal, net of taxes                  0.84
                                                     --------          -------
              Net income (loss) per share          $     0.33        $   (0.02)
                                                     ========          =======

Weighted average shares outstanding:

         Basic and diluted                           4,048,672        4,169,023
                                                     =========        =========

                 See notes to consolidated financial statements


<PAGE>

                      I-SECTOR CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                   (Unaudited)
                                                 Nine Months Ended September 30,

                                                        2000              1999
                                                        ----              ----

Net loss from continuing operations                $   (2,355)       $     (64)
Adjustments to reconcile net loss to net cash
     provided by (used in) operating activities:
     Depreciation and amortization                        376              453
     Deferred tax provision                            (2,233)
Changes in assets and liabilities that
  provided (used) cash:

     Accounts receivable, net                          32,096            2,415
     Accounts receivable - affiliates                     (44)             (83)
     Inventory                                            (82)          (1,505)
     Other current assets                                 181              213
     Other assets                                          29
     Accounts payable                                 (19,901)           3,258
     Accrued expenses                                  (1,758)              (4)
     Income taxes payable                                (521)
     Deferred service revenue                            (143)             (61)
                                                    ---------         --------

Net cash provided by continuing operating
     activities                                         5,645            4,622
Net operating activities from discontinued
  activities                                           14,407              325
                                                    ---------         --------
     Net cash provided by operating activities         20,052            4,947

Cash flows from investing activities:

     Proceeds from sale of fixed assets                   279
     Capital expenditures                                (333)            (477)
                                                    ---------         --------

     Net cash used in  investing activities:              (54)            (477)
                                                    ---------         --------

Cash flows from financing activities:

     Purchase of treasury stock                           (14)
     Net decrease in notes payable                    (15,869)          (3,220)
                                                    ---------         --------

     Net cash used in financing activities:           (15,883)          (3,220)
                                                    ---------         --------

Net increase in cash and cash equivalents               4,115            1,250
Cash and cash equivalents at beginning of period        4,647            2,538
                                                    ---------         --------
Cash and cash equivalents at end of period         $    8,762        $   3,788
                                                    =========         ========
Supplemental disclosures of cash flow information:
     Cash paid for interest                        $      375        $     754
                                                    =========         ========
     Cash paid for taxes                           $    1,009        $       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 ("INX") to meet the needs
of customers in the area of large-scale network infrastructure requirements that
are Cisco centric. Subsequent to September 30, 2000, INX acquired certain assets
of Internetwork  Experts, Inc. along with the right to use that name and changed
its name to Internetwork Experts, Inc. ("INX").

     The condensed  consolidated financial statements presented herein as of and
for the three and nine months ended  September 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  accounting
principles  generally  accepted  in  the  United  States  of  America.  Although
management  believes the  disclosures  are  adequate,  certain  information  and
disclosure  normally included in the notes to the financial  statements has been
condensed or omitted as permitted by the rules and regulations of the Securities
and Exchange Commission.

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

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

     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 does not believe the adoption of SFAS
No. 133 will have a material impact on its financial position and the results of
operations and cash flows..

     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).  During
the quarter  ended  September  30, 2000,  I-Sector  again  revised its estimates
relating to the  impairment of assets and  recognized a loss on disposal of $969
(net of taxes of $500).  I-Sector retained accounts  receivable  attributable to
the Computer Products Division,  which, at September 30, 2000, was approximately
$1,293,  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 September 30,
2000 includes $984,000 of estimated  expenses relating to the disposal.  Revenue
for the Computer  Products  Division for the three and nine month periods ending
September  30,  2000  through  the date of  disposition  was  $120 and  $49,333,
respectively  and $44,611 and $132,826 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 nine months ended September 30, 1999 and 2000 and for
the  period  from  April  1,  2000 to May 19,  2000  was  $566,  $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 revenue of
$1,305 and $942 and an operating  loss of $244 and $720 in the nine months ended
September 30, 1999 and 2000,  respectively.  The El Paso  services  business has
been  included  through  the  close  date  of May  19,  2000  in the  continuing
operations  (as a part of the  Corporate  segment)  for the  nine  months  ended
September 30, 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.  Loss  from
discontinued  operations  (net of tax  benefit  of  $354)  was $687 for the nine
months ended  September 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 nine months
ended September 30, 2000,  I-Sector revised its estimate of the loss on disposal
and recorded an  additional  loss (net of tax benefit of $65) of $127.  I-Sector
has retained  accounts  receivable of  approximately  $218, net of reserves,  at
September 30, 2000, related to the Telecom Division. The Revenue for the Telecom
Division for the three and nine month periods ending  September 30, 2000 through
the date of disposition, March 16, 2000, was $0 and $752, respectively, and $704
and $3,164 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. 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.


<PAGE>

     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 September 30, 2000:

                                           1996              2000
     Exercise Price   Director Plan   Incentive Plan    Incentive Plan
         $1.063                          190,012
         $1.375                            4,500
         $1.500           28,000         192,640              14,100
         $1.563                           17,020
         $1.750            9,000           1,900
         $2.188                                                5,000
         $2.266                                               35,800
         $2.313                                               32,471
         $2.938                                                  400
         $6.000                            8,000                   0
                       ---------       ---------           ---------

     Total granted        37,000         414,072              87,771
                       =========       =========           =========

     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  September  30,  2000,  I-Sector  had  restricted  stock  awards
outstanding for 1,200 shares.

4.   SEGMENT INFORMATION

     I-Sector  has six  reportable  segments:  ACS,  Synergy,  INX, 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.  The  combined  ACS,  Synergy and IT  Staffing,  plus the El Paso  service
business  and the  service  operations  related to that  certain  customer  were
previously  reported as the IT Services  segment prior to the quarter ended June


<PAGE>

30, 2000.  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 operations and helpdesk solutions  consulting
services.   IT  Staffing   provides  IT   professionals  to  work  on  temporary
assignments,  recruiting  services and  placements.  INX  provides  professional
services in the area of large-scale network infrastructure requirements that are
Cisco centric. Stratasoft, reported prior to the quarter ended June 30, 2000, 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  and are shown in the  Elimination  column in the following
table. The tables below show the results of the six reportable segments:

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

<S>                                 <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Total  revenue                      $   571    $   841    $   700    $   334    $ 1,779    $   (41)   $   (11)   $ 4,173
Cost of sales and services              511        735        735        250      1,015         79        (11)     3,314
                                     ------     ------     ------     ------     ------     ------     ------      -----
Gross profit (loss)                      60        106        (35)        84       764        (120)         0        859
Selling, general and
     administrative expenses            330        360        327        138      1,139        988          0      3,282
                                     ------     ------     ------     ------     ------     ------     ------     -----
Operating loss                      $  (270)   $  (254)   $  (362)   $   (54)   $  (375)   $(1,108)    $    0      2,423)
                                     ======     ======     ======     ======     ======     ======     ======
Interest expense (income), net of
     other income                                                                                                   (100)
                                                                                                                  ------
Loss before benefit for income tax                                                                                (2,323)
Benefit for income tax                                                                                              (708)
                                                                                                                  ------
Net loss from continuing operations                                                                               (1,615)
Net loss on disposal, net of taxes                                                                                (1,095)
                                                                                                                  ------
Net loss                                                                                                         $(2,710)
                                                                                                                  ======

Accounts receivable, net            $   700    $ 1,016    $   266    $   279    $   803    $ 1,055    $     0    $ 4,119
                                     ======     ======     ======     ======     ======     ======     ======     ======
Accounts receivable retained from
     discontinued operations, net                                                                                  1,511
                                                                                                                  ------
Total accounts receivable, net                                                                                   $ 5,630
                                                                                                                  ======

For the quarter ended September 30, 1999:
Total revenue                       $   926    $ 1,838    $     0    $   269    $ 1,329    $   558    $     0    $ 4,920
Cost of sales and services              586      1,163          0        189        623        477          0      3,038
                                     ------     ------     ------     ------     ------     ------     ------     ------
Gross profit                            340        675          0         80        706         81          0      1,882
Selling, general and
     administrative expenses            276        548          0        113        524        264          0      1,725
                                     ------     ------     ------     ------     ------     ------     ------     ------
Operating income (loss)             $    64    $   127    $     0    $  (33)    $ 182      $  (183)   $     0        157
                                     ======    =======     ======     ======     ======     ======     ======
Interest expense (income), net of
     other income                                                                                                    (19)
                                                                                                                  ------
Income before benefit for income tax                                                                                 176
Provision for income tax                                                                                              60
                                                                                                                  ------
Net income from continuing operations                                                                                116
Net income from

     discontinued operations, net of tax                                                                             216
                                                                                                                  ------
Net income                                                                                                       $   332
                                                                                                                  ======

Accounts receivable, net            $ 1,571    $   704    $     0    $   133    $   916    $   693    $     0    $ 4,017
                                     ======     ======     ======     ======     ======     ======     ======
Accounts receivable retained from
     discontinued operations, net                                                                                 28,461
                                                                                                                  ------
Total accounts receivable, net                                                                                   $32,478
                                                                                                                  ======
</TABLE>

For the nine months ended September 30, 2000:
<TABLE>
<CAPTION>
                                                                       IT
                                       ACS     Synergy      INX      Staffing  Stratasoft Corporate Elimination Consolidated

<S>                                 <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Total  revenue                      $ 1,955    $ 3,725    $   700    $   970    $ 5,424    $ 1,623    $   (11)   $14,386
Cost of sales and services            1,551      2,899        735        722      2,841      1,670        (11)    10,407
                                     ------     ------     ------     ------     ------     ------     ------     ------
Gross profit (loss)                     404        826        (35)       248      2,583        (47)         0      3,979
Selling, general and
     administrative expenses            864      1,474        327        312      2,947      1,620          0      7,544
                                     ------     ------     ------     ------     ------     ------     ------     ------
Operating income (loss)             $  (460)   $  (648)   $  (362)   $   (64)   $  (364)   $(1,667)   $     0     (3,565)
                                     ======     ======     ======     ======     ======     ======     ======
Interest expense (income), net of
     other income                                                                                                   (135)
                                                                                                                  ------
Loss before benefit for income tax                                                                                (3,430)
Benefit for income tax                                                                                            (1,075)
                                                                                                                  ------
Net loss from continuing operations                                                                               (2,355)
Net income from discontinued operations,
  net of tax                                                                                                         300
                                                                                                                  ------

Net gain on disposal, net of taxes                                                                                 3,392
                                                                                                                  ------
Net income                                                                                                       $ 1,337
                                                                                                                  ======

Accounts receivable, net            $   700    $ 1,016    $   266    $   279    $   803    $ 1,055    $     0    $ 4,337
                                     ======     ======     ======     ======     ======     ======     ======     ======
Accounts receivable retained from
     discontinued operations, net                                                                                  1,293
                                                                                                                  ------
Total accounts receivable, net                                                                                   $ 5,630
                                                                                                                  ======

For the nine months ended September 30, 1999:

Total revenue                       $ 2,741    $ 5,836    $     0    $   775    $ 2,924    $ 1,478    $     0    $13,754
Cost of sales and services            1,856      3,960          0        497      1,367      1,112          0      8,792
                                     ------     ------     ------     ------     ------     ------     ------     ------
Gross profit                            885      1,876          0        278      1,557        366          0      4,962
Selling, general and
     administrative expenses            828      1,764          0        365      1,469        607          0      5,033
                                     ------     ------     ------     ------     ------     ------     ------     ------
Operating income (loss)             $    57    $   112    $     0    $   (87)   $    88    $  (241)   $     0        (71)
                                     ======     ======     ======     ======     ======     ======     ======
Interest expense (income), net of
     other income                                                                                                     (4)
                                                                                                                  ------
Loss before benefit for income tax                                                                                   (67)
Benefit for income tax                                                                                                (3)
                                                                                                                  ------
Net loss from continuing operations                                                                                  (64)
Net loss from discontinued operations,
  net of tax                                                                                                         (28)
                                                                                                                  ------
Net loss                                                                                                         $   (92)
                                                                                                                  ======

Accounts receivable, net            $ 1,571    $   704    $     0    $   133    $   916    $   693    $     0      4,017
                                     ======     ======     ======     ======     ======     ======     ======
Accounts receivable retained from
     discontinued operations, net                                                                                 28,461
                                                                                                                  ------
Total accounts receivable, net                                                                                   $32,478
                                                                                                                  ======
<FN>
I-Sector has  previously  allocated the cost of its corporate  department to its
operating  subsidiaries.  Beginning in the quarter ended September 30, 2000 that
department is included in the Corporate segment.
</FN>
</TABLE>

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 148,733 and 214,360 shares for
the three and nine months  ended  September  30, 2000 and 67,559  shares for the
three and nine months ended September 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 nine
months  ended  September  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.  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 May 17, 2000, a state court denied
Corey's  Application  for  Temporary  Restraining  Order and on 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 asset sale 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.

7.   SUBSEQUENT EVENT

     On October  27,  2000,  INX  acquired  certain  assets and  liabilities  of
Internetwork  Experts,  Inc., a Dallas professional  services firm that was also
focused on the  architecture,  design,  implementation  and  support of high-end
network  infrastructure  for  service  providers  and  large  enterprises.   The
transaction  is being  accounted  for as a purchase  of certain of the assets of
Internetwork Experts by INX. The combined entity is a wholly owned subsidiary of
I-Sector  Corporation.  INS  subsequently  went  through a legal name  change to
Internetwork Experts, Inc. ("INX"). The seller received a cash purchase price of
$200,000 plus a right to further  payments  contingent  upon  attaining  certain
Cisco  designations  within  6  months  and  upon  performance  of the  acquired
operations.


<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")  historically 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 had 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  since its  inception  in
January,  1997. In July,  2000 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").  Also in  July,  2000  we  formed  another  wholly  owned  company,
Internetworking  Sciences Corporation ("INX"), which operates in the IT services
business sector. Subsequent to Sepember 30, 2000, INX acquired certain assets of
Internetwork  Expert,  Inc.,  along  with the right to use its  name,  and began
operating as Internetwork  Expert, Inc. (INX). 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.

     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 and
inventory related to the businesses that were sold.

     A disposal  loss (net of taxes),  including  an estimate  of the  operating
results from the measurement  date,  November 2, 1999 to the closing date of the
sale of Telecom  Systems  was  recognized  at  December  31,  1999.  The sale of
Computer Products closed on May 19, 2000 after stockholder approval was obtained
and other  conditions  to closing  were  satisfied.  The terms of the  agreement
included cash consideration of $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 included  possible  future cash payments  contingent  upon future
performance of the operations  being sold. We recognized a gain of approximately
$3.7 million,  net of taxes, on the sale. 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  September 30, 2000,  Stratasoft  produced  42.6% of total revenue
while ACS, IT Staffing and Synergy contributed 13.7%, 8.0% and 20.2% of revenue,
respectively.  INX,  our  newly  formed  subsidiary,  contributed  16.8%  of our
revenue. Our Corporate segment,  which includes operations that are not on-going
because of the sale of the Computer Products  Division,  comprised the remaining
(0.1)% of revenue.

     We believe the sale of our Computer Products  Division provided  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 the  separation  of 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.


<PAGE>

     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.

     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 operations and helpdesk solutions  consulting
services.   IT  Staffing   continues  its   established   business   placing  IT
professionals on temporary assignments and permanent placements.  INX focuses on
the design,  deployment and support of networking  infrastructure.  INX provides
professional services for customers that have large-scale network infrastructure
requirements  that are Cisco  centric.  The areas of  practice  for INX  include
network design,  implementation,  turnkey support,  security audits and firewall
design, network infrastructure  management and network infrastructure consulting
services.

     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  revenue  produces  higher  gross  margin  while lower levels of service
revenue  produces  less gross  margin.  Management of labor cost is important in
order to prevent erosion of gross margin.

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

     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.

     Special notice regarding forward-looking statements

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


<PAGE>

      Three Months Ended September 30, 2000 Compared To Three Months Ended
                   September 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  September 30, 2000 and 1999.  The  discussion  below
relates only to our continuing operations, unless otherwise noted.

                                            Three months ended September 30,

                                              2000                  1999
                                              ----                  ----
                                         Amount      %         Amount     %
                                         ------     ---        ------    ---
Revenue

  ACS                                  $    571     13.7     $    926    18.8
  Synergy                                   841     20.2        1,838    37.4
  INX                                       700     16.8            0     0.0
  IT Staffing                               334      8.0          269     5.5
  Stratasoft                              1,779     42.6        1,329    27.0
  Corporate                                 (41)    (0.1)         558    11.3
Elimination                                 (11)    (0.2)           0     0.0
                                        -------    -----      -------   -----
         Total revenue                    4,173    100.0        4,920   100.0
Gross profit (loss):
  ACS                                        60     10.5          340    36.7
  Synergy                                   106     12.6          675    36.7
  INX                                       (35)    (5.0)           0     0.0
  IT Staffing                                84     25.1           80    29.7
  Stratasoft                                764     42.9          706    53.1
  Corporate                                (120)   292.7)          81    14.5
  Elimination                                 0      0.0            0     0.0
                                        -------    -----      -------   -----
         Total gross profit                 859     20.6        1,882    38.3
Selling, general and administrative
  expenses:
  ACS                                       330     57.8          276    29.8
  Synergy                                   360     42.8          548    29.8
  INX                                       327     46.7            0     0.0
  IT Staffing                               138     41.3          113    42.0
  Stratasoft                              1,139     64.0          524    39.4
  Corporate                                 988    241.0          264    47.3
                                        -------    -----      -------   -----
         Total selling, general and
           administrative
         Expenses                         3,282     78.6        1,725    35.1
Operating income (loss):
  ACS                                      (270)   (47.3)          64     6.9
  Synergy                                  (254)   (30.2)         127     6.9
  INX                                      (362)   (51.7)           0     0.0
  IT Staffing                               (54)   (16.2)         (33)  (12.3)
  Stratasoft                               (375)   (21.1)         182    13.7
  Corporate                              (1,108)  (270.2)        (183)  (32.8)
                                        -------    -----      -------   -----
         Total operating loss            (2,423)   (58.1)         157     3.2
Interest expense (income) net of
     other income                          (100)   (2.4)          (19)   (0.4)
                                        -------    -----      -------   -----
Loss before benefit for income taxes     (2,323)   (55.7)         176     3.6
Benefit for income taxes                   (708)   (17.0)          60     1.2
                                        -------    -----      -------   -----
Net loss from continuing operations     (1,615)    (38.7)         116     2.4
Discontinued operations:
Net loss from discontinued operations                             216     4.4
Loss on disposal                        (1,095)    (26.2)           0     0.0
                                        -------    -----      -------   -----
Net loss                               $ (2,710)   (64.9)    $    332     6.7
                                        =======    =====      =======   =====

I-Sector has  previously  allocated the cost of its corporate  department to its
operating  subsidiaries.  Beginning in the quarter ended September 30, 2000 that
department is included in the Corporate segment.


<PAGE>

     TOTAL  REVENUE.  Total revenue  decreased by $747 (15.2%) to $4,173 in 2000
from $4,920 in 1999.

     ACS revenue decreased by $355 (38.3%) to $571 in 2000 from $926 in 1999. As
a percentage of total revenue ACS revenue  decreased to 13.7% in 2000 from 18.8%
in 1999.  The  decrease  in ACS  revenue was  primarily  attributable  to issues
related  to  the   reorganization  of  our  former  IT  Services  Division  into
wholly-owned subsidiaries, each of which have a particular market focus, and one
of which is ACS,  together  with the loss of revenue from certain  customers and
the loss of  certain  categories  of  revenue  after  the  sale of the  Computer
Products Division.

     Synergy  revenue  decreased  by $997 (54.2%) to $841 in 2000 from $1,838 in
1999.  As a percentage of total revenue  Synergy  revenue  decreased to 20.2% in
2000  from  37.4% in  1999.  The  decrease  in  Synergy  revenue  was  primarily
attributable to issues related to the  reorganization  of our former IT Services
Division into wholly-owned subsidiaries,  each of which have a particular market
focus,  and one of which is  Synergy,  together  with the loss of  revenue  from
certain  customers and the loss of certain  categories of revenue after the sale
of the Computer Products Division.

     INX revenue was $700 for the quarter and represent  16.8% of total revenue.
INX was newly formed in July, 2000 to meet the needs of customers in the area of
large-scale  network  infrastructure  requirements  that are Cisco centric.  INX
exerted intense efforts to introduce  itself to the market in Dallas and Houston
and form customer  relationships.  Subsequent to the third quarter, INX acquired
an established  service business in Dallas. The purchase included an established
customer list, seven engineers and two sales staff members.

     IT Staffing  revenue  increased by $65 (24.2%) to $334 in 2000 from $269 in
1999. As a percentage of total revenue IT Staffing revenue  increased to 8.0% in
2000 from 5.5% in 1999.  Of the  various  components  of our former IT  Services
division,  IT Staffing  revenue was least  affected by the sale of the  Computer
Products  Division.  The  increased  revenue  is a result of  increased  selling
efforts and new customer relationships.

     Stratasoft  revenue increased by $450 (33.9%) to $1,779 in 2000 from $1,329
in 1999.  Stratasoft  revenue,  as a percentage of total  revenue,  increased to
42.6% in 2000 from 27.0% in 1999. The increase in Stratasoft  revenue 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.

     The Corporate  segment  includes both costs related to the operation of the
corporate entity that are not allocated to any subsidiary company,  plus certain
operations which are not on-going  because of the sale of the Computer  Products
Division and including prior period  installation  revenue that was related to a
certain customer of our Computer  Products  Division and revenue from our former
El Paso branch office, which ceased because of the sale of the Computer Products
Division.  As these  operations  have  ceased or are  winding up we  expected an
insignificant  amount of revenue  in the  quarter  ending  September  30,  2000.
Corporate revenue decreased by $599 (107.3%) to $(41) in 2000 from $558 in 1999.
Revenue  in 2000 is  negative  because  of  credits  issued to  customers.  As a
percentage of total revenue  Corporate  revenue decreased to (0.1)% in 2000 from
11.3% in 1999. The El Paso branch office service  business had revenue of $1 and
$416  in  the  quarters  ended  September  30,  2000  and  1999,   respectively.
Installation  revenue for the certain customer of the Computer Products Division
(also discontinued effective May 19, 2000) contributed revenue of $(40) and $141
in the quarters ended September 30, 2000 and 1999, respectively.

     GROSS PROFIT. Gross profit decreased by $1,023 (54.4%) to $859 in 2000 from
$1,882 in 1999. Gross margin decreased to 20.6% in 2000 from 38.3% in 1999.

     ACS gross  profit  decreased  by $280  (82.4%)  to $60 in 2000 from $340 in
1999.  Gross margin for ACS  decreased to 10.5% in 2000 from 36.7% in 2000.  ACS
cost of service consists  primarily of labor cost. Labor has a more fixed nature
such that  higher  levels of service  revenue  produces  higher  levels of gross
margin while lower levels of service  revenue  produces  lower gross margin.  In
periods  when service  revenue  decreases,  it becomes more  important to manage
labor  cost in order to  prevent  erosion  of gross  margin.  Subsequent  to the
separation of the IT Services segment into wholly owned subsidiary  companies in
July 2000, ACS experienced lower labor utilization  related to lower revenue. In
addition to the billable  technical staff  utilization  issue,  ACS had a single
large  project  during the  quarter on which gross  profit  margin was about 12%
below normal levels, which negatively impacted the overall margin..


<PAGE>

     Synergy gross profit decreased by $569 (84.3%) to $106 in 2000 from $675 in
1999 as revenue decreased by 54.2%. Gross margin decreased to 12.6% in 2000 from
36.7% in 1999. As with ASC our cost of service is labor  intensive.  Labor has a
more fixed nature such that higher  levels of service  revenue  produces  higher
gross margin while lower levels of service  revenue  produces less gross margin.
In periods when service revenue  decreases,  it becomes more important to manage
labor cost in order to prevent  erosion of gross margin.  As with ACS, after the
restructuring  and  separation  of the IT  Service  segment  into  wholly  owned
subsidiary  companies,  Synergy  experienced lower labor utilization  related to
lower revenue.

     INX gross loss was $35 and 5.0% of revenue. Since INX was formed in July,
2000, there is no history for comparison.  As a newly formed start-up operation,
it had to have billable  technical  staff in place in order to be able to market
their services,  but was unable to utilize that technical staff  sufficiently to
cover their labor cost.

     IT Staffing gross profit  increased by $4 (5.0%) to $84 in 2000 from $80 in
1999 as revenue increased by 24.2%. Gross margin decreased to 25.1% in 2000 from
29.7% in 1999.  The increase in gross profit was primarily due to an increase in
the revenue.  The decrease in gross margin  percentages  was  primarily due to a
contract  with a major  customer  which  limits  the rates  for that  particular
customer,  which more than offset a positive  impact related to higher levels of
higher margin  placement  fees for permanent  placements as compared to the year
earlier period.

     Stratasoft  gross profit  increased by $58 (8.2%) to $764 in 2000 from $706
in 1999 as revenue increased by 33.9%. Gross margin for Stratasoft  decreased to
42.9% in 2000 from 53.1% in 1999.  The decreased  gross margin was primarily due
to inventory  markdowns  along with increased  travel costs for technical  staff
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 gross profit decreased by $201 (248.1%) to a loss of $120 in 2000
from a gross profit of $81 in 1999 as revenue decreased by 107.3%.  Gross margin
decreased to (292.7%) in 2000 from 14.5% in 1999.  The El Paso service  business
that was sold on May 19, 2000  produced  gross profit of $19 in 2000 as compared
to a gross profit of $71 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.  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 $57 in 2000 as compared to a gross profit
of $9 in 1999.

     SELLING,  GENERAL  AND  ADMINISTRATIVE   EXPENSES.   Selling,  general  and
administrative  expenses  increased  by  $1,557  (90.3%)  to $3,282 in 2000 from
$1,725 in 1999. As a percentage of revenue,  these expenses  increased by 43.5%,
to 78.6% of revenue in 2000 from 35.1% of revenue in 1999. Overall, our spending
was up primarily related to organizing the new subsidiary companies,  hiring new
members of management for these new companies, and expanding the sales marketing
staff in the new companies.  In addition,  legal fees related to both collection
efforts  and  litigation  were  higher  than  historical  levels and higher than
expected.  Selling, general and administrative expenses include $142 and $120 of
depreciation  in the quarters ended  September 30, 2000 and 1999,  respectively.
During the third quarter,  we identified issues related to the collectability of
certain accounts  receivable accounts and realized a higher than normal bad debt
expense for the quarter in the amount of $500.  Corporate  selling,  general and
administrative  expenses increased by $724 (274.2%) to $988 in 2000 from $264 in
1999  primarily  due to the  administrative  costs  associated  with billing and
collecting of the installation revenue to wind up services for the customer lost
in the sale of the Computer  Products  Division and because costs related to the
maintenance  of  the  corporate  organization,  including  executive  management
compensation,  corporate-level insurance, legal, director and investor relations
expenses, which were previously allocated out to the operating segments, are now
included  in the  Corporate  segment  beginning  in the third  quarter.  Of this
increase in Corporate  selling,  general and  administrative  expense,  $160 was
primarily  bad  debt  expense   related  to  the  certain   customer  for  which
installation  revenue  ceased  because  of the  sale  of the  Computer  Products
Division.

     OPERATING LOSS FROM CONTINUING OPERATIONS.  Our operating loss increased by
$2,580 (1,643.3%) to a loss of $2,423 in 2000 from a profit of $157 in 1999 due,
principally,  to the decrease in a Corporate operating  loss of $1,108,  Synergy
operating loss of $254, ACS  operating  loss of $270, INX operating loss of $362
and  Stratasoft  increase  in  selling,  general and  administrative  expense of
$615.


<PAGE>

     INTEREST EXPENSE (INCOME), NET OF OTHER INCOME. Interest expense (expense),
net of other  income,  decreased  by $81 to $(100) in 2000  compared to $(19) 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 September 30, 1999 was $281, net of a tax benefit of $145. For
the quarter  ended  September  30, 2000 the loss on disposal  related to Telecom
Systems was $127, net of a tax benefit of $65, which was primarily the result of
increased charges related to the carrying value of accounts  receivable accounts
and inventory.

     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  September  30,  2000 the loss on  disposal  related to  Computer
Products was $969, net of tax benefit of $500, which was primarily the result of
increased charges related to the carrying value of accounts  receivable accounts
and inventory  together with increased  expense accruals related to winding down
the operations of Computer Products..

     NET LOSS.  Net loss on  continuing  operations,  after a benefit for income
taxes totaling $708  (reflecting an effective tax rate of 30.5% in 2000 compared
to 33.0% in 1999), increased by $1,731 to $1,615 in 2000 compared to a profit of
$116 in 1999.  The Company also had a net loss from  discontinued  operations of
$216,  net  of  taxes  of  $114,  in  the  quarter  ended  September  30,  1999.
Additionally, a loss on disposal of $1,095 (net of taxes of $566) was recognized
in the quarter ended September 30, 2000.


<PAGE>

          Nine Months Ended September 30, 2000 Compared To Nine Months
                            Ended September 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 nine months ended  September 30, 2000 and 1999.  Likewise the discussion
below relates only to our continuing operations, unless otherwise noted.

                                      Nine months ended September 30,

                                              2000                  1999
                                              ----                  ----
                                         Amount      %         Amount     %
                                         ------     ---        ------    ---
Revenue

  ACS                                  $   1,955    13.6     $  2,741    19.9
  Synergy                                  3,725    25.9        5,836    42.4
  INX                                        700     4.9            0     0.0
  IT Staffing                                970     6.7          775     5.6
  Stratasoft                               5,424    37.7        2,924    21.3
  Corporate                                1,623    11.3        1,478    10.8
  Elimination                                (11)   (0.1)           0     0.0
                                        -------    -----      -------   -----
         Total revenue                    14,386   100.0       13,754   100.0
Gross profit:
  ACS                                        404    20.7          885    32.3
  Synergy                                    826    22.2        1,876    32.1
  INX                                        (35)   (5.0)           0     0.0
  IT Staffing                                248    25.6          278    35.9
  Stratasoft                               2,583    47.6        1,557    53.2
  Corporate                                  (47)   (2.9)         366    24.8
  Elimination                                  0     0.0            0     0.0
                                        --------   -----      -------   -----
         Total gross profit                3,979    27.7        4,962    36.1
Selling, general and administrative
  expenses:
  ACS                                        864    44.2          828    30.2
  Synergy                                  1,474    39.6        1,764    30.2
  INX                                        327    46.7            0     0.0
  IT Staffing                                312    32.2          365    47.1
  Stratasoft                               2,947    54.3        1,469    50.2
  Corporate                                1,619    99.8          607    41.1
                                        --------   -----      -------   -----
         Total selling, general and
           administrative
         Expenses                          7,543    52.4        5,033    36.6
Operating income (loss):
  ACS                                       (460)  (23.5)          57    (2.1)
  Synergy                                   (648)  (17.4)         112    (0.1)
  INX                                       (362)  (51.7)           0     0.0
  IT Staffing                                (64)   (6.6)         (87)  (11.2)
  Stratasoft                                (364)   (6.7)          88     3.0
  Corporate                               (1,666)  (102.6)       (241)  (16.3)
                                        --------   -----      -------   -----
         Total operating loss             (3,565)  (24.8)         (71)   (0.5)
Interest expense, net of interest
  income                                    (135)   (0.1)          (4)    0.0
                                        --------   -----      -------   -----
Loss before benefit for income taxes      (3,430)  (23.8)         (67)   (0.5)
Benefit for income taxes                  (1,075)   (7.5)          (3)   (0.0)
                                        --------   -----      -------   -----
Net loss from continuing operations       (2,355)  (16.4)         (64)   (0.5)
Discontinued operations:
Net income (loss) from discontinued
  operations                                 300     2.1          (28)    0.2
Gain on disposal                           3,392    23.6            0     0.0
                                        --------   -----      -------   -----
Net income (loss)                      $   1,337     9.3     $    (92)   (0.7)
                                        ========   =====      =======   =====

I-Sector has  previously  allocated the cost of its corporate  department to its
operating  subsidiaries.  Beginning in the quarter ended September 30, 2000 that
department is included in the Corporate segment.


<PAGE>

     TOTAL  REVENUE.  Total revenue  increased by $632 (4.6%) to $14,386 in 2000
from $13,754 in 1999.

     ACS  revenue  decreased  by $786  (28.7%) to $1,955 in 2000 from  $2,741 in
1999. As a percentage  of total  revenue ACS revenue  decreased to 13.6% in 2000
from 19.9% in 1999.  The  decrease  in ACS revenue  was  attributable  to issues
related to the  reorganization our former IT Services Division into wholly-owned
subsidiaries,  each of which have a particular market focus, and one of which is
ACS,  together  with the loss of revenue from certain  customers and the loss of
certain categories of revenue after the sale of the Computer Products Division.

     Synergy  revenue  decreased by $2,111 (36.2%) to $3,725 in 2000 from $5,836
in 1999. As a percentage of total revenue Synergy revenue  decreased to 25.9% in
2000 from 42.4% in 1999.  The decrease in Synergy  revenue was  attributable  to
issues  related to the  reorganization  our  former IT  Services  Division  into
wholly-owned subsidiaries, each of which have a particular market focus, and one
of which is Synergy together with the loss of revenue from certain customers and
the loss of  certain  categories  of  revenue  after  the  sale of the  Computer
Products Division.

     INX revenue was $700 and 4.9% of total  revenue for the nine month  period.
INX was newly formed in July, 2000 to meet the needs of customers in the area of
large-scale  network  infrastructure  requirements  that are Cisco centric.  INX
exerted  an  intense  effort to  introduce  itself to the  market in Dallas  and
Houston and form customer  relationships.  Subsequent to the third quarter,  INX
acquired an established  network  professional  services business in Dallas. The
purchase  included an established  customer list,  seven engineers and two sales
staff members.

     IT Staffing revenue  increased by $195 (25.2%) to $970 in 2000 from $775 in
1999. As a percentage of total revenue IT Staffing revenue  increased to 6.7% in
2000 from 5.6% in 1999.  IT Staffing  revenue was least  affected by the sale of
the Computer Products  Division.  The increased revenue is a result of increased
selling efforts and new customer relationships.

     Stratasoft  revenue  increased  by  $2,500  (85.5%)  to $5,424 in 2000 from
$2,924 in 1999. Stratasoft revenue, as a percentage of total revenue,  increased
to 37.7% in 2000  compared to 21.3% in the same nine month  period of 1999.  The
increase in Stratasoft  revenue 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.

     The Corporate  segment  includes both costs related to the operation of the
corporate  entity that are not allocated to any subsidiary  company plus certain
operations which are not on-going  because of the sale of the Computer  Products
Division,  including prior period  installations  revenue that were related to a
certain customer of our Computer  Products  Division and revenue from our former
El Paso branch office,  which was eliminated as part of the sale of the Computer
Products  Division.  As these operations have ceased or are winding up we expect
an  insignificant  amount of revenue in the quarter  ending  December  31, 2000.
Corporate  revenue  increased  by $145  (9.8%) to $1,623 in 2000 from  $1,478 in
1999. As a percentage of total revenue  Corporate  revenue increased to 11.3% in
2000 from 10.8% in 1999. The El Paso branch office service  business had revenue
of $951 and  $1,305  in the nine  months  ended  September  30,  2000 and  1999,
respectively.  The El Paso service  business has been  included in the Corporate
segment of the  continuing  operations  for the nine months ended  September 30,
2000  through  the  sale  of  these  assets  which  occurred  on May  19,  2000.
Installation  revenue for the certain customer of the Computer Products Division
(also discontinued  effective May 19, 2000) contributed revenue of $754 and $173
in the nine months ended September 30, 2000 and 1999, respectively.

     GROSS PROFIT. Gross profit decreased by $983 (19.8%) to $3,979 in 2000 from
$4,962 in 1999. Gross margin decreased to 27.7% in 2000 from 36.1% in 1999.

     ACS gross  profit  decreased  by $481  (54.4%) to $404 in 2000 from $885 in
1999 as revenue  decreased  by 28.7%.  ACS cost of  service is labor  intensive.
Labor has a more  fixed  nature  such that  higher  levels  of  service  revenue
produces  higher  levels of gross margin  while lower levels of service  revenue
produces  lower gross  margin.  In periods when service  revenue  decreases,  it
becomes more important to manage labor cost in order to prevent erosion of gross
margin.  Subsequent to the  separation  of our former IT Services  Division into
wholly owned  subsidiary  companies in July 2000,  ACS  experienced  lower labor
utilization related to lower revenue. 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.

     Synergy  gross  profit  decreased  by $1,050  (56.0%)  to $826 in 2000 from
$1,876 in 1999 as revenue  decreased by 36.2%.  As with ASC, our cost of service
is labor  intensive.  Labor has a more fixed  nature such that higher  levels of


<PAGE>

service  revenue  produces  higher  gross  margin  while lower levels of service
revenue produces less gross margin.  In periods when service revenue  decreases,
it  becomes  more  important  for  management  of labor cost in order to prevent
erosion of gross margin.  Subsequent to the separation of our former IT Services
Division  into  wholly  owned  subsidiary   companies  in  July  2000,   Synergy
experienced lower labor utilization related to lower revenue. 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.

     INX gross loss was $35 and 5.0% of  revenue.  Since INX was formed in July,
2000,  there is no  history  for  comparison.  Additionally,  as a newly  formed
start-up operation, it had to have billable technical staff in place in order to
be able to market their services, but was unable to utilize that technical staff
sufficiently to cover their labor cost.

     IT Staffing gross profit decreased by $30 (10.8%) to $248 in 2000 from $278
in 1999 as revenue increased by 25.2%. The decrease in gross profit is primarily
due to a  contract  with a major  customer,  which  limits  the  rates  for that
particular  customer.  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.

     Stratasoft  gross profit increased by $1,026 (65.9%) to $2,583 in 2000 from
$1,557 in 1999.  Gross  margin for  Stratasoft  decreased  to 47.6% in 2000 from
53.2%  in 1999  but  were in line  with  expectations  for  this  business.  The
decreased  gross  margin was  primarily  due to inventory  markdowns  along with
increased travel costs for technical staff 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 gross profit  decreased by $413 (112.8%) to a loss of $47 in 2000
from profit of $366 in 1999 as revenue increased by 9.8%. Corporate gross margin
decreased to (2.9)% in 2000 from 24.8% in 1999.  The El Paso  service  business,
which was sold on May 19, 2000,  produced a gross loss of $7 in 2000 as compared
to a gross profit of $339 in the same nine months in 1999, a decrease in profits
of $346.  We  experienced  certain  costs  related  to  winding  up our  service
operations in the El Paso branch office that  negatively  impacted 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 $42 in 2000 as compared to $27 in 1999.

     SELLING,  GENERAL  AND  ADMINISTRATIVE   EXPENSES.   Selling,  general  and
administrative  expenses  increased  by  $2,511  (49.9%)  to $7,544 in 2000 from
$5,033 in 1999. As a percentage of revenue,  these expenses  increased by 15.8%,
to 52.4% of revenue in 2000 from 36.6% of revenue in 1999. Selling,  general and
administrative  expenses include $425 and $362 of depreciation in the nine month
periods ended September 30, 2000 and 1999,  respectively.  Overall, our spending
was up primarily related to organizing the new subsidiary companies,  hiring new
members  of  management  for these new  companies  and  expanding  the sales and
marketing staff in the new companies.  Additionally, legal fees relating to both
litigation  and  collection   efforts,   travel   expenses  and   administrative
compensation  for Stratasoft were higher than historical  levels and higher than
expected. Selling, general and administrative expenses for the Corporate segment
increased  by $1,012  (166.7%) to $1,619 in 2000 as compared to $607 in the same
nine  month  period  of  1999  primarily  because  of the  administrative  costs
associated  with billing and collecting of the  installation  revenue to wind up
services for the customer  lost in the sale of the Computer  Products  Division.
Additionally,  costs related to the  maintenance of the corporate  organization,
including executive management compensation,  corporate-level insurance,  legal,
director and investor relations expenses, which were previously allocated out to
the operating  segments,  are now included in the Corporate segment beginning in
the third quarter.  Consolidated  selling,  general and administrative  expenses
were also $132  higher in the nine 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.  During  the
quarter  ended  September  30,  2000,  we  identified   issues  related  to  the
collectability  of certain  accounts  receivable  accounts and realized a higher
than  normal  bad  debt  expense  for  the  nine  month  period  of  2000 in the
approximate amount of $900 higher as compared to the same period of 1999.

     OPERATING LOSS FROM CONTINUING OPERATIONS.  Our operating loss increased by
$3,494 (4921.1%) to $3,565 in 2000 from $71 in 1999 due, principally,  to losses
experienced of $1,667 in 2000 in the Corporate segment  attributable to the loss
of  focus  of the El Paso  Service  business  that  was  sold  in May 19,  2000.
Additionally,  Synergy  experienced a loss in the  nine-month  period of $648 in
2000 as  compared  to income of $112 in the same  period of 1999 due to  reduced
revenue and gross  profit  while  being  internally  focused on  reorganization.
Augmenting  the El  Paso  loss,  a $256  loss  was  experienced  relating  to an
installation contract with a customer from whom the revenue ceased with the sale
of the CPD division and $621 relating to corporate overhead. ACS experienced the


<PAGE>

same type of losses as Synergy with $460 in 2000 as compared to income of $57 in
the same  nine-month  period of 1999.  INX, as a start up company  experienced a
loss of $362. Stratasoft had a loss of $364 for the nine month period in 2000 as
compared  to a income of $88 in the same  period  of 1999,  a  decrease  of $452
attributable  primarily  to an increase in legal  expense,  travel  expenses and
increased sales staff.

     INTEREST EXPENSE (INCOME), NET OF OTHER INCOME.  Interest expense (income),
net of other income, decreased by $131 to $(135) in 2000 compared to $4 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 $344 (net of taxes of
$177) in the nine  months  ended  September  30,  2000  from  this  discontinued
operation. The loss on discontinued operations related to Telecom Systems in the
nine months ended September 30, 1999 was $687, net of a tax benefit of $354.

     On March 16, 2000 we entered into an  agreement to sell certain  assets of,
and  the  ongoing  operation  of,  our  Computer  Products  Division.  The  sale
transaction  closed on May 19,  2000.  As a  consequence  of these  events,  the
operations of Computer Products are reported as discontinued operations. For the
nine months ended  September 30, 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 $3,736 (net of taxes
of $1,925) related to the transaction.  The income from discontinued  operations
related to Computer  Products in the nine months  ended  September  30, 1999 was
$660, net of taxes of $340.

     NET INCOME.  Net income increased $1,429 to $1,337 in 2000 as compared to a
loss of $92 for the  same  nine-month  period  in 1999.  Net loss on  continuing
operations,  after a benefit for income taxes  totaling  $1,075  (reflecting  an
effective  tax rate of 31.4% in 2000  compared  to 4.5% in 1999),  decreased  by
$2,290  to a loss of  $2,354  in 2000  compared  to $64 in 1999.  Net  income on
discontinued  operations  was $300 (net of tax of $156) as compared to a lost of
$28 (net of tax  benefit of $12) in 1999.  Additionally,  a gain on  disposal of
$3,392, net of taxes of $1,748 was recognized in the nine months ended September
30, 2000.

Liquidity and Capital Resources

     Our  working  capital  was  $11,947  and $9,567 at  September  30, 2000 and
December 31, 1999,  respectively.  As of September 30, 2000, we had  outstanding
borrowings of $244 and we had excess available  borrowing base of $571 under 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  $20,052  during the nine
months ended September 30, 2000.  Operating  activities provided net cash during
the  period  primarily  because  of cash  provided  by a  decrease  in  accounts
receivable  ($32,096) as well as proceeds from the sale of the Computer Products
Division of ($16,161)  offset by a decrease in accounts  payable  ($19,901)  and
accrued  expenses  ($1,758).  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  used cash  totaling $54 during the nine months ended
September 30, 2000 and 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 nine months ended
September 30, 2000.


<PAGE>

Asset Management

     We had accounts  receivable,  net of allowance  for doubtful  accounts,  of
$5,630 at September 30, 2000. The number of days' sales  outstanding in accounts
receivable from our continuing  operations was 67.60 days,  which is higher than
the 60 days outstanding 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 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.

     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 nine months  ended  September  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 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 May 17, 2000, a state court denied
Corey's  Application  for  Temporary  Restraining  Order and on 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.

SIGNATURES

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

                                    I-Sector Corporation.

November 14, 2000                   By:   /s/ JAMES H. LONG
                                          -----------------
Date                                James H. Long, Chief Executive Officer,
                                    President and Chairman of the Board
                                    (Principal Financial and Accounting Officer)