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 March 31, 2001
                                       OR

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

For the transition period from ________ to ___________

Commission file number: 0-21479

                              I-SECTOR CORPORATION

             (Exact name of Registrant as specified in its charter)

         DELAWARE                                 76-0515249
   (State of incorporation)           (I.R.S. Employer Identification No.)
   6401 SOUTHWEST FREEWAY

          HOUSTON, TEXAS                            77074
   Address of principal executive offices)       (Zip code)

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

                              Allstar Systems, Inc.

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

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

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

     Indicate by check mark whether the  registrant  has filed all documents and
reports  required  to be  filed by  Section  12,  13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court.

Yes ____ No ____

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

Title                                             Outstanding

Common Stock, $.01 par value per share            As of May 7, 2001
                                                  3,959,325 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)

                                                    March 31,      December 31,
                                                      2001             2000
                                                      ----              ----
                                                             (Unaudited)
ASSETS

Current assets:
     Cash and cash equivalents                   $        6,871   $       8,346
     Accounts receivable, net                             3,728           4,473
     Accounts receivable - affiliates                       322             303
     Accounts receivable - other                             77             141
     Inventory                                              831             774
     Income taxes receivable                                863             863
     Other current assets                                   241             233
                                                    -----------     -----------
         Total current assets                            12,933          15,133
Property and equipment                                    1,341           1,579
Other assets                                                426             430
                                                    -----------     -----------
Total                                            $       14,700   $      17,142
                                                    ===========     ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Accounts payable                            $        1,640   $       1,892
     Billings in excess of cost and
       estimated earnings                                   129             503
     Accrued expenses                                     2,021           1,635
     Net liabilities related to
       discontinued operations                              441             869
     Deferred service revenue                               149             136
                                                    -----------     -----------
         Total current liabilities                        4,380           5,035
     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 March 31, 2001 and December 31,
           2000                                              44              44
     Additional paid in capital                          10,185          10,182
     Unearned equity compensation                                            (1)
     Treasury stock (456,000 and 399,800 shares,
       at cost)at March 31, 2001 and December
       31, 2000                                          (1,046)           (992)
     Retained earnings                                      942           2,679
                                                    -----------     -----------
         Total stockholders' equity                      10,125          11,912
                                                    -----------     -----------
Total                                            $       14,700   $      17,142
                                                    ===========     ===========


                 See notes to consolidated financial statements


<PAGE>

                      I-SECTOR CORPORATION AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME

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

                                                   Three Months Ended March 31,

                                                       2001            2000
                                                       ----            ----


Total revenue                                    $        4,840   $       5,984
Cost of sales and services                                3,661           3,599
                                                   -----------     -----------
Gross profit                                              1,179           2,385
Selling, general and administrative expenses              3,012           2,309
                                                    -----------     -----------
Operating (loss) income                                  (1,833)             76
Interest (income) expense                                   (96)             15
                                                    -----------     -----------
(Loss) income from continuing operations
  before provision for income taxes                      (1,737)             61
Provision for income taxes                                                   19
                                                    -----------     -----------
Net (loss) income from continuing operations             (1,737)             42
Discontinued Operations:
     Net income from discontinued operations,
      net of taxes                                                          302
     Gain on disposal, net of taxes                                       4,872
                                                    -----------     -----------
Net (loss) income                                $       (1,737)  $       5,216
                                                    ===========     ===========


Net (loss) income per share:
     Basic:
         Net (loss) income from continuing
           operations                            $       (0.44)   $        0.01
         Net income from discontinued
            operations                                                     0.08
         Gain on disposal, net of taxes                                    1.20
                                                    -----------      ----------
              Net (loss) income per share        $       (0.44)   $        1.29
                                                    ===========      ==========
Diluted:
         Net (loss) income from continuing
           operations                            $       (0.44)   $        0.01
         Net income from discontinued
           operations                                                      0.07
         Gain on disposal, net of taxes                                    1.14
                                                    -----------     -----------
              Net (loss) income per share        $       (0.44)   $        1.22
                                                    ===========     ===========

Weighted average shares outstanding:

         Basic                                        3,945,842       4,048,964
                                                    ===========     ===========
         Diluted                                      3,945,842       4,287,201
                                                    ===========     ===========


                 See notes to consolidated financial statements


<PAGE>

                      I-SECTOR CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (In thousands)

                                   (Unaudited)

                                                 Three Months Ended March 31,

                                                     2001              2000
                                                     ----              ----

Net (loss) income                                $       (1,737)  $       5,216
Adjustments to reconcile net loss to net cash
     provided by (used in) operating activities:
     Net income from discontinued operations                               (302)
     Gain on disposal of discontinued operations                         (4,872)
     Depreciation and amortization                          200             103
     Deferred tax provision                                                 113
Changes in assets and liabilities that
  provided (used) cash:

     Accounts receivable, net                               745           9,066
     Accounts receivable - affiliates                        45              (1)
     Inventory                                                2             162
     Other current assets                                    (8)            (18)
     Other assets                                            29               4
     Accounts payable                                      (252)         (6,683)
     Accrued expenses                                       386            (341)
     Income taxes payable                                                    19
     Billings in excess of cost and estimated earnings      374
     Deferred service revenue                                13            (112)
                                                    -----------     -----------

Net cash  (used in) provided by continuing
  operating activities                                     (951)          2,354
Net operating activities from discontinued
  activities                                               (428)            116
                                                    -----------     -----------
     Net cash (used in) provided by operating
       activities                                        (1,379)          2,470

Cash flows from investing activities:

     Acquisition costs                                      (25)
     Capital expenditures                                   (17)            (58)
                                                    -----------     -----------

     Net cash used in  investing activities:                (42)            (58)
                                                    -----------     -----------

Cash flows from financing activities:

     Purchase of treasury stock                             (54)            (14)
     Net decrease in notes payable                                       (3,000)
                                                    -----------     -----------

     Net cash used in financing activities:                 (54)         (3,014)
                                                    -----------     -----------

Net decrease in cash and cash equivalents                (1,475)           (602)
Cash and cash equivalents at beginning of period          8,346           4,647
                                                    -----------     -----------
Cash and cash equivalents at end of period       $        6,871   $       4,045
                                                    ===========     ===========
Supplemental disclosures of cash flow information:

     Cash paid for interest                      $            0   $         261
                                                    ===========     ===========
     Cash paid for taxes                         $            0   $           0
                                                    ===========     ===========


                 See notes to consolidated financial statements


<PAGE>

                      I-SECTOR CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               (In thousands, except share and per share amounts)

1.   DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     I-Sector  Corporation  and  subsidiaries  ("I-Sector")  is  engaged  in the
business of providing computer services and of selling  associated  hardware and
telephony software products in the United States.  During March, 2001,  I-Sector
made  the  decision  to  merge  a  wholly-owned  subsidiary,   Synergy  Helpdesk
Solutions,   Inc.,  into  another  wholly-owned  subsidiary,   Allstar  Computer
Services,  Inc.  Additionally,  the resulting  wholly-owned  subsidiary  will be
renamed to Allstar  Solutions,  Inc.  ("Allstar").  The company has  accordingly
combined  the  financial  information  of Allstar  Computer  Services,  Inc. and
Synergy Helpdesk  Solutions,  Inc. for financial  disclosure.  I-Sector operates
through four segments:

o    Allstar provides customers with turn-key  outsourced IT helpdesk solutions,
     helpdesk  solutions  consulting  services,  on-site and  carry-in  computer
     repair,   application  support  and  operating  system,  network  migration
     services and technical staff augmentation for IT helpdesk operations.

o    Internetwork  Experts, Inc. ("INX") is a professional services organization
     that  focuses  on  the  design,   deployment  and  support  of  large-scale
     networking infrastructure  requirements that are Cisco centric. INX's areas
     of  practice  include  network  design,  implementation,  turnkey  support,
     security audits and firewall design, network infrastructure  management and
     network infrastructure consulting services.

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


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

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

     The condensed  consolidated financial statements presented herein as of and
for the three months ended March 31, 2001 and 2000 are unaudited;  however,  all
adjustments  which are,  in the  opinion  of  management,  necessary  for a fair
presentation of the financial position, results of operations and cash flows for
the  periods  covered  have  been made and are of a  normal,  recurring  nature.
Accounting  measurements at interim dates inherently involve greater reliance on
estimates  than  at  year-end.  The  results  of the  interim  periods  are  not
necessarily  indicative of results for the full year. The  consolidated  balance
sheet at  December  31,  2000 is derived  from  audited  consolidated  financial
statements  but  does  not  include  all  disclosures   required  by  accounting
principles  generally  accepted  in  the  United  States  of  America.  Although
management  believes the  disclosures  are  adequate,  certain  information  and
disclosure  normally included in the notes to the financial  statements has been
condensed or omitted as permitted by the rules and regulations of the Securities
and Exchange Commission.

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

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

     Revenue  Recognition - Revenue from the sale of products is recognized when
the  product is  shipped.  Service  income is  recognized  as the  services  are
performed. Revenues resulting from installations of equipment for which duration
is in excess of three months are recognized  using the  percentage-of-completion
method.  The  percentage of revenue  recognized on each contract is based on the
most recent cost estimate available. Revisions of estimates are reflected in the
period in which the facts  necessitating  the  revisions  become  known;  when a
contract indicates a loss, a provision is made for the total anticipated loss.

<PAGE>

     The following  reflects the amounts  relating to  uncompleted  contracts at
March 31, 2000 and December 31, 2000:

      Costs incurred on uncompleted contracts           $   193    $   135
      Estimated earnings                                    360        361
                                                         ------     ------

                                                            553        496
      Less: Billings to date                                682        999
                                                         ------     ------

      Billings in excess of cost and estimated earnings $   129    $   503
                                                         ======     ======


     Accounting   Pronouncements  -  In  June  1998,  the  Financial  Accounting
Standards Board issued Statement of Financial  Accounting Standards ("SFAS") No.
133,  "Accounting  for  Derivative  Instruments  and Hedging  Activities"  which
establishes  accounting  and  reporting  standards for  derivative  instruments,
including   certain   derivative   instruments   imbedded  in  other   contracts
(collectively referred to as derivatives),  and for hedging activities. SFAS No.
133, as amended,  was  adopted by I-Sector on January 1, 2001.  I-Sector  has no
derivative instruments as defined by SFAS No. 133.

2.   DISCONTINUED OPERATIONS

     On November 2, 1999,  I-Sector approved a plan to sell or close its Telecom
Division.  A sale was  finalized on March 16, 2000.  Under the terms of the sale
I-Sector received $250 cash.  Additionally,  the purchaser assumed all telephone
equipment warranty  obligations of I-Sector up to a maximum of $30, all of which
was consumed by October,  2000.  Future warranty costs incurred by the purchaser
will be billed to  I-Sector  at an  agreed  upon  rate.  An  estimate  of future
warranty costs of $95 was recorded  during 2000. A disposal  loss,  including an
estimate of the operating results from the measurement date, November 2, 1999 to
the closing date of the sale of $580,  and  estimates  for  impairment of assets
caused by the  disposal  decision  of $558,  totaling  $1,138 (net of income tax
savings  of $586),  was  recognized  in 1999.  The  disposal  loss  includes  an
operating loss of $284 (net of income tax savings of $146) from the  measurement
date to December 31, 1999. I-Sector recognized additional losses of $344 (net of
taxes of $240) in the year 2000,  and  recognized  no  additional  losses in the
three months ended March 31, 2001.

     On March 16,  2000,  I-Sector  entered  into an  agreement  to sell certain
assets of and the ongoing operations of its Computer Products Division. The sale
transaction closed on May 19, 2000 after shareholder and other required consents
were obtained.  Under the terms of the sale, I-Sector received $14,529 plus $250
as  reimbursement  of certain  selling costs.  Proceeds of the sale were used to
retire  debt  under  our  existing  credit  facility.  Pretax  income  from  the
discontinued operations of the Computer Products Division (net of taxes of $156)
was $302 for the period from January 1 to March 16, 2000, the measurement  date.
A gain on disposal of $3,734 (net of taxes of $2,607),  which includes operating
results  from the  measurement  date,  March 16, 2000 to the closing date of the
sale,  as well as a loss on  equipment  sold of $352  (net of taxes of $144) and
estimates for the impairment of assets caused by the disposal decision of $2,820
(net of taxes of $1,156)  have been  recognized  in the year ended  December 31,
2000. I-Sector retained accounts receivable of $20,266, net of reserves, and has
retained  receivables  related to the Computer Products Division of $34 and $775
at March 31, 2001 and December 31, 2000,  respectively.  In connection  with the
sale of the Computer Products  Division,  I-Sector also sold the El Paso portion
of the IT Services business.  For financial  reporting  presentation the El Paso
services business was included in the continuing operations for the three months
ended March 31, 2001.

     The  balance  sheet  caption  "Net  Liabilities   related  to  discontinued
operations"  contains  $441 and $869 at March 31, 2001 and  December  31,  2000,
respectively,  of  estimated  future  expenses  related to the winding up of the
Telecom Division and the Computer Products Division, and include amounts related
to the collection of accounts  receivable  and settlement of pending  litigation
and to settlements with employees terminated as a result of the sale.

<PAGE>

3.   SEGMENT INFORMATION

     I-Sector  has  five  reportable  segments:   Allstar,   INX,  IT  Staffing,
Stratasoft  and  Corporate.  During  March,  2001,  I-Sector  decided to merge a
wholly-owned   subsidiary  (Synergy  Helpdesk  Solutions,   Inc.)  into  another
wholly-owned subsidiary, Allstar Computer Products, Inc., and, subsequent to the
merger to change the name of the  resulting  wholly-owned  subsidiary to Allstar
Solutions,  Inc.  ("Allstar").  As a  result  of  this  decision,  the  segments
previously  reported  as ACS and  Synergy  have been  combined  and  reported as
Allstar.  Corporate  includes the  operations  of the  Company's El Paso service
operations which were sold on May 19, 2000, and service  operations  relating to
computer  installations  for a  certain  customer,  as  well  as  the  company's
corporate  level  expenses  that  are not  allocated  to the  subsidiaries.  The
installations  for the  certain  customer  ceased  when  the  Computer  Products
Division  was sold on May 19,  2000.  The  accounting  policies of the  business
segments are the same as those for I-Sector.  I-Sector evaluates  performance of
each  segment  based  on  operating  income.   Management  only  views  accounts
receivable,   and  not  total  assets,  by  segment  in  their  decision-making.
Intersegment  sales  and  transfers  are not  significant  and are  shown in the
Elimination  column in the following table. The tables below show the results of
the five reportable segments:

For the quarter ended March 31, 2001:
<TABLE>
<CAPTION>
                                                                     IT
                                               Allstar     INX      Staffing Stratasoft Corporate Elimination Consolidated
<S>                                          <C>         <C>         <C>         <C>         <C>         <C>         <C>
Total revenue                                $ 1,216     $ 1,718     $   239     $ 1,682     $    (4)    $   (11)    $ 4,840
Cost of sales and services                     1,080       1,714         154         710          14         (11)      3,661
                                              ------       -----      ------      ------      ------      ------      ------
Gross profit (loss)                              136           4          85         972         (18)          0       1,179
Selling, general and
     administrative expenses                     940         608         193         746         525           0       3,012
                                              ------      ------      ------      ------      ------      ------      ------
Operating (loss) income                      $  (804)    $  (604)    $  (108)    $   226     $  (543)    $     0      (1,833)
                                              ======      ======      ======      ======      ======      ======
Interest  (income)                                                                                                       (96)
                                                                                                                      ------
Loss before benefit for income tax                                                                                    (1,737)
Benefit for income tax
                                                                                                                      ------
Net loss from continuing operations                                                                                   (1,737)
Net loss on disposal, net of taxes
                                                                                                                      ------
Net loss                                                                                                             $(1,737)
                                                                                                                      ======

Accounts receivable, net                     $   898     $ 1,276     $   271     $ 1,250     $    (1)    $     0       3,694
                                              ======      ======      ======      ======      ======      ======
Accounts receivable retained from
     discontinued operations, net                                                                                         34
                                                                                                                      ------
Total accounts receivable, net                                                                                       $ 3,728
                                                                                                                      ======

For the quarter ended March 31, 2000:

Total revenue                                $ 2,289     $     0     $   321     $ 2,473     $   901     $     0     $ 5,984
Cost of sales and services                     1,604           0         241       1,151         603           0       3,599
                                              ------      ------      ------      ------      ------      ------      ------
Gross profit                                     685           0          80       1,322         298           0       2,385
Selling, general and
     administrative expenses                     805           0         104       1,061         339           0       2,309
                                              ------      ------      ------      ------      ------      ------      ------
Operating income (loss)                      $  (120)    $     0     $   (24)    $   261     $   (41)    $     0          76
                                              ======      ======      ======      ======      ======      ======
Interest expense                                                                                                          15
                                                                                                                      ------
Income before provision
for income tax                                                                                                            61
Provision for income tax                                                                                                  19
                                                                                                                      ------
Net income from continuing operations                                                                                     42
Net income from discontinued operations,
  net of tax                                                                                                             302
Gain on disposal, net of taxes                                                                                         4,872
                                                                                                                      ------
Net income                                                                                                           $ 5,216
                                                                                                                      ======

Accounts receivable, net                     $   622     $     0     $   150     $ 2,317     $ 2,067     $     0     $ 5,156
                                              ======      ======      ======      ======      ======      ======
Accounts receivable retained from
     discontinued operations, net                                                                                     21,608
                                                                                                                      ------
Total accounts receivable, net                                                                                       $26,764
                                                                                                                      ======
</TABLE>


<PAGE>

4.   EARNINGS PER SHARE

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

     The potentially  dilutive  options  totaling 184,616 and 261,046 shares for
the three months ended March 31, 2001 and 2000,  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
three  months ended March 31, 2001 and 2000 which were not included in computing
diluted earnings per share because the inclusion would have been antidilutive.

5.   LITIGATION

     On February 1, 2000, a competitor  brought a suit against our  wholly-owned
subsidiary Stratasoft, Inc. in ESHARE TECHNOLOGIES,  INC. AND INVENTIONS, INC. V
STRATASOFT,  INC.,  Cause No. 1 99-CV-2303 for the United States  District Court
for the Northern  District of Georgia.  The plaintiff  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 I-Sector is unable to determine the ultimate
costs of this  matter.  I-Sector  believes  that this suit is without  merit and
intends to vigorously defend such action.

     On May 17,  2000,  Jack B.  Corey  ("Corey")  filed a lawsuit  against  the
Company styled JACK B. COREY V ALLSTAR SYSTEMS,  INC., Cause No. 2000-24796,  in
the District Court of Harris County, Texas, 113th Judicial District, in which he
sought a temporary  restraining  order,  temporary and permanent  injunctions to
enjoin the  Company's  sale of certain  assets to Amherst  Technologies,  L.L.C.
("Amherst"),  and damages  based on alleged  shareholder  oppression.  The Court
denied Corey's  Application for Temporary  Restraining Order and, after hearing,
denied his request for a temporary injunction. On June 22, 2000, Corey filed his
First  Amended  Original  Petition and  Application  for  Permanent  Injunction,
seeking  to  permanently  enjoin  the sale of  assets  which  had  already  been
consummated and to assert a cause of action for shareholder  oppression based on
alleged  failures to provide Corey, a Company  shareholder,  notices relating to
the  shareholders'  meeting  held to approve the sale of assets to Amherst.  The
Company  answered and denied all claims In addition to the claims he asserted in
the  above-described  lawsuit,  Corey verbally  asserted claims in conversations
with the Company's  representatives  and attorneys that the Company made various
alleged misrepresentations  regarding the Company's initial public offering that
affected  Corey's  ability  and  intention  to sell his  Company  shares.  Corey
verbally  claimed to have been damaged in the  approximate  amount of $1,337,500
but did not initiate litigation to pursue his verbal claims. Subsequent to March
31, 2001 Mr. Corey dropped his lawsuit.

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

<PAGE>

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

                              I-SECTOR CORPORATION

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

Overview

     I-Sector  Corporation  ("I-Sector"),  formerly Allstar  Systems,  Inc., has
historically  been  engaged in the  business of  providing  its  customers  with
solutions to their  information and  communications  technology  needs.  Through
1999,  our  revenue was  historically  derived  through  four  primary  areas of
business, IT Services, CTI Software, Computer Products and Telecom Systems, each
of which were historically been reported as a separate segment.  During the year
ended December 31, 1999 we discontinued  our Telecom Systems business and during
the quarter ended March 31, 2000 we discontinued our Computer Products business.
We sold both  Telecom  Systems  and  Computer  Products  businesses  in separate
transactions  during the first  quarter of 2000. We retained 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. After the sale
of  these  two  businesses,  in July  2000,  we  separated  what had been the IT
Services  business  into  three  separate   businesses,   each  of  which  is  a
wholly-owned  subsidiary  corporation.  One of these subsidiary  companies is IT
Staffing,   Inc.  ("IT  Staffing"),   which  had  already  been  operated  as  a
wholly-owned  subsidiary.  We contributed the remaining components of the former
IT Services  business to two newly  formed  wholly-owned  corporations,  Allstar
Computer   Services,   Inc.  ("ACS")  and  Synergy  Helpdesk   Solutions,   Inc.
("Synergy").  During March,  2001 we made the decision to merge Synergy into ACS
and to change  the name of the  resulting  company to  Allstar  Solutions,  Inc.
("Allstar").   In  July  2000,  we  formed  another   wholly-owned   subsidiary,
Internetworking  Sciences,  Inc. ("INX"), a professional  services  organization
that  focuses on the  design,  deployment  and  support of  large-scale  network
infrastructure  requirements.  In October 2000 INX acquired certain assets of an
unrelated  professional  service company in the Dallas area, which had a similar
focus, and subsequently  underwent a legal name change to Internetwork  Experts,
Inc. We market our services  businesses  in Texas from  locations in the Houston
and  Dallas-Fort  Worth  metropolitan  areas.  Stratasoft  markets its  products
worldwide through a direct sales force and an authorized dealer network.  During
the three  months ended March 31, 2001,  Allstar,  INX and IT Staffing  produced
25.1%,  35.5% and 4.9% of total  revenues,  while  Stratasoft  produced 34.8% of
total revenues. Gross margin varies substantially between each of these business
segments.

     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 $14.8 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
$4.9 million,  net of taxes, in the quarter ended March 31, 2000, but recognized
losses in the quarters  ended June 30, 2000 and September 30, 2000 which reduced
the gain on the sale to $3.7 million, net of taxes.

<PAGE>

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

     Allstar  provides  customers  with  on-site and carry-in  computer  repair,
application  support,  operating system and network migration services,  turnkey
outsourced IT helpdesk  solutions,  technical staff augmentation for IT helpdesk
operations and helpdesk  solutions  consulting  services.  IT Staffing places 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.

     A  significant  portion  of our cost of  services  for each of our  service
businesses  is comprised of labor.  Labor has a somewhat  fixed nature such that
higher levels of service revenue produces higher gross margin while lower levels
of service  revenue  produces  less gross  margin.  Management  of labor cost is
important in order to prevent erosion of gross margin.

     A significant portion of our selling,  general and administrative  expenses
in all of our businesses  relate to personnel costs,  some of which are variable
and others of which are  relatively  fixed.  Our  variable  personnel  costs are
substantially  comprised of sales  commissions,  which are typically  calculated
based upon our gross profit on a particular sales transaction and thus generally
fluctuate with our overall gross profit.  The remainder of selling,  general and
administrative expenses are relatively fixed and, while still somewhat variable,
do not vary with increases in revenue as directly as do sales commissions.

     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 March 31, 2001 Compared To Three Months Ended March 31, 2000
                             (Dollars in thousands)

     The  following  table  sets  forth,  for  the  periods  indicated,  certain
financial data derived from our unaudited consolidated  statements of operations
for the three months ended March 31, 2001 and 2000. The discussion below relates
only to our continuing operations, unless otherwise noted.

                                     Three months ended March 31,

                                                 2001                2000
                                                 ----                ----
                                          Amount      %       Amount      %
                                          ------    -----     ------    -----
Revenue

Allstar                                 $  1,216      25.1  $  2,289      38.3
  INX                                      1,718      35.5         0       0.0
IT Staffing                                  239       4.9       321       5.4
Stratasoft                                 1,682      34.8     2,473      41.3
Corporate                                     (4)     (0.1)      901      15.0
Elimination                                  (11)     (0.2)        0       0.0
                                         -------  --------   -------  --------
     Total revenue                         4,840     100.0     5,984     100.0
Gross profit (loss):
Allstar Systems, Inc.                        136      11.1       685      29.9
  INX                                          4       0.2         0       0.0
IT Staffing                                   85      35.6        80      24.9
Stratasoft                                   972      57.8     1,322      53.5
Corporate                                    (18)   (450.0)      298      33.1
Elimination                                    0       0.0         0       0.0
                                         -------  --------   -------  --------
     Total gross profit                    1,179      24.4     2,385      39.9
Selling, general and administrative
  expenses:
Allstar                                      940      77.3       805      35.2
  INX                                        608      35.4         0       0.0
IT Staffing                                  193      80.8       104      32.4
Stratasoft                                   746      44.4     1,061      46.4
Corporate                                    525      47.7       339      37.6
                                         -------  --------   -------  --------
     Total selling, general and
       administrative                      3,012      62.2     2,309      38.6
Operating (loss) income:
Allstar                                     (804)    (66.1)     (120)     (5.2)
  INX                                       (604)    (35.2)        0       0.0
IT Staffing                                 (108)    (45.2)      (24)     (7.5)
Stratasoft                                   226      13.4       261      10.6
Corporate                                   (543) (4,936.4)      (41)     (4.5)
                                         -------  --------   -------  --------
    Total operating (loss) income         (1,833)    (37.9)       76       1.3
Interest (income) expense net of
  other income                               (96)     (2.0)       15       2.5
                                         -------  --------   -------  --------
Loss before benefit for income taxes      (1,737)    (35.9)       61       1.0
Provision for income taxes                                        19       0.3
                                         -------  --------   -------  --------
Net (loss) income from continuing
  operations                              (1,737)    (35.9)       42       0.7
Discontinued operations:
Net income from discontinued operations                          302       5.0
Gain on disposal                                               4,872      81.4
                                         -------  --------   -------  --------
Net (loss) income                       $ (1,737)    (35.9) $  5,217      87.2
                                         =======  ========   =======  ========

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 $1,144 (19.1%) to $4,840 in 2001
     from $5,984 in 2000.

     Allstar  revenue  decreased by $1,073 (46.9%) to $1,216 in 2001 from $2,289
in 2000. As a percentage of total revenue Allstar revenue  decreased to 25.1% in
2001 from 38.3% in 2000. The decrease in ACS revenue was primarily  attributable
to issues related to the loss of revenue from certain  customers  after the sale
of the Computer Products Division.

     INX  revenue  was $1,718 for the  quarter  and  represented  35.5% 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.

     IT Staffing  revenue  decreased by $82 (25.5%) to $239 in 2001 from $321 in
2000. As a percentage of total revenue IT Staffing revenue  decreased to 4.9% in
2001 from 5.4% in 2000.  IT Staffing  experienced a change in its mix of revenue
sources such that  permanent  placements,  which  produce  higher gross  margin,
increased  to 23.1% of its total  revenues in 2001 from 9.3% in 2000.  Temporary
placements decreased to 76.9% in 2001 from 90.7% in 2000.

     Stratasoft  revenue decreased by $791 (32.0%) to $1,682 in 2001 from $2,473
in 2000.  Stratasoft  revenue,  as a percentage of total  revenue,  decreased to
34.8% in 2001 from  41.3% in 2000.  In 2000  Stratasoft  had one large  contract
which  contributed $580 in revenues but no such large contract occurred in 2001.
The  remainder  of the  decrease is  attributable  to the slowing of the general
economy.

     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 March,  2001.  Corporate
revenue decreased by $905 (100.4%) to $(4) in 2001 from $901 in 2000. Revenue in
2001 is negative  because of credits  issued to  customers.  As a percentage  of
total revenue  Corporate revenue decreased to (0.1)% in 2001 from 15.0% in 2000.
The El Paso branch office  service  business had revenue of $(1) and $710 in the
quarters ended March 31, 2001 and 2000,  respectively.  Installation revenue for
the certain  customer  of the  Computer  Products  Division  (also  discontinued
effective May 19, 2000) contributed revenue of $0 and $191 in the quarters ended
March 31, 2001 and 2000, respectively.

     GROSS PROFIT.  Gross profit  decreased by $1,206  (50.6%) to $1,179 in 2001
from $2,385 in 2000. Gross margin decreased to 24.4% in 2001 from 39.9% in 2000.

     Allstar gross profit decreased by $549 (80.1%) to $136 in 2001 from $685 in
2000.  Gross  margin for Allstar  decreased to 11.2% in 2001 from 29.9% in 2000.
Allstar cost of service consists primarily of labor cost. Labor has a more fixed
nature such that higher  levels of service  revenue  produces  higher  levels of
gross margin while lower levels of service revenue  produces lower gross margin.
In periods when service revenue  decreases,  it becomes more important to manage
labor  cost in order to  prevent  erosion  of gross  margin.  Subsequent  to the
separation of the IT Services segment into wholly owned subsidiary  companies in
July 2000, Allstar experienced lower labor utilization related to lower revenue.

     INX gross profit was $4 and 0.2% 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 $5 (6.3%) to $85 in 2001 from $80 in
2000 as revenue decreased by 25.5%. Gross margin increased to 35.6% in 2001 from
24.9% in 2000. IT Staffing's  gross margin is influenced by the mix of revenues.
As discussed above, IT Staffing had higher revenues from permanent placements in
2001 as compared to 2000, and permanent placements  contribute much higher gross
margins.  Revenues from temporary  placements decreased as a percentage of total
revenues,  and these  revenues  produce  lower gross  margins  than do permanent
placements,  particularly  because  a  large  percentage  of  the  revenues  for
temporary  placements  were attributed to a contract with a major customer which
limits the rates for that particular customer.

<PAGE>

     Stratasoft  gross  profit  decreased  by $350  (26.5%) to $972 in 2001 from
$1,322 in 2000 as  revenue  decreased  by 32.0%.  Gross  margin  for  Stratasoft
increased  to 57.8% in 2001 from 53.5% in 2000.  The  decreased  gross profit is
consistent with the decreased sales volume. Gross margin is also impacted by the
mix of sales  between  systems  sales,  which include a hardware  component,  as
compared to  software  only  sales,  which do not have a hardware  cost of goods
component.

     Corporate gross profit  decreased by $316 (106.0%) to a loss of $18 in 2001
from a gross profit of $298 in 2000 as revenue decreased by 100.4%. Gross margin
decreased to (450.0%) in 2001 from 33.1% in 2000.  The El Paso service  business
that was sold on May 19, 2000 produced  gross loss of $19 in 2001 as compared to
a gross profit of $158 in the same quarter in 2000. We experienced certain costs
related to winding up our service  operations  in the El Paso branch office that
negatively impacted gross profit.  Augmenting those results, the gross margin on
installations  for the customer that was lost in the Computer  Products Division
sale  produced a gross loss of $1 in 2001 as compared to a gross  profit of $142
in 2000.

     SELLING,  GENERAL  AND  ADMINISTRATIVE   EXPENSES.   Selling,  general  and
administrative  expenses increased by $703 (30.4%) to $3,012 in 2001 from $2,309
in 2000. As a percentage of revenue, these expenses increased by 23.6%, to 62.2%
of revenue in 2001 from 38.6% of revenue in 2000.  Overall,  our spending was up
primarily  related to hiring new members of  management  for the new  subsidiary
companies  ($242,  of which  $136 was for INX which was newly  formed and had no
operations  in  2000),  and  expanding  the  sales  marketing  staff  in the new
companies  ($257,  of which  $106 was for INX which was newly  formed and had no
operations  in 2000).  Bad debt expense  increased by $75 in 2001 as compared to
2000. Corporate selling,  general and administrative  expenses increased by $186
in 2001 as compared to 2000  because  costs  related to the  maintenance  of the
corporate   organization,    including   executive   management    compensation,
corporate-level insurance,  depreciation, legal, director and investor relations
expenses,  which were previously  allocated out to the operating  segments,  and
which are now included in the Corporate segment,  were allocated to the Computer
Products Division in 2000.

     OPERATING LOSS FROM CONTINUING OPERATIONS.  Our operating loss increased by
$1,909  to a loss of  $1,833  in 2001  from a  profit  of $76 in 2000 due to the
increase in a Corporate  operating loss of $502, Allstar operating loss of $684,
INX  operating  loss of  $604,  and IT  Staffing  operating  loss of $84 and the
decrease in Stratasoft's operating income of $35.

     INTEREST INCOME.  Interest income increased by $111 to $96 in 2001 compared
to interest  expense of $15 in 2000,  primarily  due to the  reduction  of notes
payable and investment of available cash.

     DISCONTINUED OPERATIONS.  On March 16, 2000 we entered into an agreement to
sell certain  assets of, and the ongoing  operation  of, our  Computer  Products
Division. The sale transaction closed on May 19, 2000. As a consequence of these
events,  the  operations  of Computer  Products  are  reported  as  discontinued
operations.  The sale  transaction  was reported in the quarter  ended March 31,
2000. For the quarters ended March 31, 2001 and 2000, respectively,  income from
discontinuing  operations  was $0 and $302 (net of taxes of $0 and $156) and the
gain on disposal related to Computer Products was $0 and $4,872, net of taxes of
$0 and $2,512.

     NET LOSS. Net loss on continuing  operations in the quarter ended March 31,
2001 was $1,737.  Due to our recurring  losses,  a valuation  allowance has been
recorded  for the tax benefit  related to our  operating  losses.  Net income on
continuing  operations  in the quarter  ended  March 31,  2000 was $42,  after a
provision  for income taxes  totaling $19  (reflecting  an effective tax rate of
9.6%).

Liquidity and Capital Resources

     Our working  capital was $8,553 and $10,098 at March 31, 2001 and  December
31, 2000,  respectively.  As of March 31, 2001, we had no  outstanding  debt and
available  borrowing base of $2,913 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.

<PAGE>

Cash Flow

     Operating  activities used net cash totaling $1,379 during the three months
ended  March 31,  2001.  Operating  activities  used net cash  during the period
primarily  to fund  operating  losses  ($1,737) and in  discontinued  activities
($428).

     Investing  activities  used cash totaling $42 during the three months ended
March 31, 2001 and financing activities used cash totaling $54.

Asset Management

     Our cash flow from operations has been affected  primarily by the timing of
our collection of accounts  receivable.  We have typically sold our products and
services on  short-term  credit  terms and seek to  minimize  our credit risk by
performing  credit checks and  conducting  our own  collection  efforts.  We had
accounts  receivable,  net of  allowance  for doubtful  accounts,  of $3,728 and
$4,473 at March 31, 2001 and December 31, 2000, respectively.

Current Debt Obligations

     On  February  27, 1998 we entered  into a credit  agreement  with  Deutsche
Financial  Services ("DFS") for a revolving line of credit (the "DFS Facility"),
which  historically was our principal source of liquidity.  On May 19, 2000, the
day of the closing on the sale of the  Computer  Products  Division,  the credit
facility was amended to decrease the total credit  available  under the facility
from $30,000 to $3,000 subject to borrowing base limitations which are generally
computed as a percentage of various classes of eligible accounts  receivable and
qualifying  inventory.  Credit  available  under  this  facility  for floor plan
financing of inventory from approved  manufacturers  (the  "Inventory  Line") is
$3,000.  Borrowings  under the Inventory Line accrue  interest at the prime rate
plus 5% on  outstanding  balances over 40 days.  Inventory  Line  borrowings are
reflected in accounts payable on the accompanying  balance sheets.  For purposes
of calculating interest charges the minimum prime rate under the DFS Facility is
7.0%. At March 31, 2001, we had $19  outstanding  on the Inventory  Line and had
total credit availability of $2,913.

     This  agreement,  which continues in full force and effect for 36 months or
until  terminated by 30 day written notice from the lender and may be terminated
upon 90 days notice by us,  subject to a  termination  fee, is  collaterized  by
substantially all of our assets. The agreement contains  restrictive  covenants,
which, among other things,  require us to maintain a minimum tangible net worth.
The terms of the agreement  also prohibit the payment of dividends and limit the
purchase of our common stock, and other similar expenditures, including advances
to related parties.

ITEM 3.  Quantitative and Qualitative Disclosures about Market Risk

     We incur certain market risks related to interest rate  variations  because
we hold floating rate debt.  Based upon the average  amount of debt  outstanding
during the three months ended March 31, 2000, a one-percent increase in interest
rates paid by us on our debt would not have  resulted in an increase in interest
for the period.

PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

     On February 1, 2000, a competitor  brought a suit against our  wholly-owned
subsidiary Stratasoft, Inc. in ESHARE TECHNOLOGIES,  INC. AND INVENTIONS, INC. V
STRATASOFT,  INC.,  Cause No. 1 99-CV-2303 for the United States  District Court
for the Northern  District of Georgia.  The plaintiff  alleges  infringement  of
certain patents owned by the competitor and is seeking a permanent injunction to
prevent Stratasoft, Inc. from manufacturing, selling, offering for sale or using
the alleged  infringing  products covered by patents owned by Eshare Technology,
Inc. et al, as well as unspecified  monetary  damages.  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.


<PAGE>

     On May 17,  2000,  Jack B.  Corey  ("Corey")  filed a lawsuit  against  the
Company styled JACK B. COREY V ALLSTAR SYSTEMS,  INC., Cause No. 2000-24796,  in
the District Court of Harris County, Texas, 113th Judicial District, in which he
sought a temporary  restraining  order,  temporary and permanent  injunctions to
enjoin the  Company's  sale of certain  assets to Amherst  Technologies,  L.L.C.
("Amherst"),  and damages  based on alleged  shareholder  oppression.  The Court
denied Corey's  Application for Temporary  Restraining Order and, after hearing,
denied his request for a temporary injunction. On June 22, 2000, Corey filed his
First  Amended  Original  Petition and  Application  for  Permanent  Injunction,
seeking  to  permanently  enjoin  the sale of  assets  which  had  already  been
consummated and to assert a cause of action for shareholder  oppression based on
alleged  failures to provide Corey, a Company  shareholder,  notices relating to
the  shareholders'  meeting  held to approve the sale of assets to Amherst.  The
Company has  answered  and denied all  claims.  In addition to the claims he has
asserted in the  above-described  lawsuit,  Corey  verbally  asserted  claims in
conversations with the Company's  representatives and attorneys that the Company
made various alleged  misrepresentations  regarding the Company's initial public
offering that affected Corey's ability and intention to sell his Company shares.
Corey  verbally  claimed  to have  been  damaged  in the  approximate  amount of
$1,337,500. Subsequent to March 31, 2001 Mr.Corey dropped his lawsuit.

     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.

May 7, 2001                        By:      /s/ JAMES H. LONG
                                            -----------------
Date                               James H. Long, Chief Executive Officer,
                                   President and Chairman of the Board
                                  (Principal Financial and Accounting Officer)