SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

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

                   For the fiscal year ended December 31, 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, TX                                 77074
 (Address of principal executive offices)               (Zip code)

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

           Securities registered pursuant to Section 12(b) of the Act:

                                      None

           Securities registered pursuant to section 12(g) of the Act:

                          COMMON STOCK, $.01 Par Value
                                (Title of Class)

 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 ____

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of  registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. x

         The aggregate  market value of the voting stock held by  non-affiliates
of the registrant, based upon the closing price of the Common Stock on March 16,
2001, as reported on NASDAQ Small Cap Market, was approximately $2,056,400.

         The number of shares of Common Stock, $.01 Par Value, outstanding as of
March 16, 2001 was 4,042,525.

                       DOCUMENTS INCORPORATED BY REFERENCE


<PAGE>


PART I

Item 1.  Business

SPECIAL NOTICE REGARDING FORWARD-LOOKING STATEMENTS

THIS ANNUAL REPORT ON FORM 10-K CONTAINS  FORWARD-LOOKING  STATEMENTS WITHIN THE
MEANING OF THE  PRIVATE  SECURITIES  LITIGATION  REFORM ACT OF 1995  RELATING TO
FUTURE EVENTS OR THE FUTURE FINANCIAL PERFORMANCE OF THE COMPANY INCLUDING,  BUT
NOT  LIMITED  TO,  STATEMENTS  CONTAINED  IN  ITEM  1. -  "BUSINESS"  ITEM  2. -
"PROPERTIES,"  ITEM  3.  -  "LEGAL  PROCEEDINGS"  AND  ITEM  7.  -  "MANAGEMENTS
DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF  OPERATIONS."
READERS ARE CAUTIONED  THAT ANY STATEMENT  THAT IS NOT A STATEMENT OF HISTORICAL
FACT,  INCLUDING BUT NOT LIMITED TO, STATEMENTS WHICH MAY BE IDENTIFIED BY WORDS
INCLUDING,  BUT NOT  LIMITED TO,  "ANTICIPATE,"  "APPEAR,"  "BELIEVE,"  "COULD,"
"ESTIMATE,"  "EXPECT" "HOPE,"  "INDICATE,"  "INTEND,"  "LIKELY," "MAY," "MIGHT,"
"PLAN,"  "POTENTIAL," "SEEK," "SHOULD," "WILL," "WOULD," AND OTHER VARIATIONS OR
NEGATIVE  EXPRESSIONS THEREOF, ARE PREDICTIONS OR ESTIMATIONS AND ARE SUBJECT TO
KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES.  NUMEROUS FACTORS,  INCLUDING FACTORS
THAT THE COMPANY HAS 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 THIS
ANNUAL  REPORT ON FORM  10-K,  INCLUDING  MATTERS  SET  FORTH IN ITEM 1.  "RISKS
RELATED TO OUR BUSINESS STRATEGY," WHICH COULD CAUSE ACTUAL EVENTS,  PERFORMANCE
OR RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY SUCH STATEMENTS.

GENERAL

         I-Sector  Corporation owns and operates  subsidiary  companies that are
engaged in various  aspects of the  information  and  communications  technology
industries.  In 2000, our revenue from continuing operations was derived through
five primary subsidiary companies:

         Allstar Computer Services, Inc provides information technology services
         including:  on site and carry-in computer repair;  application support;
         operating  system and network  design and  implementation;  and turnkey
         systems support.

         Internetwork   Experts,   Inc  is  a  network   professional   services
         organization  with areas of practice that include:  network  design and
         implementation;  turnkey support;  security audits and firewall design;
         and network infrastructure management and consulting services.

         IT Staffing,  Inc. is a contract staffing and recruiting company for IT
         professionals that provides contract staffing for temporary assignments
         and recruiting for permanent placements.

         Synergy  Helpdesk   Solutions,   Inc.  is  an  information   technology
         professional services firm that provides:  technical staff augmentation
         for IT  helpdesk  operations;  turnkey  outsourcing  of the IT helpdesk
         function;  helpdesk  solutions  consulting  services;  and  information
         technology systems consulting and project management services.

         Stratasoft,  Inc.  has  developed,  and is  engaged in  marketing,  its
         software  products  for   computer-telephony   integration,   including
         products for call center and other high volume calling applications.

         As  discussed  in  further  detail  below in Item 1.  "Recent  Sales of
Business  Segments," during the year 2000 we sold certain key assets of, and the
ongoing business  operations of, our Computer  Products business and our Telecom
Systems business.


<PAGE>


INDUSTRY CHANGES

         The market for information and communications  technology  products and
services has experienced tremendous growth over the past decade and the industry
has changed  significantly  as the market has grown and  evolved.  Reselling  of
popular  computing  hardware  and  software   products,   and  the  support  and
maintenance  of such  products,  which was  formerly  an early stage high growth
industry sector,  has matured.  Other information  technology  industry sectors,
such as  consulting  and project  management  related to Internet  and  Intranet
network  infrastructure  are still somewhat early stage  industry  sectors.  Yet
other information  technology  industry sectors,  such as consulting and project
management  related to Web-enabled supply chain management and customer resource
management  systems are in their infancy.  As the information  technology market
has evolved,  both challenges and  opportunities  have been created for industry
participants.

         Our Computer Products business, which had evolved from a business model
created  in the early  1980's,  had been  struggling  with  numerous  challenges
related to the  evolution  of the computer  reselling  industry.  Major  product
manufacturers  had been changing  their business  models and their  relationship
with the computer  reseller  community.  Web-based  product reselling and direct
selling by the major  manufacturers  was creating  rapid change that resulted in
lower gross margins  throughout the computer  product  reselling  industry.  The
proliferation  of  new  products  created  an  increasingly   complex  operating
environment.  These  changes are, in part,  modifying the  purchasing  habits of
corporations related to both information technology products and services.

         At the same time,  we believe  the  market for  information  technology
services  has grown  increasingly  larger,  and  increasingly  more  complex and
varied. Only a few short years ago, it was normal for a mid-sized corporation to
utilize a single-source provider for all of its information technology services,
but that has changed.  The increasing number of software and hardware providers,
combined with the  increasing  diversity of, and  complexity  of,  computing and
communication  technology used by corporate  America today demands that superior
information  technology service providers  specialize.  Focus and specialization
create improved quality,  productivity and operational effectiveness.  Corporate
America today realizes this and increasingly looks to specialized  providers for
their needs.

         Recently,  starting  approximately  in the fourth  quarter of 2000, the
overall  information  technology  industry  experienced a marked slowdown.  This
slowdown has been in conjunction with and is most likely related to, the overall
slowdown in the U.S. economy that began at approximately the same time.

RECENT SALES OF BUSINESS SEGMENTS

Disposition of Computer Products Business

         On March 16, 2000  I-Sector  entered  into an agreement to sell certain
assets of and the ongoing  operations of our Computer Products  Division,  along
with certain assets and operations of our IT Services Division related to our El
Paso branch office. That sale closed on May 19, 2000 after shareholder and other
required  consents  were  obtained.  Under  this  agreement,   said  assets  and
operations were sold to Amherst Computer Products Southwest,  L.P., an affiliate
of  Amherst  Technologies,  L.L.C.  The  terms of the  agreement  included  cash
consideration of $14,779,  plus the possibility of receiving a future payment of
up to $500 from an escrow  account.  I-Sector  realized a gain of  approximately
$3,700,  net of taxes, on the sale. The proceeds of the sale were used to reduce
debt. The discontinued  operations of the Computer  Products  Division  produced
income of $132,  $1,343 and $302 in 1998,  1999 and 2000,  respectively  (net of
taxes of $68, $688 and $156 in 1998, 1999 and 2000,  respectively).  We retained
accounts  receivable  of  $20,266,  net of  reserves,  fixed  assets of $255 and
liabilities  related to the Computer  Products  Division.  At December 31, 2000,
accounts  receivable  related to the Computer Products Division were $775. Fixed
assets were redeployed in continuing operations.  In connection with the sale of
the Computer Products Division, I-Sector also sold the El Paso portion of the IT
Services business. The El Paso branch office portion of the IT Services business
accounted for revenues of $935, $2,012 and $955 for the years ended December 31,
1998, 1999, and 2000, respectively. For financial accounting presentation the El
Paso  services  business was  included in the  corporate  segment of  continuing
operations for the year ended December 31, 2000.


<PAGE>


Sale of Telecom Systems Business

         Through our former Telecom  Systems  segment,  until March 16, 2000, we
marketed, installed and serviced business telephone systems, including large PBX
systems  and small "key  systems",  along  with a variety  of  related  products
including  hardware and software products for data and voice  integration,  wide
area connectivity and telephone system networking,  wireless  communications and
video  conferencing.  Because we were unable to  profitably  operate the Telecom
Systems  business,  on November 2, 1999 we determined to exit this business.  On
March 16, 2000, we sold Telecom Systems to Communications  World  International,
Inc. ("CommWorld"),  a publicly traded company (OTC Bulletin Board: CWII). Under
the terms of the sale, for the inventory and operations of Telecom  Systems,  we
received $250 cash.  Additionally,  the  purchaser  assumed all of our telephone
equipment warranty  obligations up to a maximum of $30. The warranty assumed was
consumed  during the year 2000 and any excess  warranty  costs  incurred  by the
purchaser  will be billed to us at an agreed  upon rate.  An  estimate of future
warranty  costs of $95 at December  31,  2000 is  included in the balance  sheet
caption "Net liabilities related to discontinued  operations".  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 an income tax saving of $586) was recognized. The loss from discontinued
operations  (net of income  tax  savings  of $505 and $159) was $981 and $310 in
1999 and 1998,  respectively.  We retained accounts  receivable of $1.4 million,
net of reserves, fixed assets of $30 and liabilities related to Telecom Systems.
At December 31,  2000,  the Company had no net  accounts  receivable  related to
Telecom Systems. Fixed assets were redeployed in the continuing operations.

BUSINESS STRATEGY

         Mindful of the manner in which the information  technology industry was
changing,  we  evaluated  our  situation  in 1999 and  decided  that  change was
prudent.  We decided  that we should  exit our  Telecom  Systems  business  both
because we had been  ineffective at achieving  profitably since we began Telecom
Systems in 1994 and because the  business  of selling and  installing  telephone
systems was a mature  industry  that we believed  offered less  opportunity  for
growth  than other  emerging  areas.  We decided to sell our  Computer  Products
Division  because,  in spite  of the  fact  that  Computer  Products  had been a
profitable  business for us until that time, we foresaw negative industry trends
and we  believed  that we could  deploy  the  proceeds  from a sale of  Computer
Products  in  other  ways  that we  believed  would  ultimately  create  greater
stockholder  value. We consummated  the sale of each of those  businesses in the
first  half of 2000 and during the  second  half of the year we  structured  and
organized the remaining company for the future.

         Going  forward,  we intend to utilize our capital  resources to build a
portfolio  of focused  subsidiary  companies,  each of which will be involved in
some facet of information and/or  communications  technology.  We believe we can
produce higher rates of growth, and better financial  performance,  by providing
our products and services through focused,  specialized companies,  each branded
to pursue a specialized  mission and each led by a separate management team with
personal financial incentives tied to their company's financial performance.  We
plan to continue to expand each of our  existing  subsidiary  companies  through
internally  generated  sales and possibly  through the acquisition of compatible
and synergistic companies. We will also continuously evaluate the possibility of
entering new lines of business either by starting new subsidiary companies or by
acquiring other companies.  We also intend to continuously  evaluate investments
in other non-related companies.

PRODUCTS AND SERVICES

         We currently provide all of our products and services,  and produce all
of our revenue,  through our five  wholly-owned  subsidiary  companies,  further
details of which are provided below.


<PAGE>


Allstar Computer Services, Inc.

         Allstar Computer  Services,  Inc. ("ACS"),  offers a variety of service
offerings  related to the  service  and  support of  computing  technology.  The
services that ACS offers include:

         On site and carry-in computer hardware repair
         Application support
         Operating system and network migration services
         Network design and implementation
         Turnkey systems support

         ACS typically prices its services on a time and materials basis,  under
fixed price project pricing or under fixed fee service  contracts,  depending on
customer preference and the level of service commitment required. To support and
maintain the quality of these services and to maintain the vendor  accreditation
necessary to service their  significant  product lines,  ACS's  technical  staff
participates in various  certification and authorization  programs  sponsored by
hardware  manufacturers and software  suppliers.  ACS has offices in Houston and
Dallas,  and in  markets  where  they  do not  maintain  branch  offices,  often
subcontracts for necessary technical personnel,  particularly where required for
larger scope or prolonged  duration  contracts.  ACS's  customers  are typically
small to medium sized commercial accounts.

Internetwork Experts, Inc.

         Internetwork   Experts,   Inc.  ("INX"),   is  a  provider  of  network
infrastructure  professional  services  and a  reseller  network  infrastructure
products  manufactured by Cisco Systems,  Inc. ("Cisco").  INX has developed the
following areas of network expertise:

         Network baseline assessment
         Design/architecture
         Implementation
         Network management
         Project management
         Network security
         Knowledge transfer

         Specific technologies in which INX offers expertise include:

         Routing
         Switching (LAN/MAN/WAN)
         Virtual Private Networks (VPN)
         Voice over X (VoX)
         Wireless
         Security
         Thin Client Computing
         Server Farms

         INX's  consultants  have held  critical  leadership  roles in all major
phases of the project life cycle  including  analysis,  design,  implementation,
support,  management,  and  documentation.  Their  certified  experts  have also
presented many educational  seminars for professional  organizations  within the
networking  industry  and are often  engaged to provide  knowledge  transfer for
clients  as well as  vendors.  INX is  headquartered  in Dallas and has a branch
office in Houston.  INX's customers are typically  large corporate  accounts and
communications firms that utilize large complex network infrastructures.


<PAGE>


IT Staffing, Inc.

          IT  Staffing,  Inc.  ("IT  Staffing"),  provides  qualified,  screened
information  technology consultants and contractors for any length of engagement
as well as performing recruiting services for permanent placements.  IT Staffing
seeks to differentiate  itself from other staffing  companies by specializing in
the information  technology  industry.  IT Staffing  employs  dedicated  account
managers who stay abreast of industry  trends and who know and understand  their
client's needs.  IT Staffing  employs  recruiting  specialists who are extremely
knowledgeable  about the  information  technology  industry  and who  utilize IT
Staffing's infrastructure of database tools, search engines and resume databases
to quickly and  efficiently  locate the best possible  candidates for a client's
needs.  Upon request,  a client is provided with optional  testing and screening
services,  which  enables  the client to quickly  make  qualified  decisions  on
potential candidates.

         IT Staffing is headquartered in Houston and does business  primarily in
Houston  through its single office  located there.  IT Staffing's  customers are
typically  medium  to  large  corporate  clients  as well  as  state  and  local
governmental agencies.

Stratasoft, Inc.

          Stratasoft, Inc. ("Stratasoft"),  develops and markets its proprietary
CTI Software, which integrates business telephone systems and networked computer
systems,  under the trade name "Stratasoft."  Stratasoft's products are designed
to improve the  efficiency of a call center or other type of high volume calling
application, for both inbound and outbound calls. Stratasoft's software products
are often  customized  to suit a customer's  particular  needs and are sometimes
bundled  with  computer  hardware  supplied  by us or by  one  our  value  added
resellers  at the  customer's  request.  Stratasoft  currently  has two  primary
computer-telephony  software products,  which are marketed under the trade names
StrataDial and StrataVoice:

         StrataDial is a predictive  dialer  software  product for outbound call
         center applications such as sales and promotion,  collections, surveys,
         lead  generation  and  announcements  that  require  personal  contact.
         StrataDial features inbound/outbound call blending without requiring an
         automated call distribution feature of the telephone system. StrataDial
         collects  campaign specific data during the telephone call and provides
         comprehensive  on  line  reporting  and  statistical  analysis  of  the
         campaign data.  StrataDial also features open  architecture that allows
         easy  interaction  with the  customer's  other  database  applications.
         Dialing parameters and campaign  characteristics can be changed without
         shutting down the dialer, as is required with some competing products.

         StrataVoice  is an outbound  dialing  product  designed for high volume
         calling applications that do not require human interaction. StrataVoice
         applications  include  appointment   confirmation  and  setting,  court
         appearance notification, surveys, community notification such as school
         closings  and  emergency  evacuation,   employee  updates,  absenteeism
         notification,  telemarketing  and market  research.  A telephone system
         utilizing  StrataVoice dials a computerized list of numbers and can ask
         the  contacted  person a number of  questions,  including  branching to
         other  questions and statements  based on responses.  StrataVoice  also
         allows the  contacted  person to leave  messages.  Scripting  tools are
         included that allow the user to develop campaigns.  The system builds a
         database of respondent data and has  comprehensive  response  reporting
         capabilities.

         Stratasoft  is  headquartered  in Houston,  but  markets  its  products
nationally, and to a lesser extent, internationally,  through both its own sales
account managers as well as a network of resellers.  Stratasoft's  customers are
typically  call center  companies or companies or  organizations  that operate a
call center, and includes political and non-profit organizations.  A majority of
Stratasoft's customers are located in the United States, but Stratasoft has also
sold and installed its products in several other countries.


<PAGE>


Synergy Helpdesk Solutions, Inc.


          Synergy   Helpdesk   Solutions,   Inc.   ("Synergy")   is   a   purely
services-oriented company providing customers with a variety of services related
to the implementation and support of internal IT helpdesk solutions, including:

         Technical staff augmentation for IT helpdesk operations
         Helpdesk solutions consulting
         Turn-key outsourcing of the IT helpdesk function
         Network support and network management
         IT project management

Synergy employs full-time technical  professionals to deliver its broad range of
service  offerings.  Synergy has offices located in Dallas and Houston,  and its
focus has been on the south central region of the U.S., however, a number of its
customer  successes are projects  that were  implemented  nationally.  Synergy's
customers  are  typically  larger  corporate  clients as well as state and local
governmental organizations.

FINANCIAL INFORMATION BY BUSINESS SEGMENT

         See  Item  7.  "Management's   Discussion  and  Analysis  of  Financial
Condition and Results of  Operations"  for financial  information on revenue and
operating income of each business segment.

SALES AND MARKETING

         All of our  subsidiary  companies  utilize sales  personnel,  including
account  managers and customer service  representatives,  to sell their products
and/or services.  These sales personnel are partially  compensated,  and in some
cases  are  solely  compensated,  on the  profitability  of  accounts  that they
participate in developing. In addition,  Stratasoft markets its products through
a network of value added resellers,  who typically integrate their products with
Stratasoft's  software products to provide a complete  solution.  The subsidiary
companies  promote  their  products  and  services  through  general  and  trade
advertising,  participation  in trade  shows  and  telemarketing  campaigns.  We
believe that a significant portion of new customer relationships have originated
through word-of-mouth referrals from existing customers.

CUSTOMERS

         The  focus  of the  various  subsidiary  companies'  marketing  efforts
varies, as does the makeup of each company's  customer base. ACS's customer base
consists  primarily of small to medium sized commercial  accounts,  primarily in
Houston and Dallas. INX's customers are typically larger corporate organizations
or  communications  companies  that utilize  large  network  infrastructures,  a
majority  of which are located in, or make  significant  network  infrastructure
decisions in, Dallas or Houston, but for which work is performed nationally.  IT
Staffing's customer base consists primarily of medium and large sized commercial
accounts  and  state  and  local  governmental   agencies  in  Houston,   Texas.
Stratasoft's  customers  are  typically  call center  companies  or companies or
organizations  that operate a call center, and includes political and non-profit
organizations.  A majority of  Stratasoft's  customers are located in the United
States,  but  Stratasoft  has also sold and installed its call center systems in
several other countries.  Synergy's customers are typically larger corporate and
governmental  organizations that operate an internal IT infrastructure  helpdesk
organization.  We had no single customer that  represented 10% or greater of our
total continuing revenues in the years ended December 31, 2000, 1999 or 1998.


<PAGE>


SUPPLY AND DISTRIBUTION

         As most of our revenue is derived from providing services,  or from the
sale of our own  software  products,  our  reliance  on supply and  distribution
channels is limited.  We do, however,  purchase limited amounts of computing and
communications  equipment that is sold in conjunction with Stratasoft's software
products  and as  part  of  turn-key  network  infrastructure  solutions  in our
Internetwork  Experts  subsidiary.  We have  historically  relied  on  wholesale
distributors  to supply a majority of the  products  that we have sold.  We have
recently  purchased the majority of our products  from two primary  suppliers in
order to obtain competitive  pricing,  better product  availability and improved
quality control. In addition,  we purchase or exchange service parts in our ACS,
INX and Synergy subsidiaries, such transactions typically being with the product
manufacturer or its authorized distributor.

MANAGEMENT INFORMATION SYSTEMS

         We  utilize  an  internally  developed,  highly  customized  management
information  system  ("MIS") to manage most aspects of our business.  All of our
subsidiary  companies  utilize our MIS,  which is customized  to their  specific
needs.  We use our MIS to manage sales orders,  purchasing,  service  contracts,
service  calls and work orders,  engineer  and  technician  scheduling  and time
tracking,  service parts acquisition and manufacturer warranties.  Reporting can
be generated for project  profitability,  contract and customer analysis,  parts
tracking and employee time tracking.  The system  provides for separate  company
accounting  and also  for  consolidation  of all  subsidiary  company  financial
information.

EMPLOYEES

         As of December 31, 2000 we employed  approximately 211 individuals.  Of
these,  approximately 35 were employed in sales, marketing and customer service,
95 were employed in engineering and technical  positions and 81 were employed in
administration,  finance  and MIS.  We believe  that our  ability to recruit and
retain highly skilled and experienced technical,  sales and management personnel
has been,  and will  continue  to be,  critical  to our  ability to execute  our
business  plans.  None of our employees are represented by a labor union nor are
any subject to a collective bargaining agreement.  We believe that our relations
with our employees are good.

 RECENT ORGANIZATIONAL CHANGE

         We sold our Telecom Systems  business on March 16, 2000 and we sold our
Computer  Products  Division on May 19,  2000,  after  which we retained  our IT
Services and  Stratasoft  businesses.  In July 2000,  we separated our former 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.,  which had already been operated as a  wholly-owned  subsidiary
since 1997. We  contributed  the remaining  components of the former IT Services
business to two newly formed  corporations,  Allstar Computer  Services Inc. and
Synergy  Helpdesk  Solutions,   Inc.  In  July  2000,  we  also  formed  another
wholly-owned  subsidiary,  Internetwork  Sciences  Corporation.  In October 2000
Internetwork  Sciences  Corporation  acquired  certain  assets  and the  ongoing
operations of an unrelated company,  Internetwork Experts, Inc., and adopted the
name of the acquired firm by changing its legal name to the latter.

RISKS RELATED TO OUR BUSINESS STRATEGY

         Our business  strategy is based on our ability to redeploy the proceeds
from the sale of our Computer Products and Telecom Systems businesses to improve
the  performance of our existing  businesses,  make selective  acquisitions  and
pursue  selected  business  opportunities.  This  strategy  involves  many risks
including, but not limited to, the following:

Risks of Potential Future Acquisitions and Investments

         Our business will depend in the future on the  successful  acquisition,
integration,  financing and performance of businesses. Our strategy involves the
substantial  risk that we will not find suitable  businesses to acquire on terms
we believe are  reasonable  and that the new  businesses we choose to enter will
not  provide  the  benefits  we expect.  Our future  business  prospects  should
therefore be  considered  in light of the risks,  expenses,  problems and delays
inherent in acquiring a new business. We cannot be certain that we will identify
and assess these risks.  Some of the  acquisition and operating risks that could
adversely affect us include the following:


<PAGE>


         We may be  unsuccessful  in  identifying  new  business  opportunities,
         completing and financing  acquisitions and start-ups on favorable terms
         and in subsequently operating the businesses profitably.

         Competition  for the  acquisition of companies in the  information  and
         communication  sector  will  likely be  intense.  Our  competitors  for
         suitable new  businesses  may have  greater  financial,  personnel  and
         technical  resources  than us,  which may put us at a  disadvantage  in
         finding and concluding acquisitions.  These competitive limitations may
         compel us to select less attractive acquisitions than if we had greater
         resources at our disposal.

         Businesses in the information and communication  sector are the general
         focus of our new business expansion strategy. Businesses in this sector
         often have an undeveloped or unproven product,  technology or marketing
         strategy, which may prove unsuccessful.

         We may choose to acquire  or invest in a business  that is  financially
         unstable or that is in the early stages of  development,  including one
         without earnings or positive cash flow,  which may require  substantial
         additional capital infusions to support.

         Because we plan to seek new businesses with growth potential,  there is
         a substantial  likelihood  that the new business will be in competition
         with much larger, more established and better capitalized  competitors,
         thus putting it at a competitive disadvantage.

         Our  success  in a new  business  will also  depend on our  ability  to
         integrate a new business and its personnel  with our existing  business
         and  personnel  with a minimum of  disruption  to both existing and new
         enterprises,  including management  information systems. We also may be
         unable to attract and retain new,  qualified  personnel  to operate and
         grow our new businesses.

         If we choose to make a  strategic  investment  by  acquiring a minority
         interest in a business, we may lack sufficient control to influence the
         operations  and  strategy of the  business and thus will depend on that
         entity's management for our success; additionally, if we choose to make
         an investment in a publicly traded company such  investment  would also
         be subject to market risks.

Uncertain Revenue Sources

         In order reach  profitability from our existing businesses we will have
to grow the  revenues of those  businesses  at a much  greater rate than we have
historically been able to grow revenues.  The relatively high level of operating
expenses remaining after the divestiture of Computer Products has contributed to
operating  losses,  which are  expected to continue  until new  revenues  can be
generated to offset some of the loss of revenues from the  businesses  that have
been sold.

Possible Need For Additional Financing

         We may be required to obtain cash to supplement  our available  capital
to acquire a new business and for working capital to run existing businesses and
any businesses we acquire. We have no commitments to provide any such additional
capital  and we may be  unable to find  suitable  capital  on terms we  consider
acceptable.

         If we obtain debt  financing for our existing  businesses or to acquire
new businesses, we will be subject to the risks inherent in debt financing. Some
of these include:

         interest rate fluctuations;
         inability to obtain additional debt financing;
         insufficiency of cash flow to pay interest and principal; and
         restrictive  debt  covenants  imposed  by  lenders  that  may  limit or
         prohibit business activities we consider desirable.


<PAGE>


         We may seek to raise equity  capital to meet our future cash needs.  We
may also issue additional  shares of our common stock or other equity securities
to acquire new businesses. If we do issue additional equity securities,  some of
the possible adverse effects include:

         the percentage of our common stock owned by existing stockholders could
         be substantially  reduced;

         possible increases in the number of shares of our common stock that are
         considered  restricted  stock for  federal  and state  securities  laws
         purposes,  the actual or potential future sale of which could adversely
         effect the price of our common stock; and

         we may be required to issue  preferred  stock which could have  rights,
         privileges  and  preferences  superior  to those  of our then  existing
         stockholders.

Increased Dependence on Service Businesses and Stratasoft

         Our existing five subsidiary companies,  four of which are providers of
information  technology services and one of which develops and markets software,
are currently our only revenue producing business segments. Because of that, our
ability to be  successful  in these  areas of business  takes on a much  greater
significance  to us than in the past.  We plan to  concentrate  our  efforts  on
growing  these  businesses.  The risk exists that we may be unable to accomplish
this improvement, and the operations of these businesses alone may not enable us
to operate profitably.

Adverse Changes in Our Industry

         As described above under the caption "Industry Changes" our industry is
undergoing rapid changes that may adversely affect us. If we do not successfully
adapt our  business  strategy to these new  conditions,  there is a growing risk
that we may be unable to compete and be profitable in the future.

Highly Competitive Business

         We  have  been  engaged  in  business  activities  that  are  intensely
competitive  and  rapidly  changing.  Price  competition  could  have a material
adverse  effect on our  financial  condition  and  results  of  operations.  Our
competitors   include  major  information   technology  service   organizations,
resellers and  distributors,  including  certain  manufacturers and distributors
that supply  products to us.  Other  competitors  include  systems  integrators,
computer-telephony  value-added resellers and other computer-telephony  software
suppliers.

Regional Concentration

         For the foreseeable  future,  we expect that we will continue to derive
most of our revenue from customers  located  within the geographic  regions into
which we market.  Accordingly, an economic downturn in any of those metropolitan
areas within the region in general,  would likely have a material adverse effect
on our financial condition and results of operations.

Dependence on Key Personnel

         Our success  for the  foreseeable  future  will  depend  largely on the
continued  services  of key  members of  management,  leading  salespersons  and
technical  personnel.  We do not maintain key personnel life insurance on any of
our  executive  officers  or  salespersons  other  than our  Chairman  and Chief
Executive  Officer.  Our success also depends in part on our ability to attract,
hire, train and retain qualified  managerial,  technical and sales and marketing
personnel at a reasonable cost, particularly those involved in providing systems
integration,  support  services and training.  Competition for such personnel is
intense.  Our financial  condition and results of operations could be materially
adversely affected if we are unable to attract, hire, train and retain qualified
personnel.


<PAGE>


Dependence    on    Continued    Authorization    to    Resell    and    Provide
Manufacturer-Authorized Services

         Our future success in our services  businesses  depends  largely on our
continued status as an authorized reseller and/or service provider.  We maintain
sales   and   service   authorizations   with  many   industry-leading   product
manufacturers. Without such sales and service authorizations, we would be unable
to provide the range of services  currently offered.  In addition,  Internetwork
Expert's  ability to resell Cisco network  products is dependent  upon its Cisco
authorization.  Furthermore,  loss of manufacturer  authorizations  for products
that have been  financed  under our credit  facilities  constitutes  an event of
default under such credit facilities.  In general, the agreements between us and
our product  manufacturers  either provide for fixed terms or for termination on
30 days prior written notice. Failure to maintain such authorizations could have
a  material  adverse  effect  on our  financial  condition  and our  results  of
operations.

Dependence on Suppliers

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

Inventory Obsolescence

         The   business   in  which  we  compete  is   characterized   by  rapid
technological  change and  frequent  introduction  of new  products  and product
enhancements.  Our success  depends in large part on our ability to identify and
obtain products that meet the changing  requirements of the  marketplace.  There
can be no  assurance  that  we  will be able  to  identify  and  offer  products
necessary to remain  competitive or avoid losses  related to obsolete  inventory
and  drastic  price  reductions.  We  attempt to  maintain a level of  inventory
required  to meet our near term  delivery  requirements  by relying on the ready
availability of products from our principal suppliers.  Accordingly, the failure
of our suppliers to maintain  adequate  inventory levels of products demanded by
our existing and  potential  customers and to react  effectively  to new product
introductions  could have a material  adverse effect on our financial  condition
and results of operations.

Reliance on MIS

         Our  success  is  largely  dependent  on  the  accuracy,   quality  and
utilization of the  information  generated by our customized  MIS, which affects
our  ability  to manage  our  sales,  projects,  accounting  and  inventory.  We
anticipate  that we will  continually  need to refine and enhance our management
information systems as we grow and the needs of our business evolve.

Control by Existing Stockholders

         James H. Long,  founder,  Chairman  of the Board,  President  and Chief
Executive Officer,  owns 51.6% of the outstanding Common Stock and Mr. Long will
have the  ability  to  control  the  election  of the  members  of our  board of
directors,  prevent the approval of certain matters requiring the approval of at
least two-thirds of all stockholders  and exert  significant  influence over our
affairs.

Anti-Takeover Considerations

         Our Certificate of Incorporation and Bylaws contain certain  provisions
that may delay,  deter or prevent a change in our control.  Among other  things,
these  provisions  authorize our board of directors to issue shares of preferred
stock on such terms and with such rights,  preferences  and  designations as the
board of directors may determine  without further  stockholder  action and limit
the ability of stockholders to call special meetings or amend our Certificate of
Incorporation  or  Bylaws.  Each of these  provisions,  as well as the  Delaware
business combination statute could, among other things,  restrict the ability of
certain  stockholders  to  effect a merger  or  business  combination  or obtain
control of the company.

<PAGE>

Risks Related to Patent Infringement

         A competitor of  Stratasoft's  has alleged that  Stratasoft's  products
infringe upon their patents (see Item 3. "Legal Proceedings").  While Stratasoft
does not believe that their products  infringe upon such  competitor's  patents,
there can be no  assurance  that the matter will be resolved in a manner that is
favorable to Stratasoft and it is possible that other companies may also believe
that  Stratasoft's  products  infringe upon other patents.  Patent  infringement
litigation  is  complex  and  expensive  and if the  current  litigation  is not
resolved in  Stratasoft's  favor,  in a cost efficient  manner,  or if there are
other future assertions of patent infringement by other competitors,  such would
have a material adverse effect on our financial  performance financial condition
and our results of operations.

Absence of Dividends

         We expect to retain any cash generated  from  operations to support our
cash needs and do not  anticipate  the  payment of any  dividends  on the Common
Stock for the foreseeable  future. In addition,  our credit facilities  prohibit
the  declaration  or payment of dividends,  unless  consent is obtained from the
lender.

Item 2.  Properties

FACILITIES

         We do not own any real property and currently lease all of our existing
facilities.  We lease  our  Houston  office  that is  housed  in a  freestanding
building of approximately  48,000 square feet. On November 30, 1999 the building
was acquired by a Corporation owned by the Chairman, Chief Executive Officer and
President of the Company and a new lease was signed which expires on December 1,
2004.

         Our Dallas office is a space of  approximately  8,960 square feet.  The
Dallas facility lease term began July 2000 and expires in July 2003.

Item 3.  Legal Proceedings

         We are party to  litigation  and claims which  management  believes are
normal in the course of our 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 material  adverse effect on our results of operations or
financial position.

         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,  however the case is
currently  scheduled for mediation in the immediate future. We have no assurance
that mediation will result in a settlement on terms that are acceptable to us.



<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 and intends to  vigorously  contest
Corey's  claims.  The case is set for trial on June 18, 2001. In addition to the
claims he has  asserted  in the  above-described  lawsuit,  Corey  has  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  claims to have been  damaged in the
approximate amount of $1,337,500 but has not initiated  litigation to pursue his
verbal claims. Subsequently,  Corey verbally offered a settlement of all matters
for  substantially  less than his claimed damage  amount.  Should Corey initiate
litigation to pursue his claims, the Company intends to vigorously contest those
claims,  however the Company  will give  consideration  to offers to settle such
matter if such a settlement is deemed to be in the best interest of the Company.

Item 4.  Submission of Matters to a Vote of Security Holders

         No matters were submitted  during the fourth quarter of the fiscal year
covered by this report to a vote of security  holders,  through the solicitation
of proxies or otherwise.

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters

         The  Company's  shares were traded on the NASDAQ Small Cap Market under
the symbol "ALLS" prior to July 11, 2000.  Upon the change of our corporate name
on July 11, 2000, our stock began trading under the symbol "ISEC".

                                                        High          Low
Fiscal 1999
         First quarter                                   2.1875       1.00
         Second quarter                                  2.875        1.0625
         Third quarter                                   1.75         1.0625
         Fourth quarter                                  1.875        1.00

Fiscal 2000
         First quarter                                   5.00         1.375
         Second quarter                                  3.50         1.938
         Third quarter                                   2.438        1.563
         Fourth quarter                                  1.688        0.625

         As of March 16, 2001, there were 45 shareholders of record.  Management
estimates  that there are  approximately  890  beneficial  holders of our common
stock. We have never declared or paid any cash dividends on our Common Stock. On
March 16,  2001,  the  closing  sales  price of our Common  Stock as reported by
NASDAQ was $ 1.063 per share.  We currently  anticipate  that we will retain all
earnings  for use in our  business  operations.  The  payment  of  dividends  is
prohibited under our credit agreements, unless approved by the lenders.


<PAGE>


Item 6.  Selected Financial Data

        The  following  sets forth the selected data of the company for the five
years ended December 31, 2000.
<TABLE>
<CAPTION>                                                                  Year ended December 31,
                                                           (In thousands except share and per share amounts)

<S>                                     <C>              <C>           <C>            <C>             <C>  <C>
                                        1996             1997          1998           1999            2000 (1)
Operating Data:
Revenue                             $   8,492      $   12,385    $   16,278      $  19,175      $   18,329
Cost of sales and services              5,635           7,433        10,578         12,598          13,881
   Gross profit                         2,857           4,952         5,700          6,577           4,448
Selling, general and
  Administrative expenses               2,885           5,101         7,111          6,671           9,970
   operating income (loss)                (28)           (149)       (1,411)           (94)         (5,522)
Interest expense (income)                 113             (43)          (41)           (23)           (239)
Income loss from continuing
  operations before benefit
   for income taxes                      (141)           (106)       (1,370)           (71)         (5,283)
Benefit for income taxes                  (52)            (39)         (450)            (2)         (1,548)
     Net loss from

       continuing operations              (89)            (67)         (920)           (69)         (3,735)

Discontinued Operations:
  Net income (loss) from
   discontinued operations, net
   of taxes                             1,692           1,911          (178)           362             302
  Loss on disposal, net of taxes                                                    (1,138)          3,390
     Net income (loss)              $   1,603      $    1,844    $   (1,098)     $    (845)     $      (43)

Net loss per share:
Basic and diluted:
Net loss from continuing
  operations                        $   (0.02)     $    (0.02)   $    (0.21)     $   (0.02)     $    (0.92)
Net income (loss) from
  discontinued operations                0.40            0.54         (0.04)          0.09            0.07
Loss on disposal                                                                     (0.27)           0.84
Net income (loss) per share         $    0.38      $     0.52    $    (0.25)     $   (0.20)     $    (0.01)
</TABLE>

<TABLE>
<CAPTION>
                                                                 As of December 31,
                                                                   (In thousands)
<S>                                    <C>              <C>           <C>            <C>             <C>
                                       1996             1997          1998           1999            2000
Balance Sheet Data:
Working Capital                     $   2,291      $   12,738    $    9,800      $   9,567      $   10,098
Total Assets                           24,720          34,855        51,028         54,531          17,142
Short-term borrowings                   9,975           1,572        15,958         15,869             -0-
Long-term debt                            -0-             -0-           -0-            -0-             -0-
Stockholders' equity                    4,327          14,637        12,705         11,830          11,912

<FN>
(1) Includes the operations of Internetwork Experts, which was formed in July 2000.
</FN>
</TABLE>


<PAGE>


Item 7. Management's  Discussion and Analysis of Financial Condition and Results
of Operations

         The following discussion is qualified in its entirety by, and should be
read in conjunction with, our Consolidated  Financial Statements,  including the
Notes thereto, included elsewhere in this Annual Report on Form 10-K.

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.  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").  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. Our CTI Software business was not affected
by the 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 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.   By  operating   through  these  highly  focused
wholly-owned  subsidiaries,  we  believe  that we  will  offer  better  customer
service, and improve our financial  performance.  During the year ended December
31, 2000, ACS,  Synergy,  INX and IT Staffing produced 13.6%,  24.3%,  10.2% and
6.8% of total revenues, while Stratasoft produced 36.3% of total revenues. Gross
margin varies  substantially  between each of these business segments.  Over the
past three  years  gross  margin in the  previously  existing,  but  continuing,
service  businesses  has  ranged  between  37.9% and 19.0% and gross  margin for
Stratasoft has ranged between 46.4% to 50.8%.

         On March 16,  2000 we entered  into an  agreement  whereby 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.
Under the terms of the sale we received  for the sale of the  operations  of the
Computer Products business cash  consideration of $14,779,  plus the possibility
of receiving a future  payment of up to $500 from an escrow  account.  A gain on
disposal  of the  Computer  Products  business,  including  an  estimate  of the
operating results from the measurement date, March 16, 2000, to the closing date
of the sale,  May 19, 2000,  of $914,  and  estimates  for  impairment of assets
caused by the  disposal  decision  of $2,820,  totaling  $3,734 (net of taxes of
$2,607) has been recognized in the year ended December 31, 2000. Our income from
discontinued  operations of the Computer  Products  business was $302 and $1,343
and 132  (net of taxes  of $156  and  $688  and  $68) in  2000,  1999 and  1998,
respectively.  We retained accounts  receivable related to the Computer Products
business of  $20,266,  net of  reserves,  fixed  assets of $255 and  liabilities
related to the Computer Products  business.  The accounts  receivable  collected
were used to repay all remaining  liabilities of the Computer Products Division.
Fixed assets were redeployed in the continuing operations.  The sale of Computer
Products closed on May 19, 2000, after  shareholder and other required  consents
were obtained.


<PAGE>


         On  November  2, 1999,  we approved a plan to sell or close our Telecom
Systems  Division.  The sale was finalized on March 16, 2000. Under the terms of
the sale we received for the sale of the  inventory  and  operations  of Telecom
Systems $250 cash.  Additionally,  the  purchaser  assumed all of our  telephone
equipment  warranty  obligations  up to a maximum of $30,  which was  reached in
October 2000. All future warranty costs incurred by the purchaser will be billed
to us at an agreed  upon  rate.  An  estimate  of the cost of  future  telephone
equipment  warranty  obligations  of $95 is included at December 31, 2000 in the
balance sheet caption "Net liabilities  related to discontinued  operations".  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 an income tax saving of $586) was  recognized.  Our loss
from  discontinued  operations  (net of income tax savings of $159 and $505) was
$310 and $981 in 1998 and 1999, respectively. We retained accounts receivable of
$1.4 million,  net of reserves,  fixed assets of $30 and liabilities  related to
the Telecom Division.  Accounts receivable,  net of reserves,  is $0 at December
31,  2000.  Fixed  assets were  redeployed  in the  continuing  operations.  The
accounts  receivable  collected were used to repay all remaining  liabilities of
the Telecom Division.

         A  significant  portion  of our  selling,  general  and  administrative
expenses  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  our  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.  We account for wages and related taxes and employee  benefits paid
to technical staff as a cost of service  provided and therefore such costs are a
component  of cost of goods sold,  gross profit and gross  margin.  As a certain
component  of total  technical  staff  wages  and  related  costs are of a fixed
nature, gross margin will vary to the extent that revenues fluctuate from period
to period.

Results of Operations

         The  following  table sets forth,  for the periods  indicated,  certain
financial  data  derived  from  our   consolidated   statements  of  operations.
Percentages  shown in the table below are percentages of total company  revenue,
except  for  each  individual  segment's  gross  profit,  selling,  general  and
administrative  expenses,  and operating  income,  which are  percentages of the
respective segment's revenue.

<TABLE>
<CAPTION>
                                                                  Year ended December 31,
                                                  1998                   1999                       2000

<S>                                        <C>          <C>        <C>          <C>        <C>           <C>
                                           Amount         %        Amount         %           Amount      %
                                                                         (Dollars in thousands)
Revenue

  ACS                                      $  3,958      24.3%     $  3,644      19.0%     $  2,491      13.6%
  Synergy                                     6,933      42.6         7,318      38.2         4,455      24.3
  INX                                             0       0.0             0       0.0         1,874      10.2
  IT Staffing                                   870       5.3         1,191       6.2         1,242       6.8
  Stratasoft                                  3,095      19.0         4,318      22.5         6,660      36.3
  Corporate                                   1,422       8.8         2,704      14.1         1,640       9.0
  Eliminations                                    0       0.0             0       0.0           (33)     (0.2)
    Total                                    16,278     100.0        19,175     100.0        18,329     100.0
Gross profit
  ACS                                           802      20.3         1,120      30.7           511      20.5
  Synergy                                     2,625      37.9         2,262      30.9           845      19.0
  INX                                             0       0.0             0       0.0           (43)     (2.3)
  IT Staffing                                   370      42.5           399      33.5           329      26.5
  Stratasoft                                  1,492      48.2         2,192      50.8         3,087      46.4
  Corporate                                     411      28.9           604      22.3          (269)    (16.4)
  Eliminations                                    0       0.0             0       0.0           (12)     36.4
    Total                                     5,700      35.0         6,577      34.3         4,448      24.3

Selling, general and
  administrative expenses

  ACS                                         1,681      42.5         1,086      29.8         1,240      49.8
  Synergy                                     2,504      36.1         2,187      29.9         1,946      43.7
  INX                                             0       0.0             0       0.0           935      49.9
  IT Staffing                                   396      45.5           464      39.0           491      39.5
  Stratasoft                                  1,873      60.5         1,960      45.4         3,647      54.8
  Corporate                                     657      46.2           974      36.0         1,723     105.1
  Elimination                                             0.0                     0.0           (12)     36.4
    Total                                     7,111      43.7         6,671      34.8         9,970      54.4
Operating income (loss)
  ACS                                          (879)    (22.2)           34       0.9          (729)    (29.3)
  Synergy                                       121       1.7            75       1.0        (1,101)    (24.7)
  INX                                             0       0.0             0       0.0          (978)    (52.2)
  IT Staffing                                   (26)     (3.0)          (65)     (5.5)         (162)    (13.0)
  Stratasoft                                   (381)    (12.3)          232       5.4          (560)     (8.4)
  Corporate                                    (246)    (17.3)         (370)    (13.7)       (1,992)   (121.5)
    Total                                    (1,411)     (8.7)          (94)     (0.5)       (5,522)    (30.1)
Interest expense (income)                       (41)      0.3           (23)      0.1          (239)      1.3
Loss from continuing
  operations before provision                (1,370)     (8.4)          (71)     (0.4)       (5,283)    (28.8)
Benefit for income taxes                       (450)     (2.8)           (2)     (0.0)       (1,548)     (8.4)
Net loss from continuing
  operations                                   (920)     (5.7)          (69)     (0.4)       (3,735)    (20.4)

Discontinued operations:
Income (loss) from discontinued
  operations, net of taxes                     (178)     (1.1)          362       1.9           302       1.6
Gain (loss) on disposal,
   net of taxes                                                      (1,138)     (5.9)        3,390      18.5
Net income                                 $ (1,098)     (6.7)%    $   (845)     (4.4)%    $    (43)     (0.2)%
</TABLE>


Year Ended  December  31,  2000  Compared  to the Year Ended  December  31, 1999
(Dollars in thousands)

         Revenue.  Total revenue  decreased  $846 (4.4%) to $18,329 in 2000 from
$19,175 in 1999.

         Total 2000 ACS revenue which comprised 13.6% of total revenues compared
to 19.0% in 1999,  decreased  $1,153  (31.6%)  to $2,491 in 2000 from  $3,644 in
1999.  The  decrease in revenue is  attributable  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.

          Total 2000 Synergy  revenue which  comprised  24.3% of total  revenues
compared  to 38.2% in 1999,  decreased  $2,863  (39.1%)  to  $4,455 in 2000 from
$7,318 in 1999. The decrease in revenue is attributable 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.

         Total 2000 INX revenue comprised 10.2% of total revenues. INX was newly
formed in July,  2000 to meet the needs of customers in the area of  large-scale
network  infrastructure  requirements.  INX exerted intense efforts to introduce
itself to the market in Dallas and Houston and to form  customer  relationships.
In October,  2000 INX acquired an established  service  business in Dallas.  The
purchase  included an established  customer list,  seven engineers and two sales
staff members.


<PAGE>


         Total 2000 IT Staffing revenue,  which comprised 6.8% of total revenues
compared to 6.2% in 1999,  increased $51 (4.3%) to $1,242 in 2000 from $1,191 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.

         Revenue from  Stratasoft,  which  comprised  36.3% of total  revenue in
2000, compared to 22.5% in 1999, increased $2,342 (54.2%) to $6,660 in 2000 from
$4,318 in 1999. The increased revenues from Stratasoft were primarily the result
of 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  that are not  on-going  because of the sale of the Computer
Products  Division (see discussion at Item 1.  "Disposition of Computer Products
Business"),  and including  installation revenues that were 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.  Corporate  revenue,  which  comprised  9.0% of total revenues in 2000
compared  to  14.1% in 1999,  decreased  by  $1,064  (39.3%)  in 2000 to  $1,640
compared to $2,704 in 1999.  The decrease in 2000 was due to $1,078  decrease in
revenues  from the El Paso  branch  office,  offset by $76  higher  installation
revenues for that certain customer of our Computer Products Division in spite of
the loss of the customer in May,  2000 due to the sale of the Computer  Products
Division.

         Gross Profit.  Gross profit  decreased $2,129 (32.4%) to $4,448 in 2000
from $6,577 in 1999, while gross margin decreased to 24.3% in 2000 from 34.3% in
1999.

         ACS gross profit  decreased by $609 (54.4%) to $511 in 2000 compared to
$1,120 in 1999.  Gross  margin  rates for ACS were 20.5% in 2000 as  compared to
30.7% in 1999. ACS's cost of service consists primarily of labor cost. Labor has
a more fixed nature such that higher levels of service  revenue  produce  higher
levels of gross margin while lower levels of service revenue produce 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 on which gross profit  margin was about 12% below normal  levels,
which negatively impacted the overall margin.

         Synergy  gross  profit  decreased  by  $1,417  (62.6%)  to $845 in 2000
compared to $2,262 in 1999.  Gross  margin  rates  decreased to 19.0% in 2000 as
compared to 30.9% in 1999.  As with ACS our cost of service is labor  intensive.
Labor has a more fixed nature such that higher levels of service revenue produce
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  in to
wholly-owned  subsidiary companies,  Synergy experienced lower labor utilization
related to lower revenue.

         INX gross loss was $(43) for a gross  margin rate of (2.3%).  Since INX
was formed in July, 2000, there is no history for comparison.  As a newly-formed
start-up  operation,  INX 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 $70  (17.5%) to $329 in 2000
compared to $399 in 1999.  Gross margin rates for IT Staffing were 26.5% in 2000
as  compared to 33.5% in 1999.  The  decrease in gross  margin  percentages  was
primarily  due to a contract  with a major  customer  which  limits the billable
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.

         The gross profit for Stratasoft  increased by $895 (40.8%) to $3,087 in
2000 from $2,192 in 1999.  Gross margin rates for Stratasoft  were 46.4% in 2000
as compared to 50.8% in 1999.  The  decreased  gross margin was primarily due to
inventory  markdowns  along with  increased  travel  costs for  technical  staff
traveling nationally and 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.  The lower
gross  margin  rates were offset by volume  increases  due  primarily  to higher
revenues in 2000, thereby producing increased gross profit.


<PAGE>


         Corporate  gross profit  decreased  by $873  (144.5%) to $(269) in 2000
compared to $604 in 1999 as revenue  decreased by 39.3%.  Gross margin rates for
the Corporate  segment were (16.4%) in 1999 as compared to 22.3% in 1999. The El
Paso service business that was sold on May 19,2000 produced gross profit of $558
in 1999 as  compared to a gross loss of $(48) in 2000,  a decrease  of $606.  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 $(235) in 2000 as
compared to gross profit of $46 in 1999, a decrease of $281.

         Selling,  General and  Administrative  Expenses.  Selling,  general and
administrative  expenses  increased $3,299 (49.5%) to $9,970 in 2000 from $6,671
in 1999. As a percentage of total revenue,  selling,  general and administrative
expenses  for  continuing  operations  increased  to 54.4% in 2000 from 34.8% in
1999.

         Of  the  $3,299  increase,   $1,687  was  attributable  to  Stratasoft.
Stratasoft  incurred  increased  sales  compensation  of  $379,  accompanied  by
increased payroll taxes,  employee  benefits,  and advertising  expense,  all of
which is consistent with increased revenues of 54.2%. Additionally, Stratasoft's
bad debt expense increased $393,  primarily due to more conservative reserve and
write off policies and legal  expense  increased  $551,  primarily due to patent
infringement  litigation.  Adding to the increase from Stratasoft,  INX, the new
subsidiary contributed $935 of the increase. Selling, general and administrative
expenses  totaling  $677 from the  Corporate  Segment  represents  the remaining
increase  and  effective  beginning  in July 2000 certain of these costs were no
longer allocated out to the operating segments.

         Operating Loss. Operating loss increased $5,428 to an operating loss of
$5,522  in 2000  from a loss of $94 in 1999 due  primarily  to the  increase  in
selling, general and administrative expenses of $3,299 and the decrease in gross
profit of $2,129 in 2000. The operating loss for the Corporate Segment increased
$1,622 to an operating  loss of $1,992 in 2000 compared to an operating  loss of
$370 in 1999.  ACS's  operating  loss of $729 in 2000  compares to $34 operating
income in 1999, an increase of $763.  Synergy's operating loss of $1,101 in 2000
compares to income of $75 in 1999,  a decrease  of $1,176.  INX  experienced  an
operating loss of $978 in 2000. For Stratasoft,  the operating income of $232 in
1999 decreased $792 to a loss of $560 in 2000.

         Interest expense  (income)).  Interest expense (income)  decreased $216
(939.1%) to income of $(239) in 2000  compared to $(23) in 1999.  Subsequent  to
the sale of the  Computer  Products  Division  cash  balances  were  invested in
interest bearing overnight deposits.

         Net  loss  from  continuing   operations.   Net  loss  from  continuing
operations,  after an  income  tax  provision  totaling  $1,548  (reflecting  an
effective tax rate of 29.3% for 2000),  was $3,735 in 2000 compared to a loss of
$69 in 1999.

         Discontinued  operations.  During  2000 we sold the  Computer  Products
Division and as a consequence,  the operations of the Computer Products Division
are  reported  as  discontinued  operations.  We  experienced  net income on the
operations of the Computer  Products  Division  prior to the  measurement  date,
March 16,  2000,  of $302 in 2000,  net of tax of $156 and a gain on disposal of
$3,734,  net of taxes of $2,607. The loss on disposal of the Telecom Division of
$1,138 (net of taxes of $586) was  recognized  at December 31, 1999.  During the
year ended December 31, 2000 additional  expenses related to the disposal of the
Telecom  Division was recognized of $344 (net of taxes of $240). The income from
discontinued operations in 1999 was $362, net of taxes of $183.

Year Ended  December  31,  1999  Compared  to the Year Ended  December  31, 1998
(Dollars in thousands)

         Revenue. Total revenue increased $2,897 (17.8%) to $19,175 in 1999 from
$16,278 in 1998.

         Total 1999 ACS revenue which comprised 19.0% of total revenues compared
to 24.3% in 1998,  decreased  $314 (7.9%) to $3,644 in 1999 from $3,958 in 1998.
The  decrease  in  revenue  is  attributable  to  decreased  sales  to  existing
customers.

          Total 1999 Synergy  revenue which  comprised  38.2% of total  revenues
compared to 42.6% in 1998,  increased  $385 (5.6%) to $7,318 in 1999 from $6,933
in 1998. The increase in revenue is  attributable to increased sales to existing
customers and to new customers.


<PAGE>


         Total 1999 IT Staffing  revenue which  comprised 6.2% of total revenues
compared to 5.3% in 1998,  increased $321 (36.9%) to $1,191 in 1999 from $870 in
1998.  The increase in revenue is  attributable  to increased  sales to existing
customers and to new customers.

         Revenue from  Stratasoft,  which  comprised  22.5% of total  revenue in
1999, compared to 19.0% in 1998, increased $1,223 (39.5%) to $4,318 in 1999 from
$3,095 in 1998. The increased revenues from Stratasoft were primarily the result
of sales to new customers and the expansion of geographic market.

         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,  see discussion at Item 1, "Disposition of Computer Products
Business"  and  including  installation  revenues that were related to a certain
customer of our Computer  Products  Division and revenue from our former El Paso
branch office,  both of which are included in the Corporate segment because both
ceased  in 2000 due to the sale of the  Computer  Products  Division.  Corporate
revenue,  which  comprised  14.1% of total  revenues in 1999 compared to 8.8% in
1998,  increased by $1,282 (90.2%) in 1999 to $2,704 compared to $1,422 in 1998.
The increase in 1999 was due to an increase of $421 of installation revenues for
that certain customer of our Computer  Products Division and to an $861 increase
in revenues from the El Paso branch office.

         Gross  Profit.  Gross profit  increased  $877 (15.4%) to $6,577 in 1999
from $5,700 in 1998, while gross margin decreased to 34.3% in 1999 from 35.0% in
1998.

         ACS gross profit  increased by $318 (39.7%) to $1,120 in 1999  compared
to $802 in 1998.  Gross  margin  rates for ACS were 30.7% in 1999 as compared to
20.3% in 1998.  Our cost of service is labor  intensive.  The  increase in gross
profit is attributable to the increased gross margin rates resulting from better
management of the labor pool.

         Synergy  gross  profit  decreased  by $363  (13.8%)  to  $2,262 in 1999
compared to $2,625 in 1998.  Gross  margin  rates for IT Services  were 30.9% in
1999 as  compared  to 37.9% in 1998.  As with ACS,  our cost of service is labor
intensive. It is very important to manage labor cost in order to prevent erosion
of  gross  margin.  One of our  major  customers  required  us to  have  certain
technicians  assigned to them  although  they were not fully  utilized,  thereby
eroding our gross margins.

         IT  Staffing  gross  profit  increased  by $29  (7.8%)  to $399 in 1999
compared to $370 in 1998.  Gross margin rates for IT Staffing were 33.5% in 1999
as compared to 42.5% in 1998. The increase in gross profit is commensurate  with
the increase in revenues as discussed above.

         The gross profit for Stratasoft  increased by $700 (46.9%) to $2,192 in
1999 from $1,492 in 1998.  Gross margin rates for Stratasoft  were 50.8% in 1999
as compared to 48.2% in 1998. This increase was due primarily to higher revenues
coupled with lower system  installation costs,  relative to revenue,  reflecting
improved  productivity and efficiency due to improved software  installation and
customization tools introduced in 1998.

         Corporate  gross  profit  increased  by  $193  (47.0%)  to $604 in 1999
compared to $411 in 1998.  Gross  margin  rates for the  Corporate  segment were
22.3% in 1999 as compared to 28.9% in 1999. The El Paso service business,  which
is included in the Corporate  segment because it was sold in 2000 along with the
Computer Products Division, which was acquired during 1998 and did not reflect a
full year of operations, increased its gross profit contribution by $418 to $558
in 1999 as compared to $140 in 1998.

         Selling,  General and  Administrative  Expenses.  Selling,  general and
administrative  expenses  decreased $440 (6.2%) to $6,671 in 1999 from $7,111 in
1998.  As a percentage of total  revenue,  selling,  general and  administrative
expenses  for  continuing  operations  decreased  to 34.8% in 1999 from 43.7% in
1998.  The dollar  decrease  is  primarily  attributable  to the closing of some
branch  offices  opened in 1998 and the  reduction  of sales  compensation  $150
resulting from using the sales force of the Computer  Products  Division to sell
for ACS and  Synergy.  Administrative  salaries  were  reduced  $349 and  office
expenses were reduced $76 by the closing of those branch  offices.  Stratasoft's
sales  compensation  increased $106 and  administrative  salaries increased $25,
which was commensurate with their increased sales volume


<PAGE>


         Operating  loss. The operating  loss  decreased  $1,317 to an operating
loss of $94 in 1999 from a loss of $1,411 in 1998 due  primarily to the increase
in sales volume of $2,897,  which  produced an increase in gross profit of $877.
The  operating  loss for ACS decreased  $913 to operating  income of $34 in 1999
compared to an operating  loss of $879 in 1998.  For  Stratasoft,  the operating
loss  decreased $613 to income of $232 in 1999 from an operating loss of $381 in
1998. Synergy's operating income decreased $46 to $75 in 1999 from $121 in 1998.
IT Staffing's  operating loss increased $39 to $65 in 1999 from $26 in 1998. The
operating loss of the Corporate segment increased $124 to $370 in 1999 from $246
in 1998.

         Interest Expense  (Income).  Interest  expense  (income)  increased $18
(43.9%) to income of $(23) in 1999 compared to income of $(41) in 1998.

         Net  loss  from  continuing   operations.   Net  loss  from  continuing
operations,  after an income tax provision  totaling $2 (reflecting an effective
tax rate of 2.8% for 1999 compared to 32.8% for 1998), decreased $851 (92.5%) to
a loss of $69 in 1999 compared to a loss of $920 in 1998.

         Discontinued  operations.  We sold the Telecom Division in 1999 and the
Computer Products Division in 2000. As a consequence,  the operations of both of
these  businesses  are  reported  as  discontinued  operations  for all  periods
presented.  We experienced net income on the operations of the Computer Products
Division  of  $1,343  in 1999,  net of a tax  benefit  of $688  and a loss  from
operations  of  Telecom  of $981,  net of a tax  benefit  of  $505.  The loss on
disposal of the Telecom Division of $1,138 (net of taxes of $586) was recognized
at December 31, 1999.  The loss from  discontinued  operations in 1998 was $178,
net of taxes of $92.

Quarterly Results of Operations

         The following table sets forth certain  unaudited  quarterly  financial
information  for  each  of our  last  eight  quarters  and,  in the  opinion  of
management,  includes  all  adjustments  (consisting  of only  normal  recurring
adjustments)  which the company  considers  necessary for a fair presentation of
the information set forth therein.  Our quarterly results may vary significantly
depending on factors such as the timing of large customer orders,  timing of new
product  introductions,  adequacy of product  supply,  variations in our product
costs,  variations  in our product  mix,  promotions,  seasonal  influences  and
competitive  pricing  pressures.  Furthermore,  we generally have  experienced a
higher volume of product orders in our computer products business segment in the
fourth quarter,  which we attribute to year-end  capital spending by some of our
customers.  Any decrease in the number of year-end  orders we experience may not
be offset by increased revenues in our first three quarters.  The results of any
particular  quarter  may not be  indicative  of results for the full year or any
future period.

<TABLE>
<CAPTION>
                                              1999                                      2000

<S>                             <C>      <C>      <C>      <C>            <C>      <C>      <C>     <C>
                                 First   Second    Third   Fourth          First   Second    Third  Fourth
                                Quarter  Quarter  Quarter Quarter         Quarter  Quarter  Quarter Quarter
Revenue

    ACS                       $    903  $   912 $   926 $    903         $   727 $   656  $   571  $   537
    Synergy                      1,963    2,034   1,838    1,483           1,562   1,323      841      729
    INX                              0        0       0        0               0       0      700    1,174
    IT Staffing                    255      252     269      415             321     315      334      272
    Stratasoft                     770      825   1,329    1,394           2,473   1,172    1,779    1,236
    Corporate                      427      493     558    1,226             901     762      (41)      18
    Elimination                      0        0       0        0               0       0      (11)                 (22)
    Total                        4,318    4,516   4,920    5,421           5,984   4,228    4,173    3,944
Cost of sales and services
    ACS                            647      623     586      668             510     531      511      428
    Synergy                      1,407    1,391   1,163    1,095           1,094   1,070      735      711
    INX                              0        0       0        0               0       0      735    1,182
    IT Staffing                    183      126     189      294             241     231      250      191
    Stratasoft                     331      413     623      759           1,151     674    1,015      733
    Corporate                      294      339     477      990             603     988       79      239
    Elimination                      0        0       0        0               0       0     (-11)                 (10)
    Total                        2,862    2,892   3,038    3,806           3,599   3,494    3,314    3,474

Gross Profit

    ACS                            256      289     340      235             217     125       60      109
    Synergy                        556      643     675      388             468     253      106       18
    INX                              0        0       0        0               0       0      (35)      (8)
    IT Staffing                     72      126      80      121              80      84       84       81
Stratasoft                         439      412     706      635             322     498      764      503
    Corporate                      133      154      81      236             298    (226)    (120)    (221)
    Elimination                                                                                        (12)
    Total                        1,456    1,624   1,882    1,615           2,385     734      859      470
Selling, general and
   administrative expenses

    ACS                            268      284     276      258             255     279      330      376
    Synergy                        582      633     548      424             550     562      360      474
    INX                              0        0       0        0               0       0      327      608
    IT Staffing                    147      105     113       99             104      70      138      179
Stratasoft                         497      448     524      491           1,061     747    1,139      700
    Corporate                      139      205     264      366             339     293      988      103
    Elimination                                                                                        (12)
    Total                        1,633    1,675   1,725    1,638           2,309   1,951    3,282    2,428
Operating income (loss)
    ACS                            (12)       5      64      (23)            (38)   (154)    (270)    (267)
    Synergy                        (26)      10     127      (36)            (82)   (309)    (254)    (456)
    INX                              0        0       0        0               0       0     (362)    (616)
    IT Staffing                    (75)      21      (33)     22             (24)     14      (54)     (98)
    Stratasoft                     (58)     (36)     182     144             261    (249)    (375)    (197)
    Corporate                       (6)     (51)    (183)   (130)            (41)   (519)  (1,108)    (324)
    Total                         (177)     (51)     157     (23)             76  (1,217)  (2,423)  (1,958)
Interest expense (net of
    other income)                   17        8     (19)     (29)             15     (50)    (100)    (104)
Income (loss) before
    provision (benefit) for

    income taxes                  (194)     (59)    176        6              61  (1,167)  (2,323)  (1,854)
Provision (benefit) for

    income taxes                   (58)      (6)     60        2              19    (386)    (708)    (473)
Net income (loss) from
    continuing operations         (136)     (53)    116        4              42    (781)  (1,615)  (1,381)
Discontinued operations:
    Net income (loss) from
    discontinued operations,
    net of tax                      82     (317)    216      381             302                         0
    Gain (loss) on disposal                               (1,138)          4,872    (387)  (1,095)
Net income (loss)             $    (54) $  (370)$   332 $   (753)        $ 5,216 $ (1,168)$(2,710) $(1,381)

Net Income (loss) per share:
    Basic:

      Continuing operations   $  (0.03) $ (0.01)$  0.03 $  (0.00)        $  0.01 $  (0.20)$ (0.40) $(0.34)
      Discontinued operations     0.02    (0.08)   0.05     0.09            0.08
      Loss on Disposal                                     (0.27)           1.20    (0.09)  (0.27)
  Net income (loss) per share $  (0.01) $ (0.09)$  0.08 $  (0.18)        $  1.29 $  (0.29)$ (0.67) $(0.34)
    Diluted:
      Continuing operations   $  (0.03) $ (0.01)$  0.03 $                $  0.01 $  (0.20)$ (0.40) $(0.34)

    Discontinued operations       0.02    (0.08)   0.05     0.09            0.07
      Loss on Disposal                                     (0.27)           1.14    (0.09)  (0.27)
  Net income (loss) per share $  (0.01) $ (0.09)$  0.08 $  (0.18)        $  1.22 $  (0.29)$ (0.67) $(0.34)
</TABLE>



<PAGE>


Liquidity and Capital Resources

         Historically,  we have  satisfied  our  cash  requirements  principally
through  borrowings  under  our  lines of  credit  and  through  operations.  We
maintained  a  cash  position   sufficient  to  pay  only  our  immediately  due
obligations  and  expenses.  Subsequent  to the  sale of the  Computer  Products
Division we had sufficient  cash on hand to meet our  requirements  and have not
had to rely on our line of credit.  We have invested our excess cash in interest
bearing overnight deposits.  Our working capital was $9,800,  $9,567 and $10,098
at December  31,  1998,  1999 and 2000,  respectively.  The  increase in working
capital during 2000 is primarily due to the collection of receivables related to
the discontinued operations of the Computer Products and the Telecom businesses.
The  decreases  in  working   capital   during  1999  and  1998  were  primarily
attributable  to increases in our accounts  payable as a result of product costs
attributable  to our revenue  growth,  primarily  in the  discontinued  Computer
Products  business.  The proceeds of the sale of the Computer  Products business
were  used to pay off our line of  credit  and at  December  31,  2000 we had no
outstanding interest bearing borrowings. Our total collateral base was $2,340 at
December 31, 2000. At December 31, 2000, we had a $10,000  credit  facility with
our primary lender.

Cash Flows

         Operating  activities  provided  net cash  totaling  $5,540  and $2,612
during 2000 and 1999,  respectively,  and used net cash totaling  $10,831 during
1998.  During 2000,  net cash provided by operations  resulted from decreases in
accounts  receivable  which were offset by  reductions  in accounts  payable and
accrued  expenses.  During 1999,  net cash provided by operations  resulted from
increases in accounts payable which offset our increase in accounts  receivable.
During  1998,  net cash was used by  operations  due  primarily to a net loss, a
large increase in accounts  receivable  and an increase in inventory,  which was
offset somewhat by an increase in accounts payable and accrued expenses.

         Accounts receivable  increased $10,543 and $1,488 during 1998 and 1999,
respectively  and decreased  $30,763 during 2000.  Inventory  decreased $603 and
$160 in 1999 and 2000, respectively, and increased $3,797 in 1998.

         Investing activities used cash totaling $1,764 and $276 during 1998 and
1999,  respectively  and provided  cash of $14,048  during 2000.  Our  investing
activities that used cash during these periods were primarily related to capital
expenditures  related to new offices,  an expanded  work force and  upgrading of
computing equipment and our management  information  systems. In 2000, investing
activities  primarily  related  to the  proceeds  from the sale of the  Computer
Products  business.  During the next  twelve  months,  we do not expect to incur
material capital expenditures.

         Financing  activities  provided cash totaling  $13,552 in 1998 and used
cash totaling $227 and $15,889 during 1999 and 2000,  respectively.  The primary
source of cash from financing activities in 1998 and 1999 has been borrowings on
our lines of credit.  The lines of credit have been used  principally to satisfy
our cash requirements,  including financing increases in accounts receivable and
inventory. During 2000 we used the proceeds of the sale of the Computer Products
business to pay off our line of credit. During 1998,1999, and 2000 we used $834,
$138 and $20,  respectively  to repurchase  shares that were held in treasury at
the end of 2000.

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 $38,341 and
$4,473  (including  $34,444 and $775  relating to  discontinued  operations)  at
December 31, 1999 and 2000, respectively

         We attempt to manage our  inventory  in order to minimize the amount of
inventory held for resale and the risk of inventory  obsolescence  and decreases
in market value.  We attempt to maintain a level of inventory  required to reach
only our near term requirements by relying on the ready availability of products
from our principal suppliers.


<PAGE>


Credit Facilities

         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 is 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
December 31, 2000, we had $4  outstanding  on the  Inventory  Line and had total
credit availability of $1,311.

         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.

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
embedded in other contracts  (collectively referred to as derivatives),  and for
hedging activities. SFAS No. 133, as amended was adopted on January 1, 2000. The
Company has no derivative instruments as defined by SFAS No. 133 and as a result
the  adoption  of SFAS  No.  133 had no  impact  on the  consolidated  financial
statements.

Item 7A. 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 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
$42 for the year.

Item 8.  Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Financial Statements:

   Independent Auditors' Report                                             24

   Consolidated Balance Sheets at December 31, 1999 and 2000                25

   Consolidated Statements of Operations for the years ended
   December 31, 1998, 1999 and 2000                                         26

   Consolidated  Statements of Stockholders' Equity for the years
   ended December 31, 1998, 1999 and 2000                                   27

   Consolidated  Statements of Cash Flows for the years ended
   December 31, 1998, 1999 and 2000                                         28

   Notes to Consolidated  Financial  Statements for the years
   ended December 31, 1998, 1999 and 2000                                   29


<PAGE>


INDEPENDENT AUDITORS' REPORT

To the Stockholders of I-Sector Corporation.:

         We  have  audited  the  accompanying  consolidated  balance  sheets  of
I-Sector  Corporation and subsidiaries  ("I-Sector") as of December 31, 1999 and
2000, and the related  statements of operations,  stockholders'  equity and cash
flows for each of the three years in the period ended  December  31,  2000.  Our
audits also included the  financial  statement  schedule  listed in the index at
Item 14(a)(2).  These financial  statements and the financial statement schedule
are the  responsibility  of  I-Sector's  management.  Our  responsibility  is to
express an opinion on these  financial  statements  and the financial  statement
schedule based on our audits.

         We conducted our audits in accordance with auditing standards generally
accepted in the United States of America.  Those standards  require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

         In our opinion, such consolidated  financial statements present fairly,
in all material respects,  the financial position of I-Sector as of December 31,
1999 and 2000,  and the results of its operations and its cash flows for each of
the three  years in the  period  ended  December  31,  2000 in  conformity  with
accounting principles generally accepted in the United States of America.  Also,
in our opinion,  such financial statement schedule,  when considered in relation
to the basic consolidated  financial statements taken as a whole, present fairly
in all material respects the information set forth therein.

/s/  Deloitte & Touche LLP
Houston, Texas

March 16, 2001


<PAGE>


I-SECTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 2000
 (In thousands, except share and par value amounts)

<TABLE>
<CAPTION>

<S>                                                                           <C>               <C>
ASSETS                                                                        1999              2000

 Current Assets:
     Cash and cash equivalents                                             $     4,647       $     8,346
     Accounts receivable, net                                                   38,341             4,473
     Accounts receivable - affiliates                                              281               303
     Accounts receivable - other                                                   142               141
     Inventory                                                                   7,442               774
     Deferred taxes                                                                836
     Income taxes receivable                                                                         863
     Other current assets                                                          384               233
         Total current assets                                                   52,073            15,133
 Property and equipment, net                                                     2,280             1,579
 Other assets                                                                      178               430
                                                                           $    54,531       $    17,142

 LIABILITIES AND STOCKHOLDERS' EQUITY

 Current Liabilities:
     Notes payable                                                         $    15,869         $
     Accounts payable                                                           21,687             1,892
     Billings in excess of cost and estimated earnings                             615               503
     Accrued expenses                                                            3,896             1,635
     Net liabilities related to discontinued operations                            199               869
     Deferred service revenue                                                      240               136
         Total current liabilities                                              42,506             5,035
 Deferred credit - stock warrants                                                  195               195

 Commitments and Contingencies (See Note 11)

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,
         4,442,325 issued at December 31,
         1999 and 2000, respectively                                                44                44
     Additional paid in capital                                                 10,037            10,182
       Unearned equity compensation                                                 (1)               (1)
       Treasury stock, at cost, 381,800 and 399,800 shares at
                        December 31, 1999 and 2000, respectively                  (972)             (992)
     Retained earnings                                                           2,722             2,679
         Total stockholders' equity                                             11,830            11,912
                                                                           $    54,531       $    17,142
</TABLE>

See notes to consolidated financial statements.


<PAGE>


I-SECTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
 (In thousands, except share and per share amounts)
<TABLE>
<CAPTION>

                                                                       Years ended December 31,
<S>                                                             <C>               <C>               <C>
                                                                1998              1999              2000

Total revenue                                               $    16,278      $    19,175       $    18,329

Cost of goods and services                                       10,578           12,598            13,881

          Gross profit                                            5,700            6,577             4,448

Selling, general and administrative expenses                      7,111            6,671             9,970

Operating loss                                                    1,411               94             5,522

Interest expense (income)                                           (41)             (23)             (239)

Loss from continuing operations before
     benefit for income taxes                                     1,370               71             5,283

Benefit for income taxes                                            450                2             1,548

Net loss from continuing operations                                 920               69             3,735

Discontinued operations:
     Net income (loss) from discontinued
     operations, net of taxes                                      (178)             362               302
     Gain (loss) on disposal, net of taxes                                        (1,138)            3,390

Net loss                                                    $     1,098      $       845       $        43

Net income (loss) per share:

     Basic and diluted:
         Net loss from continuing operations                $     0.21       $      0.02         $        0.92
         Net (income) loss from discontinued operations           0.04             (0.09)            (0.07)
         Gain (loss) on disposal                                                    0.27                 (0.84)
              Net loss per share                            $     0.25       $      0.20         $        0.01


Weighted average number of shares outstanding:

     Basic and diluted                                        4,345,883        4,168,140         4,059,618
</TABLE>

See notes to consolidated financial statements


<PAGE>


I-SECTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
 (In thousands, except share and per share amounts)
<TABLE>
<CAPTION>

                                 $.01 par value        Additional              Unearned
                                 Common Stock           Paid-In     Treasury    Equity       Retained

<S>                              <C>           <C>     <C>            <C>    <C>             <C>       <C>
                                 Shares       Amount   Capital        Stock  Compensation    Earnings    Total

Balance at January 1, 1998       4,454,411     $ 45    $ 10,013               $   (86)       $ 4,665   $ 14,637


Issuance of restricted stock        63,500                  237               $  (237)

Cancellation of restricted stock   (14,500)                 (54)                   54

Purchase of treasury stock        (271,200)                          $ (834)                               (834)

Net loss                                                                                      (1,098)    (1,098)

Balance at December 31, 1998     4,232,211       45      10,196        (834)     (269)         3,567     12,705

Cancellation of restricted stock   (61,086)      (1)       (159)                  268                       108

Purchase of treasury stock        (110,600)                          $ (138)                               (138)


Net loss                                                                                        (845)      (845)

Balance at December 31, 1999     4,060,525       44      10,037        (972)       (1)         2,722     11,830

Purchase of treasury stock         (18,000)                             (20)                                (20)

Fair value of stock options to
     Non-employees                                          145                                             145

Net loss                                                                                         (43)       (43)

Balance at December 31, 2000     4,042,525   $   44    $ 10,182      $ (992)  $    (1)      $  2,679   $ 11,912
</TABLE>

See notes to consolidated financial statements.


<PAGE>


I-SECTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
 (In thousands, except share and per share amounts)

<TABLE>
<CAPTION>

                                                                                Years ended December 31,
<S>                                                                         <C>             <C>               <C>
                                                                            1998            1999              2000

CASH FLOW FROM OPERATING ACTIVITIES:
     Net loss                                                        $    (1,098)    $      (845)     $        (43)
     Adjustments to reconcile net loss to net
         cash provided by (used in) operating activities:
     Net (income) loss from discontinued operations                          178            (362)             (302)
     (Gain) loss on disposal of discontinued operations                                    1,138            (3,390)
     Depreciation and amortization                                           882             850               766
     Deferred tax benefit                                                   (219)
     Changes in assets and liabilities that provided (used) cash:
         Accounts receivable, net                                        (10,543)         (1,488)           30,763
         Accounts receivable - affiliates                                     61             (50)              (22)
         Inventory                                                        (3,797)            603               160
         Income taxes receivable                                            (637)            637              (863)
         Other current assets                                               (241)            175              (152)
         Other assets                                                       (117)            (30)              140
         Accounts payable                                                  2,079           5,046           (19,795)
         Billings in excess of cost and estimated earnings                 1,166            (952)             (112)
         Accrued expenses                                                  1,708          (1,377)           (2,261)
         Income taxes payable                                                (82)
         Deferred service revenue                                             14             (16)             (104)
              Net cash provided by (used in) continuing operations       (10,646)          3,329             4,785
     Net operating activities from discontinued operations                  (185)           (717)              755
              Net cash provided by (used in) operating activities        (10,831)          2,612             5,540

CASH FLOWS FROM INVESTING ACTIVITIES:
     Capital expenditures                                                                                     (324)
     Acquisition costs                                                                                        (341)
Proceeds on sale of discontinued operations                                                                 15,029
Net cash provided by continuing operations                                                                  14,364
     Net cash used in discontinued operations                             (1,764)           (276)             (316)
              Net cash provided by (used in) investing activities         (1,764)           (276)           14,048

CASH FLOWS FROM FINANCING ACTIVITIES:
     Purchase of treasury stock                                             (834)           (138)              (20)
     Net increase (decrease) in notes payable                             14,386             (89)          (15,869)
              Net cash provided by (used in) financing activities         13,552            (227)          (15,889)

NET INCREASE CASH AND CASH EQUIVALENTS                                       957           2,109             3,699

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                           1,581           2,538             4,647

CASH AND CASH EQUIVALENTS AT END OF PERIOD                           $     2,538     $     4,647      $      8,346

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
     Cash paid for interest                                          $       403     $       989      $        386
     Cash paid for income taxes                                      $       397     $         0      $      1,009
</TABLE>

See notes to consolidated financial statements.


<PAGE>


I-SECTOR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
 (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.  I-Sector operates from five
wholly-owned subsidiaries:

         Allstar Computer Services, Inc. ("ACS") provides customers with on-site
         and carry-in computer repair,  application support and operating system
         and network migration services.

         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.

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

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

         Synergy Helpdesk Solutions,  Inc.  ("Synergy")  provides customers with
         turn-key outsourced IT helpdesk solutions, technical staff augmentation
         for IT helpdesk operations and helpdesk solutions consulting services.

         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.

         I-Sector's significant accounting policies are as follows:

         Principles of Consolidation - The accompanying  consolidated  financial
statements  include the accounts of I-Sector and its wholly-owned  subsidiaries.
All significant intercompany balances and transactions have been eliminated.

         Inventory - Inventory consists primarily of dialers, personal computers
and components and is valued at the lower of cost or market with cost determined
on the first-in first-out method.

         Property and  Equipment - Property and  equipment are recorded at cost.
Expenditures  for repairs and  maintenance are charged to expense when incurred,
while  expenditures  for betterments are  capitalized.  Disposals are removed at
cost less accumulated  depreciation with the resulting gain or loss reflected in
operations in the year of disposal.

         Property and  equipment are  depreciated  over their  estimated  useful
lives  ranging  from  five  to  ten  years  using  the   straight-line   method.
Depreciation  expense  totaled $833,  $790 and $699 for the years ended December
31, 1998, 1999 and 2000, respectively.

         Intangible  Assets - Intangible  assets are being  amortized over their
estimated useful lives of five years (see Note 5).

         Impairment of Long-Lived Assets - I-Sector records impairment losses on
long-lived assets used in operations when events and circumstances indicate that
the assets might be impaired  and the  undiscounted  cash flows  estimated to be
generated by those assets are less than the carrying amounts of those assets.

         Income Taxes - I-Sector  accounts for income taxes under the  liability
method, which requires,  among other things,  recognition of deferred income tax
liabilities and assets for the expected  future tax  consequences of events that
have been  recognized in  I-Sector's  consolidated  financial  statements or tax
returns.  Under this  method,  deferred  income tax  liabilities  and assets are
determined based on the temporary  differences  between the financial  statement
carrying  amounts and the tax bases of existing  assets and  liabilities and the
recognition of available tax carryforwards.


<PAGE>


         Earnings per Share -Basic net income per share is computed on the basis
of the weighted-average  number of common shares outstanding during the periods.
Diluted net income per share is computed based upon the weighted-average  number
of common shares plus the assumed  issuance of common shares for all potentially
dilutive securities using the treasury stock method (See Note 13).

         Revenue  Recognition  - Revenue from the sale of products is recognized
when the product is shipped.  Service  income is  recognized as the services are
earned. Revenues resulting from installations of equipment 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.

         The following reflects the amounts relating to uncompleted contracts at
December 31, 1999 and 2000:

              Costs incurred on uncompleted contracts   $     441    $     135
              Estimated earnings                              473          361

                                                              914          496
              Less: Billings to date                        1,529          999

              Billings in excess of cost and
                 estimated earnings                     $     615    $     503

         Credit Risk - The Company extends credit to its customers in the normal
course of business and generally does not require  collateral or other security.
The Company  performs  ongoing credit  evaluations  of its customers'  financial
condition and historically has not incurred significant credit losses.  Earnings
are charged with a provision for doubtful  accounts based on a current review of
the  collectibility of the accounts.  Accounts deemed  uncollectible are applied
against the allowance for doubtful accounts.

         Research  and  Development   Costs  -  Expenditures   relating  to  the
development of new products and processes,  including  significant  improvements
and  refinements  to existing  products,  are expensed as incurred.  The amounts
charged to expense were approximately $200 in the years ended December 31, 1998,
1999 and 2000, respectively.

         Employee Stock Based  Compensation - I-Sector  recognizes  compensation
expense for stock options and other stock based non-employee compensation awards
based on the fair value of the equity instrument at the measurement date. Awards
of stock options and other stock based employee incentive plans measure the cost
of the equity instrument using the intrinsic value method (See Note 12).

         Comprehensive  Income - I-Sector had no  comprehensive  income items to
report for all periods presented.

         Recently  Issued  Accounting  Standards - In June 1998,  the  Financial
Accounting  Standards Board issued Statement of Financial  Accounting  Standards
("SFAS") No. 133,  "Accounting  for Derivatives  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  had no
derivative  instruments as defined by SFAS No. 133, and as a result, on the date
of the adoption this standard had no impact on the financial  position,  results
of operations or cash flows of I-Sector.

         Fair Value of Financial  Instruments - I-Sector's financial instruments
consist of cash and cash equivalents,  accounts receivable, accounts payable and
notes payable for which the carrying  values  approximate  fair values given the
short-term  maturity of the  instruments.  It is not practicable to estimate the
fair values of related-party receivables due to the nature of the instruments.

         Cash and Cash  Equivalents  - Cash and  cash  equivalents  include  any
highly liquid  securities with an original maturity of three months or less when
purchased.


<PAGE>


         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 revenues and expenses  during the  reporting  period.  Actual  results  could
differ from these estimates.

         Reclassifications - The accompanying  consolidated financial statements
for the years presented have been reclassified to give effect to certain changes
in presentation.

2.       DISCONTINUED OPERATIONS

         On  November  2,  1999,  I-Sector  approved a plan to sell or close its
Telecom Division.  This is the measurement date. I-Sector  entertained offers to
acquire a  significant  portion of the  assets of the  Telecom  Division  and to
assume any ongoing operations of the 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 is included at December 31,
2000 in the balance  sheet  caption  "Net  liabilities  related to  discontinued
operations".  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.
Pretax loss from  discontinued  operations (net of tax savings of $159, $505 and
$0) was  $310,  $981,  and $0 in  1998,  1999 and  2000  respectively.  I-Sector
retained accounts  receivable of approximately  $1,400,  net of reserves,  fixed
assets of $30 and liabilities  related to the Telecom  Division,  but has no net
retained  receivables at December 31, 2000.  Fixed assets were redeployed in the
continuing  operations.  The balance sheet caption "Net  liabilities  related to
discontinued  operations" contains $294 of estimated future expenses relating to
the  wind-up of the  Telecom  Division at  December  31,  2000.  Revenue for the
Telecom  Division  for the years  ended  December  31,  1998,  1999 and 2000 was
$7,499,  $3,975 and $0, respectively.  The Company allocated interest expense to
its various  divisions  on a  proportional  basis based on accounts  receivable.
Interest  expense  allocated to the Telecom Division for the year ended December
31, 1998 and for the period from January 1, 1999 to November 2, 1999 was $32 and
$69,  respectively.  The Company has allocated interest expense from November 2,
1999 to the disposal  date of March 16, 2000 of $20 both of which were  included
in the loss on disposal in 1999.

         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,
$1,343 and $132 (net of taxes of $688 and $68) for the years ended  December 31,
1999 and 1998,  respectively.  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 $775 at  December  31,  2000,  fixed  assets  of $255 and
liabilities  related to the Computer Products Division.  Fixed assets which were
not sold have been  redeployed in the continuing  operations.  The balance sheet
caption "Net Liabilities  related to discontinued  operations"  contains $575 of
estimated  future  expenses  related to the winding up of 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.  Revenue for the Computer  Products Division
for the years ended December 31, 1998, 1999 and 2000 were $143,396, $182,642 and
$29,323  (net of $5,772 after the  measurement  date and included in the gain on
sale),  respectively.  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 years ended  December 31,
1998,  1999 and 2000 for the period from April 1, 2000 to May 19, 2000 was $360,
$671 and $62. In  connection  with the sale of the Computer  Products  Division,
I-Sector also sold the El Paso portion of the IT Services business.  The El Paso
branch  office  portion of the IT Services  business  accounted  for revenues of
$935,  $2,012 and $955 for the years ended  December 31, 1998,  1999,  and 2000,
respectively. For financial reporting presentation the El Paso services business
was included in the continuing operations for the year ended December 31, 2000.


<PAGE>


3.       ACCOUNTS RECEIVABLE

         Accounts receivable consisted of the following at December 31, 1999 and
2000:

                                                       1999             2000

         Accounts receivable                      $     4,125      $     4,438
         Accounts receivable retained
          - discontinued operations                    34,444              775
         Allowances for doubtful accounts                (228)            (740)

         Total                                    $    38,341      $     4,473

4.       PROPERTY AND EQUIPMENT

         Property and equipment  consisted of the following at December 31, 1999
and 2000:

                                                       1999             2000

         Equipment                                $       512      $       459
         Computer equipment                             4,067            2,787
         Furniture and fixtures                           507              439
         Leasehold improvements                           203              383
         Vehicles                                          27               27
                                                        5,316            4,095
         Accumulated depreciation and
            amortization                               (3,036)          (2,516)
              Total                               $     2,280      $     1,579

5.  ACQUISITION

         On October 27, 2000,  INX acquired  certain  assets and  liabilities of
Internetwork  Experts,  Inc.,  a  professional  services  firm  focused  on  the
architecture,   design,   implementation   and  support  of   high-end   network
infrastructure.  The purchase price was $225 in cash and assumed  liabilities of
$116. The acquisition was accounted for using the purchase method of accounting,
and  accordingly,  the  purchase  price has been  allocated  to the  assets  and
liabilities acquired based on fair values at the date of acquisition. The excess
of the purchase price over the fair market value of the net assets  acquired was
approximately  $341,  which has been  allocated  to a customer  list and service
agreements.  These  intangible  assets are being  amortized over their estimated
useful lives of five years.  Amortization  expense and accumulated  amortization
was $16 for the year ended  December 31, 2000. INX also is  contingently  liable
for future  payments to the former owner based on the level of service  revenues
generated  within a specified  period of time and within  certain ranges for the
customers included on the customer list acquired.

6.       CREDIT ARRANGEMENTS

         On February 27, 1998 I-Sector  entered into a credit  agreement  with a
commercial finance company.  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  that are  generally  computed as a  percentage  of
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  amended
facility is 7.0%.  At December 31,  2000,  I-Sector  had $4  outstanding  on the
Inventory Line and had total credit availability of $1,311.


<PAGE>


         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 I-Sector,  subject to a  termination  fee, is
collateralized by substantially all of I-Sector's assets. The agreement contains
restrictive  covenants,  which,  among other things,  require specific ratios of
current assets to current liabilities and debt to tangible net worth and require
I-Sector to maintain a minimum  tangible net worth.  The terms of the  agreement
also  prohibit  the  payment of  dividends  and limits the  purchase of I-Sector
common stock,  and other  similar  expenditures,  including  advances to related
parties.

          The  weighted-average  interest rate for  borrowings  under all credit
arrangements  in effect during 1998, 1999 and 2000 was 7.53%,  7.13%,  and 7.93%
respectively.  Interest  expense  was $441,  $969 and $385 for the  years  ended
December 31, 1998, 1999 and 2000 respectively.

7.       INCOME TAXES

         The provision  for income taxes for the years ended  December 31, 1998,
1999 and 2000 consisted of the following:
<TABLE>
<CAPTION>

<S>                                                                    <C>          <C>          <C>
                                                                       1998         1999         2000
         Current provision (benefit):
         Federal                                                  $    (234)    $     (2)    $ (1,548)
         State                                                            3
         Total current provision                                       (231)          (2)      (1,548)
         Deferred provision (benefit)                                  (219)
              Total provision (benefit) from continuing operations     (450)          (2)      (1,548)

         Total provision for (benefit from)
          discontinued operations                                       (91)         183          156
         Total provision for (benefit from) gain (loss)
          on disposal                                                               (586)       2,367
              Total                                               $    (541)    $   (405)    $    975
</TABLE>

         The total  provision  for income taxes during the years ended  December
31, 1998, 1999 and 2000 varied from the U.S.  federal  statutory rate due to the
following:
                                                      1998     1999     2000

Federal income tax at statutory rate               $  (466)  $  (24) $(1,796)
Nondeductible expenses                                  26       22       17
State income taxes                                       3
Valuation allowance                                                      231
    Other                                              (13)
              Total provision (benefit) from
                  continuing operations$              (450)  $   (2) $(1,548)

         Net  deferred  tax assets  computed at the  statutory  rate  related to
temporary  differences  at  December  31,  1999 and  December  31,  2000 were as
follows:

                                                               1999     2000
          Net deferred tax assets:
              Accounts receivable                            $  172  $   251
              Closing and severance costs                        76      391
              Deferred service revenue                          (41)      30
              Inventory                                          43      134
              Amortization of intangibles                                (23)
              Net operating loss carryforwards                  586
                  Total current deferred tax assets             836      783
              Less Valuation allowance                                  (783)
                  Total                                      $  836  $     0



<PAGE>


              Due to the company's  recurring losses, a valuation  allowance was
established for the deferred tax assets at December 31, 2000.

         At  December  31,  2000,  I-Sector  had no  net  operating  loss  carry
forwards.

8.       ACCRUED EXPENSES

         Accrued liabilities  consisted of the following as of December 31, 1999
and 2000:

                                                               1999     2000

     Sales tax payable                                       $1,530  $   121
     Accrued employee benefits, payroll
        and other related costs                               1,506      860
     Accrued interest                                             1
         Accrued supplier fee                                   404
     Accrued warranty costs                                     182      238
     Other                                                      273      416
     Total                                                   $3,896  $ 1,635

9.       RELATED-PARTY TRANSACTIONS

         I-Sector  has from time to time  made  payments  on  behalf of  Allstar
Equities, Inc. ("Equities"),  which is wholly-owned by the principal stockholder
of  I-Sector,  and  I-Sector's  principal  stockholder  for taxes,  property and
equipment.  On December 1, 1999,  a note  receivable  was signed by Equities for
$336 in 60 monthly  payments of $7. The note bears interest at 9%. Equities made
twelve  payments in advance and at December 31, 2000 the  Company's  receivables
from Equities  amounted to $204.  The principal  amounts as of December 31, 1999
and December 31, 2000 are classified as Accounts  receivable - affiliates  based
on the  expectation  of  repayment  within one year.  At  December  31, 1999 and
December 31, 2000,  I-Sector's  receivables  from these  affiliates  amounted to
approximately $281 and $303, respectively.

(See Note 11 related to lease commitments to equities.)

         In connection with the sale of the Computer Products Division, a member
of I-Sector's Board of Directors received a finders fee of $350.

10.      SHAREHOLDERS' EQUITY

         Holders of  I-Sector's  common stock are entitled to one vote per share
on all  matters  to be voted on by  shareholders  and are  entitled  to  receive
dividends,  if any,  as may be  declared  from  time to  time  by the  Board  of
Directors of I-Sector  ("the  Board").  Upon any  liquidation  or dissolution of
I-Sector, the holders of common stock are entitled,  subject to any preferential
rights of the holders of preferred  stock, to receive a pro rata share of all of
the assets remaining available for distribution to shareholders after payment of
all liabilities.

         I-Sector's  Board  authorized  the purchase of common stock of I-Sector
from time to time in the open market to be held in treasury  for the purpose of,
but not limited to,  fulfilling any obligations  arising under  I-Sector's stock
option plans.  At December 31, 2000,  399,800 shares were held in treasury under
these authorizations.

         I-Sector  issued  14,286,  63,500 and 1,000 common shares of restricted
stock in 1997, 1998 and 1999,  respectively,  and cancelled  14,500,  62,086 and
1,000 common shares of restricted stock during 1998, 1999 and 2000 respectively.
The  restricted  shares have par value of $0.01 per share.  The remaining  1,200
shares, valued at $1.563, vest ratably at the end of each one year period over a
five year period from the date of issuance.

          I-Sector  issued  warrants to purchase  176,750 common shares at $9.60
per share to  underwriters  in  connection  with its public  offering  of common
stock. The warrants expire on July 7, 2002.


<PAGE>


11.      COMMITMENTS AND CONTINGENCIES

         Operating Leases - I-Sector  subleases  office space from Equities.  In
1999,  I-Sector  renewed its office  lease for a five year  period with  monthly
rental payments of $38 plus certain operating expenses through December 1, 2004.
Rental expense under this agreement  amounted to  approximately  $390,  $395 and
$452 during years ended December 31, 1998, 1999 and 2000 respectively.

         Additionally,  minimum annual rentals on other operating  leases amount
to  approximately,  $154 in 2001,  $145 in 2002,  $91 in 2003, $0 in 2004, $0 in
2005 and $0 in years  thereafter.  Amounts paid during the years ended  December
31, 1998, 1999 and 2000 under such agreements totaled  approximately  $509, $766
and $296 respectively.

         I-Sector  maintains a 401(k)  savings plan wherein  I-Sector  matches a
portion of the employee contribution.  In addition, I-Sector has a discretionary
matching  fund  based  on the  net  profitability  of  I-Sector.  All  full-time
employees  who have  completed 90 days of service with  I-Sector are eligible to
participate  in the  plan.  Declaration  of  the  discretionary  portion  of the
matching  fund is the decision of the Board of  Directors.  I-Sector has made no
additional  contributions  to the plan for the years ended  December  31,  1998,
1999, or 2000. Under the standard I-Sector  matching  program,  I-Sector's match
was $45,  $64 and $46 for the years  ended  December  31,  1998,  1999 and 2000,
respectively.

         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 material adverse effect on its financial
position, results of operations or cash flows.

         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 intend to vigorously  defend such action,  however the case
is currently  scheduled for mediation in the immediate  future.  I-Sector has no
assurance  that  mediation  will  result  in a  settlement  on  terms  that  are
acceptable to us.

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 and intends to  vigorously  contest
Corey's  claims.  The case is set for trial on June 18, 2001. In addition to the
claims he has  asserted  in the  above-described  lawsuit,  Corey  has  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  claims to have been  damaged in the
approximate amount of $1,337,500 but has not initiated  litigation to pursue his
verbal  claims.  Subsequently,  Corey  verbally  offered to a settlement  of all
matters for  substantially  less than his claimed  damage  amount.  Should Corey
initiate  litigation  to pursue his claims,  the Company  intends to  vigorously
contest those claims,  however the Company will give  consideration to offers to
settle such matter if such a settlement  is deemed to be in the best interest of
the Company.


<PAGE>


12.      STOCK OPTION PLANS

         Under the 1996  Incentive  Stock Plan (the  "Incentive  Plan"') and the
1996 Non-Employee  Director Stock Option Plan (the "Director Plan").  I-Sector's
Compensation  Committee may grant up to 442,500  shares of common  stock,  which
have been  reserved for issuance to certain  employees of I-Sector.  At December
31, 2000 33,488 shares were available for future grant under the Incentive Plan.
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  of  which  28,000  were
available for future grants at December 31, 2000. The Director Plan provides for
a one-time  option by newly  elected  directors  to purchase up to 5,000  common
shares,  after which each  director is entitled to receive an option to purchase
up to 2,000 common shares upon each date of re-election  to I-Sector's  Board of
Directors.  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.

         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-based  awards and cash bonuses
in accordance with the provisions of the plan. All employees, including officers
, and  consultants and  non-employee  directs 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).  At December 31, 2000  314,129  shares were  available  for future
grant under the 2000 Incentive Plan.

         During 1998, 1999 and 2000 I-Sector  granted options to purchase 8,000,
9,000 and  35,000  common  shares to its  directors,  respectively,  which  vest
immediately,  and 129,850,  216,872 and 94,671 common  shares to its  employees,
respectively, which vest over five years.

The activity of employees in all plans is summarized below:
<TABLE>
<CAPTION>                                                1998                     1999                   2000
<S>                                      <C>         <C>         <C>            <C>         <C>           <C>
                                                      Weighted                   Weighted                  Weighted
                                                       Average                   Average                   Average
                                                      Exercise                   Exercise                  Exercise
                                         Shares         Price     Shares         Price       Shares         Price
Options outstanding at January 1         200,300       $  5.17   268,350        $  1.63     458,232        $  1.41
Granted during the year                  137,850          3.13   225,872           1.15      71,400           1.76
Exercised during the year
Transfers to non-employees                                                                                    2.19
                                                                                           (133,220)

Options canceled for repricing          (260,350)         4.25
Option granted at new price              260,350          1.50
Canceled during the year                 (69,800)         4.50   (35,990)          1.45                       2.23
                                                                                            (13,300)

Options outstanding at December 31       268,350       $  1.63   458,232        $  1.41     383,112        $  1.72
Options exercisable at December 31        56,940       $  1.63   196,072        $  1.41     254,212        $  1.37
Options outstanding price range          $1.5 to $6.00           $1.06 to $1.75             $1.06 to $2.31
Weighted Average fair value of
options granted during the year          $3.16                   $1.07                      $1.15
Options weighted-average
remaining life                           9.83 Years              9.87 Years                 8.00 Years
</TABLE>



<PAGE>


         I-Sector  applies APB Opinion No. 25,  "Accounting  for Stock Issued to
Employees" and related  interpretations  in accounting for options granted under
the  Plans.  Accordingly,  no  compensation  expense  has been  recognized.  Had
compensation  expense been recognized based on the Black-Scholes  option pricing
model  value at the  grant  date  for  awards  consistent  with  SFAS  No.  123,
I-Sector's  net loss and loss per share  would  have been  increased  to the pro
forma amounts shown below. For purposes of estimating the fair value disclosures
below,  the fair value of each stock option has been estimated on the grant date
or the grant repricing date with a Black-Scholes  option pricing model using the
following   weighted-average   assumptions;   dividend  yield  of  0%;  expected
volatility of 121% to 179%;  risk-free interest rate of 6.0%; and expected lives
of eight years from the original date of the stock option grants. The effects of
applying  SFAS  No.  123  for  pro  forma  disclosures  are  not  likely  to  be
representative of the effects on reported net income (loss) for future years.

                                               1998      1999          2000
Net Income (loss):
              As reported                   $ (1,098)  $  (845)   $   (43)
              Pro forma                     $ (1,180)  $  (923)   $   (48)
Earnings per share (basic and diluted )
              As reported                   $  (0.25)  $  (0.20)  $  (0.01)
              Pro forma                     $  (0.27)  $  (0.22)  $  (0.01)

Employees  affected by the sale of the Telecom Division on March 16, 2000 and of
the  Computer  Products  Division on May 19,  2000 (See Note 2)  retained  their
respective  stock option grants  received prior to I-Sector's  disposal of these
divisions.  In addition,  certain affected  employees were eligible and received
stock  options  awards  subsequent  to their  termination  dates.  The  affected
employee's  awards  will  vest or  continue  to vest  according  to the  periods
specified in their  respective  stock option  agreements,  generally five years,
contingent upon the employment  with the respective  division's  acquiror.  As a
result of their  termination  from I-Sector,  and the change in employee status,
these  awards  were  remeasured  as of the  respective  sale  dates  or  date of
subsequent  issuance.  The fair values of each of these stock option  awards was
estimated  using the  Black-Scholes  option  pricing  model using the  following
assumptions;  dividend  yield of 0%;  expected  volatility of 87.29% to 121.45%;
risk free  interest rate of 6% and an expected  remaining  life of 3 to 5 years.
The fair values have been  reflected as a component of  Stockholder's  equity at
December  31,  2000 and are being  recognized  as  compensation  expense  of the
Discontinued  operations over the estimated  remaining  vesting period.  For the
year ended December 31, 2000 $36 of compensation expense was recorded.

The activity of this non-employee group is summarized below:

                                                            2000
                                                                   Weighted
                                                                    Average
                                                 Shares         Exercise Price
       Transfer from Employee plan              133,220              $   2.19
       Grants during the year                    58,271                  2.27
       Exercised during the year
       Canceled during the year                  (7,720)                 1.66
       Options outstanding December 31          183,771              $   2.18
       Options exercisable December 31           45,500              $   1.87

       Options outstanding price range                            $2.86 to $2.31
       Weighted average fair value of options
           granted during the year                                   $   2.18
       Options weighted average remaining
           life                                                     3.85 years



<PAGE>


13.      EARNINGS PER SHARE

         The  computations of basic and diluted earnings per share for each year
were as follows:

<TABLE>
<CAPTION>
<S>                                                             <C>           <C>            <C>
                                                                1998          1999           2000
                                                          (Amounts in thousands except share and per share data)
Numerator:

         Net loss from continuing operations                  $    (920)    $     (69)   $  (3,735)

         Discontinued operations:
                  Net income (loss) from discontinued
                   operations, net of taxes                        (178)          362          302
                  Gain (loss) on disposal, net of taxes                        (1,138)       3,390
                  Net loss                                    $  (1,098)    $    (845)   $     (43)

Denominator:

         Denominator for basic earnings per
         share - weighted-average shares
         outstanding                                          4,345,883     4,168,140    4,059,618

Effect of dilutive securities:

         Shares issuable from assumed conversion
             of common stock options, warrants and
             restricted stock

Denominator for diluted earnings per share                    4,345,883     4,168,140    4,059,618

Net income (loss) per share:

Basic and diluted:

Net loss from continuing operations                           $   (0.21)    $   (0.02)   $   (0.92)
Net income (loss) from discontinued operations                    (0.04)         0.09         0.07
Gain (loss) on disposal                                                         (0.27)        0.84
Net loss per share                                            $   (0.25)    $   (0.20)   $   (0.01)
</TABLE>


         The  potentially  dilutive  options were not used in the calculation of
diluted  earnings per share for the year ended December 31, 1998,  1999 and 2000
since the effect of  potentially  dilutive  securities  in  computing a loss per
share is antidilutive.

         There were  warrants to  purchase,  176,750  shares of common stock for
1998,  1999 and 2000,  respectively,  which were not included in  computing  the
effect  of  dilutive   securities   because  the   inclusion   would  have  been
antidilutive.

         There were 8,000,  37,600 and 48,344  options to purchase  common stock
for 1998, 1999 and 2000, respectively,  which were not included in computing the
effect  of  dilutive   securities   because  the   inclusion   would  have  been
antidilutive.


<PAGE>


14.      SEGMENT INFORMATION

         I-Sector has five  reportable  segments:  (1) ACS, (2) Synergy,  (3) IT
Staffing,  (4)  Stratasoft,  (5) INX  and (6)  Corporate.  ACS,  Synergy  and IT
Staffing were previously reported as the IT Services segment. 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.  ACS provides  customers  with on-site and carry-in  computer
repair, application support and operating system and network migration services.
Synergy  provides  customers  with  turnkey  outsourced  IT helpdesk  solutions,
technical staff augmentation for IT helpdesk  operation and helpdesk  consulting
services. IT Staffing provides IT professionals to work on temporary assignments
and does  permanent  placements.  Stratasoft  produces  software  products  that
facilitate  telephony and computer  integration  primarily for telemarketing and
call  center  applications.   INX  is  a  provider  of  network   infrastructure
professional services and a reseller of Cisco network  infrastructure  products.
The accounting policies of the business segments are the same as those described
in Note 1.  I-Sector  evaluates  performance  of each segment based on operating
income.  Management  only views accounts  receivable,  and not total assets,  by
segment in their  decision  making.  Intersegment  sales and  transfers  are not
significant. The tables below show the results of the five reportable segments:

<TABLE>
<CAPTION>
For the year ended December 31, 2000:

<S>                                         <C>        <C>        <C>       <C>       <C>       <C>       <C>        <C>
                                                                               IT
                                              ACS      Synergy     INX      Staffing Stratasoft Corporate Elimination Consolidated

Total  revenue                              $ 2,491    $ 4,455    $ 1,874   $ 1,242   $ 6,660   $ 1,640   $   (33)   $  18,329
Cost of sales and services                    1,980      3,610      1,917       913     3,573     1,909       (21)      13,881
Gross profit (loss)                             511        845        (43)      329     3,087      (269)      (12)       4,448
Selling, general and
     administrative expenses                  1,240      1,946        935       491     3,647     1,723       (12)       9,970
Operating loss                              $  (729)   $(1,101)   $  (978)  $  (162)  $ (560)   $(1,992)  $     0       (5,522)
Interest expense (income)                                                                                                 (239)
Loss before benefit for income tax                                                                                      (5,283)
Benefit for income tax                                                                                                   1,548
Net loss from continuing operations                                                                                     (3,735)
Net income from discontinued
     Operations                                                                                                            302
Net gain on disposal, net of taxes                                                                                       3,390
Net loss                                                                                                             $     (43)

Accounts receivable, net                    $   362    $   627    $ 1,075   $   235   $ 1,390   $     9   $      0   $   3,698
Accounts receivable retained from
     discontinued operations, net                                                                                          775
Total accounts receivable, net                                                                                       $   4,473
</TABLE>
<TABLE>
<CAPTION>
For the year ended December 31, 1999:
<S>                                         <C>        <C>        <C>       <C>       <C>       <C>       <C>        <C>
                                                                             IT
                                              ACS      Synergy    INX       Staffing Stratasoft Corporate Elimination Consolidated

Total  revenue                              $ 3,644    $ 7,318    $     0   $ 1,191   $ 4,318   $ 2,704   $      0   $  19,175
Cost of sales and services                    2,524      5,056          0       792     2,126     2,100          0      12,598
Gross profit                                  1,120      2,262          0       399     2,192       604          0       6,577
Selling, general and
     administrative expenses                  1,086      2,187          0       464     1,960       974          0       6,671
Operating income (loss)                     $    34    $    75    $     0   $  (65)   $   232   $  (370)  $      0         (94)
Interest expense (income)                                                                                                  (23)
Loss before benefit for income tax                                                                                         (71)
Benefit for income tax                                                                                                      (2)
Net loss from continuing operations                                                                                        (69)
Income from discontinued operations,
     net of taxes                                                                                                          362
Net loss on disposal, net of taxes                                                                                      (1,138)
Net loss                                                                                                             $    (845)
</TABLE>


<PAGE>

<TABLE>
<CAPTION>
For the year ended December 31, 1998:
<S>                                         <C>        <C>        <C>       <C>       <C>       <C>       <C>        <C>
                                                                               IT
                                              ACS      Synergy     INX      Staffing Stratasoft Corporate Elimination Consolidated

Total  revenue                              $ 3,958    $ 6,933    $     0   $   870   $ 3,095   $ 1,422   $      0   $  16,278
Cost of sales and services                    3,156      4,308          0       500     1,603     1,011          0      10,578
Gross profit                                    802      2,625          0       370     1,492       411          0       5,700
Selling, general and
     administrative expenses                  1,681      2,504          0       396     1,873       657          0       7,111
Operating income (loss)                     $  (879)   $   121    $     0   $   (26)  $  (381)  $  (246)  $      0      (1,411)
Interest expense (income)                                                                                                  (41)
Loss before benefit for income tax                                                                                      (1,370)
Benefit for income tax                                                                                                    (450)
Net loss from continuing operations                                                                                       (920)
Loss from discontinued operations,
     net of taxes                                                                                                         (178)
Net loss                                                                                                             $  (1,098)
</TABLE>


<PAGE>


Item  9.  Changes  in and  Disagreements  With  Accountants  on  Accounting  and
Financial Disclosure

         NONE

PART III

Item 10. Directors and Executive Officers

Directors

James H. Long - Director, April 1983 to present.

         James H. Long,  age 42, is the founder of the Company and has served as
Chairman of the Board, Chief Executive Officer and President since the Company's
inception  in 1983.  Prior to  founding  the  Company,  Mr. Long served with the
United  States Navy in a technical  position  and was then  employed by IBM in a
technical position.

Donald R. Chadwick - Director, September 12, 1996 to present.

         Donald R.  Chadwick,  age 57, has served as Secretary  since  February,
1992 and served as the Chief Financial Officer of the Company from February 1992
until  December,   1999.  As  Chief  Financial  Officer,   his  duties  included
supervision of finance, accounting and controller functions within the Company.

Richard D. Darrell - Director, July 29, 1997 to present.

         Richard D. Darrell,  age 45, has been President of American  Technology
Acquisition Corporation,  a company specializing in mergers,  acquisitions,  and
divestitures  of technology  related  companies  since 1995.  Prior to that, Mr.
Darrell  served as  President  and Chief  Executive  Officer of Direct  Computer
Corporation,  a computer  reseller  and  distribution  company  based in Dallas,
Texas.

Jack M. Johnson, Jr. - Director, July 29, 1997 to present.

         Jack M.  Johnson,  Jr., age 61, has been  Managing  General  Partner of
Winterman & Company, a general partnership that owns approximately  25,000 acres
of real  estate in Texas,  which is used in farming,  ranching,  and oil and gas
exploration  activities,  since 1996.  Mr.  Johnson is also  President  of Winco
Agriproducts, an agricultural products company that primarily processes rice for
seed and  commercial  sale. Mr. Johnson was previously the Chairman of the Board
of the Lower Colorado River Authority,  the sixth largest  electrical utility in
Texas,  with  approximately  1,700  employees  and an annual budget of over $400
million. Mr. Johnson was previously Chairman of North Houston Bank, a commercial
bank with assets of approximately  $75 million.  Mr. Johnson currently serves on
the board of directors of Houston  National  Bank, a commercial  bank located in
Houston, Texas with assets of approximately $100 million; Security State Bank, a
commercial bank in Anahuac,  Texas with assets of approximately  $60 million and
Team, Inc. a publicly traded company which provides  environmental  services for
industrial operations.

Mark T. Hilz - Director, June 24, 1999 to present.

         Mark T. Hilz, age 42, is the President of Internetwork Experts, Inc. He
has formerly served as Chief Executive  Officer of Nichecast,  Inc., a privately
held  internet  services  company.  From  1990 to 1998,  Mr.  Hilz was  founder,
President  and  Chief  Executive   Officer  of  PC  Service   Source,   Inc.,  a
publicly-held distributor of personal computer hardware for the repair industry.

Executive Officers

         The  executive  officers of the  Company  serve  until  resignation  or
removal by the Board of Directors.  Set forth below is certain information about
the Company's Executive Officers, other than James H. Long .


<PAGE>


Thomas N. McCulley - Vice  President,  Information  Systems,  September  1996 to
present.

         Thomas N. McCulley,  age 54, has been the Vice  President,  Information
Systems for the Company  since July 1996.  From January  1992 to June 1996,  Mr.
McCulley served as the  Information  Services  Director for the Company.  He has
responsibility  for  management  and  supervision  of the  Company's  Management
Information Systems.

William R. Hennessy - President, Stratasoft, Inc., September 1996 to present.

         William R. Hennessy, age 42, has served as the President of Stratasoft,
Inc., the Company's  wholly-owned  subsidiary that was formed in 1995 to develop
and market CTI  Software,  since  joining  the  Company  in  January  1996.  Mr.
Hennessy's  responsibilities include the general management of Stratasoft,  Inc.
From  July 1991 to  January  1996,  Mr.  Hennessy  was  employed  by  Inter-Tel,
Incorporated,  a telephone  systems  manufacturer and sales and service company,
where he  served  as the  Director  of MIS and the  Director  of Voice  and Data
Integration for the central region.

Family Relationships

         There  are no  family  relationships  among  any of the  directors  and
executive officers of the Company.

Section 16(a) Beneficial Ownership Reporting Compliance

                                     Number of     Number of      Known Failure
         Name of Reporting Person    Late Reports  Transactions       To File

         Chadwick, Donald R                1             6

Item 11. Executive Compensation

Summary  Compensation  Table.  The following  table  reflects  compensation  for
services to the Company for the years ended December 31, 2000,  1999 and 1998 of
(i) the Chief  Executive  Officer of the  Company and (ii) the three most highly
compensated  executive  officers of the Company  who were  serving as  executive
officers at the end of 2000 and whose  total  annual  salary and bonus  exceeded
$100,000 in 2000 (the "Name Executive Officers").

                         Annual Compensation              Long Term Compensation
                                                                  Awards
  Name and Principal    Year  Salary   Bonus      Other               Number of
                                                  Annual   Restricted Securities
                                              Compensation  Stock     Underlying
                                                   (1)      Awards   Options (2)
        Position

James H. Long (3)        2000 $150,000
Chief Executive          1999  150,000
Officer                  1998  150,000 $80,200                            2,400

William R. Hennessy      2000   91,034  59,686
President, Stratasoft,   1999   85,000  55,856                           10,000
Inc. (4)                 1998   84,637   3,000              7,500


(1)      Amounts exclude the value of perquisites and personal  benefits because
         the  aggregate  amount  thereof did not exceed the lesser of $50,000 or
         10% of the Named Executive Officer's total annual salary and bonus.
(2)      The number of  securities  underlying  options  shown for 1998 includes
         options  originally issued in 1997 and repriced during 1998 and options
         newly issued in 1998.
(3)      Company has made personal loans to Mr. Long from time to time. See Item
         13.   Certain   Relationships   and   Related   Transactions   "Certain
         Transactions".
(4)      Includes compensation based upon gross profit realized.


<PAGE>


Stock Options

         Under the Company's  1996 Incentive  Stock Option Plan (the  "Incentive
Stock  Option  Plan")  options to  purchase  shares of the  Common  Stock may be
granted to  executive  officers  and other  employees.  As of December 31, 2000,
409,012 shares were reserved for issuance upon exercise of  outstanding  options
and 33,488 were reserved and remained  available  for future grants  pursuant to
the Incentive Stock Option Plan. During 2000,  options to purchase 15,100 shares
of Common Stock were granted to the Named Executive Officers under the Incentive
Stock Option Plan

Options  Granted in Last Fiscal Year. The following  table provides  information
concerning stock options granted to the Named Executive Officers during the year
ended December 31, 2000.

                                                                      Potential
                                                     Potential       Realizable
                                                    Realizable        Value at
   Number of   Percent of                            Value at         Assumed
   Shares of     Total                            Assumed Annual    Annual Rate
     Common     Options                            Rate of Stock      of Stock
     Stock     Granted to   Exercise                   Price           Price
   Underlying  Employees    or Base                Appreciations   Appreciations
    Options    in Fiscal    Price      Expiration   for Option       for Option
    Granted       Year      ($/share)     Date      Term 5% (1)     Term 10% (1)

None

 (1) Actual  gains,  if any, on stock option  exercises  are dependent on future
performance  of the Common  Stock.  No  appreciation  in the price of the Common
Stock will result in no gain.

Aggregated Option Exercises and Year-End Option Values
<TABLE>
<CAPTION>
<S>                      <C>        <C>        <C>             <C>          <C>             <C>

                                               Number of Securities
                        Shares                Underlying Unexercised   Value of Unexercised In-the
                       Acquired    Value            Options at               money Options at
                      on Exercise Realized      December 31, 2000           December 31, 2000
                                           Exercisable   Unexercisable Exercisable    Unexerciable
James H. Long                 0        0         960           1,440         $0               $0
William R. Hennessy           0        0       8,800           9,200         $0               $0
</TABLE>

         The Named Executive Officers held 109,646 options that were exercisable
at  December  31,  2000,  none  were  exercised  during  2000 and  there  were 0
in-the-money unexercised options at December 31, 2000.

Employment Agreements

         Each of the Named Executive Officers of the Company has entered into an
employment agreement (collectively,  the "Executive Employment Agreements") with
the  Company.  Under the terms of their  respective  agreements,  Messrs.  Long,
McCully,  Otto and  Hennessy  are entitled to an annual base salary of $150,000,
$75,000, $100,000 and $85,000, respectively, plus other bonuses, the amounts and
payment of which are within the discretion of the  Compensation  Committee.  The
Executive  Employment  Agreements  may be  terminated  by the  Company or by the
executive officer at any time by giving proper notice. The Executive  Employment
Agreements  generally  provide that the executive officer will not, for the term
of his  employment  and for the period  ranging  from twelve to eighteen  months
following the end of such Named Executive Officer's employment with the Company,
solicit any of the Company's  employees or customers or otherwise interfere with
the business of the Company.


<PAGE>


Item 12. Security Ownership

Security Ownership of Management

         The  following  table sets  forth,  as of March 16,  2000 the number of
shares of Common Stock owned by each Director,  each Named Executive Officer, as
defined in "Executive Compensation," and all Directors and Executive Officers as
a group.

Title of Class   Name of                    Amount and Nature of      Percent
                 Beneficial Owner           Beneficial Owner (1)      of Class

Common Stock     James H. Long                        2,058,800       51.6%
Common Stock     Donald R. Chadwick                     110,503   (2)  2.8%
Common Stock     William R. Hennessey                     8,800   (3)     *
Common Stock     Thomas N. McCully                       14,960   (4)     *
Common Stock     All officers and directors           2,193,063       54.9%

(1)      Beneficial owner of a security includes any person who shares voting or
         investment power with respect to or has the right to acquire beneficial
         ownership of such security within 60 days.

(2)      Includes 69,686 shares which may be acquired upon exercise of currently
         exercisable  options  and 517 shares  owned by his spouse for which Mr.
         Chadwick  disclaims  beneficial  ownership  and 300 shares owned by his
         minor children for which Mr. Chadwick disclaims beneficial ownership.

(3)      Includes  8,800 shares which may be acquired upon exercise of currently
         exercisable options.

(4)      Includes  9,760 shares which may be acquired upon exercise of currently
         exercisable options.

(5)      Includes  600 shares which may be acquired  upon  exercise of currently
         exercisable options.

  Security Ownership of Certain Beneficial Owners

  Title of Class  Name and Address of            Amount and Nature of   Percent
                  Beneficial Owner               Beneficial Owner       Of Class

  Common Stock    Jack B. Corey                         267,500           6.7%
                  37102 FM 149, P.O. Box 525
                  Pinehurst, TX 77362

  Common Stock    Peak 6 Capital Management L.L.C. (1)  205,300           5.1%
                  209 LaSalle Street, Suite 200
                  Chicago, Illinois 60604

  Common Stock    James H. Long                         2,120,300        51.6%
                  6401 Southwest Freeway
                  Houston, Texas 77074

  (1)  As reported on Schedule 13D December 1, 2000.



<PAGE>


Item 13. Certain Relationships and Related Transactions

Certain Transactions

         The  Company  has from time to time made  payments on behalf of Allstar
Equities, Inc. a Texas corporation ("Equities"),  which is wholly-owned by James
H. Long, the Company's  President and Chief Executive Officer,  and on behalf of
Mr. Long, personally for taxes, property and equipment. Effective on December 1,
1999 a  note  payable  by  Equities  was  signed  for  $335,551  for 60  monthly
installments of $6,965.  The note bears interest at 9% per year. At December 31,
2000,  the  Company's   receivables  from  Equities  amounted  to  approximately
$203,000.  Additionally,  from time to time the  Company  has made  payments  to
unrelated  parties for  transactions  that  should  either  wholly or  partially
benefit Mr. Long and which should  therefore be accounted for as indebtedness by
Mr. Long to the Company.  The company records these transactions as a receivable
to be repaid by him. The balance of approximately  $100,000 at December 31, 2000
is included in the balance sheet caption "Accounts receivable - affiliates".

         The Company  leases  office  space from  Equities.  On December 1, 1999
Equities  purchased  the  building  and executed a direct lease with the Company
with an expiration  date of December 31, 2004. The new lease has rental rates of
$37,692 per month.

         In August  1996,  the  Company  retained  an  independent  real  estate
consulting  firm to conduct a survey of rental rates for  facilities in Houston,
Texas that are compatible to its Houston headquarters facility.  Based upon this
survey,  and additional  consultations  with  representatives of the real estate
consulting  firm,  the Company  believes that the rental rate and other terms of
the  Company's  sublease  from  Equities are at least as favorable as those that
could be obtained  in an  arms-length  transaction  with an  unaffiliated  third
party.

         Directors' Compensation

         Employee  directors  of the  Company  do  not  receive  any  additional
compensation  for their services as a director of the Company.  The Company pays
each  independent  director $1,000 for each Board meeting  attended and $500 for
Committee  meeting  attended,   along  with  reasonable  out-of-pocket  expenses
incurred  by  independent  directors  to attend  Board and  Committee  meetings.
Independent  directors  are also  entitled  to receive  options  pursuant to the
Director Plan (See Note 12).


<PAGE>

PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K
         (a) List of documents filed as part of this report

               (1) Consolidated Financial Statements - See Index to Consolidated
                   Financial Statements on Page 23

               (2) Exhibits

<TABLE>
<CAPTION>
Exhibits
<S>                       <C>                                                       <C>
                                                                                Filed Herewith

Exhibit                                                                         or Incorporated by
Number                          Description                                     Reference to:

2.1   Plan and Agreement of Merger by and Between                               Exhibit 2.1 to Form
      Allstar Systems, Inc, a Texas corporation and                             S-1 filed Aug. 8, 1996
      Allstar Systems, Inc. a Deleware corporation
3.1   Bylaws of the Company                                                     Exhibit 3.1 to Form
                                                                                S-1 filed Aug. 8, 1996
3.2   Certificate of Incorporation of the Company                               Exhibit 3.2 to Form
                                                                                S-1 filed Aug. 8, 1996
3.3   Certificate of Amendment to Certificate of Incorporation                  Form 10-K filed Mar.
      of Allstar Systems, Inc.                                                  24, 2001
4.1   Specimen Common Stock Certificate                                         Exhibit 4.1 to Form
                                                                                S-1 filed Aug. 8, 1996
4.2   See Exhibits 3.1 and 3.2 for provisions of the Certificate of             Exhibit 4.2 to Form
      Incorporation and Bylaws of the Company defining the rights of the        S-1 filed Aug. 8, 1996
       holders of Common Stock.
10.2  Agreement for Wholesale Financing dated September 20, 1993, by            Exhibit 10.2 to Form
      and between ITT Commercial Finance Corp. and Allstar-Valcom, Inc.         S-1 filed Aug. 8, 1996
10.3  Amendment to Agreement for Wholesale Financing dated                      Exhibit 10.3 to Form
      October 25, 1994, by and between ITT Commercial Finance Corp.             S-1 filed Aug. 8, 1996
      and Allstar Systems, Inc.
10.5  Form of Employment Agreement by and between the Company and               Exhibit 10.5 to Form
      certain members of Management.                                            S-1 filed Aug. 8, 1996
10.6  Employment Agreement dated September 7, 1995, by and between              Exhibit 10.6 to Form
      Stratasoft, Inc. and William R. Hennessy.                                 S-1 filed Aug. 8, 1996
10.7  Assignment of Certain Software dated September 7, 1995, by                Exhibit 10.7 to Form
      International Lan and Communications, Inc. and Aspen System               S-1 filed Aug. 8, 1996
      Technologies, Inc. to Stratasoft, Inc.
10.8  Microsoft Solution Provider Agreement by and between Microsoft            Exhibit 10.8 to Form
      Corporation and Allstar Systems, Inc.                                     S-1 filed Aug. 8, 1996
10.9  Novell Platinum Reseller Agreement by and between Novell, Inc.            Exhibit 10.9 to Form
      and Allstar Systems, Inc.                                                 S-1 filed Aug. 8, 1996
10.10 Allstar Systems, Inc. 401(k) Plan.                                        Exhibit 10.10 to Form
                                                                                S-1 filed Aug. 8, 1996
10.11 Allstar Systems, Inc. 2000 Incentive Stock Plan.                          DEF 14A Filed
                                                                                Mar 14, 2000
10.12 Allstar Systems, Inc. 1996 Non-Employee Director Stock Option Plan.       Exhibit 10.12 to Form
                                                                                S-1 filed Aug. 8, 1996
10.14 Resale Agreement dated December 14, 1995, by and between Ingram           Exhibit 10.14 to Form
      Micro Inc. and Allstar Systems, Inc.                                      S-1 filed Aug. 8, 1996
10.15 Volume Purchase Agreement dated October 31, 1995, by and between          Exhibit 10.15 to Form
      Tech Data Corporation and Allstar Systems, Inc.                           S-1 filed Aug. 8, 1996
10.16 Intelligent Electronics Reseller Agreement by and between Intelligent     Exhibit 10.16 to Form
      Electronics, Inc. and Allstar Systems, Inc.                               S-1 filed Aug. 8, 1996
10.18 IBM Business Partner Agreement by and between IBM                         Exhibit 10.18 to Form
      and Allstar Systems, Inc.                                                 S-1 filed Aug. 8, 1996
10.19 Confirmation of Allstar Systems, Inc.'s status as a Compaq authorized     Exhibit 10.19 to Form
      reseller dated August 6, 1996.                                            S-1 filed Aug. 8, 1996
10.20 Hewlett-Packard U.S. Agreement for Authorized Second Tier Resellers       Exhibit 10.20 to Form
      by and between Hewlett-Packard Company and Allstar Systems, Inc.          S-1 filed Aug. 8, 1996
10.21 Associate Agreement by and between NEC America, Inc. and                  Exhibit 10.21 to Form
      Allstar Systems, Inc.                                                     S-1 filed Aug. 8, 1996

<PAGE>

10.23 Dealer Agreement dated March 1, 1995, by and between Applied Voice        Exhibit 10.23 to Form
      Technology and Allstar Systems, Inc.                                      S-1 filed Aug. 8, 1996
10.24 Industrial Lease Agreement dated March 9, 1996, by and between            Exhibit 10.24 to Form
      H-5 J.E.T. Ltd. as lessor and Allstar Systems, Inc. as lessee.            S-1 filed Aug. 8, 1996
10.26 Agreement for Wholesale Financing, Business Financing Agreement           Form 10-K filed Mar.
      and related agreements and correspondence by and between DFS Financial    31, 1998
      Services and Allstar Systems, Inc., dated February 27, 1998
10.29 Lease Agreement dated March 4, 1998 by and between The Rugby              Form 10-K filed April
      Group, Inc., and Allstar Systems, Inc.                                    12, 1999
10.32 Lease Agreement by and between Allstar Equities, Inc. and Allstar         Form 10-K filed March
      Systems, Inc.                                                             28, 2000
10.33 Asset Purchase Agreement Between Amherst Computer Products                Exhibit 2.1 to Form
      Southwest, L.P., Amherst Technologies, L.L.C. and Allstar                 8-K filed March 22,
      Systems, Inc. dated March 16, 2000                                        2000
10.35 Promissory Note between James H. Long and Allstar Systems, Inc.           Form 10-K filed March
      dated December 1, 1999                                                    28, 2000
10.36 Asset Purchase Agreement By and Between Internetworking                   Form 10-K filed Mar
      Sciences Corporation and Internetwork Experts, Inc.                       24, 2001
      dated October 27, 2000
10.37 Lease Agreement By and Between Whitehall-Midway Park                      Form 10-K filed Mar
      North, Ltd. and Allstar systems, Inc. dated July 31, 2000                 24, 2001
21.1  List of Subsidiaries of the Company.                                      Form 10-K filed Mar.
                                                                                24, 2001
23.1  Independent Auditors' Consent of Deloitte & Touche LLP,.                  Form 10-K filed Mar.
                                                                                24, 2001
99.1  Schedule II Valuation and Qualifying Accounts                             Form 10-K filed Mar.
                                                                                24, 2001
b     No Form 8-K has been filed in the last  quarter of the fiscal year covered
      by this report.
</TABLE>


<PAGE>


                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) 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, March 16, 2000.

                                        I-Sector Corporation.
                                        (Registrant)

                                        By:/s/ James H. Long
                                           James H Long, Chief Executive Officer

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
registrant and in the capacities and on the dates indicated.

                Signature               Capacity

         /s/ James H. Long              Chief Executive Officer, President and
                                        Chairman of the Board (Principal
                                        Financial and Accounting Officer)

         /s/ Donald R. Chadwick         Secretary and Director


         /s/ Mark T. Hilz               Director


         /s/ Richard D. Darrell         Director


         /s/ Jack M. Johnson            Director