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, 2002

                                       OR
|_|       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
          OF THE SECURITIES EXCHANGE ACT OF 1934
          For the transition period from ________ to ___________

                         Commission file number: 0-21479
                              I-SECTOR CORPORATION
             (Exact name of Registrant as specified in its charter)

             Delaware                                  76-0515249
     (State of Incorporation)             (I.R.S. Employer Identification No.)
      6401 Southwest Freeway
           Houston, 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 Regu lation 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. |_|

     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 June 28,
2002, as reported on NASDAQ Small Cap Market, was approximately $3,470,992.

     The number of shares of Common  Stock,  $.01 Par Value,  outstanding  as of
March 21, 2003 was 3,709,689.


                      DOCUMENTS INCORPORATED BY REFERENCE

<PAGE>


PART I

All monetary amounts discussed in Items 1 through 7 are in thousands.

Item 1.  Business

SPECIAL NOTICE REGARDING FORWARD-LOOKING STATEMENTS

THIS ANNUAL REPORT ON FORM 10-K CONTAINS  FORWARD-LOOKING  STATEMENTS WITHIN THE
"SAFE HARBOR"  PROVISIONS  OF THE PRIVATE  SECURITIES  LITIGATION  REFORM ACT OF
1995. ALL STATEMENTS INCLUDED IN THIS ANNUAL REPORT,  OTHER THAN STATEMENTS THAT
ARE PURELY HISTORICAL ARE FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING STATEMENTS
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.   THESE
FORWARD-LOOKING   STATEMENTS   ARE  SUBJECT  TO  KNOWN  AND  UNKNOWN  RISKS  AND
UNCERTAINTIES.  NUMEROUS FACTORS,  INCLUDING FACTORS THAT THE COMPANY HAS LITTLE
OR NO CONTROL  OVER,  MAY AFFECT 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 ("I-Sector" or the "Company") is a holding company and
conducts  substantially  all of its  operations  through its  subsidiaries.  Our
subsidiaries  are engaged in various aspects of information  and  communications
technology business. In 2002, our revenue from continuing operations was derived
through three primary subsidiary companies:

o    Valerent, Inc provides information technology solutions that both lower the
     client's   expense  and  increase  the  quality  and  efficiency  of  their
     experience by utilizing  centralized,  remote-enabled  computing management
     tools which predict,  announce and manage service interruptions.  Valerent,
     Inc. was formerly known as Allstar Solutions, Inc.

o    Internetwork   Experts,  Inc  is  a  network   professional   services  and
     integration  organization  with areas of practice that include  large-scale
     enterprise  network  engineering  consulting,   network  security,  network
     management, wireless networking, IP Telephony.

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

     I-Sector's filings with the SEC are available without charge on our website
at http://www.I-Sector.com/information/sec.htm.

BUSINESS STRATEGY

     Our  strategy is to utilize our capital  resources  to build a portfolio of
highly focused subsidiary  companies,  each of which will be involved in an area
of information  and/or  communications  technology  that we believe  provides an
opportunity  for such  subsidiary  company to become a dominate force in, and to
achieve superior results in. While the information and communications technology
industries  have been in a recession for  approximately  the past two years,  we
believe that these industries will rebound, as they are vital areas of the world
economy that have,  and will continue to, go through  significant  change due to
technological  advances.  We believe that 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,  focused, management team with financial incentives tied
to their company's financial performance.  We plan to continue to expand each of
our three current subsidiary  companies through  internally  generated sales and
possibly  through the  acquisition of compatible and synergistic  companies.  We
will also continue to evaluate the possibility of entering new lines of business
either by starting new subsidiary companies or by acquiring other companies.  We
intend to focus our growth  efforts in niche industry areas that we believe hold
the greatest opportunity for growth and profitability. Each of our three current
subsidiary companies is executing a unique business strategy.


<PAGE>


Valerent, Inc.

     Valerent,  Inc.  ("Valerent"),  previously  named Allstar  Solutions,  Inc.
("Allstar"), which started as the services side of our former computer reselling
organization,  has been  transforming  itself  into a  provider  of  specialized
information technology solutions and intends to grow its revenue by aggressively
adding additional  specialized  solutions  offerings that reduce their customers
costs of supporting their IT  infrastructure  while improving the efficiency and
quality of support, as well as by rapidly expanding its sales force. By offering
highly specialized  competence in the niche solutions areas that it operates in,
Valerent  intends to be able to gain market  share  against its  competitors  by
offering  better  solutions  and  better  support  for such  solutions  than its
competitors.  Valerent is  headquartered  in Houston and has a branch  office in
Dallas.  In markets where it does not maintain  branch  offices,  Valerent often
subcontracts for necessary technical personnel,  particularly where required for
larger  scope  or  prolonged  duration  contracts.  Valerent  typically  targets
customers that are medium to larger corporate clients as well as state and local
government organizations.

Internetwork Experts, Inc.

     Internetwork  Experts,  Inc.  ("INX") intends to rapidly become the leading
regional  network   professional   services   organization  by  offering  highly
specialized  technical  services of the highest quality and competence,  thereby
rapidly commanding a significant  presence in the network services and equipment
markets.  By  aggressively  positioning  itself  as one of the most  technically
competent provider of network professional  services,  INX intends to rapidly be
included  in a large  percentage  of the large  network  consulting  and network
implementation  projects in the markets  that it serves.  By  concentrating  its
efforts on Cisco  technology,  INX  intends to build  loyalty  with the  leading
network  equipment  manufacturer  and more  easily  achieve  superior  technical
competence  as  compared to the  competition.  By rapidly  increasing  its sales
staff, INX intends to pursue a rapid growth path for the foreseeable future. INX
is  headquartered  in Dallas and has a branch  office in Houston.  INX typically
targets customers that are large corporate clients and communications firms that
utilize  large  complex  network  infrastructures,  as well as state  and  local
government organizations.

Stratasoft Inc.

     Stratasoft,  Inc. ("Stratasoft") intends to continue to further develop its
existing  suite of software  products  for  professional  call  centers and high
volume  calling  applications  and to further  strengthen the market share gains
that it has made over the past several years. By upgrading the software products
to take  advantage of newer  technology,  such as  voice-over-IP,  Stratasoft is
continuing  to increase  the features  and  functionality  that it can offer its
clients.  Stratasoft markets its products through its own sales account managers
as well as a network of  resellers.  Stratasoft  plans to increase the number of
both sales  accounts  managers and  resellers  going  forward,  thereby  driving
expected future revenue growth. In addition,  a concentrated  effort to sell its
products  in  markets  other  than the  U.S.  is  expected  to  continue  to add
incremental new growth  opportunities.  Stratasoft is  headquartered in Houston,
but markets its products nationally and internationally.  Stratasoft's customers
are typically call center companies or companies or organizations that operate a
call center, and includes political and non-profit organizations.

PRODUCTS AND SERVICES

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


<PAGE>


Valerent, Inc.

     Valerent  offers  a  variety  of  service  offerings  related  to the  cost
reduction and performance improvement through Internet-based service and support
of computing technology. The services that Valerent offers include:

     o    Systems  management  including  operating  system  and  data migration
          services
     o    Data  life  cycle  support  including  client  roll  back and recovery
          services
     o    Security management and monitoring
     o    Internet usage monitoring and management
     o    Helpdesk solutions consulting.
     o    Turn-key outsourcing of the IT helpdesk function
     o    Network support and network management
     o    IT project management
     o    Network design and implementation
     o    Technical staff augmentation for IT helpdesk operation

     Valerent 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, Valerent's technical staff
participates in various  certification and authorization  programs  sponsored by
hardware manufacturers and software suppliers.

Internetwork Experts, Inc.

     INX is a provider of network  infrastructure  professional  services and an
integration  firm with  practice  areas in network  design  and  implementation,
voice/data  convergence  and  network  management  and  security:  INX  provides
solutions for large-scale  and complex  networks based primarily on products and
technology from Cisco Systems,  Inc. The company provides consulting services in
the following disciplines:

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

     Specific technologies in which INX offers expertise include:

     o    Routing
     o    Switching (LAN/MAN/WAN)
     o    Virtual Private Networks (VPN)
     o    Voice over X (VoX)
     o    Wireless
     o    Security
     o    IP Telephony
     o    Wireless networks

     INX's client base includes many vertical markets such as healthcare, legal,
banking, energy and utilities, hospitality, transportation, legal, manufacturing
and entertainment,  education as well as local, state and federal government. In
addition to its direct sales model INX also provides  technical  consulting  and
project  management  services as a sub-contractor for companies such as IBM, EDS
and Qwest.


<PAGE>


Stratasoft, Inc.

     Stratasoft  develops  and  markets  computer  telephony   software,   which
integrates business telephone systems and networked computer systems,  under the
trade name  "Stratasoft".  Stratasoft's  products  are  designed to maximize the
efficiency of a professional contact center or other type of high volume calling
application,  for both  inbound and outbound  calls.  Stratasoft  offers  custom
contact  center  solutions  that  do  not  require  excessive,   labor-intensive
implementation and professional service  augmentation.  Our complete call center
product   offering  allows  end  users  to  rapidly   customize  their  business
applications  and  positions  them to  effectively  compete in today's  business
climate.  Stratasoft's  software  products can be bundled with computer hardware
supplied by either  Stratasoft or one of their value added resellers  should the
customer  request  this  configuration.  Stratasoft  currently  has two  primary
computer-telephony  software products,  which are marketed under the trade names
StrataDial and StrataVoice:

     o    The  StrataDial.  VC2 - Virtual  Contact  Center  suite  provides  the
          customer with the following essential telephony applications: outbound
          predictive  dialing,  inbound automatic call distribution,  voice mail
          and  auto  attendant  applications,  and  text-to-speech  capabilities
          Web-based text chatting, e-mail management and routing, fax on demand,
          an interactive voice response system and rapid application development
          tools.  The product's  true open  architecture  design allows for easy
          integration with existing in-house systems and software  applications,
          thereby minimizing customer  acquisition  expenses and capitalizing on
          existing technology  investments.  StrataDial.VC2 delivers robust, yet
          easy-to-use,   global  contact  center   functionality   to  worldwide
          companies seeking an affordable and flexible communications solution.

          With the evolution of the Multi-Point  Contact  Center,  our customers
          are  leveraging  the  power  of the  StrataDial.VC2  product  suite to
          increase  their  productivity  and return on  investment.  The product
          allows our  clients  to contact  additional  customers  and  prospects
          quickly keeping the customers' preferred choice of contact in mind.

     o    StrataVoice is an outbound  dialing  product  designed for high volume
          calling applications that do not require human interface. Strata Voice
          applications  include;  appointment  confirmation  and setting,  court
          appearance notification,  opinion 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  queries the  contacted  individual.,  The system has the
          ability  to  branch  to  other  questions  and  statements   based  on
          designated responses. StrataVoice also allows the contacted individual
          to  leave  messages.   Scripting  tools  allow  the  user  to  develop
          customized campaigns.  The system builds a database of respondent data
          and comprehensive response reporting capabilities.

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 either the revenue or the  profitability  of sales that
they  participate in developing.  In addition,  Stratasoft  markets its products
through a network  of value  added  resellers,  who  typically  integrate  their
products and services 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.

<PAGE>


CUSTOMERS

     The focus of the various subsidiary companies' marketing efforts varies, as
does the  makeup of each  company's  customer  base.  Valerent's  customer  base
consists  primarily of small to larger  commercial  clients as well as state and
local  governmental  organizations,  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.  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 have historically been located in the United States, but
Stratasoft  has  increasingly  sold and  installed  its call  center  systems in
several other countries.  In 2000, 2001 and 2002,  approximately 3.9%, 42.9% and
28.2%,  respectively,  of  Stratasoft's  revenues,  and  1.7%,  13.2%  and 4.4%,
respectively,  of consolidated  revenues,  were with customers  outside the U.S,
including customers in India, the United Kingdom, Canada and the Philippines. We
had no single customer that  represented 10% or greater of our total  continuing
revenues in the years ended  December 31, 2002,  2001 or 2000,  however we had a
group of end user customers  related to a single reseller that represented 10.0%
of our total continuing revenues in 2001.

SUPPLY AND DISTRIBUTION

     We purchase limited amounts of computing and communications  equipment that
is sold in conjunction with Stratasoft's software products and by INX as part of
turn-key  network  infrastructure  solutions.  We have  historically  relied  on
wholesale distributors to supply a majority of these products. We have typically
purchased the majority of our products from three primary  suppliers in order to
obtain  competitive  pricing,  better product  availability and improved quality
control.  INX  purchases  the  majority  of the Cisco  products  that it resells
directly from Cisco. In addition,  Valerent and INX purchase or exchange service
parts,  such transactions  typically being with the product  manufacturer or its
authorized parts  distributor.  All of our subsidiaries  attempt to keep minimal
inventory on hand, and to purchase inventory only as needed to fulfill orders.

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  accounts  payable,  accounts  receivable  and
collections,  general  ledger,  sales  order  processing,   purchasing,  service
contracts, service calls and work orders, engineer and technician scheduling and
time  tracking,  service parts  acquisition  and  manufacturer  warranties,  and
project  management.  Reporting  can be  generated  for  project  profitability,
contract and customer  analysis,  parts and inventory 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,  2002 we employed  approximately  146  individuals.  Of
these,  approximately 27 were employed in sales, marketing and customer service,
77 were employed in engineering and technical  positions and 42 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.


<PAGE>


RECENT ORGANIZATIONAL CHANGES

     We sold our  Telecom  Systems  business  on March 16,  2000 and we sold our
Computer  Products  Division on May 19, 2000.  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 was IT
Staffing,  Inc.,  which had already been  operated as a wholly owned  subsidiary
since 1997.  We  contributed  the non-IT  Staffing  remaining  components of the
former IT Services business to two newly formed  corporations,  Allstar Computer
Services Inc. and Synergy Helpdesk  Solutions,  Inc. Effective June 30, 2001, we
merged Synergy Helpdesk Solutions, Inc. into Allstar Computer Services, Inc. and
subsequently renamed the resulting company Allstar 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. In February 2003 Allstar Solutions,  Inc. was renamed Valerent, Inc.
in conjunction with a change in its strategy.

RISKS RELATED TO OUR BUSINESS STRATEGY

     Executing  our business  strategy  involves many risks  including,  but not
limited to, the following:

Risks of Potential Future Acquisitions and Investments

     Our business may depend in the future on the successful acquisition and the
integration and performance of businesses that we acquire. Our strategy involves
the  substantial  risk that we will not find  suitable  businesses to acquire on
terms we believe are  commercially  reasonable  and that the new  businesses  we
choose to enter or the acquisitions  that we choose to make 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:

     o    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.

     o    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.

     o    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.

     o    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.

     o    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.

     o    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.

     o    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.


<PAGE>


Concentration of International Revenues

     During   2002   and   2001   we   have    recognized    revenues   on   the
percentage-of-completion basis for several projects associated with one reseller
in South Asia.  International  revenues represent 4.4% and 13.2% of consolidated
revenues  in 2002 and 2001,  respectively.  We have risk to the extent that this
group of customers have not paid us or issued  contractual  letters of credit up
to the level of cost and earnings  recognized  and inherent risks related to the
frequent    estimates   and   management    judgment    associated    with   the
percentage-of-completion method of accounting.

Project Completion

     Our Stratasoft  subsidiary  recognizes its project revenues on the basis of
percentage-of-completion  for  projects  that have a duration in excess of three
months.  The  percent  complete  is  calculated  based on a ratio of total costs
incurred to estimated  total costs for each project.  Revisions of estimates are
reflected in the period in which the facts  necessitating  the revisions  become
known.

Uncertain Revenue Sources

     In order to reach  profitability from our existing  businesses we will have
to grow the revenues.  The relatively high level of operating expenses remaining
after the divestiture of Computer  Products has contributed to operating losses,
which were expected to continue  until new revenues could be generated to offset
some of the loss of revenues  from the  businesses  that have been sold.  During
2001 and  2002 we  experienced  significant  revenue  growth  that  resulted  in
reductions of our losses each quarter but we were unable to reach  profitability
by the quarter ended December 31, 2002.

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 raise capital on terms we consider acceptable.

     If we use 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:

     o    Interest rate fluctuations;

     o    Inability to obtain additional debt financing;

     o    Insufficiency of cash flow to pay interest and principal; and

     o    Restrictive  debt  covenants  imposed  by  lenders  that may  limit or
          prohibit business activities we consider desirable.

     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:

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

     o    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
          affect the price of our common stock; and

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


<PAGE>


Dependence on Our Three Subsidiaries

     Our existing  three  subsidiary  companies  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

     The information technology and communications our industries are undergoing
rapid changes that may adversely affect us. If we do not successfully  adapt our
business strategy to these new conditions, there is a 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 highly 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.

U. S. 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.  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.

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  that we currently  offer.  In addition,  INX's
ability  to  resell  Cisco  network   products  is  dependent   upon  its  Cisco
authorization.  Valerent's  ability to sell and utilize Altiris products for its
solutions  is  dependent  upon  its  Altiris  authorization.   In  general,  the
agreements  between our product  manufacturers and us either have fixed terms or
provide 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.


<PAGE>


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 with  respect to the product  sales  portion of our business  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 56.2% 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
either a majority of stockholders or 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.

Risks Related to Patent Infringement

     Stratasoft settled a patent infringement  lawsuit in September 2001, and as
part of the settlement agreement has obtained  cross-licensing rights on patents
filed by the plaintiff in such lawsuit.  It is possible that other companies may
also believe that  Stratasoft's  products  infringe upon their  patents.  Patent
infringement litigation is complex and expensive and future assertions of patent
infringement by other  companies,  such could 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.

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.  A new lease at reduced  rental  rates was signed on
February 1, 2002,  which  expires on January 31,  2007.  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.


<PAGE>


Item 3.  Legal Proceedings

     We are party to litigation and claims that  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.

     In August  2002,  Inacom  Corp.  filed a lawsuit in the  District  Court of
Douglas  County,  Nebraska  styled Inacom Corp. v. I-Sector  Corporation,  f/k/a
Allstar Systems, Inc., claiming that I-Sector owed the sum of approximately $570
to Inacom  ("Inacom") as a result of Inacom's  termination of a Vendor  Purchase
Agreement  between  Inacom and  I-Sector.  I-Sector  believes that the demand is
without merit and intends to vigorously contest the demand.

     I-Sector  had filed a claim to collect on a note  receivable  from E Z Talk
Communications   ("E  Z  Talk")  and  had  recently   entered  into  arbitration
discussions  with E Z Talk. In July,  2002 E Z Talk filed a lawsuit to set aside
the  arbitration and claiming  damages of $250. A mediation  meeting was held in
November 2002, as required under the contract, however no agreement was reached.
At March 7, 2003 the parties have reached agreement in principle to settle.

     The Equal  Employment  Opportunity  Commission  ("EEOC")  filed a Charge of
Discrimination  against  Stratasoft  on behalf of  Jennifer R. Bond on August 1,
2002 in the EEOC  Minneapolis,  Minnesota  office.  I-Sector  believes  that the
charge is without merit and intends to vigorously contest the charge.

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

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

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

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

                                    High             Low
Fiscal 2001
          First quarter             1.188            0.875
          Second quarter            1.250            0.980
          Third quarter             1.100            0.900
          Fourth quarter            1.040            0.600

Fiscal 2002
          First quarter             0.970            0.670
          Second quarter            2.140            0.661
          Third quarter             2.290            1.330
          Fourth quarter            2.000            1.050

     As of March 21,  2003,  there were 48  shareholders  of record.  Management
estimates  that there are  approximately  795  beneficial  holders of our common
stock. We have never declared or paid any cash dividends on our Common Stock. On
March 21,  2003,  the  closing  sales  price of our Common  Stock as reported by
NASDAQ was $1.91 per share.  We  currently  anticipate  that we will  retain all
earnings for use in our business operations.


<PAGE>


     Securities authorized for issuance under equity compensation plans

     The following table describes at December 31, 2002 information with respect
to stock compensation  plans (including  individual  compensation  arrangements)
under which equity securities are authorized for issuance:

Stock Compensation plans previously approved by security holders:

     Name of Plan         Number of Securities    Weighted  Options Remaining
                          To be Issued Upon       Average   Available for Future
                          Exercise of Outstanding Exercise  Issuance
                          Options                 Price

1996 Incentive Stock Plan     382,312              1.47            60,188
Director Plan                  97,000              1.47             3,000
2000 Stock Incentive Plan      85,090              1.47           314,910

     I-Sector  has no  stock  compensation  plans  not  previously  approved  by
security holders.

     Excluded  from the table  above are stock  incentive  plans for  I-Sector's
subsidiaries.  Each of I-Sector's  subsidiaries  has a stock  incentive  plan in
place and have reserved for issuance a combined 6,500,000 shares of common stock
for subs. The subsidiary  plans have not been presented to the  shareholders  of
I-Sector for approval.  One of the subsidiaries has granted to certain employees
and to management of such  subsidiary  an incentive  award.  Under its plan such
options vest ratably over three to five years.  The options granted in 2002 were
granted to management  personnel.  The quantity of incentive  options granted in
2002 to  management  personnel  that vest each year is  determined  based on the
percentage of predetermined financial goals that they attain and none vest prior
to March 31, 2003. Any of the 2002 options  granted to the management  personnel
that become eligible for vesting,  but do not vest due to financial  performance
as compared to  predefined  goals,  are forfeited and will no longer be eligible
for vesting.  Any unvested stock options vest immediately upon the occurrence of
a liquidity  event for that  subsidiary.  The options expire ten years after the
grant date if they are not exercised.  All of the options, with the exception of
the 2002 grant to management  personnel,  cannot be exercised  unless there is a
liquidity  event during the ten year option term.  The 2002 grant to  management
personnel  may be exercised if there is no liquidity  event within 30 days prior
to the  expiration of the ten year term.  The stock option grants are subject to
dilution when I-Sector  purchases  additional  shares of the subsidiary stock in
order to keep the  subsidiary  sufficiently  capitalized.  At December 31, 2000,
2001 and 2002,  respectively,  options for  1,300,000,  1,388,500  and 5,444,499
shares of stock  were  granted by those  subsidiaries  of which 0,  433,333  and
642,833 were vested. On the date of issuance, these shares had an exercise price
equal to their fair market  values.  These  subsidiaries  determine  fair market
value at the date of issuance  using a market  valuation  approach  based upon a
discounted  cash flows  methodology.  The fair  values of these  issuances  were
$0.07,  $0.20 and $0.15 in 2000,  2001 and 2002,  respectively.  At December 31,
2002 there are 1,055,501 stock options in the subsidiary's  plan available to be
issued.


<PAGE>


Item 6.  Selected Financial Data

     The  following  sets forth the  selected  data of the  company for the five
years ended December 31, 2002.
<TABLE>
<CAPTION>
                             Year ended December 31,
                (In thousands except share and per share amounts)

                                        1998           1999          2000            2001           2002
                                    ----------     ----------    ----------      ----------     ----------
<S>                                 <C>            <C>           <C>             <C>            <C>
Operating Data:
Revenue                             $   15,408     $   17,984    $   17,087      $   23,620     $   42,021
Cost of sales and services              10,078         11,806        12,968          17,325         33,752
                                    ----------     ----------    ----------      ----------     ----------
   Gross profit                          5,330          6,178         4,119           6,295          8,269
Selling, general and
  administrative expenses                6,637          6,207         9,479          10,573         10,625
                                    ----------     ----------    ----------      ----------     ----------
   Operating loss                        1,307             29         5,360           4,278          2,356
Interest and other income, net             (41)           (23)         (239)           (316)          (115)
                                    ----------     ----------    ----------      ----------     ----------
Loss from continuing operations
  before benefit for income taxes        1,266              6         5,121           3,962          2,241
(Benefit) provision for income
  taxes                                   (415)            20        (1,493)            (87)        (1,595)
                                    ----------     ----------    ----------      ----------     ----------
     Net loss from
       continuing operations               851             26         3,628           3,875            646

Discontinued Operations (1):
  Net income (loss) from
   discontinued operations, net
   of taxes                               (247)           319           195            (167)
  Income (loss) on
   disposal, net of taxes                              (1,138)        3,390             337            262
                                    ----------     ----------    ----------      ----------     ----------
     Net loss                       $   (1,098)    $     (845)   $      (43)     $   (3,705)    $     (384)
                                    ==========     ==========    ==========      ==========     ==========

Net loss per share
Basic and diluted
Net loss from continuing
  operations                        $    (0.20)    $    (0.01)   $    (0.90)     $    (0.99)    $    (0.17)
Net income (loss) from
  discontinued operations                (0.05)          0.08          0.05           (0.04)
Loss (gain) on disposal                                 (0.27)         0.84            0.08           0.07
                                    ----------     ----------    ----------      ----------     ----------
Net loss per share                  $    (0.25)    $    (0.20)   $    (0.01)     $    (0.95)    $    (0.10)
                                    ==========     ==========    ==========      ==========     ==========
</TABLE>

<PAGE>


<TABLE>
<CAPTION>
                         As of December 31,
                         (In thousands)
                                       1998            1999          2000           2001            2002
                                       ----            ----          ----           ----            ----
<S>                                 <C>            <C>              <C>            <C>            <C>
Balance Sheet Data:
Working Capital                     $    9,800     $    9,567    $   10,098      $    5,983     $    5,540
Total Assets                            51,028         54,531        17,142          13,548         15,751
Short-term borrowings                   15,958         15,869           -0-             213            157
Long-term debt                             -0-            -0-           -0-             410            247
Stockholders' equity                $   12,705     $   11,830    $   11,912      $    8,015     $    7,640
<FN>
 (1) In 1999 we sold our Telecom division. In 2000 we sold our Computer Products
division. In 2001 we sold our IT Staffing business.
</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

     Through 1999,  our revenue was  historically  derived  through four primary
segments, IT Services, CTI Software, Computer Products and Telecom Systems, each
of which were historically  reported separately.  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 our
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,  of which one was IT Staffing, Inc. ("IT Staffing") and all of which
are wholly owned subsidiaries.  During 2001 we sold our IT Staffing business. 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").  Effective June 30, 2001 we
merged  Synergy  into ACS and  subsequently  renamed  that  business  to Allstar
Solutions, Inc. ("Allstar"). Subsequent to December 31, 2002, we renamed Allstar
to Valerent,  Inc.  ("Valerent").  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.

     Cost of sales and services includes the cost of products sold, amounts paid
to outside  contractors for services  performed that are related to a particular
sale and the wages and related  taxes and  employee  benefits  paid to technical
staff that  perform the  services  that we provide to our  customers.  A certain
component  of total  technical  staff  wages  and  related  costs are of a fixed
nature,  and  therefore  gross  margin  will vary to the  extent  that  services
revenues fluctuate from period to period.

     Gross margin varies substantially  between each of these business segments.
Over the past three years gross margin in Valerent has ranged  between 19.5% and
24.0% and gross margin for Stratasoft  has ranged  between 46.4% to 55.5%.  As a
newly formed  business,  INX experienced  negative gross margin of 2.3% in 2000,
but improved its gross margin to 11.1 % in 2002.

     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 primarily  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 do sales commissions.


<PAGE>


Discontinued Operations and Sales of Certain Business Units

RECENT SALES OF CERTAIN BUSINESS SEGMENTS

Sale of IT Staffing

     On November 6, 2001 we determined to exit the IT Staffing  business because
it had been  unprofitable  and because we believed that the  technical  staffing
industry was most likely to remain weak for the  foreseeable  future.  Effective
December  31,  2001,  the  business  was  sold  to  Echelon  Staffing,  Inc.,  a
corporation  owned by our former employee.  Under the terms of the sale I-Sector
received a note receivable for $52, of which $50 was for the ongoing  operations
and $2 for certain fixed assets  relating to this business.  The note receivable
bears interest at 5% per annum and is collectible in  installments  based on the
total  monthly  revenue of the buyer over 24 months  beginning  in March 2002. A
disposal  loss of $11 (net of tax of $5),  including an  estimated  loss for the
operating  results from the  measurement  date,  November 6, 2001 to the closing
date of the sale of $37, and  estimates  for  impairment of assets caused by the
disposal  decision of $34 was  recognized  in 2001.  Net loss from  discontinued
operations was $107, $167 and $0 (net of taxes of $55, $85 and $0) in 2000, 2001
and 2002,  respectively.  Additional  loss on disposal of $13 (net of tax of $7)
was recognized in 2002.  I-Sector retained accounts  receivable of approximately
$82 and $0, net of reserves, and liabilities related to the IT Staffing business
at  December  31,  2001 and  2002,  respectively.  Revenue  for the IT  Staffing
business  for the  years  ended  December  31,  2001  and  2002 was $967 and $0,
respectively.

Sale of Computer Products

     On March 16, 2000 we 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
approvals were obtained.  Under this agreement,  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.  In 2000 I-Sector realized a gain of a $3,743,  net of taxes,
on the sale. The proceeds of the sale were used to reduce debt.  Additional gain
of $346 and $104 (net of taxes of $179 and $53) was recognized in 2001 and 2002,
respectively.  The  discontinued  operations of the Computer  Products  Division
produced  income  of $302 in 2000 (net of taxes of $156 in  2000).  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, 2001 and
2002, respectively,  we had accounts receivable related to the Computer Products
Division of $0 and $332. Fixed assets were redeployed in continuing  operations.
In connection  with the sale of the Computer  Products  Division,  I-Sector also
sold a portion of the IT Services  business  located in El Paso,  Texas.  The El
Paso branch office portion of the IT Services business accounted for revenues of
$955,  $(1) and $0 for the  years  ended  December  31,  2000,  2001,  and 2002,
respectively.  For  financial  accounting  presentation  the  El  Paso  services
business was included in the corporate segment of continuing  operations for the
years ended December 31, 2000, 2001 and 2002.

Sale of Telecom Systems

     On November 2, 1999 we determined to exit the Telecom business and on March
16,  2000,  we  sold  the  Telecom  Systems  segment  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. 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 in 1999. The loss from  discontinued  operations (net of
income tax savings of $505, was $981 in 1999. We retained accounts receivable of
$1.4 million,  net of reserves,  fixed assets of $30 and liabilities  related to
Telecom Systems. At December 31, 2001 and 2002, respectively, the Company had $0
and $100 net accounts  receivable related to the Telecom Systems segment.  Fixed
assets  were  redeployed  in the  continuing  operations.  During the year ended
December  31, 2000  additional  expenses  related to the disposal of the Telecom
Division of $344 (net of taxes of $240) was  recognized.  Gain on Disposal of $0
and  $171  (net  of  taxes  of $0 and  $88)  was  recognized  in 2001  and  2002
respectively.


<PAGE>


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,
                                     ---------------------------------------------------------
                                            2000                2001                2002
                                     -----------------   -----------------   -----------------
                                      Amount      %       Amount      %       Amount      %
                                     ---------------------------------------------------------
                                                      (Dollars in thousands)
                                     ---------------------------------------------------------
<S>                                 <C>          <C>     <C>          <C>     <C>          <C>
Revenue
  Valerent                          $  6,946     40.6%   $  5,668     24.0%   $  4,992     11.9%
  INX                                  1,874     11.0      10,775     45.6      30,738     73.1
  Stratasoft                           6,660     39.0       7,257     30.7       6,569     15.6
  Corporate                            1,640      9.6          (6)     0.0                  0.0
  Eliminations                           (33)    (0.2)        (74)    (0.3)       (278)    (0.6)
                                     -------   ------     -------   ------     -------   ------
    Total                             17,087    100.0      23,620    100.0      42,021    100.0
Gross profit
  Valerent                             1,356     19.5       1,265     22.3       1,199     24.0
  INX                                    (43)    (2.3)      1,112     10.3       3,421     11.1
  Stratasoft                           3,087     46.4       3,939     54.3       3,649     55.5
  Corporate                             (269)   (16.4)          7   (116.7)
  Eliminations                           (12)    36.4         (28)    37.8
                                     -------   ------     -------   ------     -------   ------
    Total                              4,119     24.1       6,295     26.7       8,269     19.7
Selling, general and
  administrative expenses
  Valerent                             3,186     45.9       3,077     54.3       2,236     44.8
  INX                                    935     49.9       3,103     28.8       3,545     11.5
  Stratasoft                           3,647     54.8       3,021     41.6       3,922     59.7
  Corporate                            1,723    105.1       1,400       NA         922       NA
  Elimination                            (12)    36.4         (28)    37.8
                                     -------   ------     -------   ------     -------   ------
    Total                              9,479     55.5      10,573     44.8      10,625     25.3
Operating income (loss)
  Valerent                            (1,830)   (26.3)     (1,812)   (32.0)     (1,037)   (20.8)
  INX                                   (978)   (52.2)     (1,991)   (18.5)       (124)    (0.4)
  Stratasoft                            (560)    (8.4)        918     12.6        (273)    (4.2)
  Corporate                           (1,992)  (121.5)     (1,393)      NA        (922)      NA
                                     -------   ------     -------   ------     -------   ------
    Total                             (5,360)   (31.4)     (4,278)   (18.1)     (2,356)    (5.6)
Interest and other income, net          (239)     1.4        (316)     0.1        (115)     0.3
                                     -------   ------     -------   ------     -------   ------
Loss from continuing
  operations before benefit
  for income taxes                     5,121     30.0       3,962     16.8       2,241      5.3
Benefit for income taxes               1,493      8.7          87      0.4       1,595      3.8
                                     -------   ------     -------   ------     -------   ------
Net loss from continuing
  operations                           3,628     21.2       3,875     16.4         646      1.5
Discontinued operations:
Income (loss) from discontinued
  operations, net of taxes               195      1.1        (167)    (0.7)
Gain (loss) on disposal,
   net of taxes                        3,390     19.8         337      1.4         262      0.6
                                     -------   ------     -------   ------     -------   ------
Net loss                            $     43      0.3%   $  3,705     15.7%   $    384      0.9%
                                     =======   ======     =======   ======     =======   ======
</TABLE>


<PAGE>


Year Ended December 31, 2002 Compared to the Year Ended December 31, 2001
(Dollars in thousands)

     Revenue.  Total revenue  increased  $18,401 (77.9%) to $42,021 in 2002 from
$23,620  in  2001.   International   sales  accounted  for  $1,857  or  4.4%  of
consolidated  revenues in 2002 as compared to 13.2% in 2001,  and were primarily
derived from the Stratasoft segment.

     Revenue from Valerent, which comprised 11.9% of total revenues, compared to
24.0% in 2001, decreased $676 (11.9%) to $4,992 in 2002 from $5,668 in 2001. The
decrease  in  revenue  is  attributable  to the  loss of  revenue  from  certain
customers and a decision to not participate in the National Service  Network,  a
network of information technology organizations that provide service and support
for regional and national customers through the certified services professionals
employed by its participants.

     Revenue from INX,  which  comprised  73.1% of total  revenues  compared to
45.6% in 2001,  increased  $19,963  (185.3%) to $30,738 in 2002 from  $10,775 in
2001. INX revenue growth is expected to continue to increase in 2003, but not at
as high a rate as in 2002. In November 2001 INX achieved gold status with Cisco,
its primary product line manufacturer which allows INX to purchase directly from
Cisco at lower pricing levels and enhances INX's  relationship with Cisco in the
areas of lead generation, joint marketing and technical support. INX's growth in
revenues  was  primarily in the Houston  market where its revenues  increased by
$13,499 over 2001  revenues.  Revenues in the Dallas  market  expanded by $6,464
over 2001 revenues. INX is planning to expand into other Texas cities.

     Revenue from  Stratasoft,  which comprised 15.6% of total revenue in 2002,
compared to 30.7% in 2001,  decreased  $688 (9.5%) to $6,569 in 2002 from $7,257
in 2001.  A large  portion of booked  orders in the fourth  quarter of 2002 were
booked  late in the  quarter,  resulting  in lower  recognized  revenues in that
quarter  in  the  current  year.   Additionally,   2001  included   eight  large
international  projects that were  substantially  completed during 2001 and were
not  replicated  in 2002.  Stratasoft  anticipates  continued  revenue from this
region of the world and is exerting efforts to increase such sales.

     Gross Profit. Gross profit increased $1,974 (31.4%) to $8,269 in 2002 from
$6,295 in 2001,  while  gross  margin  decreased  to 19.7% in 2002 from 26.7% in
2001.  The primary  reason for the decrease in gross margins is the rapid growth
in the INX  segment  that  experiences  lower  gross  margins  because of a high
proportion of its revenues being derived from product sales.

     Valerent gross profit decreased by $66 (5.2%) to $1,199 in 2002 from $1,265
in 2001. Gross margin rates for Valerent were 24.0% in 2002 as compared to 22.3%
in 2001.  Valerent's cost of service consists primarily of labor cost, which has
a more fixed nature. In periods when service revenue decreases,  it becomes more
important  to manage  labor  cost in order to prevent  erosion of gross  margin.
Valerent  discontinued its relationship with the National Service Network in the
first  quarter of 2002  because  it could not  realize as high of margins on the
work directed its way by that network.

     INX gross  profit  in 2002 was  $3,421 as  compared  to $1,112 in 2001,  an
increase of $2,309 (207.6%) for a gross margin rate of 11.1% in 2002 compared to
10.3% in 2001.  The increase in gross profit is  consistent  with an increase in
revenues of $19,963,  and with better pricing from Cisco after  achieving  Cisco
Gold levels, along with higher levels of service revenues.

     Stratasoft  gross  profit  decreased by $290 (7.4 %) to $3,649 in 2002 from
$3,939 in 2001. Gross margin rates for Stratasoft were 55.5% in 2002 as compared
to 54.3% in 2001.  The decreased  gross profit is consistent  with a decrease in
revenues of $688. As discussed above,  Stratasoft's  revenues,  and consequently
its gross  profit,  suffered  from a large  portion of its booked orders for the
fourth quarter being booked late in the quarter,  resulting in lower  recognized
revenue  and gross  profit for both the fourth  quarter  and the  current  year.

     Selling,  General  and  Administrative   Expenses.   Selling,  general  and
administrative  expenses increased $52 (0.1%) to $10,625 in 2002 from $10,573 in
2001.  As a percentage of total  revenue,  selling,  general and  administrative
expenses  for  continuing  operations  decreased  to 25.3% in 2002 from 44.8% in
2001.


<PAGE>


     Valerent  selling,  general and  administrative  expenses  decreased  $841,
primarily due to sales and administrative  staff reductions,  as well as reduced
bad debt expense.  INX selling,  general and  administrative  expenses increased
$442,  primarily due to increased  sales  compensation  that is consistent  with
increased revenues of $19,963.  Stratasoft's selling, general and administrative
expenses increased $901 attributable primarily to increased bad debt expense and
to  Stratasoft's  lower legal  expense in 2001 due to  settlement  of the eshare
lawsuit  resulting in an insurance  reimbursement  of legal fees incurred in the
defense and recorded prior to 2001. Other factors  contributing to Stratasoft's
increase  include  increases in rent,  promotion and  advertising and insurance.
Corporate selling,  general and administrative  expenses decreased by $478, also
primarily due to administrative staff reductions.  Other contributing factors in
the Corporate decrease are decreases in legal expense, bad debt expense, general
office expenses and utilities.

     Operating  Loss.  Operating loss  decreased  $1,922 to an operating loss of
$2,356 in 2002 from a loss of $4,278 in 2001 due  primarily  to the  increase in
gross profit of $1,974 and the increase in selling,  general and  administrative
expenses of $52.  Valerent's  operating  loss  decreased $775 to $1,037 in 2002
from $1,812 in 2001.  INX's operating loss decreased $1,867 to a loss of $124 in
2002 from $1,991 in 2001.  Stratasoft's  operating loss of $273 in 2002 compares
to an operating income of $918 in 2001, a decrease of $1,191. The operating loss
for the Corporate  Segment  decreased  $471 to an operating loss of $922 in 2002
compared to an operating loss of $1,393 in 2001.

     Interest and other income,  net.  Interest and other income,  net decreased
$201 (63.6%) to income of $115 in 2002 compared to $316 in 2001. During 2001 and
continuing through 2002 interest rates decreased steadily due to attempts by the
national  government  to stimulate  the economy.  In addition to the decrease in
interest rates, while the cash balances at year end are comparable, average cash
balances  encompassing  the  entire  year for 2001  were  higher  than for 2002.
Interest income in 2001 was also increased by the recognition of other income of
$65 relating to an insurance  reimbursement in September 2001.

     Net loss from continuing  operations.  Net loss from continuing  operations
was $646 in 2002  compared to a loss of $3,875 in 2001.  A  valuation  allowance
against deferred tax assets  eliminated the income tax benefit in 2001. In March
2002,  President Bush signed into law the Job Creation and Worker Assistance Act
of 2002.  Under the new law,  which  provided for the carryback of net operating
losses for any  taxable  year  ending  during  2001 or 2002 to each of the 5 tax
years  preceding  the loss year, we were able to record $1,595 in tax benefit in
2002. A valuation  allowance  has been  recorded  against  remaining  income tax
benefits generated in 2002.

     Discontinued  operations.  In connection  with the sale of IT Staffing,  we
recognized in 2001 a loss from discontinued  operations of $167 (net of taxes of
$85) on the operations  prior to the measurement date of November 7, 2001 and we
recognized a loss on disposal of $11 and $13 (net of taxes of $5 and $7) for the
years ended  December 31, 2001 and 2002.  During 2002 we  recognized  additional
gain on the sale of the Computer Products Division of $104 (net of taxes of $53)
and in 2001 we recognized  additional gain on the sale of the Computer  Products
Division of $346, net of taxes of $179.  During the year ended December 31, 2002
we recognized additional gain related to the disposal of the Telecom Division of
$171 (net of taxes of $88).

Year Ended December 31, 2001 Compared to the Year Ended December 31, 2000
(Dollars in thousands)

     Revenue.  Total revenue  increased  $6,533  (38.2%) to $23,620 in 2001 from
$17,087  in  2000.   International  sales  accounted  for  $3,111  or  13.2%  of
consolidated  revenues in 2001 as compared to 1.7% in 2000,  and were  primarily
derived from the Stratasoft segment.

     Revenue from Valerent, which comprised 24.0% of total revenues, compared to
40.6% in 2000,  decreased  $1,278 (18.4%) to $5,668 in 2001 from $6,946 in 2000.
The  decrease in revenue is  attributable  to the loss of revenue  from  certain
customers  and the loss of certain  categories  of revenue  associated  with and
dependent  upon the  former  Computer  Products  Division  after the sale of the
Computer Products Division in May 2000.

<PAGE>

     Revenue from INX, which comprised 45.6% of total revenues compared to 11.0%
in 2000,  increased  $8,901 (475.0%) to $10,775 in 2001 from $1,874 in 2000. INX
was formed in July 2000 and exerted intense  efforts to introduce  itself to the
market in Dallas and Houston  and to form  customer  relationships.  INX revenue
growth is expected to continue to increase in 2002, but not at as high a rate as
in 2001. 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.  In November 2001 INX achieved gold status with Cisco,  its
primary  product line  manufacturer  which allows INX to purchase  directly from
Cisco at lower pricing levels and enhances INX's  relationship with Cisco in the
areas of lead generation, joint marketing and technical support.

     Revenue from  Stratasoft,  which  comprised 30.7% of total revenue in 2001,
compared to 39.0% in 2000,  increased  $597 (9.0%) to $7,257 in 2001 from $6,660
in 2000.  The increased  revenues from  Stratasoft  were primarily the result of
increased sales in the international  sector,  better  recognition of Stratasoft
products  in the  market  place,  the  expansion  of the sales  staff and dealer
network and to increased advertising and marketing efforts.

     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  0.0% of total revenues in 2001
compared to 9.6% in 2000,  decreased by $1,646 (100.4%) in 2001 to $(6) compared
to $1,640 in 2000.  The  decrease is  attributable  to the sale of the former IT
Services  Division  operations  of the El Paso office,  to the loss of a certain
customer of our former IT  Services  Division in May 2000 due to the sale of the
Computer Products Division and our corporate restructuring.

     Gross Profit.  Gross profit increased $2,176 (52.8%) to $6,295 in 2001 from
$4,119 in 2000,  while  gross  margin  increased  to 26.7% in 2001 from 24.1% in
2000.

     Valerent gross profit decreased by $91 (6.7%) to $1,265 in 2001 from $1,356
in 2000. Gross margin rates for Valerent were 22.3% in 2001 as compared to 19.5%
in 2000.  Valerent's cost of service consists primarily of labor cost, which has
a more fixed nature. 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, Valerent experienced lower labor utilization
related  to  lower  revenue.   In  addition  to  the  billable  technical  staff
utilization  issue,  Valerent had a single large  project in 2000 on which gross
profit margin was about 12% below normal levels,  which negatively  impacted the
overall margin.

     INX gross  profit in 2001 was $1,112 as compared to a gross loss in 2000 of
$43, an increase of $1,155  (2686.0%)  for a gross  margin rate of 10.3% in 2001
compared to negative  gross margin of 2.3% in 2000.  INX was formed in July 2000
and as a  newly formed  start-up  operation  in 2000,  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.

     Stratasoft  gross  profit  increased by $852 (27.6%) to $3,939 in 2001 from
$3,087 in 2000. Gross margin rates for Stratasoft were 54.3% in 2001 as compared
to 46.4% in 2000.  The increased  gross margin was primarily due to changing the
mix of product sales to include a reduced hardware component.

     Corporate gross profit increased by $276 (102.6%) to $7 in 2001 compared to
a gross loss of $269 in 2000. The El Paso service  business that was sold on May
19, 2000  produced a gross loss of $48 in 2000.  We  experienced  certain  costs
related to winding up our service  operations  in the El Paso branch office that
negatively   impacted   gross   profit.   Additionally,   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.

     Selling,  General  and  Administrative   Expenses.   Selling,  general  and
administrative  expenses increased $1,094 (11.5%) to $10,573 in 2001 from $9,479
in 2000. As a percentage of total revenue,  selling,  general and administrative
expenses  for  continuing  operations  decreased  to 44.8% in 2001 from 55.5% in
2000.


<PAGE>


     Valerent  selling,  general and  administrative  expenses  decreased  $109,
primarily due to planned administrative staff reductions.  INX selling,  general
and administrative  expenses increased $2,168. INX was newly formed in July 2000
and their operations,  along with the sales staff, have increased steadily since
that  time.  The INX  increase  is offset  by a  decrease  of $626  attributable
primarily to  Stratasoft's  lower legal  expense due to settlement of the eshare
lawsuit.  Corporate selling,  general and  administrative  expenses decreased by
$323, also primarily due to planned administrative staff reductions.

     Operating  Loss.  Operating loss  decreased  $1,082 to an operating loss of
$4,278 in 2001 from a loss of $5,360 in 2000 due  primarily  to the  increase in
gross  profit  of  $2,176  offset  by  the  increase  in  selling,  general  and
administrative  expenses of $1,094.  Valerent's  operating loss decreased $18 to
$1,812 in 2001 from $1,830 in 2000.  INX's operating loss increased  $1,013 to a
loss of $1,991 in 2001 from $978 in 2000.  Stratasoft's operating income of $918
in 2001  compares to an operating  loss of $560 in 2000,  an increase of $1,478.
The operating loss for the Corporate Segment decreased $599 to an operating loss
of $1,393 in 2001 compared to an operating loss of $1,992 in 2000.

     Interest and other income,  net.  Interest and other income,  net increased
$77 (32.2%) to income of $316 in 2001  compared to $239 in 2000.  Subsequent  to
the sale of the  Computer  Products  Division  in May 2000  cash  balances  were
invested in interest bearing overnight  deposits.  Beginning in April 2001, such
cash balances were invested in Euro dollar  interest  bearing  deposits.  During
2001  interest  rates  decreased  steadily  due  to  attempts  by  the  national
government to stimulate the economy.  The effect of interest rate  decreases was
offset  somewhat  by the  recognition  of other  income  of $65  relating  to an
insurance reimbursement in September 2001.

     Net loss from continuing  operations.  Net loss from continuing  operations
was $3,875 in 2001  compared to a loss of $3,628 in 2001. A valuation  allowance
against  deferred tax assets  eliminated the income tax benefit in 2001. The net
loss for 2000 was after an income tax benefit  totaling  $1,493  (reflecting  an
effective tax rate of 29.2%).

     Discontinued  operations.  In connection  with the sale of IT Staffing,  we
recognized a loss from discontinued  operations of $167 (net of taxes of $85) on
the  operations  prior  to the  measurement  date of  November  7,  2001  and we
recognized  a loss on  disposal  of $11  (net of taxes  of $5).  During  2001 we
recognized  additional  gain on the sale of the  Computer  Products  Division of
$346, net of taxes of $179. 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 taxes of $156 and a gain on  disposal  of  $3,734,  net of
taxes of $2,607.  During the year ended  December 31, 2000  additional  expenses
related to the  disposal of the Telecom  Division of $344 (net of taxes of $240)
was recognized.


<PAGE>


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
fluctuations  in competitive  pricing  pressures.  The results of any particular
quarter may not be indicative of results for the full year or any future period.

<TABLE>
<CAPTION>
                                                  2001                                      2002
                                  --------------------------------------      --------------------------------------
                                    First    Second     Third    Fourth         First    Second     Third    Fourth
                                   Quarter   Quarter   Quarter   Quarter       Quarter   Quarter   Quarter   Quarter
<S>                               <C>       <C>       <C>       <C>           <C>       <C>       <C>       <C>
Revenue
    Valerent                      $ 1,216   $ 1,178   $ 1,682   $ 1,592       $ 1,465   $ 1,227   $ 1,291   $ 1,009
    INX                             1,718     2,646     2,876     3,535         5,713     7,430     8,584     9,011
    Stratasoft                      1,682     1,590     1,687     2,298         2,171     1,657     1,743       998
    Corporate                          (4)        1        (4)        1
    Elimination                       (11)      (16)               (47)          (141)      (54)      (11)      (72)
                                   ------    ------    ------    ------        ------    ------    ------    ------
    Total                           4,601     5,399     6,241     7,379         9,208    10,260    11,607    10,946
Cost of sales and services
    Valerent                        1,080       982     1,181     1,160         1,150       914       983       746
    INX                             1,714     2,326     2,516     3,107         5,128     6,822     7,527     7,840
    Stratasoft                        710       826       841       941           837       871       781       431
    Corporate                          14       (14)      (5)        (8)
    Elimination                       (11)       (1)                (34)         (141)      (54)      (11)      (72)
                                   ------    ------    ------    ------        ------    ------    ------    ------
    Total                           3,507     4,119     4,533     5,166         6,974     8,553     9,280     8,945
Gross Profit
    Valerent                          136       196       501       432           315      313        308       263
    INX                                 4       320       360       428           585      608      1,057     1,171
    Stratasoft                        972       764       846     1,357         1,334      786        962       567
    Corporate                         (18)       15         1         9
    Elimination                                 (15)                (13)
                                   ------    ------    ------    ------        ------    ------    ------    ------
    Total                           1,094     1,280     1,708     2,213         2,234     1,707     2,327     2,001
Selling, general and
   administrative expenses
    Valerent                          940       741       772       624           653       501       569       513
    INX                               608       783       729       983           789       691       966     1,099
    Stratasoft                        746       653       715       907         1,011       675       914     1,322
    Corporate                         525       382       301       192           169       147       170       436
    Elimination                                                     (13)
                                   ------    ------    ------    ------        ------    ------    ------    ------
    Total                           2,819     2,554     2,517     2,693         2,622     2,014     2,619     3,370
Operating income (loss
    Valerent                         (804)     (545)     (271)     (192)         (338)     (188)     (261)     (250)
    INX                              (604)     (463)     (369)     (555)         (204)      (83)       91        72
    Stratasoft                        226       111       131       450           323       111        48      (755)
    Corporate                        (543)     (367)     (300)     (183)         (169)     (147)     (170)     (436)
                                   ------    ------    ------    ------        ------    ------    ------    ------
    Total                          (1,725)   (1,264)     (809)     (480)         (388)     (307)     (292)   (1,369)
Interest (income) and other
    income, net                       (96)      (61)     (116)      (43)           (5)        7        (3)     (114)
                                   ------    ------    ------    ------        ------    ------    ------    ------
Income (loss) before
    provision (benefit) for
    income taxes                   (1,629)   (1,203)     (693)     (437)         (383)     (314)     (289)   (1,255)
Provision (benefit) for
    income taxes                       37      (159)       21        14        (1,182)       (7)               (406)
                                   ------    ------    ------    ------        ------    ------    ------    ------
Net income (loss) from
    continuing operations          (1,666)   (1,044)     (714)     (451)          799      (307)     (289)     (849)
Discontinued operations:
    Net income (loss) from
    discontinued operations,
    net of tax                        (71)      (41)      (41)      (14)
    Gain (loss) on disposal                     348                 (11)            6        12        (1)      245
                                   ------    ------    ------    ------        ------    ------    ------    ------
Net income (loss)                 $(1,737)  $  (737)  $  (755)  $  (476)      $   805   $  (295)  $  (290)  $  (604)
                                   ======    ======    ======    ======        ======    ======    ======    ======


Net Income (loss) per share:
    Basic:
      Continuing operations       $ (0.41)  $ (0.26)  $ (0.18)  $ (0.12)      $  0.21   $ (0.08)  $ (0.08)  $ (0.23)
      Discontinued operations       (0.03)    (0.02)    (0.02)    (0.00)
      Gain (loss) on disposal                  0.09               (0.00)         0.00      0.00      0.00      0.06
                                   ------    ------    ------    ------        ------    ------    ------    ------
    Net income (loss) per share   $ (0.44)  $ (0.19)  $ (0.20)  $ (0.12)      $  0.21   $ (0.08)  $ (0.08)  $  0.17
                                   ======    ======    ======    ======        ======    =======   ======    ======
    Diluted:
      Continuing operations       $ (0.41)  $ (0.26)  $ (0.18)  $ (0.12)      $  0.21   $ (0.08)  $ (0.08)  $ (0.23)
      Discontinued operations       (0.03)    (0.02)    (0.02)    (0.00)
      Gain (loss) on disposal                  0.09               (0.00)         0.00      0.00      0.00      0.06
                                   ------    ------    ------    ------        ------    ------    ------    ------
    Net income (loss) per share   $ (0.44)  $ (0.19)  $ (0.20)  $ (0.12)      $ (0.44)  $ (0.08)  $ (0.08)  $ (0.17)
                                   ======    ======    ======    ======        ======   =======    ======    ======

Weighted average number of shares outstanding::
    Basic                         3,945,842 3,905,944 3,853,607 3,853,607     3,849,525 3,733,481 3,629,525 3,629,525
    Diluted                       3,945,842 3,905,944 3,853,607 3,853,607     3,849,525 3,733,481 3,629,525 3,629,525
</TABLE>

Liquidity and Capital Resources

     Historically, until the sale of our Computer Products Division in May 2000,
we had 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.  Because  of the
significant  growth we are  experiencing,  we have entered into a $2,500  credit
line agreement with Textron Financial  Corporation,  effective January 31, 2002.
The Textron credit line was subsequently  increased to $4,500. In December 2002,
Textron  increased  the  credit  line on a  temporary  basis to  $5,500.  INX is
concentrating  its  sales  efforts  on Cisco  technology.  While we do buy Cisco
product through wholesale distributors,  INX has begun to buy its product direct
through Cisco as its primary supplier in order to obtain competitive pricing and
better product availability.  At December 31, 2002 we had outstanding borrowings
of $3,239  and had total  credit  availability  of $2,261 on the  Textron  line.
Borrowings  under the Textron line of credit  accrue  interest at the prime rate
plus 6% on outstanding balances beyond the vendor approved free interest period.
We have invested our excess cash in interest  bearing  overnight  deposits.  Our
working  capital was $10,098,  $5,983 and $5,539 at December  31, 2000,  2001and
2002, respectively. The decrease in working capital during 2002 is primarily due
to the use of working capital to fund operating losses of Valerent and Corporate
while the  decrease in working  capital in 2001 is  primarily  due to the use of
working  capital  to  invest  in the  growth  of our INX  subsidiary  and  their
operating  losses during that start-up  period.  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
proceeds of the sale of the Computer  Products business were used to pay off our
previous  line of credit.  At December  31, 2002 we had  outstanding  borrowings
related to our intangible assets and fixed assets totaling $381.

Cash Flows

     Operating activities used net cash totaling $4,453 in 2001 and provided net
cash totaling $5,540 and $809 during 2000 and 2002,  respectively.  During 2002,
net cash proved by  operations  resulted from  increases in accounts  payable of
$3,073 and reductions in cost and earnings in excess of billings of $986, offset
by increases in accounts  receivable  of $2,223,  notes  receivable  of $793 and
increase  in  income  tax  receivable  of $337.  During  2001,  net cash used by
operations  resulted  from a net  loss of  $3,705  and an  increase  in cost and
estimated  earnings  in excess of  billings  of $1,695  offset by a decrease  in
income taxes  receivable of $712 and a decrease in inventory.  During 2000,  net
cash provided by operations  resulted from decreases in accounts receivable that
were offset by reductions in accounts payable and accrued expenses.

     Accounts receivable increased $2,223 in 2002 and decreased $30,763 and $171
during 2000 and 2001,  respectively.  Inventory  increased  $121 during 2002 and
decreased  $160 and $187 in 2000  and  2001,  respectively.  The  reductions  in
accounts  receivable in 2000 and 2001 were primarily the result of collection of
receivables  retained  from  discontinued  operations.  The increase in accounts
receivable  in 2002 of $2,223 is primarily  due to the growth in revenues of our
subsidiary, INX.


<PAGE>


     Investing activities used cash totaling $347 and $206 during 2002 and 2001,
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 leasehold  improvements and patent license acquisitions.
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 used cash totaling $15,889, $253 and $405 during 2000,
2001 and 2002,  respectively.  The primary use of cash from financing activities
in 2002 and  2001 was  repayments  on our  notes  payable  and the  purchase  of
treasury  stock.  During 2000 we used the  proceeds of the sale of the  Computer
Products  business to pay off our line of credit.  During 2000, 2001 and 2002 we
used $20, $195 and $186,  respectively  to  repurchase  shares that were held in
treasury at the end of 2002.

Asset Management

     Our cash flow from operations has been affected  primarily by the timing of
our collection of accounts  receivable.  We have typically sold our products and
services on  short-term  credit  terms and seek to  minimize  our credit risk by
performing  credit checks and  conducting  our own  collection  efforts.  We had
accounts receivable, net of allowance for doubtful accounts of $4,302 and $6,525
(including  $82 and $432 relating to  discontinued  operations)  at December 31,
2001 and 2002, 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.

Credit Facilities

     At December 31, 2001,  we had no credit  facility in place.  On January 31,
2002 we entered  into a credit  agreement  with  Textron  Financial  Corporation
("Textron") for a revolving line of credit (the "Textron  Facility") that is our
principal  source of  liquidity.  The total  credit  available  under the credit
facility is $4,500,  subject to borrowing  base  limitations  that are generally
computed as 80% of eligible accounts receivable,  90% of identifiable  inventory
purchased under this agreement and 40% of all other inventory.  Credit available
under  this  facility  for floor  plan  financing  of  inventory  from  approved
manufacturers is $4,500. In December 2002,  Textron increased the credit line on
a temporary  basis to $5,500.  The temporary  increase  extended to February 20,
2003.  We may use up to $500 of the  line for  working  capital  advances  under
approved conditions. Borrowings under the line will accrue interest at the prime
rate plus 6% on outstanding balances that extend beyond the vendor approved free
interest period and on working capital advances from date of advance.  Inventory
floor plan finance  borrowings on the line are reflected in accounts  payable on
the accompanying balance sheets.

     This agreement,  which continues in full force and effect until  terminated
by written  notice from both,  is  collateralized  by  substantially  all of our
assets. The agreement contains restrictive covenants, which, among other things,
require  us to  maintain  minimum  tangible  capital  funds and to not  exceed a
maximum  debt-to-tangible  capital funds ratio. At December 31, 2002, we were in
compliance with our loan covenants.

     On September 27, 2001 Stratasoft, our subsidiary,  signed a note payable to
a third party for $725, payable in monthly installments through February,  2007.
The note does not bear  interest and we have imputed  interest at 5.5% to record
the debt and related  patent asset and  recorded  interest of $30 and $9 in 2002
and 2001,  respectively.  This note payable is  collateralized  by  Stratasoft's
patent assets.  Stratasoft has granted a security interest in its pending patent
application  and the next  two  patent  applications  filed  by  Stratasoft.  In
connection  with this note payable,  we have reported  short-term  debt maturing
within one year of $144 and $200 and long-term debt of $258 and $388 at December
31, 2002 and 2001, respectively.


<PAGE>


     In October 2001, we signed a non-interest  bearing  automobile note payable
for $39 payable in monthly installments through October 2004. In connection with
this note payable,  we have reported short-term debt maturing within one year of
$13 and $13 and  long-term  debt of $11 and $22 at  December  31, 2002 and 2001,
respectively. At December 31, 2002 our contractual obligations are as follows:


                          Payments due by Period
                                       Less
                                       than        1-3       4-5    after 5
Contractual Obligations     Total     1 year      years     years     years

     Long-term debt       $     403 $     157  $     231 $      15 $       0
     Operating Leases         1,887       511      1,339        37         0
                           --------  --------   --------  --------  --------

     Total                $   2,313 $     668  $   1,593 $      52 $       0
                           ========  ========   ========  ========  ========

Critical Accounting Policy

     Revenue  Recognition - Revenue from the sale of products that are resold is
recognized  when the product is shipped.  Service  income is  recognized  as the
services are earned.  Revenues  resulting  from  installations  of equipment and
software  contracts  for which  duration  is in excess of three  months and that
require  substantial  modification  or  customization  are recognized  using the
percentage-of-completion   method.  The  percentage  of  revenue  recognized  is
determined  principally  on the  basis of the  relationship  of the cost of work
performed on the contract to estimated  total costs.  Revisions of estimates are
reflected in the period in which the facts  necessitating  the revisions  become
known;  when a contract  indicates  a loss,  a  provision  is made for the total
anticipated loss.

     The following  reflects the amounts  relating to  uncompleted  contracts at
December 31, 2001 and 2002:

     Costs incurred on uncompleted contracts            $     600    $     429
     Estimated earnings                                     2,181        1,478
                                                        ---------    ---------
                                                            2,781        1,907

     Less: Billings to date                                 1,158        1,273
                                                        ---------    ---------

     Cost and estimated earnings in excess of billings  $   1,695    $     709
                                                        =========    =========
     Billings in excess of cost and estimated earnings  $      72    $      75
                                                        =========    =========

     During 2002 and 2001 our subsidiary, Stratasoft, recognized revenues on the
percentage-of-completion basis for several projects associated with one reseller
in South  Asia.  On the  projects  in South Asia we  required a cash  payment or
letter of credit from the customer  prior to shipping the product.  We have risk
to the  extent  that  this  group  of  customers  have  not  paid  us or  issued
contractual  letters of credit up to the level of cost and  earnings  recognized
and inherent risks that underlie the frequent estimates and management  judgment
associated with the percentage-of-completion method of accounting.

     Credit  and  Collections   Policy  -  Inherent  in  the  Company's  revenue
recognition  policy is the  determination of the  collectibility  of amounts due
from its  customers,  which  requires the Company to use  estimates and exercise
judgment.  The Company  routinely  monitors its customer's  payment  history and
current  credit  worthiness  to  determine  that  collectibility  is  reasonably
assured.  This requires the Company to make frequent  judgments and estimates in
order to determine the appropriate  period to recognize a sale to a customer and
the amount of valuation  allowances required for doubtful accounts.  The Company
records  provisions  for  doubtful  accounts  when it becomes  evident  that the
customer will not be able to make the required  payments  either at  contractual
due dates or in the future.  Changes in the financial condition of the Company's
customers, either adverse or positive, could impact the amount and timing of any
additional provisions for doubtful accounts that may be required.


<PAGE>


Off-Balance Sheet Arrangements

     The Company had no off-balance sheet arrangements at December 31, 2002.

Accounting Pronouncements

     In April 2002, the FASB issued Statement of Financial  Accounting Standards
("SFAS") No. 145,  "Rescission  of SFAS No. 4, 44 and 64,  Amendment of SFAS No.
13, and Technical  Corrections."  SFAS No. 145, among other things,  amends SFAS
No. 4 and SFAS No. 64, to require that gains and losses from the extinguishments
of debt generally be classified within continuing operations.  The provisions of
SFAS No. 145 are  effective  for fiscal years  beginning  after May 15, 2002 and
early application is encouraged.  The Company does not believe that the adoption
of SFAS No. 145 will have a significant impact on its financial statements.

     In June  2002,  the  FASB  issued  SFAS  No.  146,  "Accounting  for  Costs
Associated  with Exit or Disposal  Activities."  SFAS No. 146 replaces  Emerging
Issues  Task Force  ("EITF")  Issue  94-3,  "Liability  Recognition  for Certain
Employee  Termination  Benefits  and  Other  Costs  to Exit an  Activity".  This
standard requires  companies to recognize costs associated with exit or disposal
activities  when they are incurred rather than at the date of a commitment to an
exit or  disposal  plan.  This  statement  is  effective  for  exit or  disposal
activities  that are  initiated  after  December 31, 2002.  The Company does not
believe that the adoption of SFAS No. 146 will have a significant  impact on its
financial statements.

     In February 2003, the FASB issued SFAS No. 148, "Accounting for Stock Based
Compensation: A Comparison of FASB Statement No. 123, Accounting for Stock-Based
Compensation,   and  Its  Related  Interpretations,   and  IASB  Proposed  IFRS,
Share-based  Payments."  SFAS No.  148 amends  SFAS 123 to  provide  alternative
methods of transition for an entity that  voluntarily  changes to the fair value
based method of accounting for stock-based employee compensation. It also amends
the  disclosure  provisions of that  Statement to require  prominent  disclosure
about the  effects on  reported  net  income of an  entity's  accounting  policy
decisions  with respect to stock-based  compensation.  The statement also amends
APB Opinion No. 28, "Interim Financial  Reporting",  to require disclosure about
those effects in interim  financial  information.  The Company has chosen not to
voluntarily  change to the fair value based method of accounting for stock-based
employee compensation but has adopted the disclosure rules of SFAS 148.

Future Trends

     We expect continued revenue increases in 2003 and beyond,  due primarily to
market share  gains.  While we expect all three of our  subsidiary  companies to
produce  significant  revenue  growth in 2003, we expect INX to produce the most
rapid growth rates,  although not at the same growth rates  experienced in 2002.
We expect  that this  revenue  growth in 2003 will be  primarily a result of the
prior  investments  in the form of  increased  sales  and  marketing  staff  and
marketing programs and because of selective growth through acquisition. Valerent
is in a process of changing its direction to focus on technology  solutions that
lower its  client's  cost of  supporting  their IT  infrastructure  by providing
remote management tools and automating  repetitive and remedial tasks,  which we
expect will begin to generate revenue increases by the second quarter of 2003.

     For 2003 we expect  our  business  to be  positively  impacted  by a slight
improvement in the depressed  general market  conditions  that we experienced in
2002,  due  primarily  to a likely  upswing in the cyclical  buying  patterns of
customers  for  technology  products.  In 2002  we  experienced  the  depressing
combined  events of a  declining  stock  market,  slowing  economy,  threats  of
terrorist  activity and  threatened  war. We expect these factors to continue to
impact buying  patterns of customers for technology  products  through the first
quarter of 2003, but expect to see an upswing in the general  market  conditions
in the latter half of 2003.

     We  expect  to be able to  contain  the  growth  in  selling,  general  and
administrative expenses as a percentage of revenue, as revenue continues to grow
because  of  previous  investments  in sales  and  marketing,  without a further
commensurate  increase in sales and  marketing  expenses and as the increases in
revenues are spread over a relatively  fixed  corporate  administration  expense
base.

     We have  experienced no material impact of inflation and changing prices on
net sales and income from continuing operations in the last three years.


<PAGE>


Item 7A. Quantitative and Qualitative Disclosures about Market Risk

     We may incur certain  market risks  related to interest rate  variations in
the future  because we hold  floating rate debt. We have $3,216 in cash balances
in interest bearing accounts at December 31, 2002. If interest rates decrease by
1% the net loss will increase by $34. If interest  rates  increase by 1% the net
loss will decrease by $34.

     We have no off-balance sheet arrangements or derivative instruments.

<PAGE>

Item 8.  Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Financial Statements:

     Independent Auditors' Report                                             27

     Consolidated Balance Sheets at December 31, 2001 and 2002                28

     Consolidated Statements of Operations for the years ended
          December 31, 2000, 2001 and 2002                                    29

     Consolidated Statements of Stockholders' Equity for the
          years ended December 31, 2000, 2001 and 2002                        30

     Consolidated Statements of Cash Flows for the years ended
          December 31, 2000, 2001 and 2002                                    31

     Notes to Consolidated Financial Statements for the years
          ended December 31, 2000, 2001 and 2002                              32



<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, 2001 and 2002, and
the related  statements of operations,  stockholders'  equity and cash flows for
each of the three years in the period ended  December 31, 2002.  Our audits also
included the financial  statement schedule listed in the index at Item 15(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,
2001 and 2002,  and the results of its operations and its cash flows for each of
the three  years in the  period  ended  December  31,  2002 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, presents fairly
in all material respects the information set forth therein.


/s/  Deloitte & Touche LLP
Houston, Texas
March 21, 2003


<PAGE>


I-SECTOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2001 AND 2002
 (In thousands, except share and par value amounts)

ASSETS                                                2001            2002
                                                      ----            ----

 Current Assets:
     Cash and cash equivalents                     $     3,434     $     3,491
     Accounts receivable, net                            4,302           6,525
     Accounts receivable - affiliates                      250              99
     Accounts receivable - other                            21              57
     Notes receivable                                      169             898
     Inventory                                             587             781
     Cost and estimated earnings
          in excess of billings                          1,695             709
     Income taxes receivable                               151             488
     Other current assets                                  302             356
                                                   -----------     -----------
         Total current assets                           10,911          13,404
 Property and equipment, net                             1,226           1,115
 Intangible assets                                       1,356           1,162
 Other assets                                               55              70
                                                   -----------     -----------
         Total Assets                             $     13,548    $     15,751
                                                   ===========     ===========

 LIABILITIES AND STOCKHOLDERS' EQUITY

 Current Liabilities:
     Current portion of long term debt             $       213     $       157
     Accounts payable                                    1,772           4,844
     Billings in excess of cost and
          estimated earnings                                72              75
     Accrued expenses                                    2,091           1,803
     Net liabilities related to
          discontinued operations                          654             904
     Deferred service revenue                              126              81
                                                   -----------     -----------
         Total current liabilities                       4,928           7,864
 Long term debt                                            410             247
 Deferred credit - stock warrants                          195

 Commitments and Contingencies (See Note 10)

Stockholders' Equity:
     Preferred stock, $.01 par value,
          5,000,000 shares authorized,
          no shares issued
     Common stock, $.01 par value,
          15,000,000 shares authorized,
          4,441,325 issued at December 31,
          2001 and 2002, respectively                       44              44
     Additional paid in capital                         10,184          10,379
     Treasury stock, at cost, 591,800 and
          811,800 shares at December 31,
          2001 and 2002, respectively                   (1,187)         (1,373)
     Retained earnings                                  (1,026)         (1,410)
                                                   -----------     -----------
         Total stockholders' equity                      8,015           7,640
                                                   -----------     -----------
                                                  $     13,548    $     15,751
                                                   ===========     ===========
See notes to consolidated financial statements.


<PAGE>


I-SECTOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002 (In thousands, except share
 and per share amounts)
<TABLE>
<CAPTION>
                                                   Years ended December 31,
                                              ---------------------------------
                                                 2000       2001        2002

<S>                                           <C>         <C>         <C>
Total revenue                                 $  17,087  $  23,620  $   42,021

Cost of goods and services                       12,968     17,325      33,752
                                               --------   --------   ---------

          Gross profit                            4,119      6,295       8,269

Selling, general and administrative expenses      9,479     10,573      10,625
                                               --------   --------   ---------

Operating loss                                    5,360      4,278       2,356

Interest and other income, net                      239        316         115
                                               --------   --------   ---------

Loss from continuing operations before
     benefit for income taxes                     5,121      3,962       2,241

Benefit for income taxes                          1,493         87       1,595
                                               --------   --------   ---------

Net loss from continuing operations               3,628      3,875         646

Discontinued operations:
     Net income (loss) from discontinued
     operations, net of taxes                       195       (167)
     Gain on disposal, net of taxes               3,390        337         262
                                               --------   --------   ---------

Net loss                                      $      43  $   3,705  $      384
                                               ========   ========   =========

Net income (loss) per share:
     Basic and diluted:
         Net loss from continuing operations  $   (0.90) $   (0.99) $    (0.17)
         Net income (loss) from discontinued
           operations                              0.05      (0.04)
         Gain on disposal                          0.84       0.08        0.07
                                               --------   --------   ---------
              Net loss per share              $   (0.01) $   (0.95) $    (0.10)
                                               ========   ========   =========


Weighted average number of shares outstanding:
     Basic and diluted                        4,059,618  3,911,019   3,709,689
                                              =========  =========   =========
</TABLE>
See notes to consolidated financial statements


<PAGE>


I-SECTOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
 (In thousands, except share and per share amounts)

<TABLE>
<CAPTION>
                                     $.01 par value   Additional               Unearned
                                    Common Stock       Paid-In   Treasury       Equity     Retained
                                   Shares     Amount   Capital     Stock     Compensation  Earnings    Total
<S>                <C>            <C>        <C>       <C>       <C>            <C>        <C>       <C>
Balance at January 1,2000         4,441,325  $    44   $ 10,037  $   (972)      $     (1)  $  2,722  $ 11,830

Purchase of treasury stock                                            (20)                                (20)

Fair value of stock options to
     Non-employees                                          145                                           145

Net loss                                                                                        (43)      (43)
                                  ---------   ------    -------   -------        -------    -------   -------

Balance at January 1,2001         4,441,325  $    44   $ 10,182  $   (992)      $     (1)  $  2,679  $ 11,912

Purchase of treasury stock                                           (195)                               (195)

Satisfaction of restricted stock                                                       1                    1

Issuance of restricted stock                                  2                                             2

Net loss                                                                                     (3,705)   (3,705)
                                  ---------   ------    -------   -------        -------    -------   -------

Balance at December 31,2001       4,441,325       44     10,184    (1,187)                   (1,026)    8,015

Purchase of treasury stock                                           (186)                               (186)

Stock warrants expired                                      195                                           195

Net loss                                                                                       (384)     (384)
                                  ---------   ------    -------   -------        -------    -------   -------

Balance at December 31, 2002      4,441,325  $    44   $ 10,379  $ (1,373)      $          $ (1,410) $  7,640
                                  =========   ======    =======   =======        =======    =======   =======
</TABLE>


See notes to consolidated financial statements.


<PAGE>


I-SECTOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002 (In thousands, except share
 and per share amounts)
<TABLE>
<CAPTION>
                                                                                 Years ended December 31,
                                                                          ---------------------------------
                                                                            2000         2001        2002
<S>                                                                       <C>         <C>         <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss                                                                  $   (43)    $ (3,705)   $   (384)
     Adjustments to reconcile net loss to net
         cash provided by (used in) operating activities:
     Net (income) loss from discontinued operations                           (195)        167
     Gain on disposal of discontinued operations                            (3,390)       (337)       (262)
     Depreciation and amortization                                             766         666         596
     Current income tax benefit attributable to
         discontinued operations                                                           (87)       (136)
     Satisfaction of restricted stock                                                        1
     Loss on retirement of assets                                                           10          34
     Changes in assets and liabilities that provided (used) cash:
         Accounts receivable, net                                           30,763         171      (2,223)
         Accounts receivable - affiliates and other                            (22)        173         115
         Inventory                                                             160         187        (147)
         Income taxes receivable                                              (863)        712        (337)
         Notes Receivable                                                                 (117)       (793)
         Other current assets                                                 (152)        (69)        (58)
         Other assets                                                          140         (13)
         Accounts payable                                                  (19,795)       (119)      3,072
         Cost and estimated earnings in excess of billings                              (1,695)        986
         Billings in excess of cost and estimated earnings                    (112)       (431)          3
         Accrued expenses                                                   (2,261)        456        (288)
         Deferred service revenue                                             (104)        (10)        (45)
                                                                           -------    --------     -------
              Net cash provided by (used in) continuing operations           4,888      (4,040)        133
     Net operating activities from discontinued operations                     652        (413)        676
                                                                           -------    --------     -------
              Net cash provided by (used in) operating activities            5,540      (4,453)        809
                                                                           -------    --------     -------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Capital expenditures                                                     (324)       (688)       (347)
     Proceeds on sale of fixed assets                                                        6
     Acquisition costs                                                        (341)        (50)
Proceeds on sale of discontinued operations                                 15,029         526
                                                                           -------    --------     -------
Net cash used in continuing operations                                      14,364        (206)       (347)
     Net cash used in discontinued operations                                 (316)
                                                                           -------    --------     -------
              Net cash (used in) provided by investing activities           14,048        (206)       (347)
                                                                           -------    --------     -------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Purchase of treasury stock                                                (20)       (195)       (186)
     Net decrease in notes payable                                         (15,869)        (58)       (219)
                                                                           -------    --------     -------
              Net cash used in financing activities                        (15,889)       (253)       (405)
                                                                           -------    --------     -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                         3,699      (4,912)         57
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                             4,647       8,346       3,434
                                                                           -------    --------     -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                $  8,346    $  3,434    $  3,491
                                                                           =======     =======     =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
     Cash paid for interest                                               $    386    $      9    $      0
                                                                           =======     =======     =======
     Cash (received) paid  for income taxes                               $  1,009    $   (712)   $ (1,123)
                                                                           =======     =======     =======
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
     FINANCING ACTIVITIES:
     Intangible assets acquired through note payable                      $           $    646    $
     Fixed assets acquired through note payable                                             35
                                                                           -------    --------     -------
     Total noncash investing and financing activities                     $           $    681    $
                                                                           =======    ========     =======
</TABLE>

See notes to consolidated financial statements.


<PAGE>


I-SECTOR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
 (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"  or the "Company") is
engaged in the business of providing computer services and of selling associated
hardware  and  telephony  software  products  in the United  States and  abroad.
I-Sector operates from three wholly-owned subsidiaries:

     o    Valerent,  Inc.  ("Valerent")  provides customers with remote end user
          management of customer servers and networks,  data life cycle support,
          security  management and  monitoring,  internet  usage  monitoring and
          management, turn-key outsourced IT helpdesk solutions, technical staff
          augmentation for IT helpdesk operations, helpdesk solutions consulting
          services,  on-site and carry-in computer repair,  application  support
          and operating system and network migration services.

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

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

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

     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.  Substantially  all of I-Sector's  inventory is
finished goods.

     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.

     Intangible  Assets -  Intangible  assets  are being  amortized  over  their
estimated useful lives of five to sixteen years (see Note 11).

     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.


<PAGE>


     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.

     Warranty  Reserve - I-Sector  records a warranty reserve related to certain
software products sold by its Stratasoft  subsidiary.  That reserve is amortized
over the life of the warranty,  which is generally twelve months, against actual
warranty  expenditures.  The  following  table  depicts the  composition  of the
warranty reserve at December 31, 2000, 2001 and 2002:

                                              2000        2001          2002
         Balance, beginning of the year    $   182     $   238       $   263
         Additions to reserve                  318         303           373
         Amortization of reserve              (262)       (278)         (331)
                                             -----       -----         -----

         Balance, end of year              $   238     $   263       $   305

     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 and software  contracts for
which   duration  is  in  excess  of  three  months  that  require   substantial
modification or customization are recognized using the  percentage-of-completion
method.  The percentage of revenue  recognized is determined  principally on the
basis of the  relationship  of the cost of work  performed  on the  contract  to
estimated  total costs.  Revisions of estimates  are  reflected in the period in
which the facts  necessitating  the  revisions  become  known;  when a  contract
indicates a loss, a provision is made for the total anticipated loss.

     The following  reflects the amounts  relating to  uncompleted  contracts at
December 31, 2001 and 2002:

     Costs incurred on uncompleted contracts             $     600    $     429
     Estimated earnings                                      2,181        1,478
                                                         ---------    ---------

                                                             2,925        1,907
     Less: Billings to date                                  1,158        1,273
                                                         ---------    ---------

     Cost and estimated earnings in excess of billings   $   1,695    $     709
                                                          ========     ========
     Billings in excess of cost and estimated earnings   $      72    $      75
                                                         =========    =========

     During   2001  and  2002   I-Sector   has   recognized   revenues   on  the
percentage-of-completion basis for several projects associated with one reseller
in South Asia.

     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.


<PAGE>


     Employee Stock Based  Compensation - The Company has elected to account for
its stock-based  compensation  using the intrinsic value method of accounting in
accordance with Accounting Principles Bulletin ('APB") Number 25 "Accounting for
Stock  Issued to  Employees"  (See Note 12).  Under this method no  compensation
expense  is  recognized  when the  number  of  shares  granted  is known and the
exercise  price of the stock option is equal to or greater than the market price
of the Company's  common stock on the grant date. The Company has no stock based
compensation  associated  with stock  options in its  consolidated  statement of
operations.

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

     Recently  Issued  Accounting  Standards  - In April  2002,  the FASB issued
Statement of Financial  Accounting  Standards  ("SFAS") No. 145,  "Rescission of
SFAS No. 4, 44 and 64,  Amendment  of SFAS No. 13, and  Technical  Corrections."
SFAS No. 145, among other things,  amends SFAS No. 4 and SFAS No. 64, to require
that gains and losses from the  extinguishments  of debt generally be classified
within continuing  operations.  The provisions of SFAS No. 145 are effective for
fiscal years beginning  after May 15, 2002 and early  application is encouraged.
The  Company  does not  believe  that the  adoption  of SFAS No. 145 will have a
significant impact on its financial statements.

     In June  2002,  the  FASB  issued  SFAS  No.  146,  "Accounting  for  Costs
Associated  with Exit or Disposal  Activities."  SFAS No. 146 replaces  Emerging
Issues  Task Force  ("EITF")  Issue  94-3,  "Liability  Recognition  for Certain
Employee  Termination  Benefits  and  Other  Costs  to Exit an  Activity".  This
standard requires  companies to recognize costs associated with exit or disposal
activities  when they are incurred rather than at the date of a commitment to an
exit or  disposal  plan.  This  statement  is  effective  for  exit or  disposal
activities  that are  initiated  after  December 31, 2002.  The Company does not
believe that the adoption of SFAS No. 146 will have a significant  impact on its
financial statements.

     In February 2003, the FASB issued SFAS No. 148, "Accounting for Stock Based
Compensation: A Comparison of FASB Statement No. 123, Accounting for Stock-Based
Compensation,   and  Its  Related  Interpretations,   and  IASB  Proposed  IFRS,
Share-based  Payments."  SFAS No.  148 amends  SFAS 123 to  provide  alternative
methods of transition for an entity that  voluntarily  changes to the fair value
based method of accounting for stock-based employee compensation. It also amends
the  disclosure  provisions of that  Statement to require  prominent  disclosure
about the  effects on  reported  net  income of an  entity's  accounting  policy
decisions  with respect to stock-based  compensation.  The statement also amends
APB Opinion No. 28, "Interim Financial  Reporting",  to require disclosure about
those effects in interim  financial  information.  The Company has chosen not to
voluntarily  change to the fair value based method of accounting for stock-based
employee compensation but has adopted the disclosure rules of SFAS 148.

     Fair Value of  Financial  Instruments  - I-Sector's  financial  instruments
consist of cash and cash equivalents,  accounts  receivable and accounts payable
for which the  carrying  values  approximate  fair values  given the  short-term
maturity  of  the  instruments.   The  carrying  value  of  the  Company's  debt
instruments  approximate their fair value based on estimates of rates offered to
the Company for instruments with the same maturity dates and security structure.

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

     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.


<PAGE>


2.   DISCONTINUED OPERATIONS

     On  November  6,  2001,  I-Sector  approved  a plan to sell or close its IT
Staffing business.  This is the measurement date. A sale was finalized effective
December  31,  2001.  Under  the  terms of the  sale  I-Sector  received  a note
receivable for $52, $50 for the ongoing  operations of It Staffing,  Inc. and $2
for certain fixed assets of I-Sector.  The note receivable  bears interest at 5%
per annum and is collectible in installments  based on the total monthly revenue
of the buyer over 24 months beginning in April, 2002. A disposal loss, including
an estimate of the operating results from the measurement date, November 6, 2001
to the closing date of the sale of $17, and estimates  for  impairment of assets
caused by the  disposal  decision  of $43,  totaling  $11 (net of tax of $5) was
recognized  in 2001.  Additional  loss on disposal of $13 (net of tax of $7) was
recognized in 2002. Net loss from discontinued  operations was $107, $167 and $0
(net of tax of $55, $85 and $0) in 2000, 2001 and 2002,  respectively.  I-Sector
retained  accounts  receivable of  approximately  $82 and $0, net of reserves at
December 31, 2001 and 2002,  fixed assets of $52 and liabilities  related to the
IT Staffing  business at December 31, 2001.  Fixed assets were redeployed in the
continuing  operations.  The balance sheet caption "Net  liabilities  related to
discontinued  operations"  contains  $80 and $36 of  estimated  future  expenses
relating  to the wind-up of the IT  Staffing  business at December  31, 2001 and
2002,  respectively.  Revenue for the IT Staffing  business  for the years ended
December 31, 2000, 2001 and 2002 was $1,242, $967 and $0, respectively.

     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 (net of taxes of $688) for the year ended  December  31,  1999. 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) was  recognized  in the year ended  December 31, 2000.  In 2001
additional gain on disposal of $346 (net of taxes of $179),  that was related to
a contingency clause that was settled, was recognized. In 2002, gain on disposal
of $104  (net of  taxes  of  $53),  that was  related  primarily  to  litigation
settlements,  was recognized.  I-Sector retained accounts receivable of $20,266,
net of reserves,  and has retained  receivables related to the Computer Products
Division  of $0 and $332 at  December  31,  2001 and 2002,  respectively,  fixed
assets of $255 and liabilities related to the Computer Products Division.  Fixed
assets that were not sold have been redeployed in the continuing operations.  At
December 31, 2001 and 2002, the balance sheet caption "Net  Liabilities  related
to discontinued  operations" contains $301 and $809 of estimated future expenses
related to the winding up of the Computer Products Division, and include amounts
related  to the  settlement  of pending  litigation.  Revenue  for the  Computer
Products  Division  for the year ended  December  31, 2000 was  $29,323  (net of
$5,772 after the measurement date and included in the gain on sale in 2000). The
Company  allocated  interest expense to its various  divisions on a proportional
basis based on accounts  receivable.  Interest expense allocated to the Computer
Products  Division for the period from April 1, 2000 to May 19, 2000 was $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 $955, $(1) and $0
for the years ended December 31, 2000, 2001 and 2002 respectively. For financial
reporting  presentation  the El  Paso  services  business  was  included  in the
continuing operations for the years ended December 31, 2000, 2001 and 2002.

     On November 2, 1999,  I-Sector approved a plan to sell or close its Telecom
Division.  This was 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 $59 and $26 is  included  at
December  31, 2001 and 2002,  respectively,  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 gain on disposal of $0 and $171
(net of taxes of $0 and $88) in the  years  ended  December  31,  2001 and 2002,
respectively.  During the year  ended  December  31,  2000  additional  expenses
related to the  disposal of the Telecom  Division of $344 (net of taxes of $240)
was recognized.  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, 2001 and $100 of
retained  receivables  in 2002.  Fixed assets were  redeployed in the continuing
operations.  The balance sheet caption "Net liabilities  related to discontinued
operations"  contains $273 and $59 of estimated future expenses  relating to the
wind-up of the Telecom Division at December 31, 2001 and 2002, respectively.


<PAGE>


3.   ACCOUNTS AND NOTES RECEIVABLE

     Accounts receivable consisted of the following at December 31, 2001 and
2002:

                                                       2001             2002

     Accounts receivable                        $     5,473      $     7,021
     Accounts receivable retained-
          discontinued operations                        82              432
     Allowances for doubtful accounts                (1,253)            (928)
                                                  ---------        ---------

     Total                                      $     4,302      $     6,525
                                                  =========        =========

     Notes receivable consisted of the
          following at December 31,
          2001 and 2002:
                                                       2001             2002

     Notes receivable                           $       169      $     1,236
     Allowances for doubtful accounts                                   (338)
                                                  ---------        ---------

     Total                                      $       169      $       898
                                                  =========        =========


4.   PROPERTY AND EQUIPMENT

     Property and equipment  consisted of the following at December 31, 2001 and
     2002:

                                                        2001             2002

     Equipment                                  $       460      $       248
     Computer equipment                               2,289            1,942
     Furniture and fixtures                             285              278
     Leasehold improvements                             552              588
     Vehicles                                            47               47
                                                  ---------        ---------
                                                      3,633            3,103
     Accumulated depreciation
          and amortization                           (2,407)          (1,988)
                                                  ---------        ---------
              Total                             $     1,226      $     1,115
                                                  =========        =========

     Property and equipment are depreciated  over their  estimated  useful lives
ranging  from three to ten years using the  straight-line  method.  Depreciation
expense  totaled $699, $475 and $356 for the years ended December 31, 2000, 2001
and 2002, respectively.

5.   CREDIT ARRANGEMENTS

     On January 31, 2002 I-Sector  entered into a credit  agreement with Textron
Financial  Corporation  ("Textron") for a revolving line of credit (the "Textron
Facility").  The initial total credit  available under the Textron  Facility was
$2,500 subject to borrowing base limitations that are generally  computed as 80%
of eligible accounts  receivable,  and 90% of identifiable  inventory  purchased
under this  agreement and 40% of all other  inventory.  On June 19, 2002 Textron
increased the total credit  available under the Textron  Facility to $4,500.  In
connection with the increase in the credit line, a modification  was made to the
borrowing  base   limitations   that  restricted  the  eligibility  of  accounts
receivable  for  collateralization  by  disallowing  as eligible any  customer's
receivables  in their  entirety  that  have  balances  over 90 days old and that
exceed 25% of their total  balance.  In December  2002,  Textron  increased  the
credit line on a temporary basis to $5,500.  The temporary  increase  extends to
February 20, 2003.  I-Sector may use up to $500 of the line for working  capital
advances under approved conditions. Borrowings accrue interest at the prime rate
plus 2.5% on  outstanding  balances that extend beyond the vendor  approved free
interest period and on working capital  advances from the date of advance.  This
agreement,  which continues in full force and effect until terminated by written
notice from both, is  collateralized  by substantially  all of our assets.  This
agreement is collateralized by substantially all of I-Sector's assets except its
patent  assets.  The agreement  contains  restrictive  covenants,  which require
I-Sector  to  maintain  minimum  tangible  capital  funds and a minimum  debt to
tangible  capital funds ratio. At December 31, 2002,  I-Sector was in compliance
with its loan  covenants.  Inventory  floor plan  borrowings  are  reflected  in
accounts  payable on the  accompanying  balance  sheets.  At December  31, 2002,
I-Sector had $3,239 outstanding on inventory floor plan finance  borrowings,  $0
outstanding on working  capital  advances and had total credit  availability  of
$2,261. At December 31, 2001 I-Sector did not have a credit agreement in place.


<PAGE>


     The  weighted-average  interest rate for  borrowings  under all credit line
arrangements  in  effect  during  2000,  2001  and 2002  was  7.93%,  0% and 0%,
respectively.  Interest  expense on all credit lines was $385, $0 and $0 for the
years ended December 31, 2000, 2001 and 2002, respectively.

     On September 27, 2001 Stratasoft,  a subsidiary of I-Sector,  signed a note
payable  to a third  party for $725,  payable in  monthly  installments  through
February,  2007.  The note  does not bear  interest  and  I-Sector  has  imputed
interest  at 5.5% to record  the debt and  related  patent  asset  and  recorded
interest  of $30 and $9 in 2002 and 2001,  respectively.  This note  payable  is
collaterized  by Stratasoft's  patent assets.  Stratasoft has granted a security
interest to its pending patent application and the next two patent  applications
filed by Stratasoft. In connection with this note payable, I-Sector has reported
short-term  debt maturing within one year of $144 and $200 and long-term debt of
$236 and $388 at December 31, 2002 and 2001, respectively.

     In October 2001,  I-Sector  signed a non-interest  bearing note payable for
$39 payable in monthly  installments  through  October 2004. In connection  with
this note payable,  I-Sector has reported  short-term  debt maturing  within one
year of $13 and $13 and  long-term  debt of $11 and $22 at December 31, 2002 and
2001, respectively.

     The aggregate  amounts of installments  due for the next five years on long
term debt are as follows:


                  2002               157
                  2003                56
                  2004                80
                  2005                96
                  2006                15
                                 -------
                  Total        $     404
                                 =======

6.   INCOME TAXES

     The provision for income taxes for the years ended December 31, 2000,  2001
and 2002 consisted of the following:
                                                 2000       2001         2002
                                                 ----       ----         ----
     Current provision (benefit):
     Federal                                   $(1,493)  $    (87)    $ (1,595)
     State
                                                ------     ------       ------
     Total current provision                    (1,493)       (87)      (1,595)
     Deferred provision (benefit)
                                                ------     ------       ------
     Total provision (benefit) from
       continuing operations                    (1,493)       (87)      (1,595)

     Total provision for (benefit from)
       discontinued operations                     101        (85)
              Total provision for
                (benefit from) gain (loss)
               on disposal                       2,367        172          136
                                                ------     ------     --------
              Total                            $   975   $      0     $ (1,459)
                                                ======     ======       ======

     The total  provision  for income taxes during the years ended  December 31,
2000,  2001 and 2002  varied  from the U.S.  federal  statutory  rate due to the
following: 2000 2001 2002 ---- ----- ----

     Federal income tax at statutory rate      $(1,741)  $ (1,347)    $   (762)
     Nondeductible expenses                         17         52           18
     State income taxes
     Valuation allowance                           231      1,208         (851)

     Total benefit from continuing operations  $(1,493)  $    (87)    $ (1,595)
                                                ======     ======       ======



<PAGE>


     Net deferred tax assets computed at the statutory rate related to temporary
differences at December 31, 2001 and December 31, 2002 were as follows:

                                                     2001             2002
                                                     ----             ----
     Net deferred tax assets:
          Accounts receivable                   $     426        $     486
          Closing and severance costs                 395              307
          Deferred service revenue                     43               27
          Amortization of intangibles                 (37)             (27)
          Net operating loss carryforwards          1,115
                                                   ------           ------
          Total current deferred tax assets         1,991              793
              Less Valuation allowance             (1,991)            (793)
                                                   ------           ------
                  Total                         $       0        $       0
                                                   ======           ======

     Due  to  the  company's   recurring  losses,  a  valuation   allowance  was
established for the entire deferred tax assets at December 31, 2001 and 2002.

     During 2000 the Company provided  approximately $500 of valuation allowance
related to discontinued operations, the majority of which was realized in 2002.

7.   ACCRUED EXPENSES

     Accrued  liabilities  consisted of the following as of December 31, 2001and
2002

                                                     2001            2002
                                                     ----            ----

     Sales tax payable                          $     370        $    386
     Accrued employee benefits, payroll
          and other related costs                     909             799
     Accrued property taxes                           152               6
     Accrued warranty costs                           263             305
     Other                                            397             307
                                                  -------         -------
     Total                                      $   2,091        $  1,803
                                                  =======         =======

8.   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.  At December 31, 2001 and December 31, 2002,  I-Sector's  receivables
from these  affiliates  amounted to  approximately  $159 and $87,  respectively.
Included in these  amounts is a note  receivable  that was signed on December 1,
1999 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, 2002 the
Company's note receivable from Equities amounted to $53. In addition to the note
receivable from Equities,  the Company has an additional  amount receivable from
Equities of $34 at December 31, 2002.  The principal  amounts as of December 31,
2001 and December 31, 2002 are  classified  as Accounts  receivable - affiliates
based on the expectation of repayment within one year.  Additionally,  from time
to time the Company has made  payments to unrelated  parties,  primarily for the
usage of a credit card, for transactions that either wholly or partially benefit
the Company's  President  and Chief  Executive  Officer and which  therefore are
accounted  for as  indebtedness  from  him to the  Company  and on which he pays
interest  of 6% per annum on the average  outstanding  balance.  During  August,
2002, in order to be in complete compliance with the Sarbanes-Oxley Act of 2002,
the Company made a demand for repayment of the outstanding  balance at that time
of $94 related to the  President  and CEO's  personal  credit  card  usage.  The
President  and CEO paid the entire  balance in  December  2002.  The  balance of
approximately  $80 and $0 related to the personal  credit card usage is included
in the  Company's  balance  sheet and reported as part of Accounts  receivable -
affiliates at December 31, 2001 and 2002, respectively.  (See Note 10 related to
lease commitments to Equities.)


<PAGE>


     The Company leases office space from Equities. On December 1, 1999 Equities
purchased the Company's  corporate  office  building and executed a direct lease
with I-Sector with an expiration date of December 31, 2004. In conjunction  with
Equities obtaining new financing on the building,  a new lease was executed with
I-Sector on February 1, 2002 with an  expiration  date of January 31, 2007.  The
new lease has rental rates reduced from $37,692 to $37,192 per month.

     From time to time  I-Sector  obtains an  independent  survey of real estate
rental rates and consults with real estate  consulting firms to determine market
rates of facilities  that are comparable to the Houston  headquarters  facility.
The  Company  believes  that the rental  rate and other  terms of its lease from
Equities  are at least  as  favorable  as those  that  could be  obtained  in an
arms-length transaction with an unaffiliated party.

     From time to time I-Sector makes  short-term  loans and travel  advances to
its employees.  The balance of approximately $11 and $12 relating to these loans
and advances is included in the Company's  balance sheet and reported as part of
Accounts receivable - affiliates at December 31, 2001 and 2002, respectively.

     Each of I-Sector's subsidiaries has a stock incentive plan in place. One of
the  subsidiaries  has granted to certain  employees  and to  management of such
subsidiary an incentive award (see Note 12).

     On December 31, 2001 I-Sector sold certain assets and the operations of its
IT Staffing business to a former employee (see note 2).

9.   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, 2001 and 2002, 591,800 and 811,800 shares,  respectively,
were held in treasury under these authorizations.

     At December 31, 2002 I-Sector had 1,200 shares of  restricted  stock with a
par value of $0.01 per share  outstanding.  The 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 expired on July 7, 2002.

10.  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. The
lease was renewed  February 1, 2002 for a five year period with  monthly  rental
payments of $37 plus certain operating expenses through January 31, 2007. Rental
expense under this  agreement  amounted to  approximately  $452,  $452 and $ 446
during years ended December 31, 2000, 2001 and 2002, respectively.

     Additionally,  minimum annual rentals on other  operating  leases amount to
approximately,  $65 in 2003,  $0 in 2004, $0 in 2005, $0 in 2006 and $0 in years
thereafter. Amounts paid during the years ended December 31, 2000, 2001 and 2002
under such agreements totaled approximately $296, $197 and $131 respectively.



<PAGE>


     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. I-Sector has made no additional contributions to the plan
for the years ended December 31, 2000, 2001 or 2002. Under the standard I-Sector
matching  program,  I-Sector's  match was $46,  $32 and $27 for the years  ended
December 31, 2000, 2001 and 2002, 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.

     In August  2002,  Inacom  Corp.  filed a lawsuit in the  District  Court of
Douglas  County,  Nebraska  styled Inacom Corp. v. I-Sector  Corporation,  f/k/a
Allstar Systems, Inc., claiming that I-Sector owed the sum of approximately $570
to Inacom  ("Inacom") as a result of Inacom's  termination of a Vendor  Purchase
Agreement  between  Inacom and  I-Sector.  I-Sector  believes that the demand is
without merit and intends to vigorously contest the demand.

     I-Sector  had filed a claim to collect on a note  receivable  from E Z Talk
Communications   ("E  Z  Talk")  and  had  recently   entered  into  arbitration
discussions  with E Z Talk. In July,  2002 E Z Talk filed a lawsuit to set aside
the  arbitration and claiming  damages of $250. A mediation  meeting was held in
November 2002, as required under the contract, however no agreement was reached.
At March 7, 2003 the parties have reached agreement in principle to settle.

     The Equal  Employment  Opportunity  Commission  ("EEOC")  filed a Charge of
Discrimination  against  Stratasoft  on behalf of  Jennifer R. Bond on August 1,
2002 in the EEOC  Minneapolis,  Minnesota  office.  I-Sector  believes  that the
charge is without merit and intends to vigorously contest the charge.


11.  INTANGIBLE ASSETS

<TABLE>
<CAPTION>
                                    As of December  31, 2001        As of December 31, 2002
                                    -------------------------------------------------------
                                                                                              Weighted
                                Gross Carrying Accumulated Gross Carrying   Accumulated     Amortization
                                    Amount      Amortization       Amount   Amortization       Years
<S>                                 <C>         <C>            <C>            <C>             <C>
     Amortized intangible assets
          Patent license rights     $   1,046   $      28      $   1,046      $     148       12.01
          Unpatented technology            56                         57
          Customer list                   200          50            200             90         .68
          Other                           167          35            167             70         .57
                                    ---------   ---------      ---------      ---------     -------

     Total                          $   1,469         113      $   1,470      $     308       13.26
                                    =========   =========      =========      =========     =======
</TABLE>

     The  estimated  aggregate  amortization  expense  for each of the next five
     years is as follows:

               2003             $   191
               2004             $   183
               2005             $   164
               2006             $   103
               2007             $   103
                                 ------
               Five year total  $   744

     In October 2000,  I-Sector's  wholly owned  subsidiary 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, $200 of which has been allocated to a customer
list  and  service  agreements.  The  remaining  has  been  allocated  to  other
intangibles. INX was 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.
That  contingent  liability  was settled in 2001 for $50. The customer  list and
other intangibles are amortized over their estimated useful lives of 5 years.


<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") as approved by the
shareholders.  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, 2002 60,188  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  anti-dilution
adjustments  of which 3,000 were  available  for future  grants at December  31,
2002.  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") as approved at the annual shareholder's meeting. 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
directors  are  eligible  to  participate  in the  2000  Stock  Incentive  Plan.
Generally,  the  Compensation  Committee  has the  discretion  to determine  the
exercise price of each stock option under the 2000 Incentive Plan, and they must
be  exercised  within ten years of the grant date,  except those  classified  as
Incentive  Stock  Option  ("ISO")  grants to a 10% or greater  stockholder.  ISO
options  grants to a 10% or greater  stockholder  must be exercised  within five
years of the grant date.  The exercise price of each ISO option grant may not be
less than 100% of the fair market  value of a share of common  stock on the date
of grant (110% in the case of a 10% or greater  stockholder).  At  December  31,
2002 314,910  shares were  available  for future grant under the 2000  Incentive
Plan.

     During 2000,  2001 and 2002 I-Sector  granted  options to purchase  35,000,
25,000 and  25,000  common  shares to its  directors,  respectively,  which vest
immediately,  and 94,671, 0 and 0 common shares to its employees,  respectively,
which vest over five years.

The activity of employees in all plans is summarized below:
<TABLE>
<CAPTION>
                                     2000                   2001                   2002
                                     ----                   ----                   ----
                                               Weighted             Weighted              Weighted
                                               Average              Average               Average
                                               Exercise             Exercise              Exercise
                                     Shares    Price      Shares     Price       Shares   Price
<S>                            <C>   <C>       <C>        <C>       <C>         <C>       <C>
Options outstanding at January 1     458,232   $  1.41    383,112   $  1.72     399,812   $  1.48
Granted during the year              71,400       1.76     25,000      1.00      25,000      1.20
Exercised during the year
Transfers to non-employees           (133,220)   2.19                                        0.99
                                                                                (11,330)
Canceled during the year             (13,300)     2.23     (8,300)     1.64                  1.66
                                     -------   -------    -------   -------     ------      -----
                                                                                (17,440)
Options outstanding at December 31   383,112   $  1.72    399,812   $  1.48     396,042   $  1.47
                                     =======    ======    =======    ======     =======    ======
Options exercisable at December 31   254,212   $  1.37    317,722   $  1.58     369,312   $  1.46
                                     =======    ======    =======    ======     =======    ======
Options outstanding price range      $1.06 to $7.62       $1.06 to $7.62        $0.82 to $7.62
Weighted Average fair value of
options granted during the year      $1.15                $1.00                 $1.20
Options weighted-average
remaining life                       8.00 Years           6.88 Years            6.29 Years
</TABLE>

     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  employees'  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 59%;  risk  free
interest rate of 5.5% 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 $145 of compensation expense was recorded.

The activity of this non-employee group is summarized below:
                                                2001                2002
                                                ----                ----
                                       Weighted              Weighted
                                        Average    Exercise   Average   Exercise
                                        Shares      Price     Shares    Price
     Options outstanding at January 1   183,771    $ 2.18    181,483    $ 1.45
     Transfer from (to) Employee plan                         10,200      0.99
     Exercised during the year
     Canceled during the year           (2,288)      1.64    (23,403)     1.72
                                       -------     ------    -------    ------
     Options outstanding December 31   181,483    $  1.45    168,280      1.43
                                       =======     ======    =======    ======
     Options exercisable December 31    83,304    $  1.37    151,859      1.42
                                       =======     ======    =======    ======

     Options outstanding price range    $ 1.06 to $ 2.31      $ 1.06 to $ 2.31
     Options weighted average remaining
       life                                 3.13 years            1.75 years


<PAGE>

     Each of I-Sector's  subsidiaries  has a stock  incentive  plan in place and
have  reserved for issuance a combined  6,500,000  shares of common  stock.  The
subsidiary  plans have not been  presented to the  shareholders  of I-Sector for
approval.  One of the  subsidiaries  has  granted  to certain  employees  and to
management of such  subsidiary an incentive  award.  Under its plan such options
vest ratably over three to five years.  The options granted in 2002 were granted
to management  personnel.  The quantity of incentive  options granted in 2002 to
management  personnel that vest each year is determined  based on the percentage
of  predetermined  financial goals that they attain and none vest prior to March
31,  2003.  Any of the 2002 options  granted to the  management  personnel  that
become  eligible for vesting,  but do not vest due to financial  performance  as
compared to predefined  goals,  are forfeited and will no longer be eligible for
vesting.  Any unvested stock options vest  immediately  upon the occurrence of a
liquidity  event for that  subsidiary.  The  options  expire ten years after the
grant date if they are not exercised.  All of the options, with the exception of
the 2002 grant to management  personnel,  cannot be exercised  unless there is a
liquidity  event during the ten year option term.  The 2002 grant to  management
personnel  may be exercised if there is no liquidity  event within 30 days prior
to the  expiration of the ten year term.  The stock option grants are subject to
dilution when I-Sector  purchases  additional  shares of the subsidiary stock in
order to keep the  subsidiary  sufficiently  capitalized.  At December 31, 2000,
2001 and 2002,  respectively,  options for  1,300,000,  1,388,500  and 5,444,499
shares of stock  were  granted by those  subsidiaries  of which 0,  433,333  and
642,833 were vested. On the date of issuance, these shares had an exercise price
equal to their fair market  values.  These  subsidiaries  determine  fair market
value at the date of issuance  using a market  valuation  approach  based upon a
discounted  cash flows  methodology.  The fair  values of these  issuances  were
$0.07,  $0.20 and $0.15 in 2000,  2001 and 2002,  respectively.  At December 31,
2002  there are  1,055,501  options in the  subsidiary's  plan  available  to be
issued.

     I-Sector and its subsidiaries  apply the intrinsic method proscribed by APB
No. 25 for stock  options  issued to employees  and directors and the fair value
method as  proscribed  by SFAS No. 123, as  interpreted  and amended,  for stock
issued to  non-employees.  If  compensation  cost for all option  issuances been
determined  consistent  with the fair value method,  I-Sector's net loss and net
loss per share would have increased to the pro-forma amounts indicated below for
the years ended December 31, 2000, 2001 and 2002, respectively.

     For purposes of estimating the fair value disclosures below, the fair value
of each stock option has been  estimated on the grant date with a  Black-Scholes
option pricing model using the following weighted-average  assumptions for 2002;
dividend yield of 0%; expected volatility of 82.10 %; risk-free interest rate of
3.63%;  and  expected  lives of 7.57 years from the  original  date of the stock
option grants.

For all plans and subsidiaries:
<TABLE>
<CAPTION>
                                                            2000       2001       2002
                                                            ----       ----       ----
<S>                                                      <C>       <C>         <C>
Net Income (loss):
     As reported                                         $   (43)  $ (3,705)   $  (384)
     Stock-based employee compensation (net of
         tax) included in determination of net income          0          0          0
     Stock-based employee compensation (net of  $0 tax)
         if fair value based method used                    (  5)      (256)      (184)
     Pro forma if fair value based method used           $   (48)  $ (3,961)   $  (568)
Earnings per share (basic and diluted )
     As reported                                         $  (0.01) $   (0.95)  $ (0.10)
     Pro forma if fair value based method used           $  (0.01) $   (1.01)  $ (0.15)
</TABLE>

     Each of the  subsidiaries  incurred  net losses for the  periods  presented
above. As a result  I-Sector's  share of subsidiary net loss does not change for
purposes of this computation.

13.      EARNINGS PER SHARE

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

<TABLE>
<CAPTION>
                                                   2000              2001            2002
                                                   ----              ----            ----
                                         (Amounts in thousands except share and per share data)
<S>                                             <C>              <C>             <C>
Numerator:
     Net loss from continuing operations        $   (3,628)      $    (3,875)    $      (646)
     Discontinued operations:
          Net income (loss) from discontinued
           operations, net of taxes                    195              (167)
          Gain (loss) on disposal, net of taxes      3,390               337             262
                                                  ---------         --------       ---------
          Net loss                              $      (43)       $   (3,705)    $     (384)
                                                  =========        =========       =========

Denominator:
     Denominator for basic earnings per
     share - weighted-average shares
     outstanding                                  4,059,618        3,911,019       3,709,689

Effect of dilutive securities:
     Shares issuable from assumed conversion
          of common stock options, warrants and
          restricted stock                                0                0               0
                                                  ---------        ---------       ---------

Denominator for diluted earnings per share        4,059,618        3,911,019       3,709,689
                                                  =========        =========       =========

Net income (loss) per share:
Basic and diluted:
Net loss from continuing operations             $     (0.90)     $     (0.99)    $     (0.17)
Net income (loss) from discontinued operations         0.05            (0.04)
Gain on disposal                                       0.84             0.08            0.07
                                                  ---------        ---------       ---------
Net loss per share                              $     (0.01)     $     (0.95)    $     (0.10)
                                                  =========       ==========      ==========
</TABLE>


<PAGE>


     There were  warrants to purchase,  176,750  shares of common stock for 2000
and 2001,  respectively,  which were not  included  in  computing  the effect of
dilutive  securities  because the inclusion  would have been  antidilutive.  The
warrants expired in July 2002.

     There were 48,344, 0 and 101,318 options to purchase common stock for 2000,
2001 and 2002, respectively,  which were not included in computing the effect of
dilutive securities because the inclusion would have been antidilutive.

14.      SEGMENT INFORMATION

     I-Sector  has  four  reportable  segments:   (1)  Valerent,  (2)  INX,  (3)
Stratasoft,  and (4)  Corporate.  Synergy,  which  was  previously  reported  as
separate  segment  was  merged  into ACS,  and the name was  changed  to Allstar
Solutions,  Inc.  (Allstar).  The IT  Staffing  business,  which was  previously
reported as the IT Services segment,  has been discontinued.  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. Allstar provides customers with turnkey outsourced IT helpdesk
solutions,  technical staff  augmentation  for IT helpdesk  operation,  helpdesk
consulting services,  on-site and carry-in computer repair,  application support
and  operating  system  and  network  migration  services.  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 four
reportable segments:
<TABLE>
<CAPTION>

For the year ended December 31, 2002:

                                      Valerent        INX         Stratasoft     Corporate      Elimination    Consolidated
<S>                                 <C>            <C>            <C>            <C>            <C>            <C>
Total  revenue                      $     4,992    $    30,738    $     6,569    $              $      (278)   $    42,021
Cost of sales and services                3,793         27,241          2,920                          (278)        33,752
                                       --------       --------       --------       --------       --------       --------
Gross profit                              1,199          3,421          3,649                                        8,269
Selling, general and
     administrative expenses              2,236          3,545          3,922            922                        10,625
                                       --------       --------       --------       --------       --------       --------
Operating (loss)                    $    (1,037)   $      (124)   $      (273)   $      (922)   $         0    $    (2,356)
                                       ========       ========       ========       ========       ========       ========
Interest and other income, net                                                                                        (115)
                                                                                                                  --------
Loss before benefit for income tax                                                                                  (2,241)
Benefit for income tax                                                                                              (1,595)
                                                                                                                  --------
Net loss from continuing operations                                                                                   (646)
Net loss on disposal, net of taxes                                                                                     262
                                                                                                                  --------
Net loss                                                                                                       $      (384)
                                                                                                                  ========

Accounts receivable, net            $       400    $     4,454    $     1,124    $       115                   $     6,093
                                       ========       ========       ========       ========
Accounts receivable retained from
     discontinued operations, net                                                                                      432
                                                                                                                  --------
Total accounts receivable, net                                                                                 $     6,525
                                                                                                                  ========
Inventory                           $        24    $       348    $       409    $         0                   $       781
                                       ========       ========       ========       ========                      ========
</TABLE>
<TABLE>
<CAPTION>

For the year ended December 31, 2001:
                                      Valerent        INX         Stratasoft     Corporate      Elimination    Consolidated
<S>                                 <C>            <C>            <C>            <C>            <C>            <C>
Total  revenue                      $     5,668    $    10,775    $     7,257    $        (6)   $       (74)   $    23,620
Cost of sales and services                4,403          9,663          3,318            (13)           (46)        17,325
                                       --------       --------       --------       --------       --------       --------
Gross profit (loss)                       1,265          1,112          3,939              7            (28)         6,295
Selling, general and
     administrative expenses              3,077          3,103          3,021          1,400            (28)        10,573
                                       --------       --------       --------       --------       --------       --------
Operating income (loss)             $    (1,812)   $    (1,991)  $        918    $    (1,393)   $         0         (4,278)
                                       ========       =========      ========       ========       ========
Interest and other income, net                                                                                        (316)
                                                                                                                  --------
Loss before benefit for income tax                                                                                  (3,962)
Benefit for income tax                                                                                                 (87)
                                                                                                                  --------
Net loss from continuing operations                                                                                 (3,875)
Net loss from discontinued
     operations                                                                                                       (167)
Net gain on disposal, net of taxes                                                                                     337
                                                                                                                  --------
Net loss                                                                                                       $    (3,705)
                                                                                                                  ========
</TABLE>


<PAGE>
<TABLE>
<CAPTION>
For the year ended December 31, 2000:
                                      Valerent        INX         Stratasoft     Corporate      Elimination    Consolidated

<S>                                 <C>            <C>            <C>            <C>            <C>            <C>
Total  revenue                      $     6,946    $     1,874    $     6,660    $     1,640    $       (33)   $    17,087
Cost of sales and services                5,590          1,917          3,573          1,909            (21)        12,968
                                       --------       --------       --------       --------       --------       --------
Gross profit                              1,356            (43)         3,087           (269)           (12)         4,119
Selling, general and
     administrative expenses              3,186            935          3,647          1,723            (12)         9,479
                                       --------       --------       --------       --------       --------       --------
Operating (loss)                    $    (1,830)   $      (978)   $      (560)   $    (1,992)   $         0         (5,360)
                                       ========       ========       ========       ========       ========
Interest and other income, net                                                                                        (239)
                                                                                                                  --------
Loss before benefit for income tax                                                                                  (5,121)
Benefit for income tax                                                                                              (1,493)
                                                                                                                  --------
Net loss from continuing operations                                                                                 (3,628)
Income from discontinued operations,
     net of taxes                                                                                                      195
Net gain on disposal, net of taxes                                                                                   3,390
                                                                                                                  --------
Net loss                                                                                                       $       (43)
                                                                                                                  ========
<FN>

International sales accounted for $3,111 and $1,851 or 13.2% and 4.4% of
consolidated revenues in 2001 and 2002, respectively, and were primarily in the
Stratasoft segment.
</FN>
</TABLE>

                      Reconciliation of Products and Services and Related Costs
                                       2000              2001           2002
                                       ----              ----           ----

     Product revenue              $     8,368      $    16,966     $    35,717
     Service revenue                    8,719            6,654           6,304
                                    ---------         --------       ---------

     Total revenue                $    17,087      $    23,620     $    42,021
                                    =========         ========       =========

     Cost of product sold         $     5,023      $    10,420     $    27,601
     Cost of services sold              7,945            6,905           6,151
                                    ---------         --------       ---------

     Total cost of sales          $    12,968      $    17,325     $    33,752
                                   ==========       ==========      ==========

15.  SUBSEQUENT EVENT

     On March 6, 2003 I-Sector's subsidiary,  INX, signed a letter of intent for
an asset purchase with one of its competitors.  Under the terms of the letter of
intent, INX proposes to purchase inventory, fixed assets, trademarks, tradenames
and service marks, contract rights, customer lists, intellectual property assets
and other  intangibles of the seller, as well as assume certain operating leases
of equipment and office space for cash and for stock in INX. In connection  with
the proposed purchase, INX will offer employment to key employees of the seller.
The  purchase  transaction  is expected to close early in the second  quarter of
2003 after the completion of due diligence.


<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 44, 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 59, 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.

Kevin M. Klausmeyer - Director, August 8, 2001 to present.

     Kevin M. Klausmeyer,  age 44, has been Chief Financial Officer of PentaSafe
Security  Technologies,  Inc.,  a security  software  company  and  provider  of
complete security policy and infrastructure  solutions,  since December 1, 1999.
From  1993 to  November  1999,  Mr.  Klausmeyer  was Vice  President  and  Chief
Accounting  Officer  of BMC  Software,  Inc.,  a  publicly-held  distributor  of
computer software.  Mr. Klausmeyer is one of three software finance  executives,
who, together with  representatives from the Big Five accounting firms, serve on
the AICPA's  Software  Revenue  Recognition  Task Force,  which  interprets  and
provides  guidance to the software industry on the U.S.  authoritative  software
revenue accounting rules. In addition, Mr. Klausmeyer is the current Chairman of
SOFTEC  (Software  Finance and Tax  Executives  Council),  the primary  software
financial  organization  in the U.S.  Mr.  Klausmeyer  spent 13 years at  Arthur
Andersen LLP in the audit and business consulting practice, with a primary focus
in assisting high technology companies.

John B. Cartwright - Director, August 8, 2001 to present.

     Mr.  Cartwright,  age 56,  has  been  the  owner  of John B.  Cartwright  &
Associates,  a Certified Public  Accounting firm, since 1990. From 1973 to 1990,
Mr.  Cartwright was the managing partner or managing  shareholder of Cartwright,
Matthews,  Gonsoulin  &  Bradley,  PC,  Cartwright,   Matthews  &  Gonsoulin,  a
Partnership  and  Cartwright & Matthews,  a  Partnership.  From 1969 to 1973 Mr.
Cartwright was an Audit  Supervisor of Touche Ross & Co., (now Deloitte & Touche
LLP) in  Houston.  Mr.  Cartwright  is a member  of the  American  Institute  of
Certified Public  Accountants,  Texas Society of Certified  Public  Accountants,
Houston  Chapter of the Texas Society of Certified  Public  Accountants,  and is
currently  the President of the Houston  Chapter of the  Community  Associations
Institute.

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 .

Patricia L. Winstead - Vice President and Controller, November 2001 to present.

     Patricia L.  Winstead,  age 61, has been the Vice  President and Controller
for the Company  since  November  2001.  From June 1999 to November  2001,  Mrs.
Winstead served as the Controller for the Company.  She has  responsibility  for
supervision of accounting, controller and reporting functions for the Company.


<PAGE>


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

     William R.  Hennessy,  age 44, 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.

Mark T. Hilz - President, Internetwork Experts, Inc., July 2000 to present.

     Mark T. Hilz, age 44, has served as the President of Internetwork  Experts,
Inc., the Company's  wholly-owned  subsidiary  that was formed in 2000 to market
Cisco products and related services, since joining the Company in July 2000. Mr.
Hilz served as a Director of the Company from 1994 until July 2000.  Mr.  Hilz's
responsibilities  include the general management of Internetwork  Experts,  Inc.
Mr. Hilz served as the Chief Executive Officer of Nichecast,  Inc. , a privately
held internet services  company,  from 1999 to July 2000. 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 repair
industry.

Frank Cano- President, Valerent, Inc., November 2002 to present.

     Frank Cano,  age 38, has served as the  President  of Valerent,  Inc.,  the
Company's  wholly-owned  subsidiary  that was  formed  in 2000 to  market  Cisco
products and related services, since rejoining the Company in November 2002. Mr.
Cano  served as a Division  President  of Amherst  Southwest,  LLP from May 2000
until May 2002. Mr. Cano's  responsibilities  include the general  management of
Valerent,  Inc.  Mr.  Cano  served as the  President  of the  Computer  Products
Division of I-Sector  Corporation  1997 to May 2000 when the  division was sold.
From 1996 to 1997, Mr. Cano was the Senior Vice President,  Branch Operations of
the  Company  and from  1992 to 1996 was the  Branch  Manager  of the  Company's
Dallas-Fort Worth office.

Family Relationships

     James H. Long and Frank Cano are brothers-in-law. There are no other 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

     None


<PAGE>


Item 11. Executive Compensation

     Summary  Compensation Table. The following table reflects  compensation for
services to the Company for the years ended December 31, 2002,  2001 and 2000 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 2001 and whose  total  annual  salary and bonus  exceeded
$100,000 in 2002 (the "Name Executive Officers").

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

James H. Long (2)      2002 $127,690
Chief Executive        2001  133,315
Officer                2000  150,000

William R. Hennessy    2002  128,833  59,028
President, Stratasoft, 2001   85,162  60,966
Inc. (3)               2000   91,034  59,686

Mark T. Hilz           2002  185,190
President,             2001  185,190
Internetwork Experts,  2000   84,635
Inc.,

Paul Klotz             2002  144,565   7,500
Vice President,        2001  144,549
Internetwork Experts,  2000   57,404
Inc.

(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)  Company has made personal loans to Mr. Long from time to time. See Item 13.
     Certain Relationships and Related Transactions "Certain Transactions".

(3)  Includes compensation based upon gross profit realized.

Stock Options

     Under the Company's 1996 Incentive Stock Option Plan (the "Incentive  Stock
Option  Plan") and the 2000 Stock  Incentive  Plan (the "2000  Incentive  Plan")
options  to  purchase  shares of the Common  Stock may be  granted to  executive
officers  and other  employees.  As of December 31,  2002,  317,697  shares were
reserved  for  issuance  upon  exercise of  outstanding  options  under the 2000
Incentive Plan and 40,748 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.  No options  under the plan were granted to
officers or other employees during 2001 and 2002.


<PAGE>


     Each of the Company's subsidiaries has a stock incentive plan in place. The
subsidiary  plans have not been  presented  to the  Company's  shareholders  for
approval.  One of the subsidiaries has granted options to certain  employees and
to the  executive  officers of that  subsidiary  as an  incentive  award.  As of
December 31, 2002  5,444,499  shares were reserved for issuance upon exercise of
outstanding  options and  1,055,501  were  reserved and remained  available  for
future  grants  pursuant to that plan.  During  2000,  2001 and 2002  options to
purchase 900,000, 0 and 4,100,000,  sharea respectively,  shares of Common Stock
of that subsidiary were granted to the Named Executive Officers under that plan.
The quantity of options granted in 2002 that vest each year is determined  based
on the  percentage of  predetermined  financial  goals that they attain and none
vest  prior to March 31,  2003.  Any of the 2002  options  granted  that  become
eligible for vesting,  but do not vest due to financial  performance as compared
to predefined  goals,  are forfeited and will no longer be eligible for vesting.
Any unvested stock options vest  immediately  upon the occurrence of a liquidity
event for that  subsidiary.  Options  Granted in Last Fiscal Year. The following
table  provides  information  concerning  stock  options in the  Company's  1996
Incentive  Stock Option Plan and the 2000 Incentive Stock Option Plan granted to
the Named Executive Officers during the year ended December 31, 2002.  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.

     The following table provides  information  concerning  stock options in the
subsidiary's Incentive Stock Option Plan granted to the Named Executive Officers
during the year ended December 31, 2002.
                                                                  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 (2) Year       ($/share) Date       Term 5% (1)    Term 10% (1)

Mark T. Hilz
         3,400,000   82.9%      0.15      2/28/2012  $320,736       $812,809
Paul Klotz
           700,000   17.1%      0.15      2/28/2012  $ 66,034       $167,343


(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.


(2)  Any of the options granted in 2002 that become eligible for vesting, but do
     not vest due to financial  performance as compared to predetermined  goals,
     are forfeited and will no longer be eligible for vesting.


<PAGE>


Aggregated Option Exercises and Year-End Option Values
<TABLE>
<CAPTION>
                                               Number of Securities
                                               -----------------------------------------------------------
                           Shares              Underlying Unexercised          Value  of  Unexercised
                           Acquired  Value     Options at December 31, 2002    In-the money Options at
                           on        Realized  Exercisable   Unexercisable     December 31, 2002
                           Exercise                                            Exercisable   Unexercisable
<S>                        <C>       <C>        <C>               <C>             <C>            <C>
James H. Long              0         0          1,920             480             $  0           $  0
William R. Hennessy        0         0         16,000           2,000             $  0           $  0
Mark T. Hilz               0         0         15,000               0             $  0           $  0
</TABLE>

     The Named Executive  Officers held 32,920 options that were  exercisable at
December  31,  2002,  none were  exercised  during  2002 and there  were  32,920
in-the-money unexercised options at December 31, 2002.

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, and
Hennessy  are  entitled  to an annual  base salary of  $150,000,  and  $125,000,
respectively,  plus other  bonuses,  the amounts and payment of which are within
the  discretion  of the  Compensation  Committee.  Mr.  Hilz and Mr.  Klotz  are
entitled to an annual base salary of $200,000 and $150,000,  respectively,  plus
other bonuses,  the amounts and payment of which are defined in their employment
agreements. 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.

Item 12. Security Ownership

Security Ownership of Management

     The following  table sets forth,  as of March 21, 2003 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                         2,041,950          56.2%
Common Stock   Donald R. Chadwick                      112,003    (2)    3.1%
Common Stock   William R. Hennessey                     26,000    (3)       *
Common Stock   All officers and directors            2,222,393    (4)    61.2%

(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  79,686  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  16,000  shares which may be acquired  upon  exercise of currently
     exercisable options. (4) Includes 133,846 shares which may be acquired upon
     exercise of currently exercisable options.


<PAGE>


  Security Ownership of Certain Beneficial Owners

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

  Common Stock    Peak 6 Capital Management L.L.C.(1)      360,600        9.9%
                  209 LaSalle Street, Suite 200
                  Chicago, Illinois 60604

  Common Stock    James H. Long                          2,041,950      56.2%
                  6401 Southwest Freeway
                  Houston, Texas 77074

  (1) As reported on Schedule 13D July 10, 2002.

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,
2002, the Company's receivables from Equities amounted to approximately $56,000.
In addition to the note receivable from Equities,  the Company has an additional
amount  receivable  from  Equities of $34.  Additionally,  from time to time the
Company has made  payments to unrelated  parties,  primarily  for the usage of a
credit card, for transactions that should either wholly or partially benefit Mr.
Long and which were therefore  accounted for as  indebtedness by Mr. Long to the
Company and on which he pays interest of 6% per annum on the average outstanding
balance.  During  August 2002,  in order to be in complete  compliance  with the
Sarbanes-Oxley  Act of 2002,  the  Company  made a demand for  repayment  of the
outstanding  balance at that time of $94 related to Mr. Long's  personal  credit
card usage. Mr. Long paid the entire balance in December 2002 except for $791 of
interest  calculated on the average balance of the account for the quarter ended
December 31, 20002,  which was fully paid  subsequent to December 31, 2002.  The
Company  furnishes  two  company-owned  vehicles  for Mr.  Long's  business  and
personal use.

     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. In conjunction with Equities obtaining new
financing on the building, a new lease was executed with the Company on February
1, 2002 with an  expiration  date of January 31, 2007.  The new lease has rental
rates reduced from $37,692 per month to $37,192 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,
except  for the  Chairperson  of the Audit  Committee  who is paid  $1,000,  for
Committee  meetings  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.   Controls and Procedures

     Under  the  supervision  and  with  the  participation  of our  management,
including our Chief Executive Officer,  Chief Financial  Officer,  President and
Chairman of the Board, we conducted an evaluation of our disclosure controls and
procedures,  as such term is defined under Rule 13a-14(c)  promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), within 90 days
of the  filing  date of this  report.  Based  on  their  evaluation,  our  Chief
Executive Officer, Chief Financial Officer,  President and Chairman of the Board
concluded that I-Sector's disclosure controls and procedures are effective.

     There have been no significant  changes (including  corrective actions with
regard to  significant  deficiencies  or material  weaknesses)  in our  internal
controls or in other  factors that could  significantly  affect  these  controls
subsequent to the date of the evaluation  referenced in the immediate  paragraph
above.

Item 15.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K

     (a)  (1)  Consolidated  Financial  Statements  - See Index to  Consolidated
               Financial Statements on Page 21

          (2)  Consolidated  Financial  Statements  Schedule  II  Valuation  and
               Qualifying  Accounts  Exhibit  99.1

          (3)  Exhibits  - a copy of the  Index  to  Exhibits,  filed  with  the
               Company's  Form 10-K  Report,  can be obtained  free of charge by
               written request to Investor Relations, I-Sector Corporation, 6401
               Southwest  Freeway,  Houston,  Texas 77074,  by calling (713) 795
               2168   or   from   our   website   at    http://www.I-Sector.com/
               information/sec.htm.

<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
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 I-Sector        Form 10-K filed March
      Corporation dated February 1, 2002                                        28, 2002
<PAGE>
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
10.38 Dealer Loan and Security Agreement between Textron Financial              Form 10-K filed Mar
      Corporation and I-Sector Corporation                                      31, 2003
21.1  List of Subsidiaries of the Company.                                      Form 10-K filed Mar.
                                                                                31, 2003
23.1  Independent Auditors' Consent of Deloitte & Touche LLP.                  Form 10-K filed Mar.
                                                                                31, 2003
99.1  Schedule II Valuation and Qualifying Accounts                             Form 10-K filed Mar.
                                                                                31, 2003
</TABLE>

     (b)  No Form 8-K has been  filed in the last  quarter  of the  fiscal  year
          covered by this report.

     (c)  Audit Committee Financial Expert:

          I-Sector does meet the  requirement  to have at least one  independent
          audit committee  financial expert serving on its audit committee,  Mr.
          Kevin M.  Klausmeyer,  the  Chairperson  of the Audit  Committee.  Mr.
          Klausmeyer   possesses  the   understanding   of  generally   accepted
          accounting principles and financial statements,  the ability to assess
          the  general  application  of such  principles,  an  understanding  of
          internal controls and procedures,  an understanding of audit committee
          functions and experience as a principal  financial  officer and public
          accountant.


<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 21, 2003.

                                       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 and Chief
                                        Financial Officer


         /s/ Patricia L. Winstead       Vice President and Controller,
------------------------------------    Chief Accounting Officer and Secretary



         /s/ Donald R. Chadwick         Director
------------------------------------


         /s/ Kevin M. Klausmeyer        Director
------------------------------------


         /s/ John B. Cartwright         Director
------------------------------------


<PAGE>


CERTIFICATIONS

I, James H. Long, Chief Executive Officer,  Chief Financial  Officer,  President
and Chairman of the Board, certify that:

1.   I have reviewed this annual report on Form 10-K of I-Sector Corporation.

2.   Based on my  knowledge,  this  annual  report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary in
     order to make the  statements  made,  in light of the  circumstances  under
     which such  statements were made, not misleading with respect to the period
     covered by this annual report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   I am responsible for  establishing and maintaining  disclosure  controls an
     procedures  (as  defined  in  Exchange  Act Rules  13a-14 and  15d-14)  for
     I-Sector Corporation ("I-Sector") and I have:

     a.   designed  such  disclosure  controls  and  procedures  to ensure  that
          material information relating to I-Sector,  including its consolidated
          subsidiaries,  is made known to me by others  within  those  entities,
          particularly  during the period in which this  annual  report is being
          prepared.

     b.   evaluated  the  effectiveness  of I-Sector's  disclosure  controls and
          procedures  as of a date  within 90 days prior to the  filing  date of
          this annual report (the "Evaluation Date"); and

     c.   presented in this annual report my conclusions about the effectiveness
          of the disclosure controls and procedures based on my evaluation as of
          the Evaluation Date.

5.   I have disclosed,  based on my most recent evaluation,  to the registrant's
     auditors and the audit  committee  of  I-Sector's  board of  directors  (or
     persons performing the equivalent function):

     a.   all  significant  deficiencies  in the design or operation of internal
          controls which could adversely  affect  I-Sector's  ability to record,
          process,  summarize and report  financial data and have identified for
          I-Sector's auditors any material weaknesses in internal controls; and

     b.   any fraud, whether or not material,  that involves management or other
          employees who have a significant role in I-Sector's internal controls;
          and

6.   I  have  indicated  in  this  annual  report  whether  or  not  there  were
     significant  changes in internal  controls or in other  factors  that could
     significantly  affect the internal  controls  subsequent to the date of our
     most recent  evaluation,  including any  corrective  actions with regard to
     significant deficiencies and material weaknesses.

     Dated:  March 21, 2003      /s/ James H. Long
                                     ---------------------------------------
                                     James H. Long, Chief Executive Officer,
                                     Chief Financial Officer,
                                     President and Chairman of the Board



<PAGE>


Exhibit 99.1


CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In  connection  with  the  Annual  Report  of  I-Sector   Corporation  (the
"Company") on Form 10-K for the year ending  December 31, 2002 as filed with the
Securities and Exchange  Commission on the date hereof (the "Report"),  I, James
H. Long,  Chief  Executive  Officer,  Chief  Financial  Officer,  President  and
Chairman of the Board,  certify,  pursuant  to 18 U.S.C.  ss.  1350,  as adopted
pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

1)   The Report fully complies with the requirements of section 13 (a) or 15 (d)
     of the Securities Exchange Act of 1934; and 2) The information contained in
     the  Report  fairly  presents,  in all  material  respects,  the  financial
     condition and result of operations of the Company.


                                   I-Sector Corporation.
March 21, 2003                     By:      /s/ JAMES H. LONG
                                            -----------------
Date                               James H. Long, Chief Executive Officer,
                                   Chief Financial Officer,
                                   President and Chairman of the Board



<PAGE>
EXIBIT 23.1
INDEPENDENT AUDITORS' CONSENT



We consent to the  incorporation  by reference in Registration  Statements No.'s
333-41001  and  333-60320 of I-Sector  Corporation  and  subsidiaries,  formerly
Allstar Systems,  Inc.,  ("I-Sector") each on Form S-8 of our report dated March
21, 2003,  appearing in this Annual Report on Form 10-K of I-Sector for the year
ended December 31, 2002.


/s/Deloitte & Touche, LLP
Houston, Texas
March 28, 2003

<PAGE>

Exhibit 99
VALUATION AND QUALIFYING ACCOUNTS

FINANCIAL STATEMENT SCHEDULE II
I-SECTOR CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
AS OF DECEMBER 31, 2002
(In Thousands)


                       Balance at   Charges to   Charge to
                       Beginning    Costs and       Other    Other   Balance at
     Description        of Year     Expenses     Accounts   Changes  End of Year

Accumulated provision deducted from related assets on balance sheet:
     Allowance for doubtful accounts receivable:
          2000              228                     (83)     (2,226)        740
          2001              740        1,019         33        (539)      1,253
          2002            1,253          910                 (1,235)        928

     Allowance for doubtful notes receivable:
          2000
          2001
          2002                           338                                338

     Inventory Reserves:
          2000                1          673                   (279)        395
          2001              395                                (251)        144
          2002              144                                (144)