<PAGE>

                                   FORM 10-Q

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

      (Mark One)

      ( X )  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
             THE SECURITIES EXCHANGE ACT OF 1934
             For the quarterly period ended:  March 31, 2001

                                       OR

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

                       Commission file number:  0-21395

                               Allin Corporation
             (Exact name of registrant as specified in its charter)


         Delaware                                           25-1795265
(State or other jurisdiction of                         (I. R. S. Employer
incorporation or organization)                          Identification No.)


                        381 Mansfield Avenue, Suite 400,
                      Pittsburgh, Pennsylvania  15220-2751
          (Address of principal executive offices, including zip code)

                                 (412) 928-8800
              (Registrant's telephone number, including area code)


      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.

                       (  X  )    Yes      (   )    No

              Shares Outstanding of the Registrant's Common Stock

                              As of April 24, 2001

                        Common Stock,  6,967,339 Shares

                                      -1-
<PAGE>

                               Allin Corporation

                                   Form 10-Q

                                     Index
<TABLE>
<CAPTION>


<S>         <C>                                                             <C>
Forward-Looking Information                                                 Page   3

Part I  -  Financial Information

           Item 1.  Financial Statements                                    Page   4

           Item 2.  Management's Discussion and Analysis of Financial       Page  18
                    Condition and Results of Operations

           Item 3.  Quantitative and Qualitative Disclosure about Market    Page  36
                    Sensitive Instruments


Part II -  Other Information

           Item 1.  Legal Proceedings                                       Page  37

           Item 2.  Changes in Securities and Use of Proceeds               Page  38

           Item 5.  Other Information                                       Page  39

           Item 6.  Exhibits and Reports on Form 8-K                        Page  40

Signatures                                                                  Page  41
</TABLE>

                                      -2-
<PAGE>

Forward-Looking Information

     Certain matters in this Form 10-Q, including, without limitation, certain
matters discussed under Part I - Item 2 - Management's Discussion and Analysis
of Financial Condition and Results of Operations constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Forward-looking statements are typically identified by the words "believes,"
"expects," "anticipates," "intends," "estimates," "will" and similar
expressions. In addition, any statements that refer to expectations or other
characterizations of future events or circumstances are forward-looking
statements. Readers are cautioned that any such forward-looking statements are
not guarantees of performance and that matters referred to in such forward-
looking statements involve known and unknown risks, uncertainties and other
factors which may cause actual results, performance or achievements of Allin
Corporation to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among other things, risks and uncertainties discussed
throughout Part I - Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations and under the caption "Risk Factors"
included therein. Allin Corporation undertakes no obligation to update publicly
any forward-looking statements, whether as a result of new information, future
events or otherwise.

                                      -3-
<PAGE>

Part I - Financial Information

Item 1. - Financial Statements

ALLIN CORPORATION & SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

     (Dollars in thousands)
          (Unaudited)

<TABLE>
<CAPTION>
                                                                        December 31,  March 31,
                                                                            2000        2001
                                                                         ----------   ----------
<S>                                                                      <C>          <C>
ASSETS

Current assets:
        Cash and cash equivalents                                        $   2,330    $    1,164
        Accounts receivable, net of allowance for
                 doubtful accounts of $116 and $108                          4,730         4,474
        Unbilled receivable                                                     42            35
        Note receivable                                                         14            14
        Inventory                                                              991           846
        Prepaid expenses                                                       274           324
        Assets held for sale                                                    90            72
        Costs and estimated gross margins in
                 excess of billings                                            722            ---
                                                                          ---------    ----------
                 Total current assets                                        9,193         6,929

Property and equipment, at cost:
        Leasehold improvements                                                 465           465
        Furniture and equipment                                              3,089         3,134
        On-board equipment                                                     951           ---
                                                                          ---------    ----------
                                                                             4,505         3,599
Less--accumulated depreciation                                              (3,394)       (2,640)
                                                                          ---------    ----------
                                                                             1,111           959

Note receivable from employee                                                    3           ---
Software development costs, net of accumulated
        amortization of $907 and $909                                            6             3
Goodwill, net of accumulated amortization of
        $2,829 and $3,096                                                   11,932        11,745
Other assets, net of accumulated amortization of
        $664 and $726                                                        2,037         1,975
                                                                          ---------    ----------

Total assets                                                             $  24,282    $   21,611
                                                                          =========    ==========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                      -4-
<PAGE>

ALLIN CORPORATION & SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

     (Dollars in thousands)
          (Unaudited)
<TABLE>
<CAPTION>
                                                                            December 31,     March 31,
                                                                                2000           2001
                                                                            -------------   ----------
<S>                                                                         <C>             <C>
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
        Current portion of notes payable                                    $          2    $       2
        Bank lines of credit                                                       2,155        1,995
        Accounts payable                                                           2,783          919
        Accrued liabilities:
                 Compensation and payroll taxes                                      426          304
                 Dividends on preferred stock                                      1,124        1,223
                 Other                                                               757          415
        Billings in excess of costs and
                 estimated gross margins                                             ---          739
        Deferred revenue                                                              47          162
        Income taxes payable                                                           1          ---
                                                                             ------------    ---------
                 Total current liabilities                                         7,295        5,759

Non-current portion of notes payable                                               1,000        1,000
Commitments and contingencies

Shareholders' equity:
        Preferred stock, par value $.01 per share, authorized
                 100,000 shares:
                 Series C redeemable preferred stock, designated,
                     issued and outstanding 25,000 shares                          2,500        2,500
                 Series D convertible redeemable preferred stock,
                     designated, issued and outstanding
                     2,750 shares                                                  2,152        2,152
                 Series F convertible redeemable preferred stock,
                     designated, issued and outstanding
                     1,000 shares                                                  1,000        1,000
                 Series G convertible redeemable preferred stock,
                     designated, issued and outstanding
                     150 shares                                                    1,015        1,018
        Common stock, par value $.01 per share, authorized
                 20,000,000 shares, issued 6,953,114 and
                 6,967,339 shares                                                     70           70
        Additional paid-in-capital                                                41,642       41,501
        Warrants                                                                   1,017        1,017
        Treasury stock at cost, 8,167 common shares                                  (27)         (27)
        Retained deficit                                                         (33,382)     (34,379)
                                                                             ------------    ---------
Total shareholders' equity                                                        15,987       14,852
                                                                             ------------    ---------

Total liabilities and shareholders' equity                                  $     24,282    $  21,611
                                                                             ============    =========

</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.

                                      -5-
<PAGE>

ALLIN CORPORATION & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

       (Dollars in thousands, except per share data)
                      (Unaudited)

<TABLE>
<CAPTION>
                                                                    Three Months   Three Months
                                                                       Ended          Ended
                                                                      March 31,      March 31,
                                                                        2000           2001
                                                                     ----------     -----------
<S>                                                                 <C>             <C>
Revenue:
        Solution area consulting services                            $     1,798    $    2,285
        Solution area integration services                                 2,421         1,918
        Legacy technology consulting services                              2,062           770
        Ancillary services                                                   229           157
        Ancillary product sales                                              577           272
                                                                      -----------    -----------

                 Total revenue                                             7,087         5,402

Cost of sales                                                              4,098         3,035
                                                                      -----------    -----------

Gross profit                                                               2,989         2,367

Selling, general & administrative                                          2,905         3,315
                                                                      -----------    -----------

Income (loss) from operations                                                 84          (948)

Interest expense, net                                                         65            46
                                                                      -----------    -----------

Income (loss) before provision for income taxes                               19          (994)

Provision for income taxes                                                ---                3
                                                                      -----------    -----------

Net (loss) income                                                             19          (997)

Dividends and accretion on preferred stock                                   153           161
                                                                      -----------    -----------

Net loss attributable to common shareholders                         $      (134)    $  (1,158)
                                                                      ===========    ===========

Net loss per common share - basic and diluted                        $     (0.02)    $   (0.17)
                                                                      ===========    ===========

Weighted average shares outstanding - basic and diluted                6,002,520     6,963,388
                                                                      -----------    -----------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                      -6-
<PAGE>

ALLIN CORPORATION & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

        (Dollars in thousands)
             (Unaudited)

<TABLE>
<CAPTION>
                                                                         Three Months     Three Months
                                                                             Ended           Ended
                                                                           March 31,        March 31,
                                                                             2000             2001
                                                                          -----------     ------------
<S>                                                                       <C>             <C>
Cash flows from operating activities:
        Net income (loss)                                                         19              (997)
        Adjustments to reconcile net income (loss) to net
           cash flows from operating activities:
                 Depreciation and amortization                                   523               531
                 Cost of fixed assets sold                                       237             ---
        Changes in certain assets and liabilities:
                 Accounts receivable                                          (1,655)              256
                 Unbilled receivable                                        ---                      7
                 Inventory                                                      (279)              145
                 Prepaid expenses                                                (20)              (51)
                 Assets held for sale                                           (111)               18
                 Other assets                                                      2                 3
                 Accounts and notes payable                                    1,313            (1,864)
                 Accrued liabilities                                             226              (462)
                 Billings in excess of costs and
                     estimated gross margins                                      79             1,460
                 Income taxes payable                                       ---                     (1)
                 Deferred revenue                                               (969)              115
                                                                          -----------     --------------
           Net cash flows used for operating activities                         (635)             (840)
                                                                          -----------     --------------

Cash flows from investing activities:
        Proceeds from sale of assets                                               4                 1
        Additional purchase consideration for
                 acquisition of subsidiary                                  ---                    (60)
        Capital expenditures                                                    (178)              (47)
                                                                          -----------     --------------
           Net cash flows used for investing activities                         (174)             (106)
                                                                          -----------     --------------

Cash flows from financing activities:
        Payment of dividends on preferred stock                                  (71)              (59)
        Proceeds from (repayment of) lines of credit                             915              (160)
        Repayment of note payable                                                 (1)               (1)
                                                                          -----------     --------------
           Net cash flows provided by (used for) financing activities            843              (220)
                                                                          -----------     --------------

Net change in cash and cash equivalents                                           34            (1,166)
Cash and cash equivalents, beginning of period                                 1,888             2,330
                                                                          -----------     --------------
Cash and cash equivalents, end of period                                       1,922             1,164
                                                                          ===========     ==============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                      -7-
<PAGE>

                       Allin Corporation and Subsidiaries

                   Notes to Consolidated Financial Statements



1.  Basis of Presentation

  The information contained in these financial statements and notes for the
  three-month periods ended March 31, 2000 and 2001 should be read in
  conjunction with the audited financial statements and notes for the years
  ended December 31, 1999 and 2000, contained in Allin Corporation's (the
  "Company") Annual Report on Form 10-K for the year ended December 31, 2000.
  The accompanying unaudited Consolidated Financial Statements have been
  prepared in accordance with accounting principles generally accepted in the
  United States and the rules and regulations of the Securities and Exchange
  Commission.  These interim statements do not include all of the information
  and footnotes required for complete financial statements.  It is management's
  opinion that all adjustments (including all normal recurring accruals)
  considered necessary for a fair presentation have been made; however, results
  for these interim periods are not necessarily indicative of results to be
  expected for the full year.

  Principles of Consolidation

  The consolidated financial statements include the accounts of the Company and
  its subsidiaries.  The Company is the sole shareholder of all of its
  subsidiaries.  It is the Company's policy to consolidate all majority-owned
  subsidiaries where the Company has control.  All significant intercompany
  accounts and transactions have been eliminated.

  Use of Estimates in the Preparation of Financial Statements

  The preparation of financial statements in conformity with accounting
  principles generally accepted in the United States 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 amounts of revenue and expenses
  during the reporting period.  Actual results could differ from those
  estimates.

  Revenue and Cost of Sales Recognition

  Allin Corporation of California ("Allin Consulting-California") and Allin
  Consulting of Pennsylvania, Inc. ("Allin Consulting-Pennsylvania") charge
  consulting fees for their Technology Infrastructure and E-Business Solution
  Area services.  Allin Consulting-Pennsylvania also charges consulting fees for
  its legacy technology services.  The majority of engagements are billed on an
  hourly basis, with revenue and related cost of sales recognized as services
  are performed.  Engagements are also performed on a fixed-price basis, with
  revenue and cost of sales recognized based on percentage of completion or
  proportional performance.  Revenue from Technology Infrastructure and E-
  Business Solution Area services is included in "Solution area consulting
  services" on the accompanying Consolidated Statements of Operations.

  Allin Interactive Corporation's ("Allin Interactive") recognition method for
  revenue and cost of sales for systems integration services is based on the
  size and expected duration of the project and if significant software
  modification is required.  For systems integration projects in excess of
  $250,000 of revenue and expected to be of greater than 90 days duration, the
  Company recognizes revenue and cost of sales based on percentage of completion
  (if significant software modification is required) or proportional
  performance.  Allin Interactive utilizes the proportion of labor incurred to
  expected total project labor as a quantitative factor in determining the
  percentage of completion or proportional performance recognized for projects
  when the proportion of total project costs incurred to expected total project
  costs is not representative of actual project completion status.  For all
  other systems integration projects, revenue and cost of sales are recognized
  upon completion of the project.  For consulting engagements performed on a
  fixed-price basis, revenue and related cost of sales are recognized on a
  percentage of completion basis.  Time-based consulting revenue and cost of
  sales are

                                      -8-
<PAGE>

  recognized as services are performed. Interactive television transactional
  revenue and any associated cost of sales are recognized as the services are
  performed. Allin Interactive recognizes revenue and associated cost from the
  sale of products at the time the products are shipped. On the accompanying
  Consolidated Statements of Operations, systems integration revenue is included
  in "Solution area integration services", consulting revenue is included in
  "Solution area consulting services", interactive television transactional
  revenue is included in "Ancillary services" and product sales are included in
  "Ancillary product sales."

  Allin Digital Imaging Corp. ("Allin Digital") recognizes revenue and cost of
  sales for systems integration and related consulting services upon completion
  of the respective projects.  Revenue and associated cost for equipment and
  consumable sales is recognized upon shipment of the product.  Technology
  support fees and associated cost of sales are recognized as services are
  performed.  On the accompanying Consolidated Statements of Operations, systems
  integration and related consulting and technology support revenue is included
  in "Solution area integration services" and product sales are included in
  "Ancillary product sales."

  Allin Network Products, Inc. ("Allin Network") recognizes revenue and
  associated cost from the sale of products at the time the products are
  shipped.  Revenue from product sales is included in "Ancillary product sales"
  on the accompanying Consolidated Statements of Operations.

  Allin Interactive, Allin Digital and Allin Network recognize amounts billed to
  customers for shipping charges as revenue at the time products are shipped.
  Associated shipping costs are recorded as cost of sales.

  Earnings Per Share

  Earnings per share ("EPS") of common stock have been computed in accordance
  with Financial Accounting Standards Board Statement No. 128, "Earnings Per
  Share" ("SFAS No. 128").  The shares used in calculating basic and diluted EPS
  include the weighted average of the outstanding common shares of the Company.
  The Company's outstanding stock options, warrants and the Company's Series D,
  F and G convertible redeemable preferred stock would all be considered
  dilutive securities under SFAS No. 128; however, these securities have not
  been included in the calculation of diluted EPS, for the applicable periods,
  as their effect would be anti-dilutive.  The additional options and warrants
  to purchase shares that would have been considered in the calculation of
  diluted EPS, if their effect was not anti-dilutive, were 733,075 and 17,571
  for the three-month periods ended March 31, 2000 and 2001, respectively.  The
  number of outstanding options to purchase common shares for which the option
  exercise prices exceeded the average market price of the common shares
  aggregated 531,950 and 828,450 for the three-month periods ended March 31,
  2000 and 2001, respectively.

  Inventory

  Inventory, consisting principally of digital photography equipment and
  software and computer hardware, software and communications equipment, is
  stated at the lower of cost (determined on the average cost method) or market.

  Costs and Estimated Gross Margins in Excess of Billings and Billings in Excess
  of Costs and Estimated Gross Margins

  Costs and estimated gross margins in excess of billings and billings in excess
  of costs and estimated gross margins relate to Allin Interactive projects for
  which revenue and cost of sales are being recognized on a percentage of
  completion or proportional performance basis.  Costs and estimated gross
  margins in excess of billings consists of costs and estimated gross margins
  associated with these projects recognized on a percentage of completion or
  proportional performance basis, net of amounts billed but not yet recognized
  as revenue.  Billings in excess of costs and estimated gross margins consists
  of amounts billed for projects recognized on a percentage of completion or
  proportional performance basis but not yet recognized as revenue, net of costs
  and estimated gross margins associated with these projects which have not yet
  been recognized as cost of sales.

                                      -9-
<PAGE>

  Financial Instruments

  As of March 31, 2001, the Company's Consolidated Balance Sheet includes a note
  payable which relates to the acquisition of Allin Consulting-California.  The
  note payable is recorded at the face value of the instrument.  The Company
  accrues interest at fixed rates and makes interest payments in accordance with
  the terms of the note.  All other financial instruments are classified as
  current and will be utilized within the next operating cycle.

  Supplemental Disclosure Of Cash Flow Information

  Cash payments for income taxes were approximately $6,000 and $3,000 during the
  three months ended March 31, 2000 and 2001, respectively.  Cash payments for
  interest were approximately $1,000 and $52,000 during the three months ended
  March 31, 2000 and 2001, respectively.  Cash payments for dividends were
  approximately $71,000 and $59,000 during the three months ended March 31, 2000
  and 2001, respectively.  Dividends on preferred stock of approximately
  $139,000 and $143,000 were accrued but unpaid during the three-month periods
  ended March 31, 2000 and 2001, respectively.

2. Preferred Stock

  The Company has the authority to issue 100,000 shares of preferred stock with
  a par value of $.01 per share.  Of the authorized shares, 40,000 have been
  designated as Series A Convertible Redeemable Preferred Stock, 5,000 as Series
  B Redeemable Preferred Stock, 25,000 as Series C Redeemable Preferred Stock,
  2,750 as Series D Convertible Redeemable Preferred Stock, 2,000 as Series E
  Convertible Redeemable Preferred Stock, 1,000 as Series F Convertible
  Redeemable Preferred Stock and 150 as Series G Convertible Redeemable
  Preferred Stock.  All then outstanding shares of Series A and B preferred
  stock were exchanged for like numbers of shares of Series C and D preferred
  stock, respectively, on May 31, 1999.  All then outstanding shares of Series E
  preferred stock were converted to the Company's common stock on August 13,
  2000.  The Company will not issue any additional shares of Series A, B or E
  preferred stock.  The order of liquidation preference of the series of the
  Company's outstanding preferred stock, from senior to junior, is Series F,
  Series G, Series D and Series C.  As of March 31, 2001, the Company has
  outstanding 25,000, 2,750, 1,000 and 150 shares of Series C, D, F and G
  preferred stock, respectively.

3. Liability for Employee Termination Benefits

  The Company recognizes liabilities for involuntary employee termination
  benefits in the period management approves the plan of termination if during
  that period management has approved and committed to the plan of termination
  and established the benefits to be received; communicated benefit plans to
  employees; identified numbers, functions and locations of anticipated
  terminations; and the period of time for the plan of termination indicates
  significant changes are not likely.

  Restructuring charges of approximately $74,000 were recorded in March 2001
  to establish a liability for severance costs associated with the termination
  of services of two managerial personnel associated with the technology
  consulting services provided by the Company's Technology Infrastructure and E-
  Business Solution Areas.  Associated expenses are reflected in Selling,
  general & administrative expenses on the Consolidated Statement of Operations
  during that period.  As of March 31, 2001, approximately $17,000 of the
  accrued amount had been paid.  The remaining balance, approximately $57,000,
  is included in accrued compensation and payroll taxes on the Consolidated
  Balance Sheet.  It is anticipated that payments under this plan will be
  completed by June 2001.

  Restructuring charges of approximately $70,000 were recorded in February
  2000 to establish a liability for severance costs associated with the
  termination of services of two managerial personnel associated with the legacy
  technology consulting services provided by the Company.  Associated expenses
  are reflected in Selling, general & administrative expenses on the
  Consolidated Statement of Operations during that period.  Payments related to
  the February 2000 restructuring charge were completed in June 2000.


                                      -10-
<PAGE>

4.  Settlement of Contingent Purchase Consideration for MEGAbase Acquisition

  The agreement for the 1998 purchase of MEGAbase, Inc. ("MEGAbase"), which was
  merged into Allin Consulting-California subsequent to acquisition, provided
  for contingent payments to be determined on the basis of Allin Consulting-
  California's 1999 Development Practice Gross Margin (as defined in the stock
  purchase agreement for the acquisition).  The Company and the former MEGAbase
  sole shareholder, however, were unable to agree upon the calculation of the
  contingent payments and the Company initiated litigation to resolve the
  matter.  In January 2001, the Company and the former MEGAbase sole shareholder
  reached a settlement concerning contingent payments.  On January 26, 2001 the
  Company made a cash payment of $60,000 and issued 14,225 shares of its common
  stock to the former MEGAbase sole shareholder.  The Nasdaq market price of the
  Company's common stock on the date of issuance was $1.406 per share.  The
  additional purchase consideration was recorded in January 2001 as additional
  cost of the acquired enterprise, which resulted in additional goodwill being
  recorded on Allin Consulting-California.  The additional goodwill is being
  amortized over the estimated remaining life of goodwill associated with the
  MEGAbase acquisition.

5. Equity Transactions

  The Company issued 14,225 shares of its common stock on January 26, 2001 in
  connection with the settlement of litigation concerning additional purchase
  consideration related to the Company's 1998 acquisition of MEGAbase.  The
  Company recorded the stock issuance based on the market price on the date of
  issuance, which resulted in the recording of approximately $20,000 of
  additional paid-in-capital.

  A total of 75,000 options for common shares, exercisable at an average
  exercise price of $1.42 per share, were awarded under the Company's 2000 Stock
  Plan during the three months ended March 31, 2001.  The exercise prices of the
  options awarded ranged from $1.38 per share to $1.56 per share and were based
  on market prices on the dates of grant.  Options to purchase 65,000 common
  shares will vest with respect to 20% of the shares subject to each grant on
  each of the first through fifth anniversaries of the grant date.  Options to
  purchase 5,000 common shares vested immediately upon issuance and options to
  purchase 5,000 shares will vest on the first anniversary of issuance.  The
  right to exercise options to purchase shares expires seven years from the
  grant date or earlier for certain of the options if the option holder ceases
  to be employed by the Company or a subsidiary.  During the three months ended
  March 31, 2001, non-vested options to purchase 43,000 shares of common stock
  previously awarded under the Company's 2000 Stock Plan were forfeited under
  the terms of the Plan.  Options granted under the 2000 Stock Plan to purchase
  164,750 shares of common stock remain outstanding as of March 31, 2001.

  A total of 97,500 options for common shares, exercisable at an average
  exercise price of $1.28 per share, were awarded under the Company's 1998 Stock
  Plan during the three months ended March 31, 2001.  The exercise prices of the
  options awarded ranged from $1.25 per share to $1.38 per share and were based
  on market prices on the dates of grant.  A total of 75,000 of the options will
  vest on the earlier to occur of May 15, 2001 or a change in control of the
  Company.  See Item 11 - Executive Compensation of the Company's Annual Report
  on Form 10-K for the year ended December 31, 2000 for additional information
  concerning the vesting of options in the event of a change in control of the
  Company.  Options to purchase 22,500 common shares will vest with respect to
  20% of the shares subject to each grant on each of the first through fifth
  anniversaries of the grant date.  The right to exercise options to purchase
  shares expires seven years from the grant date or earlier for certain of the
  options if the option holder ceases to be employed by the Company or a
  subsidiary.  During the three months ended March 31, 2001, vested options to
  purchase 360 shares and non-vested options to purchase 2,650 shares of common
  stock previously awarded under the Company's 1998 Stock Plan were forfeited
  under the terms of the Plan.  Options granted under the 1998 Stock Plan to
  purchase 370,150 shares of common stock remain outstanding as of March 31,
  2001.

  A total of 40,000 options for common shares, exercisable at $1.25 per share,
  were awarded under the Company's 1997 Stock Plan during the three months ended
  March 31, 2001.  All of the options will vest with respect to 20% of the
  shares subject to each grant on each of the first through fifth anniversaries
  of the grant date, or earlier in the event of a change in control of the
  Company, as defined in a certain employment agreement.  The right to exercise
  options to purchase shares expires seven years from the grant date or earlier

                                      -11-
<PAGE>

  for certain of the options if the option holder ceases to be employed by the
  Company or a subsidiary.  Options granted under the 1997 Stock Plan to
  purchase 295,750 shares of common stock remain outstanding as of March 31,
  2001.

  A total of 37,000 options for common shares, exercisable at an average
  exercise price of $1.27 per share, were awarded under the Company's 1996 Stock
  Plan during the three months ended March 31, 2001.  All of the options will
  vest with respect to 20% of the shares subject to each grant on each of the
  first through fifth anniversaries of the grant date, except that 30,000
  options will vest earlier in the event of a change in control of the Company,
  as defined in a certain employment agreement.  The right to exercise options
  to purchase shares expires seven years from the grant date or earlier for
  certain of the options if the option holder ceases to be employed by the
  Company or a subsidiary.  During the three months ended March 31, 2001, non-
  vested options to purchase 8,000 shares of common stock previously awarded
  under the Company's 1996 Stock Plan were forfeited under the terms of the
  Plan.  Options granted under the 1996 Stock Plan to purchase 230,300 shares of
  common stock remain outstanding as of March 31, 2001.

  In February 2001, the Company granted certain stock appreciation rights under
  a new employment agreement with its President and an amended employment
  agreement with its Chief Financial Officer. In the event of termination of the
  President's employment by the Company or termination of the Chief Financial
  Officer's employment, whether voluntary or involuntary, in conjunction with,
  or within a year after the occurrence of a change in control of the Company,
  these officers will have the right to convert each of their vested and
  unexpired options to purchase the Company's common stock granted prior to
  February 13, 2001 into the right to receive cash in an amount equal to the
  difference between the fair market value of the stock on the date the right is
  exercised and the exercise price of the option from which the right was
  converted. A change in control of the Company is defined as a sale of all or
  substantially all of the Company's assets, a merger in which the Company is
  not the surviving corporation or when a person or group, other than the
  stockholders of the Company as of January 1, 2001, owns or controls 40% or
  more of the outstanding common stock. A total of 228,000 options to purchase
  common stock have been granted to these officers prior to February 13, 2001.
  Any of these, which have not vested previously will vest in the event of a
  change in control of the Company.

6. Revolving Credit Loan

  On October 1, 1998, the Company and S&T Bank, a Pennsylvania banking
  association, entered into a Loan and Security Agreement, under which S&T Bank
  agreed to extend the Company a revolving credit loan.  The original term of
  the revolving credit loan was one year and it has subsequently been renewed
  for two annual periods.  The current expiration date of the revolving credit
  loan is September 30, 2001.  Borrowings may be made under the S&T Loan
  Agreement for general working capital purposes.  The maximum borrowing
  availability under the revolving credit loan is the lesser of $5,000,000 or
  eighty-five percent of the aggregate gross amount of eligible trade accounts
  receivable aged sixty days or less from the date of invoice.  Accounts
  receivable qualifying for inclusion in the borrowing base are net of any
  prepayments, progress payments, deposits or retention and must not be subject
  to any prior assignment, claim, lien, or security interest.  As of March 31,
  2001, maximum borrowing availability under the revolving credit loan was
  approximately $3,204,000.  The outstanding balance as of March 31, 2001 was
  $1,995,000.  Loans made under the revolving credit loan bear interest at the
  bank's prime interest rate plus one percent.  As of March 31, 2001, the rate
  of interest on the revolving credit loan was 9.00%.

  The revolving credit loan includes provisions granting S&T Bank a security
  interest in certain assets of the Company including its accounts receivable,
  equipment, lease rights for real property, and inventory of the Company and
  its subsidiaries.  The revolving credit loan also includes reporting
  requirements regarding annual and monthly financial reports, accounts
  receivable and payable statements, weekly borrowing base certificates and
  audit reports.  The revolving credit loan also includes various covenants
  relating to matters affecting the Company including insurance coverage,
  financial accounting practices, audit rights, prohibited transactions,
  dividends and stock purchases.  The covenants also include a cash flow to
  interest ratio of not less than 1.0 to 1.0.  Cash flow is defined as operating
  income before depreciation, amortization and interest.  The cash flow coverage
  ratio is measured for each of the Company's fiscal quarters.  S&T Bank waived
  the cash flow covenant requirement for the fiscal quarter ended March 31,
  2001, which the Company would not have




                                      -12-
<PAGE>

  otherwise met. The Company anticipates the need for an extension of the waiver
  to the fiscal quarter ended June 30, 2001. The Company is in compliance with
  all other covenants as of March 31, 2001.

7. Industry Segment Information

  Basis for Determining Segments

  The Company follows Financial Accounting Standards Board Statement No. 131,
  "Disclosures about Segments of an Enterprise and Related Information" ("SFAS
  No. 131") as the basis for determining its segments.  SFAS No. 131 introduced
  a new model for segment reporting called the "management approach".  The
  management approach is based on the way the chief operating decision maker
  organizes segments within a company for making decisions and assessing
  performance.  Segments to be reported will fall under two groups, Solution
  Area Services and Ancillary Services & Product Sales.  The Company's
  operations and management's evaluations are primarily oriented around three
  solution areas meeting customer needs for Microsoft-based technology services:
  Technology Infrastructure, E-Business and Interactive Media.  Solution area
  services comprise the substantial majority of the Company's current activities
  and are most closely associated with its strategic focus.  Grouping the
  solution area services in segment reporting emphasizes their commonality of
  purpose in meeting the core marketing strategy of the Company.  Beginning in
  2001, however, the Company has changed its solution area structure to reflect
  changes in technology, customers' maturing integration of electronic business
  capabilities with ongoing business operations and the Company's desire to
  simplify its marketing message.  Accordingly, the Company's E-Business
  Solution Area now reflects the combined consulting activities consistent with
  the Company's Microsoft-based technology focus that would have been reflected
  as Business Operations, Knowledge Management and Electronic Business Solution
  Areas under the previous solution area structure.  The Company also performs
  technology consulting services for certain legacy technologies.  The
  management of legacy technology consulting services was performed by the
  Business Operations Solutions Area under the previous solution area structure,
  but is not part of the activities falling under the E-Business Solution Area
  in the current solution area structure due to the Company's management's
  desire for E-Business to concentrate on projects more closely consistent with
  the Company's Microsoft-based technology focus.  Consequently, legacy
  technology consulting services are shown separately under the new solution
  area structure. This presentation represents a change from the segments
  reported as Solution Area Services prior to December 31, 2000.  Segment
  information as of March 31, 2000 and for the three-month period then ended has
  been restated to conform to the new solution area structure.

  In connection with its solutions-oriented services, clients will request that
  the Company also provide technology-related products necessary for
  implementation or ongoing use of technology solutions recommended and
  implemented by the solution areas.  To ensure client satisfaction, the Company
  maintains an ancillary capability to provide sales of information system and
  digital imaging products, equipment and supplies.  The Company also continues
  to operate two interactive television systems as a result of a discontinued
  operating model.  The segment group Ancillary Services & Product Sales will
  include these activities which are ancillary to or outside of the Company's
  current strategic focus.

  The reportable segments reflect aggregated solution area activity across the
  Company's subsidiaries due to the similarity in nature of services, production
  processes, types of customers and distribution methods for each solution area.
  Segments grouped as Solution Area Services include Technology Infrastructure
  Consulting, E-Business Consulting, three segments related to the Interactive
  Media Solution Area (Interactive Media Consulting, Interactive Media Systems
  Integration and Digital Imaging Systems Integration) and Legacy Technology
  Consulting.  Segments grouped as Ancillary Services & Product Sales include
  Interactive Television Transactional Services, Digital Photography Product
  Sales, Information System Product Sales and Other Services.

  Measurement Method

  The Company's basis for measurement of segment revenue, gross profit and
  assets is consistent with that utilized for the Company's Consolidated
  Statements of Income and Consolidated Balance Sheets.  There are no
  differences in measurement method.



                                      -13-
<PAGE>

  Revenue

  Information on revenue derived from external customers is as follows:

<TABLE>
<CAPTION>
(Dollars in thousands)                                                            Revenue from External
                                                                                        Customers
Three Month Periods ended March 31                                               2000              2001
                                                                                ------------------------
<S>                                                                             <C>               <C>
Solution Area Services:
    Technology Infrastructure Consulting                                        $  918            $  935
    E-Business Consulting                                                          617               561
    Interactive Media:
        Interactive Media Consulting                                               263               789
        Interactive Media Systems Integration                                    1,703             1,528
        Digital Imaging Systems Integration                                        718               390
    Legacy Technology Consulting                                                 2,062               770
                                                                                ------------------------
Total Solution Area Services                                                    $6,281            $4,973

Ancillary Services & Product Sales:
    Interactive Television Transactional Services                               $  148            $   94
    Digital Imaging Product Sales                                                  317               189
    Information System Product Sales                                               260                83
    Other Services                                                                  81                63
                                                                                ------------------------
Total Ancillary Services & Product Sales                                        $  806            $  429
                                                                                ------------------------


Consolidated Revenue from External Customers                                    $7,087            $5,402
                                                                                ========================
</TABLE>

  Certain of the Company's segments have also performed services for related
  entities in other segments.  All revenue recorded for these services is
  eliminated in consolidation.  The Company does not break down technology
  consulting services performed for related entities into further segments.
  Information on revenue derived from services for related entities in other
  segments is as follows:

<TABLE>
<CAPTION>
(Dollars in thousands)                                                            Revenue from Related
                                                                                        Entities
Three Month Periods ended March 31                                               2000              2001
                                                                                ------------------------
<S>                                                                             <C>               <C>
Solution Area Services                                                            $  78           $ ---
Ancillary Services & Product Sales                                                   85              33
                                                                                ------------------------

Total Revenue from Related Entities in Other Segments                             $ 163           $  33
                                                                                ========================
</TABLE>

                                      -14-
<PAGE>

  Gross Profit

  Gross profit is the segment profitability measure that the Company's
  management believes is determined in accordance with the measurement
  principles most consistent with those used in measuring the corresponding
  amounts in the Company's consolidated financial statements.  Revenue and cost
  of sales for services performed for related entities is eliminated in
  calculating gross profit.  Information on gross profit is as follows:

<TABLE>
<CAPTION>
(Dollars in thousands)                                                              Gross Profit
Three Month Periods ended March 31                                              2000            2001
                                                                                ----------------------
<S>                                                                             <C>             <C>
Solutions Area Services:
    Technology Infrastructure Consulting                                        $  479          $  579
    E-Business Consulting                                                          309             295
    Interactive Media:
        Interactive Media Consulting                                               161             550
        Interactive Media Systems Integration                                      964             453
        Digital Imaging Systems Integration                                        234             124
    Legacy Technology Consulting                                                   567             208
                                                                                ----------------------
Total Solution Area Services                                                    $2,714          $2,209

Ancillary Services & Product Sales:
    Interactive Television Transactional Services                               $  101          $   58
    Digital Imaging Product Sales                                                   26              20
    Information System Product Sales                                                88              35
    Other Services                                                                  60              45
                                                                                ----------------------
Total Ancillary Services & Product Sales                                        $  275          $  158
                                                                                ----------------------

Consolidated Gross Profit                                                       $2,989          $2,367
                                                                                ======================
</TABLE>

                                      -15-
<PAGE>

  Assets

  Information on total assets attributable to segments is as follows:

<TABLE>
<CAPTION>
(Dollars in thousands)                                                              Total Assets
As of March 31                                                                   2000             2001
                                                                               ------------------------
<S>                                                                            <C>              <C>

Solution Area Services:
    Technology Infrastructure Consulting                                       $ 6,716          $ 6,389
    E-Business Consulting                                                        1,078            1,879
    Interactive Media:
        Interactive Media Consulting                                               229              876
        Interactive Media Systems Integration                                    1,377            1,838
        Digital Imaging Systems Integration                                      1,744              890
    Legacy Technology Consulting                                                11,083            7,794
                                                                               ------------------------
Total Solution Area Services                                                   $22,227          $19,666

Ancillary Services & Product Sales:
    Interactive Television Transactional Services                              $   399          $   238
    Digital Imaging Product Sales                                                  666              399
    Information System Product Sales                                               281              115
    Other Services                                                                 126              184
                                                                               ------------------------
Total Ancillary Services & Product Sales                                       $ 1,472          $   936

Corporate                                                                        2,165            1,009
                                                                               ------------------------

Consolidated Total Assets                                                      $25,864          $21,611
                                                                               ========================
</TABLE>

                                      -16-
<PAGE>

                    Report of Independent Public Accountants


To the Shareholders of Allin Corporation:


We have reviewed the accompanying condensed consolidated balance sheet of Allin
Corporation (a Delaware corporation) and subsidiaries as of March 31, 2001, the
related condensed consolidated statements of income for the three-month periods
ended March 31, 2001 and 2000, and the condensed consolidated statements of cash
flows for the three-month periods ended March 31, 2001 and 2000.  These
financial statements are the responsibility of the Company's management.

We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants.  A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters.  It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole.  Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with accounting principles generally accepted in the United States.

We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheet of Allin
Corporation and subsidiaries as of December 31, 2000 (not presented herein),
and, in our report dated February 26, 2001, we expressed an unqualified opinion
on that statement.  In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 31, 2000 is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.



/s/ Arthur Andersen LLP

Pittsburgh, Pennsylvania,
April 24, 2001

                                      -17-
<PAGE>

Item 2.

                    Management's Discussion and Analysis of
                 Financial Condition and Results of Operations


     The following discussion and analysis by management provides information
with respect to the Company's financial condition and results of operations for
the three-month periods ended March 31, 2001 and 2000.  This discussion should
be read in conjunction with the information in the consolidated financial
statements and the notes pertaining thereto contained in the Company's Annual
Report on Form 10-K for the year ended December 31, 2000, as well as the
information discussed herein under "Risk Factors".  Unless the context otherwise
requires, all references herein to the "Company" refer to Allin Corporation and
its subsidiaries.

     In the following Management's Discussion and Analysis of Financial
Condition and Results of Operations and elsewhere in this quarterly report on
Form 10-Q, words such as "expects," "anticipates," "believes," and other similar
expressions, are intended to identify forward-looking information that involves
risks and uncertainties.  In addition, any statements that refer to expectations
or other characterizations of future events or circumstances are forward-looking
statements.  Actual results and outcomes could differ materially as a result of
important factors including, among other things, public market and trading
issues, uncertainty as to the Company's future profitability, fluctuations in
operating results, the Company's history of net losses and accumulated deficit,
liquidity, and risks associated with the Company's limited operating history
under new marketing strategies and a new solution area structure, the decline in
demand for legacy technology consulting services, dependence on key personnel,
competitive market conditions in the Company's existing and potential future
lines of business, rapidly changing technology and risks inherent in development
of new products and markets.  See "Risk Factors" below.

Overview of Organization, Products & Markets

     Allin Corporation is a solutions-oriented information technology consulting
company that teams with businesses to help them transform the promise of the
Internet into practical business realities through three interrelated solution
areas:  Technology Infrastructure, E-Business and Interactive Media.  The
Company offers technology consulting, application development and systems
integration services specializing in Windows 2000-based and Exchange 2000-based
software from Microsoft Corporation ("Microsoft").  The Company's solution area-
based organizational structure is designed to complement the customer-oriented
focus of the Company's marketing strategy.  The solution area structure is
defined more by a customer's use of the services rather than technological
disciplines.  Solution area sales and operational personnel must understand a
customer's business issues to provide a customized solution to their particular
needs.  The ability of customers to manage information has become a prerequisite
for their success.  A company's knowledge capital has become increasingly
critical in allowing it to react more quickly to customer needs, bring products
to market with greater speed and respond more completely and competitively to
changing business conditions.  The growing influence of the Internet in the
business arena is also fundamentally changing how businesses interact with
customers and suppliers.  The Company believes the customer-based focus of its
solution area organizational structure and marketing strategy promote the
effective delivery of customer-oriented technology solutions and will foster the
growth of long-term customer relationships with ongoing service opportunities.

     The Company was organized under the laws of the State of Delaware in July
1996 to act as a holding company for operating subsidiaries which focus on
particular aspects of the Company's business.  As of March 31, 2001, the
organizational legal structure consists of Allin Corporation, five wholly owned
operating subsidiaries and one wholly owned non-operating subsidiary.  The
operating subsidiaries are Allin Corporation of California ("Allin Consulting-
California"), Allin Consulting of Pennsylvania, Inc. ("Allin Consulting-
Pennsylvania"), Allin Interactive Corporation ("Allin Interactive"), Allin
Digital Imaging Corp. ("Allin Digital Imaging") and Allin Network Products, Inc.
("Allin Network").  Allin Holdings Corporation ("Allin Holdings") is a non-
operating subsidiary that provides treasury management services to the Company.
Allin Consulting-California and Allin Network are California corporations, Allin
Consulting-Pennsylvania is a Pennsylvania corporation and Allin Interactive,
Allin Digital and Allin Holdings are Delaware corporations.  The Company is
headquartered in Pittsburgh, Pennsylvania with additional offices located in San
Jose and Walnut Creek, California and Ft. Lauderdale, Florida.  The Company

                                      -18-
<PAGE>

utilizes the trade-names Allin Consulting, Allin Interactive and Allin Digital
Imaging in its operations.  All trade- and brand-names included in this Report
on Form 10-Q are the property of their respective owners.

     The Company changed its solution area structure as of the beginning of 2001
to reflect changes in technology, customers' maturing integration of electronic
business capabilities with ongoing business operations and the Company's desire
to simplify its marketing message.  Accordingly, the Company's E-Business
Solution Area now reflects the combined consulting activities consistent with
the Company's Microsoft-based technology focus that would have been reflected as
Business Operations, Knowledge Management and Electronic Business Solution Areas
under the previous solution area structure.  The Company also performs
technology consulting services for certain legacy technologies.  The management
of legacy technology consulting services was performed by the Business
Operations Solutions Area under the previous solution area structure, but is not
part of the activities falling under the E-Business Solution Area in the current
solution area structure due to the Company's management's desire for E-Business
to concentrate on projects more closely consistent with the Company's Microsoft-
based technology focus.  Consequently, legacy technology consulting services are
shown separately under the new solution area structure.  This presentation
represents a change from the segments reported as Solution Area Services prior
to December 31, 2000.  Information as of March 31, 2000 and for the three-month
period then ended has been restated to conform to the new solution area
structure.

     The Technology Infrastructure Solution Area focuses on customers'
underlying platforms and operating systems.  Technology infrastructure is the
foundation upon which technology applications are built.  Technology
infrastructure is comprised of three significant components: the physical
network, the operating system and back-office applications.  The physical
network component deals with network design, network security, local and remote
access and Internet connectivity.  The operating system encompasses all aspects
of the design and implementation of a network operating system including
protocol design, policies, profiles, desktop standards, client
installation/imaging and backup schemas.  Back-office operations encompasses the
design and installation of communications servers, database servers and
application servers.  The Technology Infrastructure Solution Area designs and
implements enterprise-quality systems that maximize network availability and
efficiency, and enable customers to reduce costs and protect vital resources.
Technology Infrastructure solutions provide the underlying platforms and
operating systems necessary to take advantage of the latest technology
capabilities.  Services include design, configuration, implementation,
evaluation of customer operating systems and database platforms, messaging
systems, information system security solutions such as firewalls and proxy
servers and application services such as message queing and transaction servers.
The Technology Infrastructure Solution Area services maintain a focus on
Microsoft BackOffice technology including Windows 2000, Windows NT Server, SQL
Server, SNA Server, Systems Management Server, Exchange Server and Internet
Information Server.  Messaging and collaboration projects focus on technologies
such as Microsoft Exchange 2000 and SharePoint and utilize the Research in
Motion Blackberry products for wireless communication.  The Company believes
that Technology Infrastructure enables its customers to incorporate new
applications and new technologies into existing information systems quickly and
with minimal disruption.  Technology Infrastructure targets horizontal markets,
meaning businesses across a broad spectrum of industries.  The goal of the
Technology Infrastructure Solution Area is to develop and implement solutions
solving business problems thereby bringing tangible benefits to customers.

     The E-Business Solution Area provides solutions that enable organizations
to evaluate and optimize business processes and extend corporate messages,
products, services and processes.  The impact of the Internet is moving
businesses toward widespread seamless access of employees, customers and
suppliers to business knowledge capital and transactional systems.  E-Business
delivers portal and business intelligence solutions that automate and streamline
information creation, storage, sharing and retrieval.  The E-Business Solution
Area provides solutions implementing revenue-generating customer-accessible E-
commerce applications, business-to-business extranets and internally-focused
intranets.  E-Business solutions can also enable customers to increase
productivity by improving the flow and accessibility of information, thereby
eliminating inefficiencies and reducing costs.  Solutions include extranet-based
value chains and electronic commerce sites, data warehousing, work flow, and
interfaces with, or custom development for, business operation transaction
systems.  These services provide tools to empower customer personnel with the
business intelligence for fast and effective decision making.  E-Business
develops solutions based on Microsoft's Internet Explorer which allows software
systems that support many features of traditional client/server applications
while reducing development and deployment costs.  E-Business utilizes the latest
Microsoft Web enabling technology, such as BizTalk, Commerce Server, SQL Server

                                      -19-
<PAGE>

and .NET to develop cost effective, scalable solutions.  Internet Information
Server provides the means of delivering Web-based solutions while assuring data
encryption and security through its support of digital signatures.  Using
Microsoft technology such as SharePoint, Digital Dashboard, SQL Server and
Exchange 2000, the E-Business Solution Area enables customers to centralize
information stores, develop security schemes to regulate access to data and
establish personalized points of access to all relevant business information,
regardless of location or format.  E-Business also targets horizontal markets.

     The Interactive Media Solution Area focuses on the Company's expertise in
digital media applications including interactive television and digital imaging
solutions.  Interactive Media enables customers to convert manual and analog
processes into interactive digital solutions.  Interactive Media delivers
business-to-business and business-to-consumer E-commerce platforms that
management believes enable customers to improve service, and increase
productivity and revenue.  Interactive television operations are currently
focused on two vertical markets, the cruise line segment of the travel and
leisure market and the healthcare market.  Interactive Media applications help
cruise line customers maintain a high level of customer service without
increasing staff requirements.  Interactive Media's healthcare industry
applications enable customers to decrease costs and increase efficiency by
reducing delivery time for administrative and educational services.  Interactive
television solutions are cost-effective because they leverage a pooled set of
advanced head-end equipment to deliver advanced applications across the radio
frequency distribution system to the end-user televisions.  The interactive
television system architecture features a centralized head-end that interfaces
with the customer's other information systems.  The open architecture of the
head-end operating systems based on Microsoft BackOffice products such as
Windows NT, SQL Server and Internet Information Server enables customer co-
development of applications.  The solution is Internet accessible and supports
highly-functional applications and high-end graphics and MPEG content.
Applications developed for and utilized by customers include pay-per-view
movies, shore excursion ticketing, in-cabin gaming, meal service ordering, on-
demand viewing of information related to medical conditions and procedures, on-
demand viewing of educational programs and distribution of activities and
informational content.  Digital imaging solutions are focused on the
professional photography market.  Digital imaging solutions convert professional
portrait studios to digital capture and presentation capabilities.  The
solutions provide portrait studios with the equipment and off-the-shelf and
proprietary software necessary for conversion, on-site equipment, software and
process-flow training, ongoing technical support and the Internet presence and
e-commerce solution intended to maximize the Internet as a marketing and sales
tool. Portraits Online/TM/, the Company's proprietary Internet-based portrait
viewing and selling system, when sold as a digital system add-on, allows the
portrait studio's customers to view and order their portraits on a touchscreen
monitor immediately following their portrait session.  In addition, the system
gives the consumer the ability to access and order their images via the studio's
Portraits Online/TM/ Internet site.  Interactive Media performs services on
both a consulting and systems integration basis.

     The Company has established operating relationships with some of the
leading suppliers of information technology products to complement its solution
area services.  Foremost among these is the operating relationship with
Microsoft.  Both of the Company's Allin Consulting subsidiaries and Allin
Interactive are certified as Microsoft Solutions Provider Partners.  The Allin
Consulting subsidiaries are also members of Microsoft's Infrastructure and
Collaborative Solutions Portal Partner Advisory Councils.  Council members are a
select group of Microsoft Solution Providers with a successful history of
implementing Microsoft information technology who work closely with Microsoft to
provide guidance on key issues that ultimately shape Microsoft's channel-based
strategy for delivering customer solutions and services.  The Company's role as
a member of these Advisory Councils has positioned it to quickly develop
solutions expertise in new Microsoft technologies.  The Company's Northern
California and Pittsburgh offices have also recently been designated as
Microsoft Gold Certified Partners in recognition of their attainment of rigorous
certification criteria and demonstrated technical competency in complex business
solutions.  The Company intends to continue its specialization in Microsoft-
based technology products.

     The Company was a recipient of Pittsburgh Technology 50 awards in 1998,
1999 and 2000.  The award recognizes the highest three-year revenue growth rates
among technology-based businesses in the Pittsburgh region.  Allin Digital was
also recognized by the Eastman Kodak Company as "Digital Integrator of the Year"
at the 2001 Photo Marketing Association International Trade Show.

     The Company's current target market is mid-market to Fortune 1000 companies
seeking to achieve a competitive advantage through technology.  The Company
believes that businesses with annual revenue ranging from $250 million to $1
billion afford the Company the best opportunities to offer solutions creating
value for the

                                      -20-
<PAGE>

customers and to foster the development of long-term business
relationships.  Management believes customers of this size are more likely to
utilize Microsoft-oriented information technology than larger organizations and
typically have less sophisticated internal technical resources.  The Company
will not, however, limit its marketing and sales efforts solely to customers of
this size.

     The Company has developed a solutions framework, the Allin Solutions
Framework, for guiding the planning and conduct of solutions-oriented
engagements.  The Allin Solutions Framework also assists customers in aligning
their business and technology objectives thereby maximizing the effectiveness of
the recommended solutions.  The Allin Solutions Framework allows solution
planning to draw upon a knowledge base of resources containing iterative
information on technology architecture planning.  It also provides a solution
development discipline focused on unique team and process models used for
organizing effective project teams and managing project lifecycles.  The Allin
Solutions Framework provides a foundation for planning and controlling results-
oriented projects based on scope, schedule and resources.  The adaptable process
includes four phases:

 .  The Solution Vision phase delivers a Vision document that articulates the
    ultimate goals for the solution and provides clear direction to measure
    success as well as defining the scope of the solution and the boundaries of
    the project. The Solution Vision includes a risk/return assessment and a
    project plan for the remaining phases.

 .  The Solution Design phase culminates in the delivery and acceptance of the
    design specifications including functional specifications, system design and
    quality assurance considerations, test plan and the project plan and
    schedule for solution development.

 .  The Solution Development phase culminates in the initial delivery of a
    functionally complete solution, ready for pilot usage.

 .  The Solution Deployment phase begins with a pilot and culminates in the
    production release of the installed system, training and documentation, and
    conversion of, or integration with, existing systems.

     The iterative nature of the Allin Solutions Framework has led to the
development of standardized turnkey service products, the Allin Solution
Products, that are offered on a fixed-fee basis.  Allin Solution Products allow
new or existing customers to leverage the Company's expertise for technology
assessments on a cost-controlled basis.  The Company's management believes the
Allin Solution Products will be effective introductory products to establish
relationships with new customers.  Many of the Allin Solution Products are
diagnostic in nature, allowing for demonstration of the Company's technological
expertise while identifying opportunities for implementation of more
comprehensive solutions.

     The Company's solution areas deliver consulting services to customers
through three methods: Allin-managed, co-managed and customer-managed.  With the
Allin-managed delivery method, the solution area assumes complete control of the
consulting process.  Client personnel function as sources of information
concerning the business need for which a solution is sought.  Solution area
managers and consultants fully control solution planning, development and
implementation.  The Allin-managed delivery method delivers solutions on a
turnkey basis.  With the co-managed delivery method, management of the solution
is shared between the solution area and customer personnel.  Solution area
managers and consultants and customer technical staff members work on a
collaborative basis in planning, developing and implementing solutions.  Project
functions are distributed among both solution area and customer personnel.  With
the customer-managed delivery method, the solution area provides technical
resources with specific technical skill sets.  The customer utilizes these
resources to complement and assist its technical staff in the execution of tasks
or projects.  The customer remains in control of the tasks or projects and
actively manages the work performed by the Company's consultants.  The Company
will currently perform services under any of these delivery methods.  However,
the Allin-managed and co-managed delivery methods are viewed as offering the
potential for higher billing rates and margins due to the Company's performance
of the high level managerial tasks required with these delivery methods.  The
Company seeks to continue to gradually increase the proportion of overall
solution area services delivered on the Allin-managed and co-managed delivery
methods.

     Management views services delivered through the Allin-managed or co-managed
methods as being solutions-oriented services because the Company is fully or
partially responsible for development and implementation of technology-based
solutions to customers' business problems.  Services delivered under the Allin-
managed or co-managed methods are viewed as the most consistent with the
Company's overall marketing strategy

                                      -21-
<PAGE>

and business objectives. References in this report to solutions-oriented
services mean services delivered through the Allin-managed or co-managed
methods. Currently, the majority of the services of the Technology
Infrastructure, E-Business and Interactive Media Solution Areas are solutions-
oriented services because they are delivered on the Allin-managed or co-managed
methods. The Company's long-term marketing strategy will seek development of
additional solutions-oriented business in all solutions areas.

     Allin Consulting-Pennsylvania has historically performed technology
consulting services for certain legacy technologies, including IBM proprietary
mainframe systems and Hogan IBA software applications, which are specialized
products for the banking industry.  Legacy technology consulting services
include application development, data base development and administration, and
data communications development for IBM proprietary technology and merger and
acquisition conversions, software product implementation, systems modification
and support for Hogan IBA software.  While such operations will continue, the
level of these services has declined significantly in 1999, 2000 and the first
quarter of 2001.  Management expects a continued significant decline in the
level of legacy technology services performed over the remainder of 2001.
Historically, virtually all of legacy technology consulting services have been
delivered on a customer-managed basis.  Legacy technology consulting services
are overseen by executive management and support personnel in the Company's
Pittsburgh office who have responsibility for all of the Pittsburgh-based
solution area operations.

     Ancillary services and product sales are those revenue producing activities
carried out by the Company that, unlike the solution area services previously
described, are not viewed as key to, or completely aligned with, the Company's
overall strategic objectives and marketing plans.  Ancillary services and
product sales are conducted either because they represent continuation of
operating activity that originated under an operating model that was
subsequently abandoned or because they meet client requests for products and
services recommended during the performance of solution area services or that
are necessary for continued operation of implemented solutions.  Ancillary
services and product sales include the following types of activities:

 .  The Company continues to derive revenue for transactional interactive
    services such as pay-per-view movies and video gaming from interactive
    television operations on two cruise ships. The Company expects this revenue
    stream to be discontinued in the second quarter of 2001 upon Carnival Cruise
    Lines' ("Carnival") assumption of operations pursuant to their February 2001
    purchase of these systems.

 .  Customers' operation of digital imaging systems involves the continual usage
    of consumables such as photographic paper, photographic ribbons and compact
    discs. Studios will also from time to time purchase additional equipment to
    enhance the capabilities of systems already installed or in response to
    increasing business volume. The Company views being a source of digital
    consumable supplies and ongoing equipment upgrades as an aid in maintaining
    the relationships it establishes with its digital imaging systems
    integration customers.

 .  The Company's information system product sales historically have been
    primarily obtained in connection with technology consulting engagements
    carried out by the Company's solution areas. The Company views being a
    source of information system products as a complementary service to solution
    area customers and as an aid in maintaining established relationships.

 .  Other services include several types of revenue not included in solution
    area revenue due to a lack of consistency with core solution area
    objectives, but which derive from activities peripheral to solution area
    activity. Examples of the types of revenue are placement fees and sale of
    digital photography output.

Results of Operations

Three Months Ended March 31, 2001 Compared to Three Months Ended March 31, 2000

Revenue

     The Company's total revenue for the three months ended March 31, 2001 was
$5,402,000, a decrease of $1,685,000, or 24%, from total revenue of $7,087,000
for the three months ended March 31, 2000.  Revenue from the Company's
Technology Infrastructure, E-Business and Interactive Media Solution Areas
declined by only $16,000 from the first quarter of 2000 to the first quarter of
2001, despite the inclusion of approximately $980,000 of non-recurring revenue
in the first quarter of 2000 related to the 1999 sale of four interactive
television systems to

                                      -22-
<PAGE>

Celebrity Cruises, Inc. ("Celebrity"). See below for additional discussion of
the Celebrity ship system sales. The significant period-to-period decrease in
revenue is attributable to declines in legacy technology consulting services
revenue of $1,292,000 and ancillary services and product sales of $377,000.

     The Company's solution area revenue, after elimination of intercompany
sales, was $4,973,000 for the three months ended March 31, 2001, including
$935,000 for Technology Infrastructure, $561,000 for E-Business, $2,707,000 for
Interactive Media and $770,000 for legacy technology consulting services.
Comparable solution area revenue for the three months ended March 31, 2000 was
$6,281,000 in total, including $918,000 for Technology Infrastructure, $617,000
for E-Business, $2,684,000 for Interactive Media and $2,062,000 for legacy
technology consulting services.

     Technology Infrastructure revenue increased $17,000, or 2%, in the three
months ended March 31, 2001 as compared to the three months ended March 31,
2000.  Management attributes the lack of a more significant increase in
Technology Infrastructure revenue to uncertainty regarding the domestic economy
beginning in late 2000.  A number of customers or potential customers have
postponed projects or delayed consideration of new technology infrastructure
projects such as implementation of Microsoft's Windows 2000 operating platform
pending further assessment of the expected magnitude and duration of any
economic downturn.  Despite the softening of demand for Technology
Infrastructure services experienced over the last two quarters, the Company's
management believes several market factors will contribute to long-term
Technology Infrastructure revenue growth, which were discussed in the Industry
Overview - Technology Consulting Services section in Item 1 - Business of the
Company's Annual Report on Form 10-K for the year ended December 31, 2000.
Internet-based business-to-business commerce is expected to accelerate rapidly
in the early years of the 2000's.  The Internet is transforming interaction
among businesses and their customers and suppliers, which is expected to cause
businesses to evaluate and upgrade their technology infrastructure to be able to
take advantage of advancing portal and business intelligence technology products
and other Internet-driven opportunities.  Another factor that management expects
to contribute to future growth in Technology Infrastructure is business
conversion to Microsoft's Windows 2000 operating platform.  Management expects
these general trends in technology will create conditions favorable for long-
term growth in demand for Technology Infrastructure services once the domestic
economy moves toward recovery from the current economic uncertainty.  There can
be no assurance, however, that revenue will be realized at the same or higher
levels in future periods, or that any revenue increase realized would result in
the desired improvements to the Company's financial condition or results of
operations.

     The E-Business Solution Area recorded a revenue decrease of $56,000, or 9%,
for the three months ended March 31, 2001 as compared with the three months
ended March 31, 2000. Management also attributes the decline in period-to-period
E-Business revenue to a softening of demand for technology consulting services
due to the uncertainty regarding the domestic economy. Similarly as with the
Technology Infrastructure Solution Area, a number of customers or potential
customers have postponed E-Business projects or delayed consideration of new
projects due to the economic uncertainty. Despite the recent downturn,
management also expects that fundamental market forces will result in a long-
term increase in the demand for E-Business services, which were discussed in the
Industry Overview - Technology Consulting Services section in Item 1 - Business
of the Company's Annual Report on Form 10-K for the year ended December 31,
2000. The Internet is expected to drive a significant level of technological and
business innovation, with Internet-related business activity expected to grow
significantly over the early years of the 2000's. Technological trends support
increasing long-term demand for complex solutions based on advanced portal and
business intelligence products. The Company plans to continue significant
marketing efforts to attempt to generate additional sales for the E-Business
Solution Area during the remainder of 2001. There can be no assurance, however,
that the Company will realize revenue equal to or greater than current levels
for its E-Business Solution Area in the future or that any increases realized
will result in the desired improvements to the Company's financial condition or
results of operations.

     Interactive Media Solution Area revenue totaled $2,707,000 for the three
months ended March 31, 2001, including $789,000 for interactive media
consulting, $1,528,000 for interactive media systems integration and $390,000
for digital imaging systems integration.  Comparable Interactive Media revenue
for the three months ended March 31, 2000 was $2,684,000 in total, including
$263,000 for interactive media consulting, $1,703,000 for interactive media
systems integration, and $718,000 for digital imaging systems integration.  The
increase in Interactive Media Solution Area revenue from the first quarter of
2000 to the first quarter of 2001 was 1%.

                                      -23-
<PAGE>

     Interactive Media consulting revenue increased $526,000, or 200%, for the
three months ended March 31, 2001 as compared with the first quarter of the
prior year.  The increase in revenue was attributable to commencement of
applications development for interactive television systems to be installed on
six Carnival ships in 2001 and 2002, applications development for an increased
number of ship-based interactive television systems for other cruise line
customers and maintenance and trouble-shooting services for a larger number of
ship-based interactive television systems.  The Company's management believes
there is potential for continued growth of interactive media consulting in the
markets targeted by the Interactive Media Solution Area.  There can be no
assurance, however, that the Company's Interactive Media Solution Area will
continue to realize consulting revenue equal to or greater than was realized in
the first quarter of 2001 or that any increase realized will result in the
desired improvement to the Company's financial condition or results of
operations.

     Revenue for Interactive Media systems integration services decreased by
$175,000, or 10%, in the three months ended March 31, 2001 as compared to the
three months ended March 31, 2000.  As noted above, Interactive Media systems
integration revenue for the first quarter of 2000 included approximately
$980,000 related to the 1999 sale of four interactive television systems to
Celebrity.  The interactive television systems had been installed on Celebrity
ships from 1995 to 1997 when Allin Interactive was following an owner-operator
model for interactive television operations.  Revenue from the system sales was
recognized over the minimum period of an associated maintenance obligation,
which ended March 17, 2000.  The Celebrity ship system sales were unusual
transactions in terms of the magnitude of revenue associated with concurrent
system sales.  Revenue from the installation of new interactive television
systems was significantly greater in the first quarter of 2001 as compared to
the first quarter of 2000, thereby replacing most of the non-recurring Celebrity
ship system sale revenue.  In February 2001, the Company entered an agreement
with Carnival for installation of interactive television systems on six Carnival
vessels in 2001 and 2002 and also received orders for systems for an additional
Celebrity ship and an additional Royal Caribbean Cruise Lines ("Royal
Caribbean") ship.  Accordingly, management expects Interactive Media systems
integration revenue to increase substantially beginning in the third quarter of
2001.  There can be no assurance, however, that projects expected to occur in
2001 will not be delayed or that revenue will be earned at the same or higher
levels in 2002 or beyond.  There can also be no assurance that systems
integration projects to be carried out will result in the desired improvements
to the Company's financial condition or results of operations.

     Digital imaging systems integration revenue decreased by $328,000, or 46%,
in the three months ended March 31, 2001 as compared to the three months ended
March 31, 2000.  Management attributes the decline to several factors.  The
Interactive Media Solution Area experienced turnover among its digital imaging
sales staff in late 2000 and early 2001.  Management believes the reduced number
of experienced sales personnel has negatively impacted sales efforts in the
first quarter of 2001.  Management also believes sales have been negatively
impacted by the uncertainty regarding general domestic economic conditions
since the professional photography industry is heavily dependent on
discretionary consumer spending. Another factor in the period-to-period decline
was the inclusion of an unusually large installation project for a multiple-
location photography business in the first quarter of 2000.

     Revenue from legacy technology consulting services declined $1,292,000, or
63%, for the three months ended March 31, 2001 as compared to the three months
ended March 31, 2000.  During 2001, the Company is placing significantly greater
marketing emphasis on the Microsoft-based solutions-oriented services offered by
the Technology Infrastructure, E-Business and Interactive Media Solution Areas.
While the Company actively seeks renewal or extension of current legacy
technology engagements, it is not aggressively seeking new customers for legacy
technology services.  Management also attributes the decline in demand for
legacy technology consulting services to a general trend in technology away from
mainframe systems toward a client/server environment.  A significant portion of
the Company's legacy technology consulting services is focused on mainframe
systems.  Management expects a continued decline in legacy technology consulting
revenue over the remainder of 2001.

     The Company recognized revenue for ancillary services & product sales of
$429,000 during the three months ended March 31, 2001, including $94,000 for
interactive television transactional services, $189,000 for digital imaging
product sales, $83,000 for information system product sales and $63,000 for
other services.  Ancillary services & product sales revenue of $806,000 was
recognized during the three months ended March 31, 2000, including $148,000 for
interactive television transactional services, $317,000 for digital imaging
product sales, $260,000 for information system product sales and $81,000 for
other services.

                                      -24-
<PAGE>

     Interactive television transactional services revenue decreased by $54,000,
or 36%, in the three months ended March 31, 2001 as compared to the three months
ended March 31, 2000.  In February 2001, the Company sold the two Company owned
and operated interactive television systems to Carnival.  Transactional revenue
will be discontinued as a revenue source to the Company after transfer of
systems operation to Carnival, expected to occur in the second quarter of 2001.
Digital imaging product sales decreased by $128,000, or 40%, in the first
quarter of 2001 as compared to the first quarter of 2000.  Management attributes
the decline to the general economic uncertainty which has slowed customer demand
for additional equipment to be added to previously installed digital imaging
systems.  Information system product sale revenue decreased by $177,000, or 68%,
in the first quarter of 2001 as compared to the first quarter of 2000.  The
Company acquired assets associated with the operations of Erie Computer Company
("Erie Computer") in February 2000.  Erie Computer's revenue base included a
significant component of information system product sales.  Erie Computer was
subsequently sold in May 2000 eliminating this revenue stream for the first
quarter of 2001.  Revenue from other services decreased by $18,000 from the
first quarter to 2000 to the first quarter of 2001.

Cost of Sales and Gross Profit

     The Company recognized cost of sales of $3,035,000 during the three months
ended March 31, 2001 as compared to $4,098,000 during the three months ended
March 31, 2000.  A significant majority of the decrease in cost of sales of
$1,063,000 is associated with the decline in legacy technology consulting
services.  Gross profit of $2,367,000 was recognized for the first quarter of
2001 as compared to $2,989,000 for the first quarter of 2000, a decrease of
$622,000, or 21%.  Again, the majority of the decrease in gross profit in the
first quarter of 2001 as compared to the first quarter of 2000 is attributable
to the effects of the decline in legacy technology consulting services.  Another
factor contributing to the decline in gross profit was the inclusion of a
portion of the Celebrity ship interactive television system sales in the first
quarter of 2000.  The Celebrity system sales had an unusually high gross profit
since the system equipment had been depreciated during the period Allin
Interactive owned and operated the systems.  Gross profit as a percentage of
revenue actually increased to 44% in the first quarter of 2001 from 42% in the
first quarter of 2000 despite the significant amount of Celebrity system sale
gross profit included in the 2000 period.  Management believes the improvement
in gross profit percentage demonstrates the Company's success to date in
developing higher-margin solutions-oriented business, although there can be no
assurance that the Company will realize gross profit percentages in the future
at or above current levels.

     The Company's solution areas recorded a total of $2,764,000 for cost of
sales during the three months ended March 31, 2001, including $356,000 for
Technology Infrastructure, $266,000 for E-Business, $1,580,000 for Interactive
Media and $562,000 for legacy technology consulting services.  Comparable cost
of sales for the three months ended March 31, 2000 was $3,567,000 in total,
including $439,000 for Technology Infrastructure, $308,000 for E-Business,
$1,325,000 for Interactive Media and $1,495,000 for legacy technology consulting
services.  Gross profit for the Company's solution areas for the three months
ended March 31, 2001 was $2,209,000, including $579,000 for Technology
Infrastructure, $295,000 for E-Business, $1,127,000 for Interactive Media and
$208,000 for legacy technology consulting services.  Comparable gross profit for
the three months ended March 31, 2000 was $2,714,000 in total, including
$479,000 for Technology Infrastructure, $309,000 for E-Business, $1,359,000 for
Interactive Media and $567,000 for legacy technology consulting services.  The
most significant factors in the period-to-period decline in gross profit were
the decline in the level of legacy technology consulting services from the first
quarter of 2000 to the first quarter of 2001 and the inclusion of unusually high
gross profit associated with the Celebrity ship interactive television system
sales in the first quarter of 2000.

     Technology Infrastructure gross profit increased $100,000 in the first
quarter of 2001 as compared to the first quarter of 2000 while revenue increased
by $17,000.  The Company was able to realize a 21% increase in gross profit from
a 2% increase in revenue.  The increase in gross profit was realized through
growth in high margin solutions-oriented projects.  The Company made substantial
progress in increasing average Technology Infrastructure billing rates
throughout 2000, which resulted in higher gross margin potential in 2001 on a
consistent level of revenue production.  Technology Infrastructure gross profit
as a percentage of revenue increased 10% from the first quarter of 2000 to the
first quarter of 2001.

     E-Business gross profit decreased $14,000 in the first quarter of 2001 as
compared to the first quarter of 2000, consistent with a decline in revenue.
Gross profit as a percentage of revenue, however, experienced a 3% period-to-
period increase.  Management attributes the decline in gross profit to the
uncertainty regarding general domestic economic conditions

                                      -25-
<PAGE>

experienced in the first quarter of 2001, which management believes has
softened demand for technology consulting services due to customers' delay of
technology projects and postponement of consideration of new technology
initiatives. The improvement in gross profit as a percentage of revenue resulted
from increased average billing rates.

     Cost of sales for the Interactive Media Solution Area was $1,580,000 in
total for the three months ended March 31, 2001, including $239,000 for
interactive media consulting, $1,075,000 for interactive media systems
integration and $266,000 for digital imaging systems integration.  Interactive
Media cost of sales for the three months ended March 31, 2000 was $1,325,000 in
total, including $102,000 for interactive media consulting, $739,000 for
interactive media systems integration and $484,000 for digital imaging systems
integration.  Interactive Media Solution Area gross profit was $1,127,000 for
the three months ended March 31, 2001, including $550,000 for interactive media
consulting, $453,000 for interactive media systems integration and $124,000 for
digital imaging systems integration.  Interactive Media gross profit was
$1,359,000 for the three months ended March 31, 2000 including $161,000 for
interactive media consulting, $964,000 for interactive media systems integration
and $234,000 for digital imaging systems integration.  The increases in
interactive media consulting cost of sales and gross profit primarily resulted
from a substantially higher level of applications development services for
cruise industry customers in the first quarter of 2001 as compared to the first
quarter of 2000.  The substantial period-to-period decline in interactive media
systems integration gross profit is due to the inclusion of a portion of the
gross profit associated with the sale of four Celebrity ship interactive
television systems in the first quarter of 2000.  Substantial portions of the
equipment cost associated with these systems had been depreciated at the time of
sale to Celebrity, resulting in the recording of unusually high gross profit on
the system sales.  The period-to-period decline in digital imaging systems
integration gross profit of $110,000 is consistent with the revenue decline for
these services and is attributable the negative impact of sales staff turnover
and the economic uncertainty and the inclusion of an unusually large
installation in the first quarter of 2000.

     Cost of sales for the Company's legacy technology consulting services was
$562,000 for the three months ended March 31, 2001 as compared to $1,495,000 for
the three months ended March 31, 2000.  Gross profit realized on legacy
technology consulting services declined from $567,000 in the first quarter of
2000 to $208,000 in the first quarter of 2001.  The declines in legacy
technology consulting cost of sales and gross profit are consistent with the
period-to-period decline in revenue.  Management attributes the declines to both
industry trends away from mainframe computer systems and the Company's shift in
marketing focus over the last two years to developing higher-margin solutions-
oriented business.

     Cost of sales for the Company's ancillary services and product sales was
$271,000 for the three months ended March 31, 2001, including $36,000 for pay-
per-view movies associated with interactive television transactional revenue,
$169,000 for digital imaging product sales, $48,000 for information system
product sales and $18,000 for other services.  Cost of sales for ancillary
services and product sales was $531,000 for the three months ended March 31,
2000, including $47,000 for pay-per-view movies, $291,000 for digital imaging
product sales, $172,000 for information system product sales and $21,000 for
other services.  Gross profit on ancillary services and product sales was
$158,000 for the first quarter of 2001, including $58,000 for interactive
television transactional revenue, $20,000 for digital imaging product sales,
$35,000 for information system product sales and $45,000 for other services.
Gross profit for ancillary services and product sales was $275,000 for the first
quarter of 2000, including $101,000 for interactive television transactional
services, $26,000 for digital imaging product sales, $88,000 for information
system product sales and $60,000 for other services.  The largest factor in the
period-to-period decline in gross profit of $117,000 was the inclusion of two
months of Erie Computer information system product sales activity in the first
quarter of 2000.  The Erie Computer operations were sold in May 2000 and
consequently, there is no gross profit associated with their operations in the
first quarter of 2001.  Interactive television transactional services are
expected to cease as a source of gross profit in the second quarter of 2001 upon
transfer of systems operation to Carnival.

Selling, General & Administrative Expenses

     The Company recorded $3,315,000 in selling, general & administrative
expenses during the three months ended March 31, 2001 as compared to $2,905,000
during the three months ended March 31, 2000, an increase of $410,000, or 14%.
The Company added managerial, marketing and delivery personnel during 2000 and
early 2001 to continue the Company's transition toward a solutions-oriented
project focus throughout its solution areas.  This

                                      -26-
<PAGE>

was particularly pronounced in the Interactive Media Solution Area in the first
quarter of 2001. Interactive Media added in excess of $12,000,000 of committed
backlog for consulting and systems integration services in the first quarter of
2001. Management expects this will result in a substantial increase in the
number of active Interactive Media projects later in 2001. Interactive Media
began to augment its consulting staff in the first quarter of 2001 in order to
have an appropriately sized and trained staff to handle the expected substantial
increase in project activity. Through the third quarter of 2000, the Company had
also been able to offset most of the cost associated with its investment in
solution area managerial, marketing and delivery personnel with overhead cost
reductions associated with legacy technology consulting services. However, most
of the potential for these cost reductions had been realized by September 2000,
and more recent investments in solution area resources have had the effect of
increasing selling, general & administrative expenses. Late in the first quarter
of 2001, management moved to reduce the cost of personnel resources in some of
its solution areas. No significant impact on selling, general & administrative
expenses from these changes will be realized until the second quarter of 2001.

     During the three months ended March 31, 2001, severance accruals of
approximately $74,000 were recorded as a result of the termination of services
of two managerial personnel associated with the Company's Technology
Infrastructure and E-Business Solution Area services.  During the three months
ended March 31, 2000, a severance accrual of approximately $70,000 was recorded
due to the Company's termination of services of two managerial personnel
associated with the Company's legacy technology consulting services.

     Depreciation and amortization were $531,000 for the three months ended
March 31, 2001 as compared to $523,000 for the three months ended March 31,
2000.  The slight increase is due to additional goodwill amortization associated
with additional purchase consideration recorded in January 2001 related to the
1998 acquisition of MEGAbase, Inc. ("MEGAbase"), which was merged into Allin
Consulting-California subsequent to acquisition.

     Research and development expense included in selling, general &
administrative expenses was $1,000 for the three months ended March 31, 2001 as
compared to $13,000 for the three months ended March 31, 2000.  Research and
development activity during the first quarter of 2001 included continued
graphical and functional improvements for Allin Digital's Portraits Online/TM/
Internet-based E-Commerce platform targeted for professional photographers.
Research and development activities in the first quarter of 2000 focused on
Portraits Online/TM/ improvements and development activities associated with the
equipment platform utilized for interactive television system installations.

Net Loss or Income

     The Company's net loss for the three months ended March 31, 2001 was
$997,000 as compared to net income of $19,000 for the three months ended March
31, 2000.  The decline in profitability was $1,016,000.  The most significant
factor was a decrease in gross profit of $622,000 due to a decline in the level
of the Company's legacy technology consulting services and the inclusion of
unusually high gross profit in the first quarter of 2000 related to the
Celebrity interactive television system sales.  Also contributing to the decline
in profitability was a $410,000 increase in selling, general & administrative
expenses primarily associated with additional managerial, marketing and delivery
resources.

Liquidity and Capital Resources

     At March 31, 2001 the Company had cash and liquid cash equivalents of
$1,164,000 available to meet its working capital and operational needs.  The net
change in cash from December 31, 2000 was a decrease of $1,166,000, which
resulted primarily from cash used by the Company's operations and repayment of a
portion of the outstanding balance on the Company's line of credit.

     The Company recognized a net loss for the three months ended March 31, 2001
of $997,000.  The Company recorded non-cash expenses of $531,000 for
depreciation and amortization of software development costs and other intangible
assets, resulting in a net cash use of $466,000 related to the income statement.
Working capital adjustments resulted in a net cash use of $374,000.  Among the
working capital adjustments resulting in cash used were reductions in accounts
and notes payable of $1,864,000 and accrued liabilities of $462,000.  These were
substantially offset by working capital adjustments providing cash, including
increases in billings in excess of costs and estimated gross margins and
deferred revenue of $1,460,000 and $115,000, respectively, and decreases in

                                      -27-
<PAGE>

accounts receivable and inventory of $256,000 and $145,000, respectively.  The
net result of the income statement activity and working capital adjustments was
a net cash use of $840,000 related to operating activities.

     Investing activities resulted in a net cash use of $106,000 for the three
months ended March 31, 2001, primarily due to a cash payment of $60,000 as a
portion of additional purchase consideration pursuant to the January 2001
settlement of litigation related to the Company's 1998 acquisition of MEGAbase.
The Company also recorded capital expenditures of $47,000 during the three
months ended March 31, 2001.  Financing activities resulted in a net cash use of
$220,000 during the three months ended March 31, 2001, primarily from a net
repayment on the Company's line of credit of $160,000 and payments for preferred
stock dividends of $59,000.

     The Company's common stock had been listed on The Nasdaq Stock Market's
("Nasdaq") National Market since the Company's initial public offering of its
common stock in November 1996.  However, as the Company was unable to maintain
compliance with Nasdaq's criteria for continued designation of the common stock
as a National Market security, the common stock was delisted from the National
Market as of the opening of business on May 9, 2001.  At the time of the
delisting, the common stock was not eligible for listing on Nasdaq's SmallCap
Market.  Losing the designation of the common stock as a Nasdaq listed security
will likely reduce the liquidity of the common stock and could limit the
Company's ability to raise equity capital.  Quotation of the common stock on the
OTC Bulletin Board commenced on May 9, 2001.  Should quotation of the common
stock on the OTC Bulletin Board cease for any reason, the liquidity of the
common stock and the Company's ability to raise equity capital would likely
decrease further.  For additional information about the Nasdaq delisting of the
common stock, see Part II, Item 5 of this report.

     On October 1, 1998, the Company and S&T Bank, a Pennsylvania banking
association, entered into a Loan and Security Agreement (the "S&T Loan
Agreement"), under which S&T Bank agreed to extend the Company a revolving
credit loan.  The S&T Loan Agreement has subsequently been renewed in 1999 and
2000.  The expiration date of the S&T Loan Agreement is September 30, 2001.  The
maximum borrowing availability under the S&T Loan Agreement is the lesser of
$5,000,000 or eighty-five percent of the aggregate gross amount of eligible
trade accounts receivable aged sixty days or less from the date of invoice.
Accounts receivable qualifying for inclusion in the borrowing base are net of
any prepayments, progress payments, deposits or retention and must not be
subject to any prior assignment, claim, lien, or security interest.  As of March
31, 2001, maximum borrowing availability under the S&T Loan Agreement was
approximately $3,204,000.  The outstanding balance as of March 31, 2001 was
$1,995,000.  As of April 27, 2001, maximum borrowing availability under the S&T
Loan Agreement was approximately $1,488,000.  The outstanding balance as of
April 27, 2001 was $595,000.  The Company collected an unusually high amount of
accounts receivable in April 2001, which provided funds to reduce the line of
credit balance by $1,400,000.  However, this has also substantially reduced the
maximum borrowing available under the S&T Loan Agreement.

     Borrowings may be made under the S&T Loan Agreement for general working
capital purposes.  Loans made under the S&T Loan Agreement bear interest at the
bank's prime interest rate plus one percent.  To date during 2001, the
applicable interest rate has ranged from 8.50% to 10.50%.  The interest rates in
effect at March 31, 2001 and April 27, 2001 were 9.00% and 8.50%, respectively.
The interest rate increases or decreases from time to time as S&T Bank's prime
rate changes.  Interest payments on any outstanding loan balances are due
monthly on the first day of the month.  The Company recorded approximately
$33,000 in interest expense related to this revolving credit loan for the three
months ended March 31, 2001.  The principal will be due at maturity, although
any outstanding principal balances may be repaid in whole or part at any time
without penalty.

     The S&T Loan Agreement includes provisions granting S&T Bank a security
interest in certain assets of the Company including its accounts receivable,
equipment, lease rights for real property, and inventory of the Company and its
subsidiaries.  The Company and its subsidiaries, except for Allin Consulting-
California and Allin Holdings, are required to maintain depository accounts with
S&T Bank, in which accounts the bank has a collateral interest.

     The S&T Loan Agreement includes various covenants relating to matters
affecting the Company including insurance coverage, financial accounting
practices, audit rights, prohibited transactions, dividends and stock purchases,
which are disclosed in their entirety in the text of the S&T Loan Agreement
filed as an exhibit to the

                                      -28-
<PAGE>

Company's Current Report on Form 8-K filed on October 9, 1998 and the Second
Amendment to Note and Loan and Security Agreement filed as Exhibit 4.1 to the
Company's Report on Form 10-Q for the quarterly period ended September 30, 1999.
The covenant concerning dividends and purchases of stock prohibits the Company
from declaring or paying cash dividends or redeeming, purchasing or otherwise
acquiring outstanding shares of any class of the Company's stock, except for
dividends payable in the ordinary course of business on the Company's Series D,
F and G preferred shares. The annual renewal of the S&T Loan Agreement for the
year ended September 30, 2001 extended the covenant concerning dividends to the
Company's Series G Convertible Redeemable Preferred Stock, if issued upon
approval by the holders of a majority of the Company's common shares. Such
approval and issuance of the Series G preferred stock occurred in December 2000.
The covenants also include a cash flow to interest ratio of not less than 1.0 to
1.0. Cash flow is defined as operating income before depreciation, amortization
and interest. The cash flow coverage ratio is measured for each of the Company's
fiscal quarters. S&T Bank waived the cash flow covenant requirement for the
final three fiscal quarters of 2000 and the first quarter of 2001, which
covenant the Company would not have otherwise met. The Company also anticipates
the need for an extension of the waiver to the fiscal quarter ended June 30,
2001, although no such extension has yet been granted by S&T Bank. The Company
was in compliance with all other covenants as of March 31, 2001 and is also
currently in compliance with all other covenants. The S&T Loan Agreement also
includes reporting requirements regarding annual and monthly financial reports,
accounts receivable and payable statements, weekly borrowing base certificates
and audit reports.

     As of March 31, 2001, the Company had outstanding $2,500,000 in liquidation
preference of Series C Redeemable Preferred Stock.  There is no mandatory
redemption date for the Series C preferred stock.  There are no sinking fund
provisions applicable to the Series C preferred stock.  Accrued but unpaid
dividends on the Series C preferred stock were approximately $1,107,000 as of
March 31, 2001 and approximately $1,142,000 as of May 14, 2001.  Series C
preferred stock earns dividends at the rate of 8% of the liquidation value
thereof per annum, compounded quarterly, until June 30, 2006, when the Company
will be obligated to pay accrued dividends, subject to legally available funds.
Any accrued dividends on the Series C preferred stock not paid by this date will
compound thereafter at a rate of 12% of the liquidation value thereof per annum.
After June 30, 2006, dividends on the Series C preferred stock will accrue and
compound at a rate of 12% per annum and will be payable quarterly, subject to
legally available funds.  The Company's current credit agreement with S&T Bank
prohibits payment of dividends on Series C preferred stock during the term of
the agreement.

     As of March 31, 2001, the Company had outstanding 2,750 shares of the
Company's Series D Convertible Redeemable Preferred Stock having a liquidation
preference of $1,000 per share.  There is no mandatory redemption date for the
Series D preferred stock.  There are no sinking fund provisions applicable to
the Series D preferred stock.  Series D preferred stock is convertible into the
Company's common stock until August 13, 2003.  Each share of Series D preferred
stock is convertible into 276 shares of common stock, the number of shares
determined by dividing 1,000 by $3.6125, which is 85% of the $4.25 per share
price on the last trading day prior to the date of closing of the acquisition of
Allin Consulting-Pennsylvania.  Series D preferred stock earns dividends at the
rate of 6% of the liquidation value thereof per annum, compounded quarterly if
unpaid.  Dividends on Series D preferred stock are payable quarterly in arrears
as of the last day of October, January, April and July, subject to legally
available funds.  Accrued but unpaid dividends on Series D preferred stock were
approximately $27,000 as of March 31, 2001 and approximately $6,000 as of May
14, 2001.

     As of March 31, 2001, the Company had outstanding 1,000 shares of the
Company's Series F Convertible Redeemable Preferred Stock having a liquidation
preference of $1,000 per share.  There is no mandatory redemption date for the
Series F preferred stock and no sinking fund provisions applicable to the Series
F preferred stock.  Series F preferred stock is convertible to the Company's
common stock until the earlier of May 31, 2004 or the Company's redemption of
the Series F preferred shares.  Until and including May 31, 2004, Series F
preferred stock will be convertible into 508,647 shares of the Company's common
stock, the number of shares obtained by dividing 1,000 per preferred share by
$1.966, 85% of the closing price of the common stock as reported by Nasdaq on
the last trading date prior to the first anniversary of the date of issuance of
the Series F preferred stock.  Series F preferred stock earns dividends at the
rate of 7% of the liquidation value thereof per annum.  Dividends are payable
quarterly on the 15th of the first month of each calendar quarter subject to
legally available funds.  Dividends accrued for seven months during 1999 of
approximately $41,000 are not required to be paid prior to redemption, if any.
Dividends not paid at scheduled dates will compound quarterly thereafter.
Accrued but unpaid dividends on Series F preferred stock were approximately
$58,000 as of March 31, 2001 and approximately $50,000 as of May 14, 2001.

                                      -29-
<PAGE>

     As of March 31, 2001, the Company had outstanding 150 shares of the
Company's Series G Convertible Redeemable Preferred Stock having a liquidation
preference of $10,000 per share.  There is no mandatory redemption date for the
Series G preferred stock, although the Company may redeem Series G shares after
December 29, 2005.  The redemption price for each share of Series G preferred
stock will be the liquidation value of such share, plus an amount that would
result in an aggregate 25% compounded annual return on such liquidation value to
the date of redemption after giving effect to all dividends paid on such share
through the date of redemption.  There are no sinking fund provisions applicable
to the Series G preferred stock.  Unless redeemed or converted to common stock
sooner, Series G preferred earns cumulative quarterly dividends at the rate of
eight percent of the liquidation value thereof per annum until December 29,
2005.  Thereafter, the dividend rate will increase to 12% of the liquidation
value until the earlier of the date of any redemption or the date of conversion
into common stock.  Dividends will be payable quarterly in arrears on the first
day of each calendar quarter.  Accrued but unpaid dividends on the Series G
preferred stock were approximately $31,000 as of March 31, 2001 and
approximately $15,000 as of May 14, 2001.

  Series G preferred stock is convertible into common stock at any time prior to
redemption by the Company, if any.  Each share of Series G preferred stock is
convertible into at least 8,594 shares of common stock (determined by dividing
10,000 by $1.16348, which was 85% of the average closing price of the common
stock as reported by Nasdaq over the last five trading days prior to December
29, 2000, the date of issuance of the Series G preferred stock).  Depending on
the market price of the common stock and the timing of any conversion, each
share of Series G preferred stock could be convertible into as many as 28,571
shares of common stock.  Holders of the Series G preferred stock who exercise
the conversion right will have the right to receive any accrued and unpaid
dividends through the date of conversion.  Any shares of Series G preferred
stock which are not converted to common stock will remain outstanding until
converted or until redeemed.

  The order of liquidation preference of the Company's outstanding preferred
stock, from senior to junior, is Series F, Series G, Series D and Series C.  The
S&T Loan Agreement prohibits the Company from declaring or paying dividends on
any shares of its capital stock, except for current dividends payable in the
ordinary course of business on the Company's Series D, F and G preferred stock.
Each of the Certificates of Designation governing the Series C, D, F and G
preferred stock prohibits the Company from declaring or paying dividends or any
other distribution on the common stock or any other class of stock ranking
junior as to dividends and upon liquidation unless all dividends on the senior
series of preferred stock for the dividend payment date immediately prior to or
concurrent with the dividend or distribution as to the junior securities are
paid or are declared and funds are set aside for payment.  In the event that the
number of shares of outstanding common stock is changed by any stock dividend,
stock split or combination of shares at any time shares of Series D, F or G
preferred stock are outstanding, the number of shares of common stock that may
be acquired upon conversion will be proportionately adjusted.

     In connection with the Company's December 29, 2000 sale of Series G
Convertible Redeemable Preferred Stock, the purchasers of Series G preferred
stock also received warrants to purchase an aggregate of 857,138 shares of
common stock which have an exercise price of $1.75 per share.  The exercise
price may be paid in cash or by delivery of a like value, including accrued but
unpaid dividends, of Series C Redeemable Preferred Stock or Series D Convertible
Redeemable Preferred Stock.

     In connection with the Company's original sale of Series B Redeemable
Preferred Stock in August 1998, which was subsequently exchanged for Series D
Convertible Redeemable Preferred Stock, the purchasers of Series B preferred
stock also received warrants to purchase an aggregate of 647,059 shares of
common stock which have an exercise price of $4.25 per share, the price of the
common stock as of the last trading day prior to the closing for the acquisition
of Allin Consulting-Pennsylvania.  The exercise price may be paid in cash or by
delivery of a like value, including accrued but unpaid dividends, of Series C
Redeemable Preferred Stock.

     The Company has an outstanding amended note payable to Les D. Kent related
to the November 1996 acquisition of Allin Consulting-California.  After the May
1999 conversion of a portion of the note principal to the Company's Series F
Convertible Redeemable Preferred Stock, the outstanding principal balance of the
note is $1,000,000.  The principal balance of the note is due April 15, 2005.
The note provides for interest at the rate of 7% per annum.  Interest is payable
quarterly on the 15th of the first month of each calendar quarter.  Any unpaid
interest is compounded quarterly.  Accrued interest of approximately $58,000
applicable to the period June 1, 1999 to

                                      -30-
<PAGE>

December 31, 1999 is not due prior to the maturity of the loan principal.
Accrued but unpaid interest was approximately $76,000 as of March 31, 2001 and
approximately $64,000 as of April 30, 2001.

     The agreement for the 1998 purchase of MEGAbase provided for contingent
payments to be determined on the basis of Allin Consulting-California's 1999
Development Practice Gross Margin (as defined in the stock purchase agreement
for the acquisition).  The Company and the former MEGAbase sole shareholder,
however, were unable to agree upon the calculation of Allin Consulting-
California's Development Practice Gross Margin for 1999 and the Company
initiated litigation to resolve the matter.  In January 2001, the Company and
the former MEGAbase sole shareholder reached a settlement concerning contingent
payments.  On January 26, 2001 the Company made a cash payment of $60,000 and
issued 14,225 shares of its common stock to the former MEGAbase sole
shareholder.  The Nasdaq market price of the Company's common stock on the date
of issuance was $1.406 per share.  The additional purchase consideration of
$80,000 was recorded in January 2001 as additional cost of the acquired
enterprise, which results in additional goodwill being recorded on Allin
Consulting-California.  The additional goodwill will be amortized over the
estimated remaining life of goodwill associated with the MEGAbase acquisition,
approximately 4.8 years.

     The Company incurred approximately $1,000 in research and development
expense during the three months ended March 31, 2001. The Interactive Media
Solution Area's research and development activity included ongoing development
of functional and graphical improvements to the Portraits Online/TM/ Internet-
based E-Commerce platform. Research and development expenditures related to
Interactive Media operations are forecast to be less than $50,000 over the
remainder of 2001. Management intends to evaluate any development projects on an
ongoing basis and may reduce or eliminate projects if alternate technologies or
products become available or if changing business conditions so warrant.

     Capital expenditures during the three months ended March 31, 2001 were
approximately $47,000 and included furniture for expansion of the Company's Ft.
Lauderdale office and computer hardware, software and communications equipment
for the Company's periodic upgrading of technology.  Capital expenditures of
approximately $150,000 are forecast for the remainder of 2001, primarily for
computer hardware, software and communications equipment for the Company's
periodic upgrading of technology and the expansion of the Ft. Lauderdale office.
Business conditions and management's plans may change during the remainder of
2001, so there can be no assurance that the Company's actual amount of capital
expenditures will not exceed the planned amount.

     The Company believes that available funds and cash flows expected to be
generated by current operations will be sufficient to meet its anticipated cash
needs for working capital and capital expenditures for its existing operations
for at least the next twelve months.  As discussed above, the S&T Loan Agreement
expires September 30, 2001.  The Company believes it will be able to refinance
its existing credit facility or obtain another credit facility on similar terms
upon the expiration of the current credit facility. If currently available funds
and cash generated by operations were insufficient to satisfy the Company's
ongoing cash requirements, if the Company was unable to renew or replace the
current credit facility, or if the Company identified an attractive acquisition
candidate, the Company would be required to consider other financing
alternatives, such as selling additional equity or debt securities, obtaining
long or short-term credit facilities, or selling other operating assets,
although no assurance can be given that the Company could obtain such financing
on terms favorable to the Company or at all.  Any sale of additional common or
convertible equity or convertible debt securities would result in additional
dilution to the Company's shareholders.

Risk Factors

     This Management's Discussion and Analysis and other sections of this Report
on Form 10-Q contain forward-looking statements that are based on current
expectations, estimates and projections about the industries in which the
Company operates, management's beliefs and assumptions made by management.
Words such as "expects," "anticipates," "intends," "plans," "believes,"
"estimates," "will" and variations of such words and similar expressions are
intended to identify such forward-looking statements.  These statements
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, and are subject to the safe harbors created thereby.
These statements are based on a number of assumptions that could ultimately
prove inaccurate and, therefore, there can be no assurance that they will prove
to be accurate.  Factors that could affect performance include those listed
below,

                                      -31-
<PAGE>

which are representative of factors which could affect the outcome of the
forward-looking statements. In addition, such statements could be affected by
general industry and market conditions and growth rates, and general domestic
and international economic conditions. The Company undertakes no obligation to
update publicly any forward-looking statements, whether as a result of new
information, future events or otherwise.

     Stock Market Requirements.   The Company's common stock was delisted from
Nasdaq's National Market as of the opening of business on May 9, 2001.  At the
time of the delisting, the common stock was not eligible for listing on Nasdaq's
SmallCap Market.  Losing the designation of the common stock as a Nasdaq listed
security will likely reduce the liquidity of the common stock and could limit
the Company's ability to raise equity capital.  Quotation of the common stock on
the OTC Bulletin Board commenced on May 9, 2001.  Should quotation of the common
stock on the OTC Bulletin Board cease for any reason, the liquidity of the
common stock and the Company's ability to raise equity capital would likely
decrease further.  For additional information about the Nasdaq delisting of the
common stock, see Part II, Item 5 of this report.

     Public Market and Trading Issues.  Following the Company's initial public
offering in November 1996, a public market for the Company's common stock did
develop.  However, trading of the common stock has been sporadic and the trading
volume has generally been low.  Even a small trading volume on a particular day
or over a few days may affect the market price of the common stock.  The market
price of the common stock could also be subject to fluctuations in response to
variations in results of operations, changes in earnings estimates by securities
analysts, announcements by competitors, general economic and market conditions
and other factors.  These market fluctuations may adversely affect the market
price of the common stock.

     General Economic Conditions.  A number of customers or potential customers
have postponed projects or delayed consideration of new technology initiatives
pending further assessment of the expected magnitude and duration of the
potential domestic economic downturn. Management attributes the lack of a more
significant increase in Technology Infrastructure revenue and the decrease in E-
Business revenue for the first quarter of 2001 as compared to the first quarter
of 2000 to the general uncertainty in the domestic economy beginning late in
2000. There can be no assurance that the effects of the economic uncertainty
will not worsen, which would negatively impact the Company's results of
operations and financial condition.

     Limited Operating History Under New Marketing Strategies and Solution Area
Structure.  The Company fundamentally changed the marketing strategies for its
technology consulting operations in early 1999 to emphasize a customer-oriented
marketing approach and the delivery of services oriented around solution areas
meeting customer needs for technology-based solutions.  Additionally, in early
2001 the Company reorganized its solution area structure, consolidating the
Microsoft-focused solutions-oriented operations, previously falling under
Knowledge Management and Business Operations Solution Areas, with the operations
of the E-Business Solution Area.  The Company is seeking to develop additional
solutions-oriented business for all of its solution areas.  While the Company
obtained revenue growth in 2000 and the first quarter of 2001 from certain of
its solution areas, there can be no assurance that the Company will be
successful at growing solutions-oriented revenue in any of its solution areas in
the future or that any growth obtained will offset or exceed the expected
declines in legacy technology consulting revenue.  There can also be no
assurance that any growth achieved for solutions-oriented projects will result
in the desired improvements to gross profit.  During the third quarter of 2000,
the Company also implemented changes to the Interactive Media Solutions Area's
marketing strategy for digital imaging systems integration services.
Interactive Media intends to more closely focus on high value-added integration
projects including Portraits Online technology.  Management believes the
strategic shift allows the prospect of improved margin on digital imaging
services, although there can be no assurance that such improved margin will be
realized. Because the Company has only a limited history of operations with the
current solution area structure and marketing strategies, there can be no
assurance that the Company will succeed under these strategies, or that it will
obtain financial returns sufficient to justify its investment in the markets in
which it participates.

     Decline in Legacy Technology Consulting Services.  The Company has
experienced a substantial decline in demand for legacy technology consulting
services related to mainframe systems and specialized Hogan IBA software
products for the banking industry.  Revenue and gross profit derived from these
services have declined steadily during 1999, 2000 and the first quarter of 2001
and are expected to continue to do so over the remainder of 2001.  The decline
is attributable to both industry trends and the Company's marketing focus on
solutions-oriented services.  Legacy technology consulting services were
formerly a significant source of cash flow to the Company.

                                      -32-
<PAGE>

There can be no assurance that the Company will be successful in developing a
sufficient level of solutions-oriented consulting services to offset the
declines in revenue and gross profit from legacy technology consulting services.

     Need for Management of Growth and Geographic Expansion.   The Company's
strategy will require its management to conduct operations, evaluate
acquisitions and respond to changes in technology and the market. The Company
intends to evaluate continued geographic growth of its operations.  There can be
no assurance, however, that the Company will be successful in identifying or
acquiring other businesses, or that any business that may be acquired will
result in the desired improvements to financial results.  There can also be no
assurance that the Company would be able to successfully integrate any business
acquired with the other businesses of the Company.  The Company is marketing
interactive television and digital photography services nationally and intends
to undertake installations throughout the United States, if obtained.  If the
Company's management is unable to manage growth, if any, effectively, its
business, financial condition and results of operations will be materially
adversely affected.

     Dependence on Key Personnel.   The Company's success is dependent on a
number of key management, technical and operational personnel for the management
of consulting and systems integration operations, development of new markets and
timely installation of its systems.  The loss of one or more of these
individuals could have an adverse effect on the Company's business and results
of operations. The Company depends on its continued ability to attract and
retain highly skilled and qualified personnel. There can be no assurance that
the Company will be successful in attracting and retaining such personnel.

     Competitive Market Conditions.  The technology consulting industry is very
fragmented with a large number of participants due to growth of the overall
market for services and low capital barriers to entry.  There are also large
national or multinational firms competing in this market.  Rapid rates of change
in the development and usage of computer hardware, software, internet
applications and networking capabilities will require continuing education and
training of the Company's technical consultants and a sustained effort to
monitor developments in the technology industry to maintain services that
provide value to the Company's customers.  The Company's competitors may have
resources to develop training and industry monitoring programs that are superior
to the Company's.  There can also be no assurance that the Company will be able
to compete effectively with current or future competitors or that the
competitive pressures faced by the Company will not have a material adverse
effect on the Company's business, financial condition and results of operations.
The market for interactive media and digital imaging systems integration
services is new and rapidly evolving.  The types of interactive television
systems and applications offered by the Company are significant capital
expenditures for potential customers and do not have proven markets.  Some of
the Company's current and potential competitors have longer operating histories
and significantly greater financial, technical, marketing and other resources
than the Company and, therefore, may be able to respond more quickly to new or
changing opportunities, technologies and customer requirements.

     Fluctuations in Operating Results.  The Company expects to experience
significant fluctuations in its future quarterly operating results that may be
caused by many factors, including the addition or conclusion of significant
consulting or systems integration engagements or the acquisition of businesses.
Accordingly, quarterly revenue and operating results will be difficult to
forecast, and the Company believes that period-to-period comparisons of its
operating results will not necessarily be meaningful and should not be relied
upon as an indication of future performance.

     Recent Net Losses and Accumulated Deficit.  The Company sustained
substantial net losses during the years from 1996 through 2000 and the first
quarter of 2001.  As of March 31, 2001, the Company had an accumulated deficit
of $34,379,000.  The Company anticipates that it will continue to incur net
losses at least through a portion of the remainder of 2001, and there can be no
assurance that it will be able to achieve revenue growth or improvements to
profitability on an ongoing basis in the future.

     Liquidity Risk.  The Company's cash resources and cash flow generated from
operations have been adequate to meet its needs to date, but there can be no
assurance that a prolonged downturn in operations or business setbacks to the
Company's operating entities will not result in working capital shortages which
may adversely impact the Company's operations.  The liquidity risk has been
mitigated somewhat by the Company obtaining a line of credit facility for its
short term working capital needs.  The Company's line of credit facility expires
September 30, 2001.  Failure of the Company to renew its existing credit
facility beyond September

                                      -33-
<PAGE>

30, 2001 or replace it with another facility with similar terms may adversely
impact the Company's operations in the future.

     Risks Inherent in Development of New Markets.  The Company's strategy
includes attempting to develop an ongoing business base for its interactive
media systems integration and consulting services in the healthcare industry.
This strategy presents risks inherent in assessing the value of development
opportunities, in committing resources in an unproven market and in integrating
and managing new technologies and applications.  Within this new market, the
Company will encounter competition from a variety of sources.  There can be no
assurance that the Company will be successful at establishing an ongoing base of
revenue in this new market, or that any contracts obtained will generate
improvements to the Company's profitability or cash flow.

     Risks Inherent in Development of New Products.  The Company recently
developed software interfaces and modifications for end-user operating
components from On Command Corporation to be utilized in interactive system
installations, which the Company believes result in fundamental improvements to
the functionality of the end-user system components.  The Company also intends
to conduct research and development activities in other areas to improve its
products and systems or to extend their availability to additional types of
communication networks.  There can be no assurance, however, that such projects
will result in improved functionality of the Company's interactive or digital
imaging systems or will result in additional revenue or improved profitability
for the Company.  It is also possible that the Company will experience delays or
setbacks in the areas in which it operates. There can also be no assurance that
competitors will not develop systems and products with superior functionality or
cost advantages over the Company's products and applications.

     Proprietary Technology; Absence of Patents.  The Company does not have
patents on any of its system configurations, designs or applications and relies
on a combination of copyright and trade secret laws and contractual restrictions
for protection.  It is the Company's policy to require employees, consultants
and clients to execute nondisclosure agreements upon commencement of a
relationship with the Company, and to limit access to and distribution of its
software, documentation and other proprietary information.  Nonetheless, it may
be possible for third parties to misappropriate the Company's system
configurations, designs or applications and proprietary information or
independently to develop similar or superior technology.  There can be no
assurance that the legal protections afforded to the Company and the measures
taken by the Company will be adequate to protect its system configurations,
designs or applications.  Any misappropriation of the Company's system
configurations, designs or applications or proprietary information could have a
material adverse effect on the Company's business, financial condition and
results of operations.

     There can be no assurance that other parties will not assert technology
infringement claims against the Company, or that, if asserted, such claims will
not prevail.  In such event, the Company may be required to engage in protracted
and costly litigation, regardless of the merits of such claims; discontinue the
use of certain software codes or processes; develop non-infringing technology;
or enter into license arrangements with respect to the disputed intellectual
property.  There can be no assurance that the Company would be able to develop
alternative technology or that any necessary licenses would be available or
that, if available, such licenses could be obtained on commercially reasonable
terms.  Responding to and defending against any of these claims could have a
material adverse effect on the Company's business, financial condition and
results of operations.

     Risk of Technological Obsolescence.  The ability of the Company to maintain
a standard of technological competitiveness is a significant factor in the
Company's strategy to maintain and expand its customer base, enter new markets
and generate revenue.  The Company's success will depend in part upon its
ability to develop, refine and introduce high quality improvements in the
functionality and features of its system configurations, designs and
applications in a timely manner and on competitive terms.  There can be no
assurance that future technological advances by direct competitors or other
providers will not result in improved technology systems and applications that
could adversely affect the Company's business, financial condition and results
of operations.

     Government Regulation and Legal Uncertainties.   The Company is subject,
both directly and indirectly, to various laws and governmental regulations
relating to its business. As a result of rapid technology growth and other
related factors, laws and regulations may be adopted which significantly impact
the Company's business.

                                      -34-
<PAGE>

Effect of Recently Issued Accounting Standards

     In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS No. 133").  The Statement establishes
accounting and reporting standards requiring reporting of all derivative
instruments, including certain derivative instruments embedded in other
contracts, in the balance sheet as either an asset or liability measured at its
fair value.  SFAS No. 133 requires that changes in the derivative's fair value
be recognized currently in earnings unless specific hedge accounting criteria
are met.  The FASB has approved Statement No. 137, Accounting for Derivative
Instruments and Hedging Activities--Deferral of the effective date of FASB
Statement No. 133, which amends SFAS No. 133 to be effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000 (that is January 1,
2001 for companies with calendar years).  The Company adopted this standard on
January 1, 2001.  The Company does not have any derivative instruments or
hedging activities, therefore SFAS No. 133 has no current impact on the
Company's financial condition or results of operations.

     In December 1999, the Securities and Exchange Commission ("SEC") released
Staff Accounting Bulletin No. 101, Revenue Recognition ("SAB No. 101"), to
provide guidance on the recognition, presentation and disclosure of revenue in
financial statements.  SAB No. 101 explains the SEC's general framework for
revenue recognition.  SAB No. 101 does not change existing literature on revenue
recognition, but rather clarifies the SEC's position on preexisting literature.
SAB No. 101 was adopted by the Company for the year ended December 31, 2000.
Adoption did not have a significant impact on financial position or results of
operations.

     In September 2000, Emerging Issues Task Force ("EITF") Issue 00-10
Accounting for Shipping and Handling Fees and Costs ("EITF No. 00-10"), was
released to address the income statement classification for shipping and
handling fees and costs by companies that record revenue based on the gross
amount billed to customers.  EITF No. 00-10 provides consensus that amounts
billed to a customer in a sale transaction related to shipping and handling
represent revenue earned for the goods provided and should be classified as
revenue.  EITF No. 00-10 provides that the classification of shipping and
handling costs is an accounting policy decision that should be disclosed in
accordance with Accounting Principles Board Opinion No. 22 Disclosure of
Accounting Policies.  EITF No. 00-10 was adopted by the Company for the year
ended December 31, 2000.  The Company's historical treatment of revenue and cost
of sales for shipping and handling fees is consistent with EITF No. 00-10.

                                      -35-
<PAGE>

Item 3.  Quantitative and Qualitative Disclosure about Market Risk Sensitive
         Instruments

  The Company currently does not invest excess funds in derivative financial
instruments or other market rate sensitive instruments for the purpose of
managing its foreign currency exchange rate risk or for any other purpose.

                                      -36-
<PAGE>

Part II

Item 1. Legal Proceedings

     As previously reported, in November 1999, the Company commenced an action
in the Court of Common Pleas of Allegheny County, Pennsylvania against Mark
Gerow ("Gerow"), the former sole shareholder of MEGAbase, Inc. ("MEGAbase"),
relating to the stock purchase agreement under which the Company acquired all of
the stock of MEGAbase. The Company and Gerow had not been able to reach
agreement on a calculation of any additional purchase consideration due Gerow
because of disagreement over interpretation of terms and definitions included in
the purchase agreement. In January 2001, the Company and Gerow reached agreement
on a settlement concerning additional purchase consideration. On January 26,
2001, the Company made a cash payment of $60,000 and issued 14,225 shares of its
common stock to Gerow. See Part I Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations under the caption Liquidity and
Capital Resources for additional information concerning the additional purchase
consideration. Pursuant to the settlement, the Company withdrew its action in
January 2001.

                                      -37-
<PAGE>

Item 2. Changes in Securities and Use of Proceeds

        On January 26, 2001, the Company issued 14,225 shares of its common
stock to Mark Gerow as a part of additional purchase consideration related to
the Company's 1998 acquisition of MEGAbase.  Mr. Gerow is the former sole
shareholder of MEGAbase.  As no public offering was involved, the issuance of
these shares of common stock was exempt from registration under Section 4(2) of
the Securities Act of 1933, as amended.  See Part I, Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations under
"Liquidity and Capital Resources" for additional information concerning the
additional purchase consideration.

                                      -38-
<PAGE>

Item 5. Other Information

     The Company's common stock had been listed on The Nasdaq Stock Market's
("Nasdaq") National Market since the Company's initial public offering of its
common stock in November 1996.  Nasdaq required that the Company meet various
criteria on an ongoing basis for continued designation of the common stock as a
National Market security, including maintenance by the Company of net tangible
assets of at least $4,000,000, a public float of at least $5,000,000 (that is,
the market value of the common stock held by non-affiliates of the Company) and
a minimum bid price of $1.00 per share.  On May 1, 2001, the Company received
notice from Nasdaq that the common stock would be delisted from the National
Market at the opening of business on May 9, 2001 as a result of the Company's
inability to satisfy the public float requirement over a thirty consecutive
trading day period and to thereafter come into compliance with this requirement
during a ninety day grace period.  The Company did not contest the delisting.
In addition to noncompliance with the public float requirement, the Company's
net tangible assets had declined to approximately $3,107,000 as of March 31,
2001 and, beginning on March 21, 2001, the common stock began to trade under
$1.00 per share and has not subsequently traded at or above $1.00 per share.  At
the time of the delisting, the common stock was not eligible for designation as
a Nasdaq SmallCap Market security.  At the request of two of the existing market
makers in the common stock, quotation of the common stock on the OTC Bulletin
Board commenced on May 9, 2001.

     Losing the designation of the common stock as a Nasdaq listed security will
likely reduce the liquidity of the common stock and could limit the Company's
ability to raise equity capital.  Should quotation of the common stock on the
OTC Bulletin Board cease for any reason, the liquidity of the common stock and
the Company's ability to raise equity capital would likely decrease further.
The OTC Bulletin Board is not an issuer listing service.  While the Company
expects to remain a reporting company and file periodic reports with the
Securities and Exchange Commission as it has in the past, which is required for
continued quotation on the OTC Bulletin Board, only market makers can sponsor
securities quoted on the OTC Bulletin Board.

                                      -39-
<PAGE>

Item 6.  Exhibits and Reports on Form 8-K.

     (a)  Exhibits.

Exhibit
Number  Description of Exhibit (1)
------  --------------------------

10.1    Employment Agreement dated February 13, 2001 by and between the
        Registrant and Timothy P. O'Shea (incorporated by reference to Exhibit
        10.12 to Allin Corporation's Annual Report on Form 10-K for the fiscal
        year ended December 31, 2000).

10.2    Amendment to Employment Agreement dated February 13, 2001 by and between
        the Registrant and Dean C. Praskach (incorporated by reference to
        Exhibit 10.13 to Allin Corporation's Annual Report on Form 10-K for the
        fiscal year ended December 31, 2000).

10.3    Master Agreement dated February 20, 2001 by and between Allin
        Interactive Corporation and Carnival Corporation (subject to request for
        confidential treatment) (incorporated by reference to Exhibit 10.14 to
        Allin Corporation's Annual Report on Form 10-K for the fiscal year ended
        December 31, 2000).

10.4    Interactive Television System Agreement dated February 20, 2001 by and
        between Allin Interactive Corporation and Carnival Cruise Lines (subject
        to request for confidential treatment) (incorporated by reference to
        Exhibit 10.15 to Allin Corporation's Annual Report on Form 10-K for the
        fiscal year ended December 31, 2000).

11      Computation of Earnings per Share



     (b)  Reports on Form 8-K.

          On January 4, 2001, Allin Corporation filed with the Securities and
          Exchange Commission a Current Report of Form 8-K (date of earliest
          event reported - December 29, 2000) to report information concerning
          the Series G Convertible Redeemable Preferred Stock issued on December
          29, 2000.


___________________________

(1) In the case of incorporation by reference to documents filed by the
    Registrant under the Exchange Act, the Registrant's file number under the
    Exchange Act is 0-21395.

                                      -40-
<PAGE>

                                   Signatures


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


                              ALLIN CORPORATION
                              (Registrant)

Date: May 14, 2001            By:  /s/   Richard W. Talarico
                                   --------------------------
                                   Richard W. Talarico
                                   Chairman and Chief Executive Officer


Date: May 14, 2001            By:  /s/   Dean C. Praskach
                                   ---------------------------
                                   Dean C. Praskach
                                   Chief Financial Officer and
                                   Chief Accounting Officer

                                      -41-
<PAGE>

Allin Corporation
Form 10-Q
March 31, 2001
Exhibit Index



Exhibit
Number  Description of Exhibit (1)
------  --------------------------

10.1    Employment Agreement dated February 13, 2001 by and between the
        Registrant and Timothy P. O'Shea (incorporated by reference to Exhibit
        10.12 to Allin Corporation's Annual Report on Form 10-K for the fiscal
        year ended December 31, 2000).

10.2    Amendment to Employment Agreement dated February 13, 2001 by and between
        the Registrant and Dean C. Praskach (incorporated by reference to
        Exhibit 10.13 to Allin Corporation's Annual Report on Form 10-K for the
        fiscal year ended December 31, 2000).

10.3    Master Agreement dated February 20, 2001 by and between Allin
        Interactive Corporation and Carnival Corporation (subject to request for
        confidential treatment) (incorporated by reference to Exhibit 10.14 to
        Allin Corporation's Annual Report on Form 10-K for the fiscal year ended
        December 31, 2000).

10.4    Interactive Television System Agreement dated February 20, 2001 by and
        between Allin Interactive Corporation and Carnival Cruise Lines (subject
        to request for confidential treatment) (incorporated by reference to
        Exhibit 10.15 to Allin Corporation's Annual Report on Form 10-K for the
        fiscal year ended December 31, 2000).

11      Computation of Earnings per Share


_______________________

(1) In the case of incorporation by reference to documents filed by the
    Registrant under the Exchange Act, the Registrant's file number under the
    Exchange Act is 0-21395.

                                      -42-