<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: June 30, 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 August 3, 2001

                        Common Stock, 6,967,339 Shares

                                      -1-
<PAGE>

                               ALLIN CORPORATION

                                   Form 10-Q

                                     Index

<TABLE>
<S>                                                                               <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 20
                     Condition and Results of Operations

           Item 3.  Quantitative and Qualitative Disclosure about Market          Page 41
                     Sensitive Instruments


Part II -  Other Information

           Item 1.  Legal Proceedings                                             Page 42

           Item 4.  Submission of Matters to a Vote of Securities Holders         Page 43

           Item 6.  Exhibits and Reports on Form 8-K                              Page 44

Signatures                                                                        Page 45
</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,    June 30,
                                                               2000          2001
                                                           ------------   ----------
<S>                                                        <C>            <C>
ASSETS

Current assets:
         Cash and cash equivalents                         $   2,330      $      760
         Accounts receivable, net of allowance for
                 doubtful accounts of $116 and $128            4,730           4,182
         Unbilled receivable                                      42             338
         Note receivable                                          14              14
         Inventory                                               991             249
         Prepaid expenses                                        274             201
         Assets held for sale                                     90              21
         Costs and estimated gross margins in
                 excess of billings                              722              --
                                                           ---------      ----------
                 Total current assets                          9,193           5,765

Property and equipment, at cost:
Leasehold improvements                                           465             470
Furniture and equipment                                        3,089           2,951
On-board equipment                                               951              --
                                                           ---------      ----------
                                                               4,505           3,421
Less--accumulated depreciation                                (3,394)         (2,659)
                                                           ---------      ----------
                                                               1,111             762

Note receivable from employee                                      3              --
Software development costs, net of accumulated
         amortization of $907 and $912                             6              --
Goodwill, net of accumulated amortization of
         $2,829 and $3,364                                    11,932             851
Other assets, net of accumulated amortization of
         $664 and $788                                         2,037           1,913
                                                           ---------      ----------

Total assets                                               $  24,282      $    9,291
                                                           =========      ==========
</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,      June 30,
                                                                                   2000            2001
                                                                               ------------     -----------
<S>                                                                            <C>              <C>
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
         Current portion of notes payable                                      $         2      $        1
         Bank lines of credit                                                        2,155           1,065
         Accounts payable                                                            2,783           1,160
         Accrued liabilities:
                 Compensation and payroll taxes                                        426             330
                 Dividends on preferred stock                                        1,124           1,295
                 Other                                                                 757             398
         Billings in excess of costs and
                 estimated gross margins                                               ---           1,025
         Deferred revenue                                                               47              45
         Income taxes payable                                                            1             ---
                                                                               -----------       ---------
                 Total current liabilities                                           7,295           5,319

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           1,021
         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          41,338
         Warrants                                                                    1,017           1,017
         Treasury stock at cost, 8,167 common shares                                   (27)            (27)
         Retained deficit                                                          (33,382)        (46,099)
                                                                               -----------       ---------
Total shareholders' equity                                                          15,987           2,972
                                                                               -----------       ---------

Total liabilities and shareholders' equity                                     $    24,282       $   9,291
                                                                               ===========       =========
</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     Six Months      Six Months
                                                                     Ended            Ended          Ended          Ended
                                                                    June 30,         June 30,       June 30,       June 30,
                                                                      2000             2001           2000           2001
                                                                  ------------     -----------    ------------     ----------
<S>                                                               <C>             <C>           <C>              <C>
Revenue:
   Solution area consulting services                               $     1,562     $     2,354    $      3,359     $    4,638
   Solution area integration services                                      647             932           2,350          2,460
   Legacy technology consulting services                                 1,927             559           3,989          1,330
   Ancillary services                                                      165             231             346            369
   Ancillary product sales                                                 111              21             369            104
                                                                   -----------     -----------    ------------     ----------

           Total revenue                                                 4,412           4,097          10,413          8,901

Cost of sales                                                            2,773           2,161           6,095          4,745
                                                                   -----------     -----------    ------------     ----------

Gross profit                                                             1,639           1,936           4,318          4,156

Selling, general & administrative                                        2,725          13,147           5,338         16,209
                                                                   -----------     -----------    ------------     ----------

Loss from operations                                                    (1,086)        (11,211)         (1,020)       (12,053)

Interest expense, net                                                       44              37             109             85
                                                                   -----------     -----------    ------------     ----------

Loss from continuing operations                                         (1,130)        (11,248)         (1,129)       (12,138)

(Gain) loss from discontinued operations                                   (71)            473             (89)           581
                                                                   -----------     -----------    ------------     ----------

Net loss                                                                (1,059)        (11,721)         (1,040)       (12,719)

Accretion and dividends on preferred stock                                 154             164             307            324
                                                                   -----------     -----------    ------------     ----------

Net loss attributable to common shareholders                       $    (1,213)    $   (11,885)   $     (1,347)    $  (13,043)
                                                                   ===========     ===========    ============     ==========

Loss per common share from continuing operations
         attributable to common shareholders -
         basic and diluted                                         $     (0.21)    $     (1.64)   $      (0.23)    $    (1.79)
                                                                   ===========     ===========    ============     ==========

Income (loss) per common share from discontinued
         operations - basic and diluted                            $      0.01     $    (0.07)    $       0.01     $    (0.08)
                                                                   ===========     ===========    ============     ==========

Net loss per common share attributable to common
         shareholders - basic and diluted                          $     (0.20)    $     (1.71)   $      (0.22)    $    (1.87)
                                                                   ===========     ===========    ============     ==========
Weighted average shares outstanding - basic and diluted              6,010,973       6,967,339       6,006,746      6,965,374
</TABLE>

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



                                      -6-
<PAGE>

ALLIN CORPORATION & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

                        (Dollars in thousands)
                             (Unaudited)

<TABLE>
<CAPTION>
                                                                           Six Months     Six Months
                                                                             Ended          Ended
                                                                            June 30,       June 30,
                                                                              2000           2001
                                                                          -----------    -------------
<S>                                                                       <C>            <C>
Cash flows from operating activities:
         Net loss                                                             (1,040)        (12,719)
         Adjustments to reconcile net loss to net cash flows
            from operating activities:
                 Depreciation and amortization                                 1,067           1,050
                 Loss from impairment of assets                                  ---          11,053
                 (Gain) loss from abandonment or sale of assets                  (72)             23
                 Cost of fixed assets sold                                       237             ---
         Changes in certain assets and liabilities:
                 Accounts receivable                                             148             548
                 Unbilled receivable                                             ---            (296)
                 Inventory                                                      (367)            349
                 Prepaid expenses                                                148              73
                 Assets held for sale                                           (103)             36
                 Other assets                                                     10               3
                 Accounts payable                                              1,045          (1,623)
                 Accrued liabilities                                            (473)           (453)
                 Billings in excess of costs and
                        estimated gross margins                               (1,105)          1,747
                 Income taxes payable                                            ---              (1)
                 Deferred revenues                                              (927)             (2)
                                                                           ---------     -----------
            Net cash flows from operating activities                          (1,432)           (212)
                                                                           ---------     -----------

Cash flows from investing activities:
         Proceeds from sale of assets                                            185               2
         Additional purchase consideration for
                 acquisition of subsidiary                                       ---             (60)
         Capital expenditures                                                   (289)            (62)
                                                                           ---------     -----------
            Net cash flows from investing activities                            (104)           (120)
                                                                           ---------     -----------

Cash flows from financing activities:
         Net borrowing (repayment) on lines of credit                          1,345          (1,090)
         Payment of dividends on preferred stock                                (158)           (147)
         Repayment of capital lease obligations                                   (1)             (1)
                                                                           ---------     -----------
            Net cash flows from financing activities                           1,186         ( 1,238)
                                                                           ---------     -----------

Net change in cash and cash equivalents                                         (350)        ( 1,570)
Cash and cash equivalents, beginning of period                                 1,888           2,330
                                                                           ---------     -----------
Cash and cash equivalents, end of period                                       1,538             760
                                                                           =========     ===========
</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- and six-month periods ended June 30, 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.

     Discontinued Operations

     During June 2001, the Company elected to discontinue the digital imaging
     systems integration, technical support and product sales activities of
     Allin Digital Imaging Corp. ("Allin Digital"). Allin Digital's activities
     represented all of the Company's revenue and gross profit previously
     reported for two segments, Digital Imaging Systems Integration and Digital
     Imaging Product Sales, as well as a portion of the revenue and gross profit
     previously reported for the segment Other Services. Accordingly, the
     results of operations for Allin Digital for the periods presented in the
     Company's Consolidated Statements of Operations have been reclassified to
     gain or loss from discontinued operations, which is presented after loss
     from continuing operations. Also, the information related to the Company's
     revenue and gross profit included in Note 5 - Industry Segment Information
     has been reclassified for the periods presented to exclude the discontinued
     operations. See Note 8 - Discontinuation of Digital Imaging Operations -
     for additional information.

     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.

                                      -8-
<PAGE>

     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 whether 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 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 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 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 7,713 and -0- for the six-month periods ended June 30,
     2000 and 2001, respectively. No additional options or warrants to purchase
     shares were considered in the calculation of diluted EPS for the three
     month periods ended June 30, 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
     780,300 and 968,270 for the three-month periods ended June 30, 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 501,760 and 968,270 for the six-month
     periods ended June 30, 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. During the second quarter of 2001, the carrying value for inventory
     held by Allin Digital and Allin Interactive was determined to be impaired.
     See Note 7 - Impairment of Assets - for additional information.

                                      -9-
<PAGE>

     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.

     Impairment of Long-Lived Assets

     The Company follows the guidelines set forth in Statement of Financial
     Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived
     Assets and for Long-lived Assets to be Disposed Of" ("SFAS No. 121"). In
     the event that facts and circumstances indicate that the carrying value of
     an asset may not be recoverable, fair value, or if not readily available,
     estimated future undiscounted cash flows associated with the asset, would
     be compared to the asset's carrying value to determine if a write-down to
     market value or discounted cash flow is required. During the second quarter
     of 2001, the Company recorded impairment losses associated with goodwill
     recorded upon acquisition of technology consulting businesses and inventory
     related to Allin Digital's and Allin Interactive's operations. See Note 7 -
     Impairment of Assets - for additional information.

     Financial Instruments

     As of June 30, 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 $1,000 and $-0- during
     the three months ended June 30, 2000 and 2001, respectively. Cash payments
     for interest were approximately $442,000 and $39,000 during the three
     months ended June 30, 2000 and 2001, respectively. Cash payments for
     dividends were approximately $87,000 and $88,000 during the three months
     ended June 30, 2000 and 2001, respectively. Dividends on preferred stock of
     approximately $141,000 and $147,000 were accrued but unpaid during the
     three-month periods ended June 30, 2000 and 2001, respectively.

     Cash payments for income taxes were approximately $7,000 and $3,000 during
     the six months ended June 30, 2000 and 2001, respectively. Cash payments
     for interest were approximately $443,000 and $91,000 during the six months
     ended June 30, 2000 and 2001, respectively. Cash payments for dividends
     were approximately $158,000 and $147,000 during the six months ended June
     30, 2000 and 2001, respectively. Dividends on preferred stock of
     approximately $206,000 and $217,000 were accrued but unpaid during the six
     months ended June 30, 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

                                      -10-
<PAGE>

     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 June 30, 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.   Equity Transactions

     During the three months ended June 30, 2001, non-vested options to purchase
     23,750 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 141,000 shares of common stock remain
     outstanding as of June 30, 2001.

     During the three months ended June 30, 2001, vested options to purchase
     7,780 shares and non-vested options to purchase 21,150 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 341,220 shares of common stock remain outstanding as of June 30,
     2001.

     During the three months ended June 30, 2001, vested options to purchase
     14,200 shares and non-vested options to purchase 17,300 shares of common
     stock previously awarded under the Company's 1997 Stock Plan were forfeited
     under the terms of the Plan. Options granted under the 1997 Stock Plan to
     purchase 264,250 shares of common stock remain outstanding as of June 30,
     2001.

     During the three months ended June 30, 2001, vested options to purchase
     5,000 shares and non-vested options to purchase 3,500 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 221,800 shares of common stock remain outstanding as of June 30,
     2001.

4.   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 June 30, 2001, maximum borrowing availability under the revolving credit
     loan was approximately $3,427,000. The outstanding balance as of June 30,
     2001 was $1,065,000. Loans made under the revolving credit loan bear
     interest at the bank's prime interest rate plus one percent. As of June 30,
     2001, the rate of interest on the revolving credit loan was 7.75%.

     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. For the second quarter of 2001, S&T Bank agreed
     to exclude from the cash flow calculation certain non-cash losses due to
     impairment of assets (See

                                      -11-
<PAGE>

     Note 7 - Impairment of Assets) and increases in allowance for doubtful
     accounts receivable (See Note 8 - Discontinuation of Digital Imaging
     Operations) recorded by the Company. The Company was in compliance with the
     cash flow covenant for the fiscal quarter ended June 30, 2001 after this
     exclusion of the non-cash losses. The Company is also in compliance with
     all other covenants as of June 30, 2001.

5.   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, the Company 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 June 30, 2000 and for the
     three- and six-month periods 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 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, Interactive
     Media Consulting, Interactive Media Systems Integration and Legacy
     Technology Consulting. Segments grouped as Ancillary Services & Product
     Sales include Interactive Television Transactional Services, Information
     System Product Sales and Other Services.

     During June 2001, the Company elected to discontinue the digital imaging
     systems integration and product sales activities of Allin Digital. Allin
     Digital's activities represented all of the Company's revenue and gross
     profit previously reported for two segments, Digital Imaging Systems
     Integration (under Solution Area Services) and Digital Imaging Product
     Sales (under Ancillary Services and Product Sales), as well as a portion of
     the revenue and gross profit previously reported for the segment Other
     Services. Accordingly, the information related to the Company's revenue and
     gross profit presented has been restated for the periods presented to
     exclude the

                                      -12-
<PAGE>

     discontinued operations. Information about assets related to Allin
     Digital's operations previously reported under these segment captions has
     been reclassified to a line item captioned Discontinued Operations-Digital
     Imaging.

     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.

     Revenue

     Information on revenue derived from external customers is as follows:

<TABLE>
<CAPTION>
                                                                     Revenue from External Customers
                                                                     -------------------------------
                                                                Three        Three        Six         Six
                                                                Months       Months      Months      Months
                                                                Ended        Ended       Ended       Ended
                                                               June 30,     June 30,    June 30,    June 30,
                                                                 2000         2001        2000        2001
(Dollars in thousands)                                      --------------------------------------------------
<S>                                                          <C>            <C>         <C>         <C>
Solution Area Services:
    Technology Infrastructure Consulting                     $    664     $    806      $  1,582     $  1,742
    E-Business Consulting                                         657          640         1,274        1,201
    Interactive Media Consulting                                  241          908           503        1,695
    Interactive Media Systems Integration                         647          932         2,350        2,460
    Legacy Technology Consulting                                1,927          559         3,989        1,330
                                                            --------------------------------------------------
Total Solution Area Services                                 $  4,136     $  3,845      $  9,698     $  8,428

Ancillary Services & Product Sales:
    Interactive Television Transactional Services            $    110     $     89      $    258     $    184
    Information System Product Sales                              111           21           369          104
    Other Services                                                 55          142            88          185
                                                            --------------------------------------------------
Total Ancillary Services & Product Sales                     $    276     $    252      $    715     $    473

                                                            --------------------------------------------------

Consolidated Revenue from External Customers                 $  4,412     $  4,097      $ 10,413     $  8,901
                                                            ==================================================
</TABLE>

                                      -13-
<PAGE>

     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>
                                                                     Revenue from External Customers
                                                                     -------------------------------
                                                                Three        Three        Six         Six
                                                                Months       Months      Months      Months
                                                                Ended        Ended       Ended       Ended
                                                               June 30,     June 30,    June 30,    June 30,
                                                                 2000         2001        2000        2001
(Dollars in thousands)                                       -------------------------------------------------
<S>                                                          <C>            <C>         <C>         <C>
Solution Area Services                                        $     63       $    ---    $    141    $      1
Ancillary Services & Product Sales                                  21              3         104          34
                                                             -------------------------------------------------

Total Revenue from Related Entities in Other Segments         $     84       $      3    $    245    $     35
                                                             =================================================
</TABLE>

     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>
                                                                                Gross Profit
                                                                                ------------
                                                                Three        Three        Six         Six
                                                                Months       Months      Months      Months
                                                                Ended        Ended       Ended       Ended
                                                               June 30,     June 30,    June 30,    June 30,
                                                                 2000         2001        2000        2001
(Dollars in thousands)                                      -------------------------------------------------
<S>                                                          <C>            <C>         <C>         <C>
Solution Area Services:
    Technology Infrastructure Consulting                     $    401      $    484    $   880    $  1,062
    E-Business Consulting                                         333           363        642         658
    Interactive Media Consulting                                  143           530        304       1,081
    Interactive Media Systems Integration                         109           229      1,073         680
    Legacy Technology Consulting                                  499           135      1,066         343
                                                            ----------------------------------------------
Total Solution Area Services                                 $  1,485      $  1,741    $ 3,965    $  3,824

Ancillary Services & Product Sales:
    Interactive Television Transactional Services            $     74      $     62    $   175    $    120
    Information System Product Sales                               13            (2)       100          33
    Other Services                                                 67           135         78         179
                                                            ----------------------------------------------
Total Ancillary Services & Product Sales                     $    154      $    195    $   353    $    332
                                                            ----------------------------------------------

Consolidated Gross Profit                                    $  1,639      $  1,936    $ 4,318    $  4,156
                                                            ==============================================
</TABLE>

                                      -14-
<PAGE>

     Assets

     Information on total assets attributable to segments is as follows:

<TABLE>
<CAPTION>
(Dollars in thousands)                                                            Total Assets
As of June 30                                                                  2000          2001
                                                                           ---------------------------
<S>                                                                             <C>        <C>
Solution Area Services:
    Technology Infrastructure Consulting                                   $   6,216         $  1,856
    E-Business Consulting                                                      1,038              807
    Interactive Media Consulting                                                 218            1,540
    Interactive Media Systems Integration                                      1,291            1,698
    Legacy Technology Consulting                                              10,649            1,982
                                                                          ----------------------------
Total Solution Area Services                                               $  19,412         $  7,883

Ancillary Services & Product Sales:
    Interactive Television Transactional Services                          $     331         $    226
    Information System Product Sales                                              93               52
    Other Services                                                               106              134
                                                                          ----------------------------
Total Ancillary Services & Product Sales                                   $     530         $    412

Corporate                                                                      1,385              393
Discontinued Operations - Digital Imaging                                      2,147              603
                                                                          ----------------------------

Consolidated Total Assets                                                  $  23,474         $  9,291
                                                                          =============================
</TABLE>

6.   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; and identified numbers, functions and locations
     of anticipated terminations and if the period of time for the plan of
     termination indicates significant changes are not likely.

     Additional restructuring charges of approximately $44,000 were recorded in
     June 2001 to increase a liability for severance costs originally recorded
     in March 2001 associated with the termination of services of a managerial
     executive associated with the technology consulting services provided by
     the Company's Technology Infrastructure and E-Business Solution Areas. The
     Company's severance obligation is of variable duration up to six months
     dependent upon the executive's ability to obtain replacement employment.
     The Company's original restructuring accrual was based on an estimate of
     the most likely period for the severance obligation. Information available
     as of June 30, 2001 indicated the duration of the severance obligation
     would exceed the originally estimated period. Expenses associated with the
     additional restructuring charge are reflected in Selling, general &
     administrative expenses on the Consolidated Statement of Operations for the
     second quarter of 2001. As of June 30, 2001, approximately $6,000 of the
     accrued amount had been paid. The remaining balance, approximately $38,000,
     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 September 2001. As of June 30, 2001, all of the restructuring
     charges accrued in March 2001 had been paid.

7.   Impairment of Assets

     The operations of Allin Consulting-Pennsylvania and Allin
     Consulting-California were acquired by the Company in August 1998 and
     November 1996, respectively. These subsidiaries represent a significant
     portion of the Company's solution area consulting operations, including
     virtually all of the Technology Infrastructure Consulting, E-Business
     Consulting and Legacy Technology Consulting segment revenue and gross
     profit. The

                                      -15-
<PAGE>

     acquired businesses provided consulting services and were not
     capital-intensive businesses. Consequently, significant portions of the
     acquisition prices were attributed to intangible assets, including client
     lists, assembled workforces and goodwill. Since early 1999, the Company's
     strategic focus has been on developing solutions-oriented consulting
     revenue, including revenue derived from the activities of its Technology
     Infrastructure and E-Business Solution Areas. During 1999 and 2000, the
     Company was able to successfully grow revenue in these solution areas.
     Based on this growth history and industry projections for continuing
     significant increases in the demand for e-business and infrastructure
     technology consulting services, in late 2000, the Company anticipated
     significant revenue and gross profit increases in future periods for its
     Technology Infrastructure and E-Business Solution Areas. During this time
     period, anticipated results indicated sufficient expected cash flows to
     support the net unamortized values of the intangible assets associated with
     the acquisitions of Allin Consulting-Pennsylvania and
     Allin-Consulting-California. The downturn in the domestic economy
     experienced in the first half of 2001 has significantly lowered
     technology-based spending in the United States, which has negatively
     impacted the demand for technology consulting services. Current industry
     analysis indicates that any increase in the demand for technology
     consulting services is not likely to occur until 2002 at the earliest.
     While the Company has experienced a small increase in the level of revenue
     for the Technology Infrastructure and E-Business Solution Areas in the
     first six months of 2001 as compared to the first six months of 2000, the
     level of growth is significantly below the Company's expectations for 2001.
     During the second quarter of 2001, due to the continuing variance in the
     rate of revenue and gross profit growth from prior expectations and the
     growing perception among industry analysts that the negative impact of the
     economic downturn on technology consulting would continue at least until
     2002, the Company completed new projections for Allin
     Consulting-Pennsylvania and Allin Consulting-California. These projections
     indicated the estimated fair values of the intangible assets associated
     with the acquisitions of those operations were less than the net
     unamortized values of the assets.

     The negative impact of the economic downturn on Allin
     Consulting-Pennsylvania has been particularly pronounced since the slower
     than anticipated growth in solutions-oriented Technology Infrastructure and
     E-Business revenue during the first half of 2001 was accompanied by a
     continuing decline in the level of legacy technology consulting.
     Solutions-oriented consulting has grown in significance and legacy
     technology consulting has lessened in significance for Allin
     Consulting-Pennsylvania since its acquisition in August 1998.
     Solutions-oriented revenue has typically featured higher billing rates and
     gross profit potential, but shorter duration of projects and more
     volatility in results. Also, the significant impact of the current economic
     downturn on technology consulting indicates a likelihood of additional risk
     due to economic cycles. Consequently, the period over which expected cash
     flows were projected was shortened to ten years beyond the current year.
     The original expected useful life for goodwill and customer list had been
     thirty and fourteen years, respectively. The Company's forecast for Allin
     Consulting-Pennsylvania includes low expectations of revenue and gross
     profit growth through 2003, as the level of legacy technology consulting
     services is expected to continue to decline throughout this period. The
     Company expects that growth rates for revenue and gross profit will
     increase thereafter. Based on the Company's revised projections, a loss due
     to impairment of approximately $9,530,000 was recorded in the second
     quarter of 2001 to reduce the net unamortized value of goodwill recorded on
     Allin Consulting-Pennsylvania. The impairment loss was included in Selling,
     general & administrative expenses in the Company's Consolidated Statements
     of Operations during that period. The remaining amortization periods for
     customer list and goodwill will be adjusted prospectively to equal the
     period of the Company's projection.

     The economic downturn has also negatively impacted the demand for
     Technology Infrastructure and E-Business consulting services provided by
     Allin Consulting-California. The Company's expectations of future revenue
     and gross profit as of the beginning of 2001 had been based on growth
     achieved in 2000 and industry analysis for expected future demand for
     technology consulting services. Due to the economic downturn, during 2001,
     the Company has been unable to sustain revenue growth that had been
     realized late in 2000. Prior to recording the impairment loss,
     approximately 92% of the net unamortized value of Allin
     Consulting-California's intangible assets related to goodwill associated
     with its acquisition in November 1996. The original useful life was seven
     years. Consequently, the current projection for cash flows related to
     goodwill from the 1996 acquisition is based on the remaining useful life,
     with low expectations for revenue and gross profit growth due to the
     likelihood that the negative impact of the economic downturn will persist
     through a substantial portion of the remaining useful life. Based on the
     Company's revised projections, a loss due to impairment of approximately
     $1,097,000 was recorded in the second quarter of 2001 to reduce the net

                                      -16-
<PAGE>

     unamortized value of goodwill recorded on Allin Consulting-California. The
     impairment loss was included in Selling, general & administrative expenses
     in the Company's Consolidated Statements of Operations during that period.

     Allin Interactive maintained an inventory of interactive television
     equipment salvaged from ships on which it had previously operated
     interactive television systems on an owner-operator model. The equipment
     had been removed from ships on which operations under this model were
     discontinued in 1997 and 1998. The inventory values had been based on
     estimated salvage values after the equipment was removed from the ships.
     Allin Interactive continued to own and operate other ship-based systems
     utilizing similar equipment and, from 1999 to 2001, sold the remaining
     systems to two cruise lines. During this time period, Allin Interactive
     sought to sell its inventory to these cruise lines for spare parts for the
     systems that continued to be operated. While a portion of the inventory has
     been sold to these parties, it became apparent during the second quarter of
     2001 that neither cruise line was prepared to purchase significant
     quantities of the inventoried equipment. The Company therefore believed the
     estimated fair value of the remaining inventory was less than the value
     recorded for the inventory. A loss due to impairment of approximately
     $121,000 was recorded in the second quarter of 2001 to adjust the recorded
     value of Allin Interactive's inventory to the revised estimate of fair
     value. The impairment loss was included in Selling, general &
     administrative expenses in the Company's Consolidated Statements of
     Operations during that period.

     Allin Digital maintained an inventory of digital imaging equipment and
     consumable supplies that was utilized to configure digital imaging systems
     to be sold and installed and for sales of digital photography equipment and
     consumable supplies. During the second quarter of 2001, the Company
     determined that its digital imaging operations would be discontinued (See
     Note 8 - Discontinuation of Digital Imaging Operations - for additional
     information). The Company believes that certain of the equipment components
     maintained in inventory would offer greater potential value when sold as
     components of a complete system installation which includes system
     configuration, software installation and training of customer personnel.
     Since the Company has determined to discontinue operations of this type,
     Allin Digital will attempt to sell its remaining inventory of equipment as
     individual components. Since Allin Digital lacks a retail outlet for this
     equipment, it will attempt to sell its inventory through Internet-based
     auctions and to existing clients. The Company believes significant
     discounts will need to be offered to sell certain components which were
     normally sold as part of complete digital imaging systems. Consequently, in
     the second quarter of 2001, the Company estimated fair values for Allin
     Digital's inventory components based on sales of similar components on
     Internet-based auctions. The estimated fair value of Allin Digital's
     inventory was less than the value recorded for the inventory. A loss due to
     impairment of approximately $272,000 was recorded in the second quarter of
     2001 to adjust the recorded value of Allin Digital's inventory to the
     revised estimate of fair value. Due to the determination to discontinue its
     digital photography operations, the Company also estimated similar fair
     values for equipment utilized in certain photography concessionaire
     operations and determined which capitalized hardware, software and
     equipment would no longer be utilized. A loss due to impairment of
     approximately $55,000 was recorded related to these assets. The impairment
     losses were included in the losses from discontinued operations included in
     the Company's Consolidated Statements of Operations for the three and six
     months ended June 30, 2001.

8.   Discontinuation of Digital Imaging Operations

     During the second quarter of 2001, the Company determined that its digital
     imaging operations would be discontinued. The discontinuation is due to
     declines in revenue and gross profit realized during the first six months
     of 2001 as compared to the first six months of 2000 and due to the loss of
     key managerial and sales personnel in the second quarter. In the third
     quarter of 2000, the Company had determined that the gross profit as a
     percentage of revenue being realized through its digital imaging operations
     was not meeting the Company's objectives and consequently had refocused the
     digital imaging sales strategy on being a high value-added provider of
     digital imaging systems integration services. The Company believes that
     results during the first six months of 2001 indicate that there is
     currently not sufficient demand for high value-added integration services
     to assure future operations that would meet the Company's revenue and gross
     profit objectives. The Company also believes that the loss of key personnel
     in the second quarter of 2001 lessened the likelihood that such objectives
     could be realized. The Company has evaluated estimated fair values for its
     inventory of digital imaging equipment and consumable supplies, assets
     utilized in certain photography concessionaire operations and capitalized
     hardware, software and equipment. A loss due to impairment of approximately
     $327,000 has

                                      -17-
<PAGE>

     been recorded related to these assets (See Note 7 - Impairment of
     Long-Lived Assets - for additional information). The Company has also
     recorded a provision of approximately $28,000 to increase its allowance for
     doubtful accounts receivable related to Allin Digital's operations. The
     results of Allin Digital's operations for all periods presented in the
     Company's Consolidated Statements of Operations and the impairment losses
     related to Allin Digital's assets have been reclassified to (Gain) loss
     from discontinued operations.

     Allin Digital will fulfill its remaining obligations to clients for
     technical support which extend through May 2002. Allin Digital will also
     support website hosting for clients utilizing its Portraits Online system
     until such time as an alternate service provider can be obtained. Allin
     Digital expects to continue to sell digital imaging equipment held in
     inventory until the inventory is exhausted. Revenue derived from these
     activities and associated cost of sales and operating expenses will be
     presented as a gain or loss from discontinued operations in future periods.
     The Company expects that all activities carried out by Allin Digital will
     be discontinued no later than June 30, 2002.

                                      -18-
<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 June 30, 2001, the
related condensed consolidated statements of income for the three- and six-month
periods ended June 30, 2001 and 2000, and the condensed consolidated statements
of cash flows for the six-month periods ended June 30, 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,
July 24, 2001

                                      -19-
<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- and six-month periods ended June 30, 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 general economic conditions, the Company's
limited operating history under new marketing strategies and a new solution area
structure, the decline in demand for 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 an information technology consulting and systems
integration provider that teams with businesses to provide technology-based
solutions through three interrelated solution areas: Technology Infrastructure,
E-Business and Interactive Media. The Company offers technology consulting,
application development and interactive media 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 and interactive
technology in the business arena is also fundamentally changing how businesses
interact with customers and suppliers and fulfill customer needs. 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 June 30, 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

                                      -20-
<PAGE>

with additional offices located in San Jose and Walnut Creek, California and Ft.
Lauderdale, Florida. The Company utilizes the trade-names Allin Consulting and
Allin Interactive in its operations. All trade- and brand-names included in this
Report on Form 10-Q are the property of their respective owners.

         During the second quarter of 2001, the Company elected to discontinue
the digital imaging operations of Allin Digital and expects to terminate such
operations prior to June 30, 2002. Information for the three- and six-month
periods ended June 30, 2000 has been restated to reflect the results of Allin
Digital's operations as gains from discontinued operations. Information for the
three- and six-month periods ended June 30, 2001 reflect the results of Allin
Digital's operations as losses from discontinued operations.

         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 June 30, 2000 and for the
three- and six-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 encompass 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 to seek 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

                                      -21-
<PAGE>

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 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 by providing interactive television solutions.
Interactive Media enables customers to convert manual and analog processes into
interactive digital solutions. Interactive Media delivers E-commerce platforms
featuring interactive television applications 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. The
majority of services are currently provided to the cruise line segment. Demand
from cruise line customers has resulted in a significant increase in Interactive
Media revenue in the first half of 2001 as compared to the first half of 2000.
Committed services to cruise line customers also represent a majority of the
Company's backlog as of June 30, 2001. 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.

         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 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.

         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 customers and to foster the development of long-term
business relationships. Management believes customers of

                                      -22-
<PAGE>

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 and business objectives.
References in this report to solutions-oriented services mean services delivered
through the

                                      -23-
<PAGE>

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
half of 2001. Management expects a continued 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. 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 prior to the end of 2001 upon
         Carnival Cruise Lines' ("Carnival") assumption of operations pursuant
         to their February 2001 purchase of these systems.
  .      The Company's information system product sales historically have been
         primarily obtained in connection with 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. An example of this types of revenue is
         placement fees.

Results of Operations

Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000

Revenue

         The Company's total revenue for the three months ended June 30, 2001
was $4,097,000, a decrease of $315,000, or 7%, from total revenue of $4,412,000
for the three months ended June 30, 2000. Revenue from the Company's Technology
Infrastructure, E-Business and Interactive Media Solution Areas increased by
$1,077,000 from the second quarter of 2000 to the second quarter of 2001,
offsetting most of a $1,368,000 decline in legacy technology consulting services
revenue. Interactive Media consulting and systems integration revenue increased
by $952,000 from the second quarter of 2000 to the second quarter of 2001.

         The Company's solution area revenue, after elimination of intercompany
sales, was $3,845,000 for the three months ended June 30, 2001, including
$806,000 for Technology Infrastructure, $640,000 for E-Business, $1,840,000 for
Interactive Media and $559,000 for legacy technology consulting services.
Comparable solution area revenue for the three months ended June 30, 2000 was
$4,136,000 in total, including $664,000 for Technology Infrastructure, $657,000
for E-Business, $888,000 for Interactive Media and $1,927,000 for legacy
technology consulting services.

                                      -24-
<PAGE>

         Technology Infrastructure revenue increased $142,000, or 21%, in the
three months ended June 30, 2001 as compared to the three months ended June 30,
2000. The primary reason for the increase in Technology Infrastructure revenue
was significant growth in the Company's Pittsburgh-based operations from 1999 to
late 2000. The rate of revenue growth has diminished considerably since the
beginning of 2001, however, due to the negative impact of the current economic
downturn on the demand for technology consulting services. There can be no
assurance that the Company will realize revenue equal to or greater than
current levels for its Technology Infrastructure 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..

         The E-Business Solution Area recorded a revenue decrease of $17,000, or
3%, for the three months ended June 30, 2001 as compared with the three months
ended June 30, 2000. Management 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. A number of customers or
potential customers have postponed E-Business projects or delayed consideration
of new projects due to the economic uncertainty. 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 $1,840,000 for the
three months ended June 30, 2001, including $908,000 for interactive media
consulting and $932,000 for interactive media systems integration. Comparable
Interactive Media revenue for the three months ended June 30, 2000 was $888,000
in total, including $241,000 for interactive media consulting and $647,000 for
interactive media systems integration. The increase in Interactive Media
Solution Area revenue from the second quarter of 2000 to the second quarter of
2001 was 107%.

         Interactive Media consulting revenue increased $667,000, or 277%, for
the three months ended June 30, 2001 as compared with the second quarter of the
prior year. The increase in revenue was primarily attributable to substantial
progress on applications development projects 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 second 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 increased by
$285,000, or 44%, in the three months ended June 30, 2001 as compared to the
three months ended June 30, 2000. During the second quarter of 2001, systems
integration projects commenced for interactive televisions systems aboard the
Carnival Triumph, Royal Caribbean Cruise Lines ("Royal Caribbean") Adventure of
the Seas and Celebrity Cruises, Inc. ("Celebrity") Summit. Systems were also
completed for the Royal Caribbean Radiance of the Seas and the Celebrity
Infinity during the second quarter of 2001. In the second quarter of 2000,
systems integration projects included portions of two-ship based and one
healthcare-based interactive television system. The increase in the number of
simultaneously active projects is the primary reason for the increase in revenue
in the second quarter of 2001 as compared to the second quarter of 2000. Based
on committed backlog from cruise industry customers, management expects
Interactive Media systems integration revenue to increase from current levels
during the second half 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.

         Revenue from legacy technology consulting services declined $1,368,000,
or 71%, for the three months ended June 30, 2001 as compared to the three months
ended June 30, 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

                                      -25-
<PAGE>

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 $252,000 during the three months ended June 30, 2001, including $89,000 for
interactive television transactional services, $21,000 for information system
product sales and $142,000 for other services. Ancillary services & product
sales revenue of $276,000 was recognized during the three months ended June 30,
2000, including $110,000 for interactive television transactional services,
$111,000 for information system product sales and $55,000 for other services.

         Interactive television transactional services revenue decreased by
$21,000, or 19%, in the three months ended June 30, 2001 as compared to the
three months ended June 30, 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 prior to the
end of 2001. Information system product sale revenue decreased by $90,000, or
81%, in the second quarter of 2001 as compared to the second quarter of 2000.
Allin Network operated Erie Computer Company ("Erie Computer") during two months
of the second quarter of 2000. Erie Computer's revenue base included a
significant component of information system product sales. Erie Computer was
sold in May 2000 eliminating this revenue stream for the second quarter of 2001.
Revenue from other services increased by $87,000 from the second quarter of 2000
to the second quarter of 2001. The increase is attributable to significant
placement fee revenue of $124,000 being recognized in April 2001 following
collection of litigation settlement proceeds from a former customer who hired
three of the Company's consultants during the client engagement. The Company's
letter of engagement with the customer prohibited the customer's hiring of the
Company's consultants and provided for placement fees as liquidated damages in
such event.

Cost of Sales and Gross Profit

         The Company recognized cost of sales of $2,161,000 during the three
months ended June 30, 2001 as compared to $2,773,000 during the three months
ended June 30, 2000. The primary reason the decrease in cost of sales of
$612,000 was the decline in legacy technology consulting services. Gross profit
of $1,936,000 was recognized for the second quarter of 2001 as compared to
$1,639,000 for the second quarter of 2000, an increase of $297,000, or 18%. The
changing mix of the Company's services toward a greater proportion of
higher-margin solutions-oriented consulting and systems integration services and
a declining proportion of lower-margin legacy technology consulting services
resulted in the 18% increase in gross profit despite a 7% decline in revenue in
the second quarter of 2001 as compared to the second quarter of 2000. Gross
profit as a percentage of revenue increased to 47% in the second quarter of 2001
from 37% in the second quarter of 2000. 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 $2,104,000 for cost of
sales during the three months ended June 30, 2001, including $322,000 for
Technology Infrastructure, $277,000 for E-Business, $1,081,000 for Interactive
Media and $424,000 for legacy technology consulting services. Comparable cost of
sales for the three months ended June 30, 2000 was $2,651,000 in total,
including $263,000 for Technology Infrastructure, $324,000 for E-Business,
$636,000 for Interactive Media and $1,428,000 for legacy technology consulting
services. Gross profit for the Company's solution areas for the three months
ended June 30, 2001 was $1,741,000, including $484,000 for Technology
Infrastructure, $363,000 for E-Business, $759,000 for Interactive Media and
$135,000 for legacy technology consulting services. Comparable gross profit for
the three months ended June 30, 2000 was $1,485,000 in total, including $401,000
for Technology Infrastructure, $333,000 for E-Business, $252,000 for Interactive
Media and $499,000 for legacy technology consulting services. The primary factor
in the period-to-period increase in gross profit was the increase in the scope
of Interactive Media services, although this was partially offset by a decline
in the level of legacy technology consulting services from the first quarter of
2000 to the first quarter of 2001.

                                      -26-
<PAGE>

         Technology Infrastructure gross profit increased $83,000, or 21%, in
the second quarter of 2001 as compared to the second quarter of 2000. The
increase in gross profit was realized through growth in high margin
solutions-oriented projects, particularly due to the increase in Technology
Infrastructure services provided by the Company's Pittsburgh-based operations
from the second quarter of 2000 to the second quarter of 2001. The increase in
gross profit is consistent with the corresponding increase in Technology
Infrastructure revenue.

         E-Business gross profit increased $30,000, or 9%, in the second quarter
of 2001 as compared to the second quarter of 2000, despite a 3% decline in
revenue. Gross profit as a percentage of revenue experienced a 6%
period-to-period increase. The improvement in gross profit as a percentage of
revenue resulted from increased average billing rates. Management believes that
a softening of demand for technology consulting services due to the uncertainty
regarding the domestic economy curtailed more substantial growth in E-Business
gross profit in the second quarter of 2001 and that the economic uncertainty
will continue to limit E-Business growth potential for at least the remainder of
2001.

         Cost of sales for the Interactive Media Solution Area was $1,081,000 in
total for the three months ended June 30, 2001, including $378,000 for
interactive media consulting and $703,000 for interactive media systems
integration. Interactive Media cost of sales for the three months ended June 30,
2000 was $636,000 in total, including $98,000 for interactive media consulting
and $538,000 for interactive media systems integration. Interactive Media
Solution Area gross profit was $759,000 for the three months ended June 30,
2001, including $530,000 for interactive media consulting and $229,000 for
interactive media systems integration. Interactive Media gross profit was
$252,000 for the three months ended June 30, 2000, including $143,000 for
interactive media consulting and $109,000 for interactive media systems
integration. The increases in consulting cost of sales and gross profit resulted
from a substantially higher level of applications development services for
cruise industry customers in the second quarter of 2001 as compared to the
second quarter of 2000. The increases in systems integration cost of sales and
gross profit resulted from an increase in the number of active system
installation projects in the second quarter of 2001 as compared to the second
quarter of 2000.

         Cost of sales for the Company's legacy technology consulting services
was $424,000 for the three months ended June 30, 2001 as compared to $1,428,000
for the three months ended June 30, 2000. Gross profit realized on legacy
technology consulting services declined from $499,000 in the second quarter of
2000 to $135,000 in the second 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
industry trends away from mainframe computer systems and the Company's shift in
marketing focus since early 1999 to developing higher-margin solutions-oriented
business.

         Cost of sales for the Company's ancillary services and product sales
was $57,000 for the three months ended June 30, 2001, including $27,000 for
pay-per-view movies associated with interactive television transactional
revenue, $23,000 for information system product sales and $7,000 for other
services. Cost of sales for ancillary services and product sales was $122,000
for the three months ended June 30, 2000, including $36,000 for pay-per-view
movies, $98,000 for information system product sales and $(12,000) for other
services. Gross profit on ancillary services and product sales was $195,000 for
the second quarter of 2001, including $62,000 for interactive television
transactional revenue, a $2,000 loss for information system product sales and
$135,000 for other services. Gross profit for ancillary services and product
sales was $154,000 for the second quarter of 2000, including $74,000 for
interactive television transactional services, $13,000 for information system
product sales and $67,000 for other services. The largest factor in the
period-to-period increase in gross profit of $41,000 was the inclusion of
significant placement fee revenue of $124,000 recognized in April 2001 following
collection of litigation settlement proceeds from a former customer who hired
three of the Company's consultants during the client engagement. Interactive
television transactional services are expected to cease as a source of gross
profit prior to the end of 2001 upon transfer of systems operation on two ships
to Carnival.

Selling, General & Administrative Expenses

         The Company recorded $13,147,000 in selling, general & administrative
expenses during the three months ended June 30, 2001 as compared to $2,725,000
during the three months ended June 30, 2000, an increase of $10,422,000. The
increase is attributable to substantial losses totaling $10,748,000 recorded in
the second quarter of 2001 for impairment of certain assets, including goodwill
associated with the acquisitions of Allin Consulting-

                                      -27-
<PAGE>

Pennsylvania and Allin Consulting-California and inventory maintained by Allin
Interactive. See Note 7 - Impairment of Assets - in the Notes to Consolidated
Financial Statements included in Item 1 -Financial Statements above for
additional information concerning the impairment losses.

         Late in the first quarter and during the second quarter of 2001,
management moved to reduce the cost of personnel resources in its Technology
Infrastructure and E-Business Solution Areas as well as corporate marketing and
financial personnel. The Interactive Media Solution Area, however, 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 resulting from its addition of in excess of
$12,000,000 of committed backlog for consulting and systems integration services
in the first quarter of 2001. The scope of Interactive Media project activity
increased substantially in the second quarter of 2001 and is expected to
continue to do so during the remainder of 2001. The Company's staff reductions
have resulted in cost savings in excess of the additional personnel cost for
Interactive Media.

         During the three months ended June 30, 2001, a severance accrual of
approximately $44,000 was recorded to increase a liability for severance costs
originally recorded in March 2001 associated with the termination of services of
a managerial executive associated with the Company's Technology Infrastructure
and E-Business Solution Areas. The Company's severance obligation is of variable
duration up to six months depending upon the executive's ability to obtain
replacement employment. The Company's original accrual had been based on an
estimate of the most likely duration of the severance period. The original
accrual has been exceeded, requiring an additional accrual in the second
quarter. There was no similar severance accrual during the second quarter of
2000.

         There were two unusual items impacting selling, general &
administrative expenses in the three months ended June 30, 2000. The Company
incurred expenses of approximately $111,000 in connection with an abandoned
acquisition candidate. A loss of approximately $67,000 was recorded on the sale
of assets related to Allin Network's Erie Computer operations.

         Depreciation and amortization were $503,000 for the three months ended
June 30, 2001 as compared to $529,000 for the three months ended June 30, 2000.
The slight decrease is due to the discontinuation of depreciation on two
ship-based interactive television systems upon their sale to Carnival in
February 2001. Depreciation expense was recorded for these systems in the second
quarter of 2000.

Loss from Continuing Operations

         The Company recorded a loss from continuing operations of $11,248,000
during the three months ended June 30, 2001, as compared to a loss from
continuing operations of $1,130,000 during the three months ended June 30, 2000.
The increase in loss from continuing operations is attributable to impairment
losses of $10,748,000 recognized in the second quarter of 2001. See Note 7 -
Impairment of Assets - in the Notes to Consolidated Financial Statements
included in Item 1 -Financial Statements above for additional information
concerning the impairment losses. Excluding the impairment losses, the loss from
continuing operations would have reflected a period-to-period reduction of
$630,000 due to improvements in gross profit from an increased scope of
solutions-oriented consulting and systems integration projects and a reduction
in other selling, general & administrative expenses.

(Gain) Loss from Discontinued Operations

         During the three months ended June 30, 2001, the Company recorded a
loss of $473,000 from its discontinued digital imaging operations as compared to
a gain of $71,000 during the three months ended June 30, 2000. The loss
recognized in the second quarter of 2001 included an impairment loss of
approximately $327,000 related to Allin Digital's inventory of digital imaging
equipment and consumable supplies, assets utilized in certain photography
concessionaire operations and capitalized hardware, software and equipment. The
fair value estimated for the inventory was significantly reduced since the
Company will no longer be utilizing the equipment as components of completely
configured and installed digital imaging systems. Allin Digital also recorded a
provision of approximately $28,000 to increase its allowance for doubtful
accounts. The remainder of the increased loss was due to declines in systems
integration projects and product sales in the second quarter of 2001 as compared
to the second quarter of 2000.

                                      -28-
<PAGE>

Net Loss

         The Company's net loss for the three months ended June 30, 2001 was
$11,721,000 as compared to $1,059,000 for the three months ended June 30, 2000.
The most significant factor in the decrease in profitability was the inclusion
of $10,748,000 of impairment losses for continuing operations in the second
quarter of 2001, as discussed above.

Results of Operations

Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000

Revenue

         The Company's total revenue for the six months ended June 30, 2001 was
$8,901,000, a decrease of $1,512,000, or 15%, from total revenue of $10,413,000
for the six months ended June 30, 2000. Revenue from the Company's Technology
Infrastructure, E-Business and Interactive Media Solution Areas increased by
$1,389,000 from the first half of 2000 to the first half of 2001, partially
offsetting a decline in legacy technology consulting services revenue of
$2,659,000. Interactive Media consulting and systems integration services posted
the most significant revenue gains, an aggregate increase of $1,302,000 from the
first half of 2000 to the first half of 2001.

         The Company's solution area revenue, after elimination of intercompany
sales, was $8,428,000 for the six months ended June 30, 2001, including
$1,742,000 for Technology Infrastructure, $1,201,000 for E-Business, $4,155,000
for Interactive Media and $1,330,000 for legacy technology consulting services.
Comparable solution area revenue for the six months ended June 30, 2000 was
$9,698,000 in total, including $1,582,000 for Technology Infrastructure,
$1,274,000 for E-Business, $2,853,000 for Interactive Media and $3,989,000 for
legacy technology consulting services.

         Technology Infrastructure revenue increased $160,000, or 10%, in the
six months ended June 30, 2001 as compared to the six months ended June 30,
2000. The primary reason for the increase in Technology Infrastructure revenue
was significant growth in the Company's Pittsburgh-based operations from 1999 to
late 2000. The rate of revenue growth has diminished considerably since the
beginning of 2001, however, due to the negative impact of the current economic
downturn on the demand for technology consulting services. There can be no
assurance that the Company will realize revenue equal to or greater than current
levels for its Technology Infrastructure 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.

         The E-Business Solution Area recorded a revenue decrease of $73,000, or
6%, for the six months ended June 30, 2001 as compared with the six months ended
June 30, 2000. Management 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. A number of customers or potential
customers have postponed E-Business projects or delayed consideration of new
projects due to the economic uncertainty.

         Interactive Media Solution Area revenue totaled $4,155,000 for the six
months ended June 30, 2001, including $1,695,000 for interactive media
consulting and $2,460,000 for interactive media systems integration. Comparable
Interactive Media revenue for the six months ended June 30, 2000 was $2,853,000
in total, including $503,000 for interactive media consulting and $2,350,000 for
interactive media systems integration. The increase in Interactive Media
Solution Area revenue from the first half of 2000 to the first half of 2001 was
46%.

         Interactive Media consulting revenue increased $1,192,000, or 237%, for
the six months ended June 30, 2001 as compared with the first half of the prior
year. The increase in revenue was primarily attributable to the commencement of
applications development projects 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.

                                      -29-
<PAGE>

         Revenue for Interactive Media systems integration services increased by
$110,000, or 5%, in the six months ended June 30, 2001 as compared to the six
months ended June 30, 2000. Interactive Media systems integration revenue for
the first half 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 half of 2001 as compared to the first half of 2000, thereby replacing
most of the non-recurring Celebrity ship system sale revenue. As of June 30,
2001, systems integration services were being provided concurrently on three new
ship-based systems, the largest number of simultaneously active projects of this
magnitude undertaken by Interactive Media.

         Revenue from legacy technology consulting services declined $2,659,000,
or 67%, for the six months ended June 30, 2001 as compared to the six months
ended June 30, 2000. Management 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 and the Company placing
significantly greater marketing emphasis on the Microsoft-based
solutions-oriented services offered by the Technology Infrastructure, E-Business
and Interactive Media Solution Areas. 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 $473,000 during the six months ended June 30, 2001, including $184,000 for
interactive television transactional services, $104,000 for information system
product sales and $185,000 for other services. Ancillary services & product
sales revenue of $715,000 was recognized during the six months ended June 30,
2000, including $258,000 for interactive television transactional services,
$369,000 for information system product sales and $88,000 for other services.

         Interactive television transactional services revenue decreased by
$74,000 in the six months ended June 30, 2001 as compared to the six months
ended June 30, 2000. Transactional revenue will be discontinued as a revenue
source to the Company after transfer of systems operation on two ships to
Carnival, which is expected to occur prior to the end of 2001. Information
system product sale revenue decreased by $265,000, or 72%, in the first half of
2001 as compared to the first half of 2000. Allin Network operated Erie Computer
during four months of the first half of 2000. Erie Computer's revenue base
included a significant component of information system product sales. Erie
Computer was sold in May 2000 eliminating this revenue stream for the first half
of 2001. Revenue from other services increased by $97,000 from the first half of
2000 to the first half of 2001. The increase is attributable to significant
placement fee revenue of $124,000 being recognized in April 2001 following
collection of litigation settlement proceeds, as discussed previously.

Cost of Sales and Gross Profit

         The Company recognized cost of sales of $4,745,000 during the six
months ended June 30, 2001 as compared to $6,095,000 during the six months ended
June 30, 2000. The primary reason the decrease in cost of sales of $1,350,000
was the decline in legacy technology consulting services. Gross profit of
$4,156,000 was recognized for the first half of 2001 as compared to $4,318,000
for the first half of 2000, a decline of $162,000, or 4%. The changing mix of
the Company's services toward a greater proportion of higher-margin
solutions-oriented consulting and systems integration services and a declining
proportion of lower-margin legacy technology consulting services resulted in
only a 4% decline in gross profit despite a 15% decline in revenue in the first
half of 2001 as compared to the first half of 2000. Gross profit as a percentage
of revenue increased to 47% in the first half of 2001 from 41% in the first half
of 2000. 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 $4,604,000 for cost of
sales during the six months ended June 30, 2001, including $680,000 for
Technology Infrastructure, $543,000 for E-Business, $2,394,000 for Interactive
Media and $987,000 for legacy technology consulting services. Comparable cost of
sales for the six

                                      -30-
<PAGE>

months ended June 30, 2000 was $5,733,000 in total, including $702,000 for
Technology Infrastructure, $632,000 for E-Business, $1,476,000 for Interactive
Media and $2,923,000 for legacy technology consulting services. Gross profit for
the Company's solution areas for the six months ended June 30, 2001 was
$3,824,000, including $1,062,000 for Technology Infrastructure, $658,000 for
E-Business, $1,761,000 for Interactive Media and $343,000 for legacy technology
consulting services. Comparable gross profit for the six months ended June 30,
2000 was $3,965,000 in total, including $880,000 for Technology Infrastructure,
$642,000 for E-Business, $1,377,000 for Interactive Media and $1,066,000 for
legacy technology consulting services. The decline in gross profit of $141,000
from the first half of 2000 to the first half of 2001 was attributable to the
decline in the level of legacy technology consulting services provided, although
the majority of this decline was offset by period-to-period increases in gross
profit for the Interactive Media and Technology Infrastructure Solution Areas.

         Technology Infrastructure gross profit increased $182,000, or 21%, in
the first half of 2001 as compared to the first half of 2000. The increase in
gross profit was realized through growth in high margin solutions-oriented
projects, particularly due to the increase in Technology Infrastructure services
provided by the Company's Pittsburgh-based operations from the first half of
2000 to the first half of 2001. The increase in gross profit is consistent with
the corresponding increase in Technology Infrastructure revenue. Gross profit as
a percentage of revenue also increased by 5% from the first half of 2000 to the
first half of 2001 due to increased average billing rates.

         E-Business gross profit increased $16,000, or 2%, in the first half of
2001 as compared to the first half of 2000, despite a 6% decline in revenue.
Gross profit as a percentage of revenue experienced a 4% period-to-period
increase. The improvement in gross profit as a percentage of revenue resulted
from increased average billing rates. Management believes that a softening of
demand for technology consulting services due to the uncertainty regarding the
domestic economy curtailed more substantial growth in E-Business gross profit in
the first half of 2001 and that the economic uncertainty will continue to limit
E-Business growth potential for at least the remainder of 2001.

         Cost of sales for the Interactive Media Solution Area was $2,394,000 in
total for the six months ended June 30, 2001, including $614,000 for interactive
media consulting and $1,780,000 for interactive media systems integration.
Interactive Media cost of sales for the six months ended June 30, 2000 was
$1,476,000 in total, including $199,000 for interactive media consulting and
$1,277,000 for interactive media systems integration. Interactive Media Solution
Area gross profit was $1,761,000 for the six months ended June 30, 2001,
including $1,081,000 for interactive media consulting and $680,000 for
interactive media systems integration. Interactive Media gross profit was
$1,377,000 for the six months ended June 30, 2000 including $304,000 for
interactive media consulting and $1,073,000 for interactive media systems
integration. The increases in consulting cost of sales and gross profit resulted
from a substantially higher level of applications development services for
cruise industry customers in the first half of 2001 as compared to the first
half of 2000. The increase in systems integration cost of sales and decrease in
gross profit resulted from the inclusion of portion of the gross profit
associated with the sale of four Celebrity ship interactive television systems
in the first half 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 low cost of sales and unusually high
gross profit on the system sales.

         Cost of sales for the Company's legacy technology consulting services
was $987,000 for the six months ended June 30, 2001 as compared to $2,923,000
for the six months ended June 30, 2000. Gross profit realized on legacy
technology consulting services declined from $1,066,000 in the first half of
2000 to $343,000 in the first half 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 since early 1999 to developing higher-margin solutions-oriented
business.

         Cost of sales for the Company's ancillary services and product sales
was $141,000 for the six months ended June 30, 2001, including $64,000 for
pay-per-view movies associated with interactive television transactional
revenue, $71,000 for information system product sales and $6,000 for other
services. Cost of sales for ancillary services and product sales was $362,000
for the six months ended June 30, 2000, including $83,000 for pay-per-view
movies, $269,000 for information system product sales and $10,000 for other
services. Gross profit on ancillary services and product sales was $332,000 for
the first half of 2001, including $120,000 for interactive television
transactional revenue, $33,000 for information system product sales and $179,000
for other services.

                                      -31-
<PAGE>

Gross profit for ancillary services and product sales was $353,000 for the first
half of 2000, including $175,000 for interactive television transactional
services, $100,000 for information system product sales and $78,000 for other
services. The largest factor in the period-to-period decline in gross profit of
$21,000 was the inclusion of four months of operating activity during the first
half of 2000 for Erie Computer, which included a significant component of
information system product sales.

Selling, General & Administrative Expenses

         The Company recorded $16,209,000 in selling, general & administrative
expenses during the six months ended June 30, 2001 as compared to $5,338,000
during the six months ended June 30, 2000, an increase of $10,871,000. The
increase is attributable to substantial losses totaling $10,748,000 recorded in
the second quarter of 2001 for impairment of certain assets, including goodwill
associated with the acquisitions of Allin Consulting-Pennsylvania and Allin
Consulting-California and inventory maintained by Allin Interactive. See Note 7
- Impairment of Assets - in the Notes to Consolidated Financial Statements
included in Item 1 -Financial Statements above for additional information
concerning the impairment losses.

         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 was
particularly pronounced in the Interactive Media Solution Area in the first half
of 2001 as it began to augment its consulting staff in order to have an
appropriately sized and trained staff to handle the expected substantial
increase in project activity resulting from its addition of in excess of
$12,000,000 of committed backlog for consulting and systems integration services
in the first quarter of 2001. The scope of Interactive Media project activity
increased substantially in the second quarter of 2001 and is expected to
continue to do so during the remainder of 2001. Through the third quarter of
2000, the Company had 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. Consequently, late in the first quarter and during the second
quarter of 2001, management moved to reduce the cost of personnel resources in
its Technology Infrastructure and E-Business Solution Areas as well as corporate
marketing and financial personnel. Management expects that the level of selling,
general & administrative expenses incurred in the second half of 2001 will be
lower than the level of expenses incurred in the second half of 2000, although
there can be no assurance that any expense reductions achieved will be able to
be maintained in 2002 or beyond.

         During the six months ended June 30, 2001, severance accruals of
approximately $118,000 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 six months
ended June 30, 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.

         There were two unusual items impacting selling, general &
administrative expenses in the six months ended June 30, 2000. The Company
incurred expenses of approximately $111,000 in connection with an abandoned
acquisition candidate. A loss of approximately $67,000 was recorded on the sale
of assets related to Allin Network's Erie Computer operations.

         Depreciation and amortization were $1,017,000 for the six months ended
June 30, 2001 as compared to $1,034,000 for the six months ended June 30, 2000.

Loss from Continuing Operations

         The Company recorded a loss from continuing operations of $12,138,000
for the six months ended June 30, 2001, as compared to a loss from continuing
operations of $1,129,000 for the six months ended June 30, 2000. The increase in
loss from continuing operations is primarily attributable to impairment losses
of $10,748,000 recognized in the second quarter of 2001, as discussed above.

                                      -32-
<PAGE>

(Gain) Loss from Discontinued Operations

         During the six months ended June 30, 2001, the Company recorded a loss
of $581,000 from its discontinued digital imaging operations as compared to a
gain of $89,000 during the six months ended June 30, 2000. The loss recognized
in the first half of 2001 included an impairment loss of approximately $327,000
related to Allin Digital's inventory of digital imaging equipment and consumable
supplies, assets utilized in certain photography concessionaire operations and
capitalized hardware, software and equipment, as discussed above. Allin Digital
also recorded a provision of approximately $28,000 to increase its allowance for
doubtful accounts as of June 30, 2001. The remainder of the increased loss was
due to declines in systems integration projects and product sales in the first
half of 2001 as compared to the first half of 2000.

Net Loss

         The Company's net loss for the six months ended June 30, 2001 was
$12,719,000 as compared to $1,040,000 for the six months ended June 30, 2000.
The most significant factor in the decrease in profitability was the inclusion
of $10,748,000 of impairment losses for continuing operations in the second
quarter of 2001. See Note 7 - Impairment of Assets - in the Notes to
Consolidated Financial Statements included in Item 1 - Financial Statements
above for additional information concerning the impairment losses.

Liquidity and Capital Resources

         At June 30, 2001 the Company had cash and liquid cash equivalents of
$760,000 available to meet its working capital and operational needs. The net
change in cash from December 31, 2000 was a decrease of $1,570,000, which
resulted primarily from repayment of a portion of the outstanding balance on the
Company's line of credit, cash used by the Company's operations and payment of
dividends on preferred stock.

         The Company recognized a net loss for the six months ended June 30,
2001 of $12,719,000. The Company recorded significant non-cash losses of
$11,076,000 due to impairment or abandonment of assets and non-cash expenses of
$1,050,000 for depreciation and amortization of software development costs and
other intangible assets, resulting in a net cash use of $593,000 related to the
income statement. Working capital adjustments resulted in net cash provided of
$381,000. Among the working capital adjustments resulting in cash provided were
an increase in billings in excess of costs and estimated gross margins of
$1,747,000 and decreases in accounts receivable and inventory of $548,000 and
$349,000, respectively. These were substantially offset by working capital
adjustments using cash, including decreases in accounts payable and accrued
liabilities of $1,623,000 and $453,000, respectively, and an increase in
unbilled receivables of $296,000. The net result of the income statement
activity and working capital adjustments was a net cash use of $212,000 related
to operating activities.

         Investing activities resulted in a net cash use of $120,000 for the six
months ended June 30, 2001 due primarily to capital expenditures of $62,000 for
build-out costs, furniture and equipment related to the expansion of the
Company's Ft. Lauderdale office and the periodic upgrading of the Company's
computer hardware, software and communications equipment, and 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.

         Financing activities resulted in a net cash use of $1,238,000 during
the six months ended June 30, 2001, due primarily to a net repayment on the
Company's line of credit of $1,090,000 and payments for preferred stock
dividends of $147,000.

         The Company's common stock has been quoted on the OTC Bulletin Board
since May 9, 2001. The Company's common stock was previously listed on The
Nasdaq Stock Market's ("Nasdaq") National Market from the Company's initial
public offering of its common stock in November 1996 until the common stock was
delisted from the National Market as of the opening of business on May 9, 2001.
The Company was unable to maintain compliance with Nasdaq's criteria for
continued designation of the common stock as a National Market security. At the
time of the delisting, the common stock was not eligible for listing on Nasdaq's
SmallCap Market. 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.

                                      -33-
<PAGE>

         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
Company and S&T Bank are currently in negotiations concerning renewal of the S&T
Loan Agreement beyond the current expiration date. The Company believes that
renewal on terms similar to those currently in place is likely. 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 June 30, 2001, maximum
borrowing availability under the S&T Loan Agreement was approximately
$3,427,000. The outstanding balance as of June 30, 2001 was $1,065,000. There
was no outstanding balance under the S&T Loan Agreement as of August 3, 2001.
The Company utilized accounts receivable collected in July 2001 to repay the
line of credit balance outstanding as of June 30, 2001. However, this has also
substantially reduced the maximum borrowing available under the S&T Loan
Agreement.As of August 3, 2001, maximum borrowing availability under the S&T
Loan Agreement was approximately $1,437,000.

         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 7.75% to 10.50%. The interest rate in effect at
June 30, 2001 and August 3, 2001 was 7.75%. 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 $13,000 in interest expense related to this
revolving credit loan for the three months ended June 30, 2001. If additional
borrowings are made under the revolving credit loan, 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 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 twelve months ending 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. For the second quarter of 2001, S&T Bank also agreed to exclude
from the cash flow calculation certain non-cash losses due to impairment of
assets and increases in allowance for doubtful accounts receivable recorded by
the Company for the fiscal quarter ended June 30, 2001. The Company was in
compliance with the cash flow covenant for the fiscal quarter ended June 30,
2001 after this exclusion of the non-cash losses. The Company was in compliance
with all other covenants as of June 30, 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.

                                      -34-
<PAGE>

         As of June 30, 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 $1,179,000 as of
June 30, 2001 and approximately $1,214,000 as of August 13, 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 June 30, 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 $28,000 as of June 30, 2001 and approximately $6,000 as of August
13, 2001.

         As of June 30, 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, the outstanding
shares of Series F preferred stock will be convertible into a total of 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 15/th/ 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 or conversion, if any. Dividends not paid at
scheduled dates will compound quarterly thereafter. Accrued but unpaid dividends
on Series F preferred stock were approximately $59,000 as of June 30, 2001 and
approximately $49,000 as of August 13, 2001.

         As of June 30, 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 $30,000 as of June 30, 2001 and approximately
$15,000 as of August 13, 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

                                      -35-
<PAGE>

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 December 31, 1999
is not due prior to the maturity of the loan principal. Accrued but unpaid
interest was approximately $76,000 as of June 30, 2001 and approximately $66,000
as of August 13, 2001.

         Capital expenditures during the six months ended June 30, 2001 were
approximately $62,000 and included build-out costs, furniture and equipment 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 $100,000 are forecast for the remainder of
2001, primarily for computer hardware, software and communications equipment for
the Company's periodic upgrading of technology and completion of the Ft.
Lauderdale office expansion. 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

                                      -36-
<PAGE>

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,
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.

         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. Since the delisting of the Company's
common stock from Nasdaq's National Market, trading volume has been further
reduced. 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 domestic economic downturn. Management attributes the shortfalls in
Technology Infrastructure and E-Business revenue growth from the Company's
original expectations for 2001 to the general uncertainty in the domestic
economy beginning late in 2000. Management believes the economic uncertainty
will likely negatively impact the Technology Infrastructure and E-Business
Solution Areas for at least the remainder of 2001. There can be no assurance
that the effects of the economic uncertainty will not worsen or extend beyond
2001, 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

                                      -37-
<PAGE>

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 half 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. 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 half 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. 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.

         Discontinuation of Digital Imaging Operations. During the second
quarter of 2001, the Company determined to discontinue the digital imaging
systems integration operations previously carried out by the Interactive Media
Solution Area and the ancillary sales of digital imaging products. The Company
had implemented changes to the marketing strategy for digital imaging systems
integration services in the third quarter of 2000 to more closely focus on high
value-added integration projects in order to more closely meet the Company's
gross profit percentage objectives. While the projects undertaken thereafter
generally resulted in a higher gross margin percentage, the market for high
value-added systems integration services was smaller with the result that
aggregate digital imaging systems integration revenue and gross profit were
reduced from previous levels. The decline in results from operations and the
loss of key managerial and sales personnel in the second quarter of 2001 led to
the determination to discontinue operations. The Company recognized impairment
losses related to Allin Digital's inventory, certain assets related to
photography concessionaire operations, and certain capitalized assets and
recorded an additional provision to increase Allin Digital's allowance for
doubtful accounts receivable in the second quarter of 2001. The Company is
currently attempting to sell these assets and to collect remaining accounts
receivable from its digital imaging operations. If the Company is unable to sell
the remaining inventory or other assets at the estimates of fair value presently
recorded or if the Company is unable to collect accounts receivable exceeding
the presently recorded allowance for doubtful accounts, the Company's future
profitability will be adversely impacted.

         Need for Management of Growth. The Company's strategy will require its
management to conduct operations, evaluate potential acquisitions and respond to
changes in technology and the market. 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 media services nationally
and intends to undertake installations throughout the United States and abroad,
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
fragmented with a large number of smaller-sized participants due to historical
growth of the overall market for services and low capital barriers to entry.

                                      -38-
<PAGE>

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 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
half of 2001. As of June 30, 2001, the Company had a retained deficit of
$46,099,000. 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 is mitigated
somewhat by the Company's current revolving credit facility, which permits
borrowings for short term working capital needs. The Company's revolving credit
facility expires September 30, 2001. Failure of the Company to renew its
existing credit facility beyond September 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 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.

                                      -39-
<PAGE>

         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.

Effect of Recently Issued Accounting Standards

         In July 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 141, Business Combinations
("SFAS No. 141") and No. 142, Goodwill and Other Intangible Assets ("SFAS No.
142"). SFAS No. 141 requires all business combinations initiated after June 30,
2001 to be accounted for using the purchase method. Under SFAS No. 142, goodwill
and intangible assets with indefinite lives are no longer amortized but are
reviewed annually (or more frequently if impairment indicators arise) for
impairment. Separable intangible assets that are not deemed to have indefinite
lives will continue to be amortized over their useful lives (but with no maximum
life). The amortization provisions of SFAS No. 142 apply to goodwill and
intangible assets acquired after June 30, 2001. With respect to goodwill and
intangible assets acquired prior to July 1, 2001, the Company is required to
adopt SFAS No. 142 effective January 1, 2002. The Company is currently
evaluating the effect that adoption of the goodwill impairment provisions of
SFAS No. 142 that become effective January 1, 2002 will have on its operations
and financial position. Goodwill amortization of approximately $69,000 per
quarter will no longer be recorded effective January 1, 2002.

                                      -40-
<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.

                                      -41-
<PAGE>

Item 1.  Legal Proceedings

         In June 2000, Allin Consulting-California filed a Complaint for Breach
of Contract against Exodus Communications, Inc. ("Exodus") in the Superior Court
of California, County of Santa Clara. The complaint sought damages due to
Exodus' recruitment and hiring of three of Allin Consulting-California's
technology consultants in violation of the non-solicitation terms of the
respective agreements for services between Allin Consulting-California and
Exodus. In March 2001, Allin Consulting-California and Exodus reached a
settlement of the matter. Pursuant to this settlement, in April 2001, the
Complaint for Breach of Contract was dismissed and Allin Consulting-California
received the settlement proceeds.

                                      -42-
<PAGE>

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

     (a)   The Annual Meeting of the Stockholders of the Company was held on
           Thursday, May 10 2001.

     (b)   Not applicable.

     (c)   The following matters were voted on by the stockholders of the
           Company by votes submitted through proxy or in person at the
           Annual Meeting:

              (1)   Election of Directors for one year terms to hold office
                    until the next annual meeting of the Stockholders
                    following election and until their successors are duly
                    elected and qualified. Results were as follows:


<TABLE>
<CAPTION>
                                        Nominee            Votes         Votes         Votes          Votes
                                                            For         Against     Abstaining      Withheld
                                 <S>                       <C>          <C>         <C>             <C>
                                 Richard W. Talarico       6,599,183         0              0         23,000
                                 Brian K. Blair            6,608,083         0              0         14,100
                                 Anthony L. Bucci          6,608,583         0              0         13,600
                                 William C. Kavan          6,608,083         0              0         14,100
                                 James S. Kelly, Jr.       6,607,983         0              0         14,200
                                 Anthony C. Vickers        6,607,983         0              0         14,200
</TABLE>


              (2)   Ratification of the Board of Directors' selection of Arthur
                    Andersen LLP to serve as the independent public accountants
                    to examine the financial statements of the Company and its
                    subsidiaries for the year ending December 31, 2001. Votes
                    cast were 6,609,163 for ratification, 12,100 against
                    ratification, and 920 abstaining.

               There were a total of 6,967,339 shares of the Company's common
               stock and 150 shares of the Company's Series G preferred stock
               (having voting rights equivalent to a total of 794,250 shares of
               common stock) eligible to vote at the Annual Meeting.

     (d)   Not applicable.

                                      -43-
<PAGE>

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

     (a)   Exhibits.

Exhibit
Number                      Description of Exhibit
-------                     ----------------------

11                Computation of Earnings per Share.



      (b)   Reports on Form 8-K.

            No report on Form 8-K was filed by the Company during the quarter
ended June 30, 2001.

                                      -44-
<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: August 13, 2001             By:  /s/   Richard W. Talarico
                                       --------------------------
                                       Richard W. Talarico
                                       Chairman and Chief Executive Officer


Date: August 13, 2001             By:  /s/   Dean C. Praskach
                                       ----------------------
                                       Dean C. Praskach
                                       Chief Financial Officer and Chief
                                       Accounting Officer

                                      -45-
<PAGE>

Allin Corporation
Form 10-Q
June 30, 2001
Exhibit Index



Exhibit
Number                   Description of Exhibit
-------                  ----------------------


11                Computation of Earnings per Share

                                      -46-