<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, 1999

                                       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.)


                 400 Greentree Commons, 381 Mansfield Avenue,
                     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 July 30, 1999

                        Common Stock,  5,988,063 Shares

<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  19
               Condition and Results of Operations

      Item 3.  Quantitative and Qualitative Disclosure about Market     Page  44
               Sensitive Instruments


Part II -  Other Information

      Item 2.  Changes in Securities and Use of Proceeds                Page  45

      Item 4.  Submission of Matters to a Vote of Securities Holders    Page  47

      Item 6.  Exhibits and Reports on Form 8-K                         Page  48

Signatures                                                              Page  49
</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," "and similar expressions.
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 "Special Note on Forward-Looking Statements"
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,
                                                                 1998             1999
                                                             -------------    -----------
<S>                                                          <C>              <C>
ASSETS

Current assets:
      Cash and cash equivalents                              $       2,510    $    1,744
      Accounts receivable, net of allowance for
           doubtful accounts of $316 and $307                        2,768         3,842
      Note receivable                                                  463           ---
      Inventory                                                        396           768
      Prepaid expenses                                                 317           357
                                                             -------------    ----------
                   Total current assets                              6,454         6,711

Property and equipment, at cost:
Leasehold improvements                                                 478           458
Furniture and equipment                                              2,477         2,446
On-board equipment                                                   3,688         2,998
                                                             -------------    ----------
                                                                     6,643         5,902
Less--accumulated depreciation                                      (3,559)       (3,445)
                                                             -------------    ----------
                                                                     3,084         2,457

Assets held for resale                                                  15           ---
Costs in excess of billings                                            ---           260
Notes receivable from employees                                         35            31
Software development costs, net of accumulated
      amortization of $877 and $882                                     36            31
Goodwill, net of accumulated amortization of
      $722 and $1,245                                               14,039        13,516
Other assets, net of accumulated amortization of
      $2,907 and $3,063                                              2,649         2,459
                                                             -------------    ----------

Total assets                                                 $      26,312    $   25,465
                                                             =============    ==========
</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,
                                                                             1998           1999
                                                                         ------------    ----------
<S>                                                                      <C>             <C>
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
      Current portion of notes payable                                   $      2        $        2
      Accounts payable                                                        575             1,499
      Accrued liabilities:
          Compensation and payroll taxes                                      475               879
          Dividends on preferred stock                                        546               682
          Other                                                               694               894
      Bank lines of credit                                                  1,506             1,255
      Current portion of deferred revenue                                      76                81
      Income taxes payable                                                     67                25
                                                                         --------        ----------
          Total current liabilities                                         3,941             5,317

Non-current portion of notes payable                                        4,004             1,003
Deferred income taxes                                                         126                81
Commitments and contingencies

Preferred stock, par value $.01 per share,
      authorized 100,000 shares:
      Series A convertible, redeemable preferred
         stock designated 40,000 shares, issued and
         outstanding 25,000 and -0- shares                                  2,500               ---
      Series B redeemable preferred stock, designated
         5,000 shares, issued and outstanding
         2,750 and -0- shares                                               2,152               ---

Shareholders' equity:
      Common stock, par value $.01 per share, - authorized
         20,000,000 shares, issued 5,995,830 shares                            60                60
      Preferred stock, par value $.01 per share,
         authorized 100,000 shares:
         Series C redeemable preferred stock,
           designated, issued and outstanding -0- and 25,000
           shares                                                             ---             2,500
         Series D convertible redeemable preferred stock,
           designated, issued and outstanding -0- and 2,750 share             ---             2,152
         Series E convertible redeemable preferred stock,
           designated -0- and 2,000 shares, issued and
           outstanding -0- and 1,926 shares                                   ---             1,926
      Series F convertible redeemable preferred stock,
           designated, issued and outstanding
           -0- and 1,000 shares                                               ---             1,000
      Additional paid-in-capital                                           40,793            40,504
      Warrants                                                                598               598
      Deferred compensation                                                  (104)              (31)
      Treasury stock at cost, 1,800 and 7,767 common shares                    (6)              (25)
      Retained deficit                                                    (27,752)          (29,620)
                                                                         --------        ----------
Total shareholders' equity                                                 13,589            19,064
                                                                         --------        ----------

Total liabilities and shareholders' equity                               $ 26,312        $   25,465
                                                                         ========        ==========
</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,
                                                                          1998              1999            1998            1999
                                                                    -------------     --------------    ------------    ------------
<S>                                                                 <C>               <C>               <C>             <C>
Revenue                                                             $       2,529     $       6,628     $     5,028     $    12,762

Cost of sales                                                               1,275             4,426           2,412           8,248
                                                                    -------------     -------------     -----------     -----------

Gross profit                                                                1,254             2,202           2,616           4,514

Selling, general & administrative                                           2,380             3,111           5,484           6,185
                                                                    -------------     -------------     -----------     -----------

Loss from operations                                                       (1,126)             (909)         (2,868)         (1,671)

Interest (income) expense, net                                                (48)               68            (112)            144
                                                                    -------------     -------------     -----------     -----------

Loss before provision for income taxes                                     (1,078)             (977)         (2,756)         (1,815)

Provision for income taxes                                                    ---               ---               6              19
                                                                    -------------     -------------     -----------     -----------

Loss after provision for income taxes                                      (1,078)             (977)         (2,762)         (1,834)

(Income) loss from non-consolidated corporation                               ---                36             ---              36
                                                                    -------------     -------------     -----------     -----------

Loss from continuing operations                                            (1,078)           (1,013)         (2,762)         (1,870)

(Income) loss of disposed segment,
        net of income tax                                                    (346)              ---            (284)            ---
(Gain) loss on disposal of segment                                            ---                 3             ---              (2)
                                                                    -------------     -------------     -----------     -----------

(Gain) loss from discontinued operations                                     (346)                3            (284)             (2)
                                                                    -------------     -------------     -----------     -----------

Net loss                                                                     (732)           (1,016)         (2,478)         (1,868)

Accretion and dividends on preferred stock                                     57               294             112             394
                                                                    -------------     -------------     -----------     -----------

Net loss attributable to common shareholders                        $        (789)    $      (1,310)    $    (2,590)    $    (2,262)
                                                                    =============     =============     ===========     ===========

Loss per common share from continuing operations attributable
        to common shareholders - basic and diluted                  $       (0.22)    $       (0.22)    $     (0.56)    $     (0.38)
                                                                    =============     =============     ===========     ===========

Income (loss) per common share from discontinued
        operations - basic and diluted                              $         0.07    $        0.00     $      0.06     $      0.00
                                                                    ==============    =============     ===========     ===========

Net loss per common share attributable to common
        shareholders - basic and diluted                            $       (0.15)    $       (0.22)    $     (0.50)    $     (0.38)
                                                                    =============     =============     ===========     ===========

Weighted average shares outstanding - basic and diluted                 5,157,399         5,969,162       5,157,399       5,969,162
                                                                    -------------     -------------     -----------     -----------
</TABLE>

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

                                      -6-
<PAGE>

ALLIN CORPORATION & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

          (Dollars in thousands)
            (Unaudited)

<TABLE>
<CAPTION>
                                                                   Six Months     Six Months
                                                                      Ended         Ended
                                                                     June 30,      June 30,
                                                                       1998          1999
                                                                   -----------    ----------
<S>                                                                <C>            <C>
Cash flows from operating activities:
      Net loss                                                      (2,478)         (1,868)
      Adjustments to reconcile net loss to
        net cash flows from operating activities:
            Depreciation and amortization                            1,912           1,247
            Amortization of deferred compensation                       62             (17)
            Loss from disposal of assets                               257              86
            (Income) loss from from non-consolidated
                corporation                                            ---              36
      Changes in certain assets and liabilities:
            Accounts receivable                                       (789)         (1,074)
            Inventory                                                 (156)           (387)
            Prepaid expenses                                           218              21
            Assets held for sale                                       (68)             15
            Costs in excess of billings                                ---            (260)
            Other assets                                                (5)              3
            Accounts and notes payable                                 (16)            926
            Accrued liabilities                                       (289)            612
            Income taxes payable                                       ---             (87)
            Deferred revenues                                          (97)              4
                                                                   -------          ------
      Net cash flows from operating activities                      (1,449)           (743)
                                                                   -------          ------

Cash flows from investing activities:
      Proceeds from sale of assets                                       9              30
      Proceeds from note receivable related to
            sale of subsidiary                                         ---             463
      Capital expenditures                                            (251)           (104)
                                                                   -------          ------
      Net cash flows from investing activities                        (242)            389
                                                                   -------          ------

Cash flows from financing activities:
      Net repayment on lines of credit                                 ---            (251)
      Payment of dividends on Series B preferred stock                 ---             (82)
      Debt acquisition costs                                           ---              (3)
      Repayment of note payable                                        ---             (74)
      Repayment of capital lease obligations                           ---              (2)
                                                                   -------          ------
      Net cash flows from financing activities                         ---            (412)
                                                                   -------          ------
Net change in cash and cash equivalents                             (1,691)           (766)
Cash and cash equivalents, beginning of period                       6,802           2,510
                                                                   -------          ------
Cash and cash equivalents, end of period                             5,111           1,744
                                                                   =======          ======
</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, 1998 and 1999 should be read
     in conjunction with the audited financial statements and notes for the
     years ended December 31, 1997 and 1998, contained in Allin Corporation's
     (the "Company") Annual Report on Form 10-K for the year ended December 31,
     1998. The accompanying unaudited Consolidated Financial Statements have
     been prepared in accordance with generally accepted accounting principles
     and the rules and regulations of the Securities and Exchange Commission.
     These interim statements do not include all of the information and
     footnotes required for complete financial statements. It is management's
     opinion that all adjustments (including all normal recurring accruals)
     considered necessary for a fair presentation have been made; however,
     results for these interim periods are not necessarily indicative of results
     to be expected for the full year.

     Principles of Consolidation

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

     Disposal of Segment

     On September 30, 1998, the Company sold all of the issued and outstanding
     capital stock of SportsWave, Inc. ("SportsWave"), a wholly-owned
     subsidiary. The sale of SportsWave represents the disposal of a segment
     since SportsWave comprised the entirety of the Company's sports marketing
     business. Accordingly, the results of operations for SportsWave for three-
     and six-month period ended June 30, 1998 presented in the Company's
     Consolidated Statements of Operations have been reclassified to income of
     disposed segment, which is presented after loss from continuing operations.
     Adjustments to the gain recorded on the disposal of SportsWave recorded
     during the three- and six-month periods ended June 30, 1999 are also
     presented after net loss from continuing operations.

     Use of Estimates in the Preparation of Financial Statements

     The preparation of financial statements in conformity with generally
     accepted accounting principles 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, typically on an hourly basis, to their clients for their
     technology consulting services. Revenue and related cost of sales are
     recognized as services are performed.

     Allin Interactive Corporation's ("Allin Interactive") recognition method
     for revenue and cost of sales for systems integration services and fixed
     price consulting services is determined based on the size and expected
     duration of the project. For systems integration and fixed price consulting
     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. Allin Interactive utilizes the
     proportion of labor cost incurred to expected total project labor cost as a
     qualitative factor in determining the percentage of completion recognized
     for

                                      -8-
<PAGE>

  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 projects, revenue and cost of sales are recognized upon completion
  of the project. Time based consulting revenue and cost of sales are recognized
  as services are performed. Interactive television transactional revenue and
  management fees and any associated cost of sales are recognized as the
  services are performed.

  Allin Digital Imaging Corp. ("Allin Digital") recognizes revenue and cost of
  sales for systems integration services upon completion of the respective
  projects.  Revenue and associated cost of sales for equipment and consumable
  sales is recognized upon shipment of the product.  Technology support fees and
  associated cost of sales are recognized as services are performed.

  Allin Network Products, Inc. ("Allin Network") recognizes revenue and
  associated cost from the sale of products at the time the products are
  shipped.

  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
  includes the weighted average of the outstanding common shares of the Company,
  excluding 24,868 and 18,901 shares of outstanding restricted stock for the
  three- and six-month periods ended June 30, 1998 and 1999, respectively.  The
  restricted stock, outstanding stock options and the Company's Series D, E and
  F 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 shares that would have
  been included in the diluted EPS calculation, if their effect was not anti-
  dilutive, were 25,572 and 19,011 for the three-month periods ended June 30,
  1998 and 1999, respectively, and 24,938 and 19,142 for the six-month periods
  ended June 30, 1998 and 1999, 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 or market.  The Company utilizes a specific
  identification inventory method.  Cost of sales and inventory value under this
  method approximate the first-in, first-out method.

  Software Development Costs

  Costs of software development are capitalized subsequent to the project
  achieving technological feasibility and prior to market introduction. Prior to
  the project achieving technological feasibility and after market introduction,
  development costs are expensed as incurred. Amortization of capitalized
  software costs for internally developed software products and systems is
  computed on a product-by-product basis over a three-year period.

  Financial Instruments

  As of June 30, 1999, the Company's Consolidated Balance Sheet includes a note
  payable to a shareholder 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.  Interest payments are not
  required during 1999.  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 $-0- and $74,000 during the
  three months ended June 30, 1998 and 1999, respectively.  Cash payments for
  interest were approximately $-0- and $66,000 during the three months ended
  June 30, 1998 and 1999, respectively.  Cash payments for dividends were
  approximately $-0- and $40,000 during the three months ended June 30, 1998 and
  1999, respectively.  Dividends on preferred stock of

                                      -9-
<PAGE>

     approximately $57,000 and $104,000 were accrued but unpaid during the
     three-month periods ended June 30, 1998 and 1999, respectively.

     Cash payments for income taxes were approximately $6,000 and $197,000
     during the six months ended June 30, 1998 and 1999, respectively. Cash
     payments for interest were approximately $-0- and $124,000 during the six
     months ended June 30, 1998 and 1999, respectively. Cash payments for
     dividends were approximately $-0- and $82,000 during the six months ended
     June 30, 1998 and 1999, respectively. Dividends on preferred stock of
     approximately $112,000 and $164,000 were accrued but unpaid during the six-
     month periods ended June 30, 1998 and 1999, 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 and 1,000 as
     Series F Convertible Redeemable Preferred Stock. The order of liquidation
     preference of the series of the Company's outstanding preferred stock, from
     senior to junior, is Series E, Series F, Series D and Series C.

     Exchange of Series A Convertible Redeemable Preferred Stock for Series C
     Redeemable Preferred Stock

       On May 31, 1999, the holders of all of the 25,000 outstanding shares of
       the Company's Series A preferred stock, which had been issued in August
       1996, exchanged their shares for a like number of shares of the Company's
       Series C preferred stock, having a liquidation preference of $100 per
       share. There is no mandatory redemption date for the Series C preferred
       stock whereas mandatory redemption had been required on June 30, 2006 for
       the Series A preferred stock. Series C preferred stock earns dividends at
       the rate of 8% 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% 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. Accrued but unpaid
       dividends on Series C preferred stock were approximately $639,000 as of
       June 30, 1999. 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.

     Exchange of Series B Redeemable Preferred Stock for Series D Convertible
     Redeemable Preferred Stock

       On May 31, 1999, the holders of all of the 2,750 outstanding shares of
       the Company's Series B preferred stock, which had been issued in August
       1998, exchanged their shares for a like number of shares of the Company's
       Series D preferred stock having a liquidation preference of $1,000 per
       share. There is no mandatory redemption date for the Series D preferred
       stock whereas mandatory redemption had been required for Series B
       preferred stock on the earlier of August 13, 2003 or following certain
       asset sales by the Company, as defined in the Certificate of Designation
       for Series B Preferred Stock, which is filed as an exhibit to the
       Company's Current Report on Form 8-K dated as of August 13, 1998. Series
       D preferred stock earns dividends at the rate of 6% per annum, payable
       and compounded quarterly. Series D preferred stock is convertible into
       the Company's common stock on terms identical to those of Series B
       preferred stock. Until and including August 13, 1999, the first
       anniversary of the original issuance of the Series B preferred shares,
       each Series D share will be convertible into the number of shares of
       common stock determined by (a) dividing 1,000 by $3.6125, which is 85% of
       the $4.25 per share price prior to the date of closing of the acquisition
       of Allin Consulting-Pennsylvania or (b) if it results in a greater number
       of shares of common stock, dividing 1,000 by the greater of (i) 85% of
       the closing price of the common stock as reported by The Nasdaq Stock
       Market ("Nasdaq") on the trading date prior to the date of conversion, or
       (ii) $2.00. From August 13, 1999 until August 13, 2003, each share of
       Series D preferred stock is convertible into the number of shares of
       common stock determined in accordance with clause (a) above, or if it
       results in a greater number of shares of common stock, dividing 1,000 by
       85% of the closing price of the common

                                      -10-
<PAGE>

     stock as reported by Nasdaq on the first trading date following the first
     anniversary of the closing date. Accrued but unpaid dividends on Series D
     preferred stock were approximately $28,000 as of June 30, 1999.

  Exchange of Promissory Note for Series E Convertible Redeemable Preferred
  Stock

     On May 31, 1999, the holder of a promissory note issued by the Company in
     connection with the acquisition of Allin Consulting-Pennsylvania, with an
     outstanding principal balance of approximately $1,926,000 exchanged the
     promissory note for 1,926 shares of the Company's Series E preferred stock
     having a liquidation preference of $1,000 per share.  There is no mandatory
     redemption date for the Series E preferred stock.  Series E preferred stock
     earns dividends at the rate of 6% per annum, payable quarterly, subject to
     legally available funds.  The promissory note would have converted to the
     Company's common stock if the principal balance was not repaid prior to
     August 13, 2000.  Series E preferred stock is convertible to the Company's
     common stock on terms substantially identical to those of the promissory
     note.  If not redeemed by the Company earlier, outstanding Series E
     preferred stock will automatically convert as of August 13, 2000 into the
     number of shares of the Company's common stock equal to the amount obtained
     by dividing the liquidation preference of the outstanding shares of Series
     E preferred stock plus accrued and unpaid dividends, if any, by (i) $4.406
     or (ii) at the holder's option, the average of the bid and asked prices of
     the common stock for the thirty days preceding August 13, 2000, subject to
     a $2.00 minimum price.  Upon the happening of certain events, the holder of
     Series E preferred stock will be able to convert the shares of the Series E
     preferred stock into the Company's common stock prior to August 13, 2000.
     Accrued but unpaid dividends on Series E preferred stock were approximately
     $10,000 as of June 30, 1999.

  Exchange of Promissory Note for Series F Convertible Redeemable Preferred
  Stock

     On May 31, 1999, the holder of a promissory note issued by the Company in
     connection with the acquisition of Allin Consulting-California, with an
     outstanding principal balance of $2,000,000 agreed to a reduction in the
     principal amount of the promissory note by $1,000,000 in exchange for 1,000
     shares of the Company's Series F preferred stock having a liquidation
     preference of $1,000 per share.  There is no mandatory redemption date for
     the Series F preferred stock.  Series F preferred stock earns dividends at
     the rate of 7% per annum.  The dividends will accrue until April 15, 2000,
     when accrued dividends will be payable subject to legally available funds.
     Dividends will be payable and will compound quarterly after April 15, 2000,
     subject to legally available funds.  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, 2000, Series F preferred stock is convertible into the
     number of shares of the Company's common stock equal to the amount obtained
     by (i) dividing 1,000 by $2.231, which is 85% of the closing price of the
     common stock as reported by Nasdaq on the last trading date prior to the
     issuance of Series F preferred stock or (ii) if it results in a greater
     number of common shares, dividing 1,000 by the greater of (a) 85% of the
     closing price of the common stock as reported by Nasdaq on the last trading
     date prior to conversion or (b) $1.236, which is 47.1% of the closing price
     of the common stock as reported by Nasdaq on the last trading date prior to
     the issuance of Series F preferred stock.  From June 1, 2000 until May 31,
     2004, Series F preferred stock will be convertible into the number of
     shares of the Company's common stock equal to the amount obtained by (i)
     dividing 1,000 by $2.231, which is 85% of the closing price of the common
     stock as reported by Nasdaq on the last trading date prior to the issuance
     of Series F preferred stock or (ii) if it results in a greater number of
     common shares, dividing 1,000 by the greater of (a) 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 or (b) $1.236, which is 47.1% of the closing price of the
     common stock as reported by Nasdaq on the last trading date prior to the
     issuance of Series F preferred stock.

     The amended and restated promissory note is not convertible into the
     Company's common stock.  Inclusion of the convertibility feature in the
     Series F preferred stock for which a portion of the note was exchanged
     resulted in the issuance of preferred stock with a non-detachable
     conversion feature that is "in the money" at the date of issuance.
     Therefore, a beneficial conversion feature was recognized by allocating a
     portion of the proceeds equal to the intrinsic value of that feature to
     additional paid-in-capital during May 1999, when the Series F preferred
     stock was issued.  The value of the beneficial conversion feature,
     approximately

                                      -11-
<PAGE>

     $176,000, was calculated by determining the number of common shares that
     would be issued assuming conversion at the market price at the date of
     issuance and the number to be issued at the conversion price and
     multiplying the difference in number of common shares by the market price.
     The beneficial conversion feature was treated as an immediate dividend to
     the Series F preferred shareholder since the Series F preferred shareholder
     had rights for immediate conversion. Consequently, the value of the
     beneficial conversion feature represented a dividend that would accrete
     immediately upon approval. Since the Company had an accumulated deficit as
     of the issuance date, the accretion was netted against additional paid-in-
     capital rather than accumulated deficit, resulting in no net change to
     shareholders' equity. The beneficial conversion feature results in
     additional accretion of preferred stock in determining net loss available
     to common shareholders during 1999, which resulted in lower earnings per
     share. The beneficial conversion feature will not otherwise impact the
     earnings per share calculations during periods in which the Company has net
     losses as the effect would be anti-dilutive.


3. Liability for Employee Termination Benefits

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

   A reorganization charge of approximately $208,000 was recorded as of January
   12, 1999 to establish a liability for severance costs associated with the
   termination of services of the Company's president. Associated expenses are
   reflected in Selling, general & administrative expenses on the Consolidated
   Statement of Operations during that period. As of June 30, 1999,
   approximately $100,000 of the amount accrued under the January 12, 1999
   charge had been paid. The remaining balance, approximately $108,000, 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 January 2000.

   A reorganization charge of approximately $491,000 was recorded as of February
   4, 1998 to establish a liability for separation costs associated with a plan
   for reorganization of operations, including the resignations of certain
   senior executives. Associated expenses are reflected in Selling, general &
   administrative expenses on the Consolidated Statement of Operations during
   that period. The plan included three positions including the Company's
   president, chief operating officer and an administrative assistant, all of
   whom have ceased employment with the Company. All of the amounts accrued
   under the February 4, 1998 charge had been paid prior to March 31, 1999.

   An accrual of approximately $298,000 was recorded as of June 30, 1997 to
   establish a liability for severance costs associated with a plan for
   involuntary employee terminations. During the quarterly period ended March
   31, 1998, additional expense of approximately $15,000 was recorded to adjust
   the severance accrual previously recorded. Associated expenses were reflected
   in Selling, general & administrative expenses on the Consolidated Statement
   of Operations during these periods. The plan included eleven employee
   terminations. Included in the plan were financial and marketing executive
   positions, marketing and administrative staff positions, operational
   management, staff and sales positions associated with digital photography
   operations, and clerical support staff positions. All of the positions
   included in the plan were eliminated. All of the amounts accrued under the
   June 30, 1997 plan had been paid prior to September 30, 1998.


4. TERMINATION OF INTERACTIVE TELEVISION CONTRACTS

   During March 1998, Allin Interactive and Royal Caribbean Cruise Lines, Ltd.
   ("RCCL") mutually agreed on termination of their contract for provision by
   the Company of interactive television services aboard three cruise ships.
   Operations on these ships ceased during May and June 1998. Allin Interactive
   has lost transactional revenue, including from pay-per-view movies and
   gaming, and management fee revenue related to these ships subsequent to
   cessation of operations.

                                      -12-
<PAGE>

   During August 1998, Allin Interactive received notice from Norwegian Cruise
   Line ("NCL") that it intended to discontinue management fees subsequent to
   December 31, 1998 in accordance with the terms of their agreement. NCL
   subsequently agreed to a significantly reduced management fee for the interim
   period from January 1, 1999 until cessation of operations. Operation of the
   interactive television system aboard the Norwegian Dream ceased in April
   1999. Allin Interactive has lost transactional revenue, including from pay-
   per-view movies and gaming, and management fee revenue related to this ship
   subsequent to cessation of operations.

   Revenue and gross profit derived from interactive television services and
   management fees for RCCL and NCL during the three- and six-month periods
   ended June 30, 1998 and 1999, respectively, were:

<TABLE>
<CAPTION>
                                           Royal Caribbean Cruise Lines                          Norwegian Cruise Line
                                   -------------------------------------------------------------------------------------------------
                                      Three Months              Three Months            Three Months Ended       Three Months
     (Dollars in thpusands)               Ended                    Ended                       Ended                Ended
                                      June 30, 1998             June 30, 1999             June 30, 1998          June 30, 1999
                                   -------------------------------------------------------------------------------------------------
 <S>                               <C>                          <C>                     <C>                      <C>
Shipboard Transactional Revenue &
Management Fees                    $            141             $         -0-           $            8           $          11
Gross Profit                                    130                       -0-                        8                       8

% of Consolidated Revenue                       5.6 %                    0.0 %                     0.3 %                   0.2 %
% of Consolidated Gross Profit                 10.4 %                    0.0 %                     0.6 %                   0.4 %
</TABLE>

<TABLE>
<CAPTION>
                                           Royal Caribbean Cruise Lines                          Norwegian Cruise Line
                                   -------------------------------------------------------------------------------------------------
                                      Three Months              Three Months            Three Months Ended       Three Months
     (Dollars in thpusands)               Ended                    Ended                       Ended                Ended
                                      June 30, 1998             June 30, 1999             June 30, 1998          June 30, 1999
                                   -------------------------------------------------------------------------------------------------
 <S>                               <C>                          <C>                     <C>                      <C>
Shipboard Transactional Revenue &
Management Fees                    $            356             $         -0-            $          46            $         50
Gross Profit                                    322                       -0-                       39                      39

% of Consolidated Revenue                       7.1 %                    0.0 %                     0.9 %                   0.4 %
% of Consolidated Gross Profit                 12.3 %                    0.0 %                     1.5 %                   0.9 %
</TABLE>

5. Equity Transactions


   During the three months ended June 30, 1999, non-vested options to purchase
   16,600 shares of common stock previously awarded under the Company's 1998
   Stock Plan were forfeited under the terms of the Plan. There were no options
   awarded under the 1998 Stock Plan during the three months ended June 30,
   1999. Options granted under the 1998 Stock Plan to purchase 319,998 shares of
   common stock remain outstanding as of June 30, 1999.

   During the three months ended June 30, 1999, vested options to purchase 40
   shares and non-vested options to purchase 160 shares of common stock
   previously awarded under the Company's 1997 Stock Plan were forfeited under
   the terms of the Plan. Options to purchase 1,250 shares of the Company's
   common stock were awarded under the 1997 Stock Plan during the three months
   ended June 30, 1999. Options granted under the 1997 Stock Plan to purchase
   290,450 shares of common stock remain outstanding as of June 30, 1999.

   During the three months ended June 30, 1999, vested options to purchase
   60,000 shares and non-vested options to purchase 23,500 shares of common
   stock previously awarded under the Company's 1996 Stock Plan were forfeited
   under the terms of the Plan. There were no options awarded under the 1996
   Stock Plan during the three months ended June 30, 1999. Options granted under
   the 1996 Stock Plan to purchase 149,900 shares of common stock remain
   outstanding as of June 30, 1999.

                                      -13-
<PAGE>

6.   Industry Segment Information

     Basis for Determining Segments

     The Company has determined the segments reported based on the types of
     services and products offered, which is consistent with management's method
     of evaluating the financial performance of segments.

     The term "Allin Consulting" is used to denote the collective operations of
     Allin Consulting-California and Allin Consulting-Pennsylvania. Allin
     Consulting provides technology consulting services oriented around
     solutions areas meeting customer needs for information technology
     infrastructure, business operations, electronic business and knowledge
     management technology services. Segments related to Allin Consulting's
     operations include Information Technology Infrastructure, Business
     Operations, Electronic Business, Knowledge Management and Other, which
     reflects operational activity not attributable to the identified segments.

     The term "Interactive Media Solutions & Product Sales" is used to denote
     collectively the Company's operational activity related to interactive
     television and digital photography systems and applications as well as
     computer hardware and software sales. Allin Interactive provides
     specialized systems integration, consulting and operational services
     related to interactive television systems and applications. Allin Digital
     provides specialized systems integration and technical support for digital
     photography systems and also sells ancillary products related to digital
     photography operations. Allin Network sells computer hardware and software.
     These operations are grouped together, and are differentiated from the
     Company's other technology consulting solutions areas, because of the
     specialized nature of the interactive technology and because the sales
     activity and strategies for these operations involve projects with
     significant equipment components in addition to consulting expertise.
     Segments related to these operations include Interactive Television Systems
     Integration & Consulting, Interactive Television Transactional Revenue &
     Management Fees, Digital Imaging Systems Integration & Ancillary Products
     and Computer Hardware and Software Sales.

     The Company conducted a sports marketing business until the sale of its
     subsidiary SportsWave in September 1998. Results of SportsWave operations
     are reflected as discontinued operations on the Company's Consolidated
     Statements of Operations and accordingly, sports marketing is not included
     in segment revenue or gross profit information. Sports marketing is
     included as a segment for asset information as of June 30, 1998.

     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.

                                      -14-
<PAGE>

Revenue

  Information on revenue derived from external customers is as follows:

<TABLE>
<CAPTION>
                                                                        Revenue from External Customers
                                                         ----------------------------------------------------------------
                                                            Three Months    Three Months   Six Months       Six Months
                                                               Ended           Ended         Ended            Ended
(Dollars in thousands)                                      June 30, 1998   June 30, 1999  June 30, 1998    June 30, 1999
                                                         -----------------------------------------------------------------
<S>                                                      <C>                <C>            <C>              <C>
Allin Consulting Solutions Areas:
Information Technology Infrastructure                             $   948         $ 1,120        $ 2,398           $ 2,133
Business Operations                                                   171           3,152            280             6,802
Electronic Business                                                    61              28             66                31
Knowledge Management                                                  ---             205            ---               205
Other                                                                 ---              82              3               152
                                                         -----------------------------------------------------------------
  Total Allin Consulting                                          $ 1,180         $ 4,587        $ 2,747           $ 9,323

Interactive Media Solutions & Product Sales:
Interactive Television Systems Integration & Consulting           $    88         $   956        $   111           $ 1,038
Interactive Television Transactional Revenue &
 Management Fees                                                      772             362          1,565             1,026

Digital Imaging Systems Integration & Ancillary Products              433             517            449             1,126
Computer Hardware & Software Sales                                     56             206            156               249
                                                         -----------------------------------------------------------------
  Total Interactive Media Solutions & Product Sales               $ 1,349         $ 2,041        $ 2,281           $ 3,439
                                                         -----------------------------------------------------------------

  Consolidated Revenue from External Customers                    $ 2,529         $ 6,628        $ 5,028           $12,762
                                                         =================================================================
</TABLE>

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

<TABLE>
<CAPTION>
                                                                        Revenue from External Customers
                                                         ----------------------------------------------------------------
                                                            Three Months    Three Months   Six Months       Six Months
                                                               Ended           Ended         Ended            Ended
(Dollars in thousands)                                      June 30, 1998   June 30, 1999  June 30, 1998    June 30, 1999
                                                         -----------------------------------------------------------------
<S>                                                      <C>                <C>            <C>              <C>
Technology Consulting                                               $251            $ 69           $451             $105
Interactive Television Systems Integration & Consulting              ---              19            ---               41
Computer Hardware & Software Sales                                    84              73            260              153
                                                         -----------------------------------------------------------------

  Total Revenue from Related Entities in Other Segments
                                                                    $335            $161           $711             $299
                                                         =================================================================
</TABLE>

                                      -15-
<PAGE>

  Gross Profit

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

<TABLE>
<CAPTION>
                                                                                    Gross Profit
                                                                                    ------------
                                                            Three Months    Three Months   Six Months       Six Months
                                                               Ended           Ended         Ended            Ended
(Dollars in thousands)                                      June 30, 1998   June 30, 1999  June 30, 1998    June 30, 1999
                                                         -----------------------------------------------------------------
<S>                                                      <C>                <C>            <C>              <C>
Allin Consulting Solutions Areas:
Information Technology Infrastructure                              $  385         $  504           $  972         $  947
Business Operations                                                    70            884              114          2,003
Electronic Business                                                    25             14               27             15
Knowledge Management                                                  ---             83              ---             83
Other                                                                   2            (10)               4            (40)
                                                         ---------------------------------------------------------------
  Total Allin Consulting                                           $  482         $1,475           $1,117         $3,008

Interactive Media Solutions & Product Sales:
Interactive Television Systems Integration & Consulting            $   21         $  308           $   31         $  352
Interactive Television Transactional Revenue &
 Management Fees                                                      704            291            1,407            886

Digital Imaging Systems Integration & Ancillary Products               42             94               45            227
Computer Hardware & Software Sales                                      5             34               16             41
                                                         ---------------------------------------------------------------
  Total Interactive Media Solutions & Product Sales                $  772         $  727           $1,499         $1,506
                                                         ---------------------------------------------------------------

  Consolidated Gross Profit                                        $1,254         $2,202           $2,616         $4,514
                                                         ===============================================================
</TABLE>

                                      -16-
<PAGE>

  Assets

  Information on total assets attributable to segments is as follows:

<TABLE>
<CAPTION>
(Dollars in thousands)                                                                Total Assets
As of June 30                                                                     1998            1999
                                                                               -----------------------
<S>                                                                           <C>              <C>
Allin Consulting Solutions Areas:
Information Technology Infrastructure                                          $ 3,779         $ 7,578
Business Operations                                                                632          12,240
Electronic Business                                                                125             277
Knowledge Management                                                               ---             159
Other                                                                               48              95
                                                                               -----------------------
  Total Allin Consulting                                                       $ 4,584         $20,349

Interactive Media Solutions & Product Sales:
Interactive Television Systems Integration & Consulting                        $   310         $ 1,313
Interactive Television Transactional Revenue & Management Fees                   5,906           1,528
Digital Imaging Systems Integration & Ancillary Products                           526             860
Computer Hardware & Software Sales                                                 107             274
                                                                               -----------------------
  Total Interactive Media Solutions & Product Sales                            $ 6,849         $ 3,975

Sports Marketing                                                                 3,641             ---
Corporate & Other                                                                3,764           1,388
                                                                               -----------------------

  Consolidated Total Assets                                                    $18,838         $25,712
                                                                               =======================
</TABLE>

7.  SUBSEQUENT EVENTS

Sale of Celebrity Ship Interactive Television Systems

During August 1999, Allin Interactive entered an agreement with Celebrity
Cruises, Inc. ("Celebrity") providing for Celebrity's purchase, for
approximately $2,400,000, of the four interactive television systems owned by
Allin Interactive and presently operated on Celebrity ships.  Sale proceeds will
be received by Allin Interactive subsequent to satisfactory joint inspections of
the systems to be conducted by Allin Interactive and Celebrity.  The joint
system inspections are scheduled to be completed during August and September
1999.

Allin Interactive and Celebrity also entered related agreements providing for
operation and maintenance of the interactive systems to be sold.  Upon
satisfactory joint inspection of, and Celebrity's payment for, each interactive
system, operational responsibility for that system will shift from Allin
Interactive to Celebrity.  Transactional revenue from pay-per-view movies and
video gaming will no longer be received by Allin Interactive after the transfer
of operational responsibility to Celebrity for each ship.  Similarly, management
fees will no longer be received after the transfer of operational responsibility
for each ship.  Celebrity will assume responsibility for operational staffing
for each interactive system upon transfer of operational responsibility.  The
agreements between Allin Interactive and Celebrity also provide for transfer of
operational responsibility for the interactive television system aboard the M.V.
Mercury, which is owned by Celebrity, but has been operated by Allin Interactive
on financial terms identical to the other systems operated on Celebrity vessels.
Operational responsibility for the M.V. Mercury system will transfer upon
Celebrity's notice that it is prepared to assume operations.  Allin Interactive
will lose transactional revenue and management fees upon the transfer of
operational responsibility for the M.V. Mercury system.

                                      -17-
<PAGE>

Under the new maintenance agreement between Allin Interactive and Celebrity,
Allin Interactive will provide ongoing technical support for the five
interactive television systems on Celebrity ships for a minimum period of six
months following completion of all system sales and transfers of operational
responsibility.  Allin Interactive will earn fixed monthly maintenance fees
during the initial six-month maintenance period.  For services provided in
excess of a threshold number of hours during the six-month period, Allin
Interactive will charge additional hourly fees.  Revenue for the four
interactive television system sales will be recognized over the minimum period
of the maintenance agreement concurrent with Allin Interactive's ongoing
technical maintenance obligation.

                                      -18-
<PAGE>

Item 2.

                               Allin Corporation

                    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, 1999 and 1998.  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, 1998, as well as the
information discussed herein under "Special Note on Forward Looking Statements".
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 "estimates," "expects," "anticipates," "believes," and
other similar expressions, are intended to identify forward-looking information
that involves risks and uncertainties.  Actual results and outcomes could differ
materially as a result of important factors including, among other things, the
Company's limited operating history with its recent acquisitions; uncertainty as
to the Company's future profitability; the Company's history of net losses,
accumulated deficit, and liquidity; the risks inherent in development of new
products and markets; certain customers' rights to terminate operations;
competition in the Company's existing and potential future lines of business;
risks associated with the Company's management of growth; dependence on key
personnel; rapidly changing technology and a rapidly evolving market for
interactive applications; and fluctuations in operating results, as well as
other risks and uncertainties.  See "Special Note on Forward-Looking Statements"
below.

Overview of Organization, Products & Markets

     Allin Corporation, is a solutions-oriented information technology
consulting company that specializes in the development and deployment of
Microsoft-based technology solutions through five solutions practices:
Information Technology Infrastructure, Business Operations, Electronic Business,
Knowledge Management and Interactive Media Solutions.  The Company delivers
these services through the trade-names Allin Consulting, Allin Interactive and
Allin Digital Imaging.  In 1998, the Company was a Pittsburgh Technology 50
award recipient in recognition of its high rate of revenue growth among
technology-based businesses in the Pittsburgh region.

     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, 1999, 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 providing 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.

     Discussion and analysis of results of operations follow the Company's
operational model and focus on the Company's solutions areas.  Information
technology infrastructure, business operations, electronic business and
knowledge management solutions consulting are performed by Allin Consulting-
California and Allin Consulting-Pennsylvania.  The term "Allin Consulting" as
used throughout this Report on Form 10-Q refers collectively to the two
subsidiaries, Allin Consulting-California and Allin Consulting-Pennsylvania.
Financial information is  presented for these subsidiaries collectively due to
the similarity of their service offerings.  Interactive media solutions services
are performed by Allin Interactive and Allin Digital.  Allin Interactive
provides specialized systems integration, consulting and operational services
related to interactive television systems and applications.  Allin Digital
provides specialized systems integration and technical support for digital
photography systems and also

                                      -19-
<PAGE>

sells ancillary products related to digital photography operations. Interactive
media solutions activity is discussed and analyzed separately from the Company's
other technology consulting solutions areas because of the specialized nature of
the interactive technology and because the sales activity and strategies for
these operations involve projects with significant equipment components in
addition to consulting expertise. Allin Network's computer hardware and software
sales, which are not material to the Company as a whole, are grouped with
interactive media solutions for financial presentation. The term "interactive
media solutions and product sales" is used to denote collectively the Company's
operational activity related to interactive television and digital photography
services and applications as well as computer hardware and software sales.

     Allin Consulting utilizes a customer-oriented approach in its technology
consulting operations.  Management has structured Allin Consulting operations
into solutions areas intended to meet customer needs for professional technology
services in the following areas:

 .    The Information Technology Infrastructure solutions area focuses on the
underlying platforms and operating systems necessary to take advantage of
today's technology capabilities and systems, including operating systems and
general platform principles such as total cost of ownership and thin-client
computing.  Services include design, configuration, implementation and support
of customer operating systems, management and maintenance of database platforms,
messaging systems, information system security solutions, help desk support and
application services such as message queing and transaction servers.

 .    The Business Operations solutions area focuses on an organization's core
information gathering processes including sales, finance, administration,
logistics and manufacturing.  Business Operations solutions may involve custom
development or package implementation to improve operational efficiency or
information flow.

 .    The Electronic Business solutions area delivers systems that enable an
organization to represent itself and its data electronically.  Electronic
Business solutions help clients improve information exchange with their
customers, suppliers and other third parties.  Electronic Business solutions
emphasize internet- and intranet-based services including company portals,
extranet-based value chains and electronic commerce sites.

 .    Knowledge Management solutions focus on the flow and processing of
information within an organization. These solutions typically include data
warehousing or work flow systems requiring expertise in business processes as
well as the implementation of technology. These solutions will typically
interface with the business operation transaction systems to access information
from the captured data for wide accessibility within customer organizations.

     The customer-oriented strategic model for Allin Consulting's operations,
with Information Technology Infrastructure, Business Operations, Electronic
Business and Knowledge Management solutions areas, is intentionally similar to
Microsoft's product and service groupings.  Management believes this structural
focus will foster more focused communication and interaction with the Microsoft
organization and will promote the continued development of technological
expertise within the Company focused on products and applications that closely
correspond to particular disciplines of the Allin Consulting organization.
However, there can be no assurance that the strategic model will lead to
increased revenue or profitability in the future.  Management intends to enhance
the Microsoft focus in Allin Consulting's operations through continued training
and certification of its consultants and through joint marketing efforts with
Microsoft.  Both of the Allin Consulting operating entities are authorized as
Microsoft Solutions Provider Partners.  In March 1999, Allin Consulting-
California was among four firms nominated as finalists for Microsoft Solutions
Provider Partner of the Year in Northern California from among approximately
fifty-five eligible firms.  The Partner of the Year award honors those firms
whose work and achievements have demonstrated excellence in Microsoft-oriented
consulting services.  Allin Consulting is also a member of Microsoft's
Infrastructure Partner Advisory Council.  Council members are a select group of
Microsoft Solution Providers with a successful history of implementing Microsoft
infrastructure technology and who participate in the development of Microsoft's
message and focus within its infrastructure products group.  Management believes
Allin Consulting's established relationship with Microsoft as a Solution
Provider Partner and the quality of its services, as recognized by Microsoft,
will position the Company to benefit from Microsoft's expected growth in
infrastructure and interactive media products since Microsoft has historically
relied extensively on third parties for custom development and integration
services.  No assurance can be given, however, that any growth or change in
Microsoft's product sales will result in growth in the Company's revenue or
improvements to its financial condition or results of operations.

                                      -20-
<PAGE>

     The Information Technology Infrastructure solutions area services for the
client/server environment maintain a focus on Microsoft BackOffice technology
including NT Server, SQL Server, SNA Server, Systems Management Server, Exchange
Server and Internet Information Server.  This solutions area also creates
network solutions that integrate Unix, Lotus, Oracle, Novell and IBM mainframe
systems with Windows NT-based networks.  Electronic Business performs solutions
services for web applications using Visual InterDev and ASP with SQL Server and
performs web-based development services using Java, Perl, CGI and HTML.  Allin
Consulting is a Microsoft certified provider of custom application development
services utilizing Access, Visual C++, Visual Basic, Visual J++, SQL Server,
Outlook, Excel and Visual Fox Pro.  Business Operations utilizes this expertise
in the development of solutions for customers' core information gathering
processes.

     Allin Consulting's Business Operations solutions area also provides
consulting and custom development for mainframe systems, including application
development, data base development and administration, and data communications
development for IBM proprietary technology, intended to meet its clients' legacy
system needs for special or deadline sensitive projects, peak and backlogged
workloads, and specialized skill applications.  Allin Consulting provides
technical solutions including custom development for IBM MVS proprietary
environments and mainframe development and support for Cobol, DB2, IMS DB/DC and
CICS applications.

     Business Operations also provides specialized technology consulting
services for the banking industry, including conversions for mergers and
acquisitions, software product implementation, systems modification and support.
The banking industry services are focused on development, implementation and
management of Hogan IBA software applications, which are specialized products
for the banking industry.  Allin Consulting is expanding its bank consulting
services to specialize in applications for deposits, lending, back office
operations, product/service offerings and delivery/alternate delivery.  Allin
Consulting is able to support current technology systems devoted to automatic
teller machines, call centers, interactive video kiosks, telephone and home
banking operations.

     Allin Consulting currently generates revenue from fees under its contracts
for technology consulting services for third party clients.  A significant
majority of services have historically been provided on a time-oriented rather
than fixed-price basis.  Allin Consulting bases its operations in offices in
Pittsburgh, Pennsylvania, Oakland and San Jose, California and Cleveland, Ohio.

     The Company's Interactive Media solutions area encompasses a range of
specialized systems integration, consulting and other services focused on
interactive streaming of video and digital imaging systems and applications.
Allin Interactive currently focuses its marketing efforts on interactive
television system sales and systems integration projects and consulting services
specializing in interactive media design and applications.  Allin Interactive is
currently targeting its sales and marketing efforts on the healthcare, education
and cruise industries.

     The Company believes demand for interactive services will increase in the
healthcare industry as hospitals are driven to market better services and state
of the art systems and to invest in labor saving tools such as interactive
systems to improve the efficiency of their staffs by facilitating more efficient
flow of information and order processing and a more flexible training process.
The Company believes that an education industry market is emerging for
interactive systems that can facilitate wide area networking connections and
Internet and Intranet accessibility and that utilize on-demand educational video
content that is both digital and analog based.  The Company believes that the
interactive television applications Allin Interactive has developed and
implemented in the cruise and healthcare markets are well suited for application
to the education industry.  There can be no assurance, however, that Allin
Interactive will be successful in selling interactive television systems and
services to the healthcare and education industries during 1999 and beyond or
that any business obtained from these industries will result in the desired
improvements to the Company's financial condition or results of operations.

     The majority of historical activity for Allin Interactive's interactive
television and systems integration services has been concentrated in the cruise
industry.  Services provided for the cruise industry remained the dominant
operating activity during the second quarter of 1999 despite the reorientation
of marketing efforts to include additional target industries as described above.
Management believes that the newer, larger ships that are being developed within
the cruise industry will require a heightened level of automation to effectively
service the larger number of cruise passengers.  Allin Interactive's historical
operations within the cruise industry have resulted in the development of many
applications that could be readily implemented on new ships.  In May 1999, Allin

                                      -21-
<PAGE>

Interactive entered a $1.9 million contract with Royal Caribbean Cruises Ltd.
("RCCL") to develop and install an interactive television system for RCCL's new
Eagle Class ship Voyager of the Seas.  Allin Interactive is currently performing
services under this contract.  The new system will use web technology to enable
RCCL passengers to use the cabin televisions to access a variety of services
such as previewing and reserving shore excursions, watching on-demand movies and
informational videos, ordering room service and reviewing shipboard activities.
It is anticipated that the Voyager of the Seas will be the world's largest
cruise ship upon its introduction to service, currently scheduled for November
1999.  There can be no assurance, however, that Allin Interactive will obtain
additional orders for new interactive systems for the cruise industry in the
future or that any sales made will result in the desired improvements to the
Company's financial condition or results of operations.

     During August 1999, Allin Interactive entered an agreement with Celebrity
Cruises, Inc. ("Celebrity") providing for Celebrity's purchase, for
approximately $2.4 million, of the four interactive television systems owned by
Allin Interactive and presently operated on Celebrity ships.  The system sales
will be effective subsequent to satisfactory joint inspections of the systems to
be conducted by Allin Interactive and Celebrity.  The joint system inspections
are scheduled to be completed during August and September 1999.  Under a related
maintenance agreement between the parties, Allin Interactive will provide
ongoing technical support for the interactive television systems on five
Celebrity ships for a minimum period of six months following completion of all
of the four system sales and transfer of operational responsibility for the
these and the system aboard the M.V. Mercury, already owned by Celebrity.
Operational responsibility for the M.V. Mercury system will transfer upon
Celebrity's notice that it is prepared to assume operations.  Allin Interactive
will earn maintenance fees during the initial six-month support period.  Revenue
recognition for the system sales will be prorated over the minimum period of the
related maintenance obligation.  Transactional revenue from pay-per-view movies
and video gaming and management fees will no longer be received by Allin
Interactive after the transfer of operational responsibility for each system to
Celebrity.  Celebrity will assume responsibility for operational staffing for
the interactive systems.  The Company anticipates transfer of operational
responsibility of the Celebrity ships to occur during the third quarter of 1999.
During the six months ended June 30, 1999, transactional revenue and management
fees related to the Celebrity ships represented approximately 4.9% and 12.8% of
the Company's consolidated revenue and gross profit, respectively.

     In addition to the Celebrity ship systems, during the second quarter of
1999, Allin Interactive operated interactive television systems installed
between 1995 and 1997 on an owner-operator model on two Carnival Cruise Lines
("Carnival") ships and one Norwegian Cruise Lines ("NCL") ship.  During the
second quarter of 1998, Allin Interactive additionally operated systems aboard
three RCCL ships.  Operations for the three RCCL systems ceased in the second
quarter of 1998.  Operation of the interactive television system aboard the NCL
ship Norwegian Dream ceased in April 1999.  Transactional and management fees
revenue and gross profit derived from operations for RCCL (1998 only) and NCL
represented approximately 5.9% and 11.0% of the Company's consolidated revenue
and gross profit, respectively, during the second quarter of 1998, and
approximately 0.2% and 0.4% of the Company's consolidated revenue and gross
profit, respectively, during the second quarter of 1999.  Subsequent to the
third quarter of 1999, Allin Interactive expects to operate under the owner-
operator model only the two interactive systems currently on Carnival ships.
Allin Interactive's agreement with Carnival allows Carnival to discontinue
services or management fees after specified notice periods.  Carnival has
notified Allin Interactive of its intent to discontinue management fees after
August 1999.

     During the first quarter of 1998, the Company implemented a new strategy
for its digital photography operations, providing systems integration services
related to digital photography systems for professional and commercial
photography businesses.  Allin Digital also provides technical support and
ancillary product sales for digital photography.  Allin Digital's systems
integration projects have to date been conducted on a fixed-price basis.  Allin
Digital's growth is dependent on continued identification and effective
marketing to new customers.  Allin Digital has been effective to date at
generating ancillary sales from the majority of customers for which it has
performed systems integration services, although there can be no assurance that
increases in revenue will continue to be realized.

     The hardware and software configurations Allin Digital provides for systems
integration customers utilize, for the most part, readily available "off the
shelf" components purchased from third parties.  However, Allin Digital released
a proprietary portrait viewing and selling system in August 1998 named Portraits
Online.  This product, sold as a digital system add-on, allows the portrait
studio's customers to view and order their portraits on a

                                      -22-
<PAGE>

touchscreen monitor immediately following their portrait session. In addition,
the system gives the consumer the ability to access and order their images via
the Portraits Online Internet site. During the third quarter of 1999, Allin
Digital is introducing a Portraits Online service for photographic laboratories
which would provide their clients with online sales and image archival
capabilities. The Company believes the Portraits Online systems offers it a
competitive advantage over competing integration services because of the
functionality and sales opportunity advantages it is expected to present to
potential customers. There can be no assurance, however, that the Company will
be successful in continuing to generate increased sales because of its Portraits
Online services or that sales obtained will result in the desired improvements
to the Company's financial condition or results of operations. There can also be
no assurance that competitors will not develop similar or superior products
which may adversely affect Allin Digital's sales efforts.

     Allin Network's historical operations for computer product sales have been
predominantly in support of related companies.  Third party business has been
primarily obtained in connection with Allin Consulting engagements for
consulting services.  Allin Network's product offerings include most computer-
related hardware and software available in the marketplace.  It has historically
maintained very little in inventory, relying on product availability and prompt
delivery from its suppliers.

     Allin Interactive's interactive television operations are conducted
primarily through technical and administrative personnel based in its Ft.
Lauderdale, Florida office and through system operators located onboard the
ships on which systems are in operation.  It is expected that technical
personnel based with the Florida operations will be primarily responsible for
any interactive system installations Allin Interactive is successful in
obtaining during 1999.  Allin Digital's operations are managed from the
Company's Pittsburgh, Pennsylvania office while installations are performed at
the respective clients' locations.  Technical resources necessary for
installations and technical support are obtained by utilizing Allin Interactive
personnel and independent contractors. Hardware and software sales operations
are conducted from the Company's Oakland, California and Pittsburgh,
Pennsylvania offices.

Results of Operations:

Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998

     The September 1998 sale of SportsWave, Inc. ("SportsWave") has been treated
as the disposal of a segment since SportsWave included all of the Company's
sports marketing activities.  The results of operations of SportsWave for the
three months ended June 30, 1998 and an adjustment to the gain on disposal
recognized during the three months ended June 30, 1999 are presented after loss
from continuing operations in the Company's Consolidated Statements of
Operations.  Information presented herein concerning revenue, cost of sales,
gross profit, and selling, general and administrative expenses excludes the
operations of SportsWave for the three months ended June 30, 1998 and 1999.

Revenue

     The Company's total revenue for the three months ended June 30, 1999 was
$6,628,000, an increase from total revenue of $2,529,000 for the three months
ended June 30, 1998.  The increase of $4,099,000, or 162%, is attributable
primarily to a $3,407,000, or 288%, increase in revenue for Allin
Consulting'soperations.  This increase is the result of the inclusion of revenue
from Allin Consulting-Pennsylvania in the 1999 period.  Allin Consulting-
Pennsylvania was acquired in August 1998, resulting in an approximate tripling
of monthly technology consulting revenue immediately prior to the acquisition.

     Allin Consulting recognized revenue, after elimination of intercompany
sales, of $4,587,000 during the three months ended June 30, 1999, including
$3,152,000 for Business Operations, $1,120,000 for Information Technology
Infrastructure, $205,000 for Knowledge Management, $28,000 for Electronic
Business and $82,000 in other revenue.  Comparable second quarter 1998 revenue
was $1,180,000 in total, including $171,000 from Business Operations, $948,000
from Information Technology Infrastructure and $61,000 from Electronic Business.

     The substantial increase in Business Operations revenue of $2,981,000 is
attributable to the acquisition of Allin Consulting-Pennsylvania.  The
specialized bank consulting operations of Allin Consulting-Pennsylvania focus

                                      -23-
<PAGE>

on this solutions area, as well as a significant portion of Allin Consulting-
Pennsylvania's Pittsburgh consulting operations. Allin Consulting-California has
also experienced a significant growth in solutions-oriented Business Operations
revenue between the quarters due to a change in the mix of its solutions-area
revenue. While revenue growth is noted in comparison to the prior year, Business
Operations revenue declined from the first to the second quarters of 1999 by
$498,000. The reduction has resulted from a slowdown in the demand for staffing
services related to mainframe computer systems and due to the Company's efforts
to reposition its services toward diverse solutions-based services. Management
expects further declines in Business Operations revenue over the remainder of
1999.

     The increase in Information Technology Infrastructure revenue of $172,000
in the 1999 period is attributable to growth in Allin Consulting-Pennsylvania's
Information Technology Infrastructure solutions area. Allin Consulting-
Pennsylvania is strategically focusing its marketing efforts on growing diverse
solutions-oriented project revenue, which the Company's Management believes will
generally offer a higher gross profit potential than the staffing services model
which represented the majority of Allin Consulting-Pennsylvania's operations at
acquisition.  Information Technology Infrastructure is one solutions area being
emphasized for growth under the new marketing strategy.  There can be no
assurance, however, that the Company will continue to increase solutions
oriented revenue in the Information Technology Infrastructure solutions area in
the future, or that any revenue increases realized will result in the desired
improvements to gross profit.

     The new marketing strategy Allin Consulting implemented in 1999 also seeks
to develop and grow a solutions-oriented practice in the Knowledge Management
solutions area.  Knowledge Management operations were fully implemented during
the second quarter of 1999.  Revenue recognized of $205,000 during this period
represents the initial revenue for this solutions area.  There can be no
assurance, however, that Knowledge Management revenue will continue to be
realized at levels equal to or greater than that realized during the second
quarter of 1999.

     Electronic business is a developing area of technology.  Allin Consulting
is committed to further development of this solutions area.  In April 1999, the
Company engaged a solutions director to manage the growth of this practice.  The
Company believes the $33,000 decline in revenue realized in the second quarter
of 1999 as compared to the second quarter of 1998 and the relatively low revenue
level in both quarters is attributable to the developmental stage of the
Company's operations in this solutions area. Allin Consulting's marketing
strategy seeks to develop and grow a solutions oriented Electronic Business
practice, although there can be no assurance that the Company will be successful
in developing this solutions area or that the desired improvements in revenue
and gross profit will be realized.

     Allin Consulting's expertise with Microsoft operating systems and software,
which have and are expected to continue to increase in dominance, is viewed by
the Company's Management as key to the overall growth of the technology
consulting business.  Since there is typically period-to-period variability
among clients utilizing Allin Consulting's services, the distribution of
projects among Allin Consulting's solutions areas and the size and scope of
projects undertaken, there can be no assurance that similar revenue levels or
increases will be realized in future periods.  The Company intends to pursue
growth in technology consulting services during the remainder of 1999 primarily
through increased sales and marketing efforts, although additional acquisitions
of existing businesses will be considered.  There can be no assurance, however,
that the Company will be able to identify suitable and available acquisition
opportunities, reach agreement with any identified candidate, or obtain the
capital necessary for additional acquisitions.  There also can be no assurance
that the Company will be successful in maintaining or expanding Allin
Consulting's level of revenue or gross profit.

     Revenue from interactive media solutions and product sales was $2,041,000
for the three months ended June 30, 1999 as compared to $1,349,000 for the three
months ended June 30, 1998.  The increase in revenue of $692,000, or 51%, is
primarily attributable to substantial revenue growth in interactive television
systems integration and consulting services.

     Allin Interactive recorded revenue of $1,318,000 during the three months
ended June 30, 1999, including $956,000 for interactive television systems
integration and consulting services and $362,000 for shipboard transactional
revenue and management fees.  Comparable second quarter 1998 revenue was
$860,000 in total, including $88,000 for interactive television systems
integration services and $772,000 for shipboard transactional revenue and
management fees.  The increase in interactive television systems integration and
consulting revenue of

                                      -24-
<PAGE>

$868,000 is attributable to the agreement Allin Interactive entered in May 1999
with RCCL to develop and install the interactive television system for the
Voyager of the Seas. The majority of second quarter 1999 systems integration and
consulting revenue is related to the Voyager of the Seas project, which is being
recognized on a percentage of completion basis. The decline between periods in
transactional revenue and management fees of $410,000 is attributable to changes
in management fees for systems operated on Celebrity ships and the decrease in
the number of operating shipboard interactive television systems from eleven to
eight. In conjunction with an agreement Allin Interactive entered into with
Celebrity in August 1999 to sell Celebrity the interactive television systems
operating on four of its ships, Allin Interactive agreed to a reduction in
management fees retroactive to January 1999. The decrease in management fees for
the first half of 1999 was recognized during the second quarter. Transactional
revenue and management fees will decline further in the third quarter of 1999 as
the system sales are completed and Celebrity assumes operation of the ship
systems purchased as well as the system aboard the M.V. Mercury, which Celebrity
presently owns but which Allin Interactive has operated under financial terms
identical to the other Celebrity ship systems. Ship system sale revenue and
maintenance fees are expected to begin to be recognized during the third quarter
of 1999. During the remainder of 1999, sale and maintenance fee revenue to be
recognized is expected to exceed the levels of transactional revenue and
management fees recognized immediately prior to the system sales. There can be
no assurance, however, that revenue will continue to be realized at similar or
higher levels in 2000 after the completion of recognition of the system sale
revenue over the minimum period of the maintenance obligation. Additionally
the Company has been notified by Carnival that it intends to discontinue payment
of management fees after August 1999.

     Allin Digital recognized revenue of $517,000 during the three months ended
June 30, 1999 for digital imaging systems integration services and ancillary
product sales as compared to $433,000 for the three months ended June 30, 1998.
The increase in revenue from digital photography operations of $84,000 is
attributable to Allin Digital's continued sales growth under the systems
integration operating strategy implemented in 1998 and the introduction of the
Portraits Online internet-based digital imaging sales and archival product
between the periods.  There can be no assurance, however, that either the
current revenue level or increases in revenue will continue to be realized.

     Allin Network recognized $206,000 in revenue for computer hardware and
software sales in the second quarter of 1999 as compared to $56,000 during the
second quarter of 1998.  The increase is attributable to several comparatively
large sales included in the second quarter of 1999 related to technology
consulting engagements being carried out by Allin Consulting-California.  There
were no sales of comparable size in the second quarter of 1998.

Cost of Sales and Gross Profit

     The Company recognized cost of sales of $4,426,000 during the three months
ended June 30, 1999 as compared to $1,275,000 during the three months ended June
30, 1998.  The primary reason for the increase in cost of sales of $3,151,000
was the $2,414,000 increase for Allin Consulting's technology consulting
services due to the inclusion of Allin Consulting-Pennsylvania's operations in
the 1999 quarterly period.  Gross profit of $2,202,000 was recognized during the
second quarter of 1999 as compared to $1,254,000 during the second quarter of
1998, an increase of $948,000, or 76%.  Again, the increase in gross profit is
mainly attributable to the inclusion of Allin Consulting-Pennsylvania's
operations in the second quarter of 1999.  The percentage increase in gross
profit between the periods was lower than that of revenue due to significant
growth in the Business Operations solutions area and interactive television
systems integration and consulting services.  The majority of the acquired
entity's Business Operations activity has traditionally been delivered through a
staffing model, which typically carries a lower margin than the project
solutions model used predominantly in the Company's other solutions areas.  The
growth in interactive television systems integration and consulting projects
corresponds to a strategic shift away from operation of interactive television
systems on an owner-operator model.  Since systems integration projects
typically include a significant equipment component, they carry a lower margin
than the transactional revenue and management fees derived under the owner-
operator model.  The strategic change has resulted in a shift of activity away
from transactional revenue and management fees, with a resultant impact on gross
profit percentage.  Management believes systems integration and consulting
services in interactive media offer greater growth potential than the owner-
operator model and do not require the substantial capital commitments of the
owner-operator model.  There can be no assurance, however, that the Company will
continue to obtain growth in interactive media systems integration and
consulting services.

                                      -25-
<PAGE>

     Allin Consulting recorded a total of $3,112,000 for cost of sales during
the three months ended June 30, 1999, including $2,268,000 for Business
Operations, $616,000 for Information Technology Infrastructure, $122,000 for
Knowledge Management, $14,000 for Electronic Business and $92,000 for other cost
of sales. Comparable second quarter 1998 cost of sales was $698,000 in total,
including $101,000 for Business Operations, $563,000 for Information Technology
Infrastructure, $36,000 for Electronic Business and $(2,000) for other cost of
sales. Increases or decreases in cost of sales are also attributable to the
factors that resulted in changes in revenue for these services, primarily the
acquisition of Allin Consulting-Pennsylvania and increased marketing emphasis on
developing solutions-oriented practices. Gross profit for the three months ended
June 30, 1999 was $1,475,000, including $884,000 for Business Operations,
$504,000 for Information Technology Infrastructure, $83,000 for Knowledge
Management, $14,000 for Electronic Business and a gross loss of $10,000 on other
services. Comparable second quarter 1998 gross profit was $482,000 in total,
including $70,000 for Business Operations, $385,000 for Information Technology
Infrastructure, $25,000 for Electronic Business and $2,000 for other services.
Again, the substantial increase in consulting revenue is principally responsible
for the increase in gross profit. The gross profit recognized by the Business
Operations solutions area represented a decline of $235,000 between the first
and second quarters of 1999 due to a decline in demand for mainframe system
services and the Company's strategic shift toward solutions-based services. The
majority of this decline was offset by an increase in gross profit of $176,000
between the first and second quarters of 1999 among Allin Consulting's other
solutions areas. Management expects Business Operations gross profit will
decline further during the remainder of 1999.

      Cost of sales for interactive media solutions and product sales was
$1,314,000 in total for the second quarter of 1999, as compared with $577,000
for the second quarter of 1998. The increase in cost of sales resulted from the
substantial increases in interactive television systems integration and
consulting services and computer hardware and software sales. Gross profit on
interactive media solutions and product sales was $727,000 for the second
quarter of 1999, as compared with $772,000 for the second quarter of 1998. The
decline in gross profit is attributable primarily to reductions in the number of
operating ship systems and Celebrity management fees.

     Allin Interactive recorded a total of $719,000 for cost of sales during the
three months ended June 30, 1999, including $648,000 related to interactive
television systems integration and consulting services and $71,000 related to
pay-per-view movies.  Comparable second quarter 1998 cost of sales was $135,000,
including $67,000 for systems integration services and $68,000 for pay-per-view
movies.  The increase in cost of sales for interactive television systems
integration and consulting is attributable to the inclusion of activity related
to the Voyager of the Seas project in the second quarter of 1999.  Gross profit
recognized by Allin Interactive during the three months ended June 30, 1999 was
$599,000, including $308,000 from interactive television systems integration and
consulting services and $291,000 from shipboard transactional revenue and
management fees.  Comparable second quarter 1998 gross profit amounts were
$725,000 in total, including $21,000 from systems integration and $704,000 from
shipboard transactional revenue and management fees.  The overall decrease in
gross profit was $45,000.  The decline is primarily attributable to the
reduction in the number of operating ship systems and the reduction in
management fees for the Celebrity ship interactive systems implemented in the
second quarter of 1999.  Since there are no cost of sales associated with
management fees, the reduction fully impacts gross profit.  Gross profit for
interactive television systems integration and consulting substantially
increased during the second quarter of 1999 due to margin recognition for a
portion of the Voyager of the Seas project under the percentage of completion
method.  This gross profit increase offset the majority of the decline
attributable to the reduction of transactional revenue and management fees.
Gross profit from transactional revenue and management fees will decline further
during the third quarter of 1999 as operational responsibility for five
interactive systems is transferred to Celebrity.  Management expects gross
profit to be recognized on the sale of the Celebrity systems and maintenance
fees to be earned over the remainder of 1999 will exceed the gross profit earned
from transactional revenue and management fees related to the systems
immediately prior to the transfer.  There can be no assurance, however, that
gross profit will continue to be realized at similar or higher levels in 2000
after the completion of recognition of the system sale gross profit over the
minimum period of the maintenance obligation. Additionally the Company has also
been notified by Carnival that it intends to discontinue payment of management
fees after August 1999.

     Allin Digital recognized cost of sales on its digital imaging operations of
$423,000 for the three months ended June 30, 1999 as compared with $391,000 for
the three months ended June 30, 1998.  Allin Digital recognized gross profit of
$94,000 for the second quarter of 1999 as compared with $42,000 for the second
quarter of 1998.  The increase in gross profit of 123% exceeded the increase in
revenue of 19%.  The introduction of the Portraits Online internet-based image
sales and archival product between the periods has contributed to the overall
increase in

                                      -26-
<PAGE>

profitability of Allin Digital's operations. Management believes Portraits
Online offers Allin Digital a competitive advantage over other integrators and
the opportunity for increased margin where Portraits Online is included in a
system installation. There can be no assurance, however, that competitors will
not introduce similar or superior products or systems, which would have an
adverse effect on Allin Digital's operations.

     Allin Network recognized cost of sales of $172,000 on computer hardware and
software sales during the second quarter of 1999 as compared with $51,000 during
the second quarter of 1998.  Gross profit increased from $5,000 to $34,000.  The
increase was attributable to the inclusion of several large sales in connection
with Allin Consulting-California consulting engagements in the 1999 period.

Selling, General & Administrative Expenses

     The Company recorded $3,111,000 in selling, general & administrative
expenses during the three months ended June 30, 1999, as compared with
$2,380,000 during the three months ended June 30, 1998, an increase of $731,000.
The increase in expenses is primarily attributable to the acquisitions of two
companies between the periods with the resultant inclusion of selling, general &
administrative costs related to those operations in the 1999 period. The
increase is also attributable to the 1999 addition of solution area operational
and sales personnel to the Company's technology consulting businesses to
facilitate the move toward a solutions-oriented project focus and to facilitate
the development of the Electronic Business and Knowledge Management solutions
areas.

     A portion of the increase in selling, general & administrative expenses
during the second quarter of 1999 relates to an accrual of approximately
$116,000 during this period for estimated lease termination costs for office
space formerly occupied by Allin Consulting-Pennsylvania in Pittsburgh,
Pennsylvania. There was no comparable expense during the second quarter of
1998.

     Depreciation and amortization were $620,000 during the three months ended
June 30, 1999 as compared to $910,000 during the three months ended June 30,
1998.  The decline is due to August 1998 writedowns in capitalized interactive
television system assets, the majority of capitalized software development costs
reaching full amortization in 1998, and a significant intangible asset value for
an employment agreement recorded in connection with the 1996 acquisition of
Allin Consulting-California reaching full amortization in 1998.

     Research and development expense included in selling, general &
administrative expenses was $13,000 during the second quarter of 1999, as
compared to $37,000 during the second quarter of 1998.  The majority of the
research and development activity during 1999 related to Allin Digital's
development of a Portraits Online internet-based product targeted for
photographic laboratories.

Loss from Continuing Operations

     The Company's loss from continuing operations decreased by $65,000 from
$1,078,000 for the three months ended June 30, 1998 to $1,013,000 for the three
months ended June 30, 1999.  The $948,000 increase in gross profit in the 1999
period due to acquisition-driven growth in the technology consulting business
was largely offset by a $731,000 increase in selling, general & administrative
expenses and a $116,000 change from a net interest income to net interest
expense position.

Discontinued Operations

     The Company recorded income from the operation of its discontinued sports
marketing business of $346,000 during the second quarter of 1998.  During the
second quarter of 1999, the Company recognized a loss of $3,000 on the disposal
of SportsWave. The loss resulted from recording a local tax liability related to
the pre-disposal period.

                                      -27-
<PAGE>

Net Loss

     The Company's net loss for the three months ended June 30, 1999 was
$1,016,000, as compared to $732,000 for the three months ended June 30, 1998.
The increase in net loss resulted primarily from the inclusion of income related
to the discontinued sports marketing operations in the 1998 period.

Results of Operations:

Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998

     The September 1998 sale of SportsWavehas been treated as the disposal of a
segment since SportsWave included all of the Company's sports marketing
activities.  The results of operations of SportsWave for the six months ended
June 30, 1998 and adjustments to the gain on disposal recognized during the six
months ended June 30, 1999 are presented after loss from continuing operations
in the Company's Consolidated Statements of Operations.  Information presented
herein concerning revenue, cost of sales, gross profit, and selling, general and
administrative expenses excludes the operations of SportsWave for the six months
ended June 30, 1998 and 1999.

Revenue

     The Company's total revenue for the six months ended June 30, 1999 was
$12,762,000, an increase from total revenue of $5,028,000 for the six months
ended June 30, 1998.  The increase of $7,734,000, or 154%, is attributable
primarily to a $6,576,000, or 239%, increase in revenue for Allin Consulting's
operations.  This increase is the result of the inclusion of revenue from Allin
Consulting-Pennsylvania in the 1999 period.

     Allin Consulting recognized revenue, after elimination of intercompany
sales, of $9,323,000 during the six months ended June 30, 1999, including
$6,802,000 for Business Operations, $2,133,000 for Information Technology
Infrastructure, $205,000 for Knowledge Management, $31,000 for Electronic
Business and $152,000 in other revenue.  Comparable first half 1998 revenue was
$2,747,000 in total, including $280,000 from Business Operations, $2,398,000
from Information Technology Infrastructure, $66,000 from Electronic Business and
$3,000 of other revenue.

     The substantial increase in Business Operations revenue of $6,522,000 in
the six-month period ended June 30, 1999 as compared to the six-month period
ended June 30, 1998 is attributable to thesame reasons noted for the increase
between the three-month periods discussed above.  These include the acquisition
of Allin Consulting-Pennsylvania, whose bank consulting services and Pittsburgh
consulting operations were significantly oriented toward this solution area and
Allin Consulting-California's change in the mix of its solutions-area revenue.
As noted previously in the discussion of three-month period results, Business
Operations revenue has declined overall between the first and second quarters of
1999 due to decreasing demand for mainframe staffing services and the Company's
strategic repositioning toward solutions-based services.  Management expects
Business Operations revenue to continue to decline during the remainder of 1999.

     Information Technology Infrastructure revenue decreased $265,000 in the
six-month periodended June 30, 1999as compared to the six-month period ended
June 30, 1998.  The decline is attributable to the reorientation of Allin
Consulting-California's solutions-oriented consulting mix from primarily
Information Technology Infrastructure in the first half of 1998 to a broader mix
in the first half of 1999.  Allin Consulting-California has shown growth in
Business Operations and Knowledge Management revenue in 1999, but Information
Technology Infrastructure revenue has declined due to the change in focus.
Allin Consulting-Pennsylvania is strategically focusing its marketing efforts on
growing diverse solutions-oriented project revenue, including Information
Technology Infrastructure, which the Company's Management believes will
generally offer a higher gross profit potential than the staffing services model
which represented the majority of Allin Consulting-Pennsylvania's operations at
acquisition.  Revenue growth in this solutions area has partially offset some of
the decline in Allin Consulting-California revenue in this area from the first
half of 1998 to the first half of 1999..  There can be no assurance, however,
that Allin Consulting-Pennsylvania will continue to increase solutions-oriented
revenue in the Information Technology Infrastructure solutions area in the
future.

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<PAGE>

     Knowledge Management operations were fully implemented during the second
quarter of 1999.  Revenue recognized of $205,000 during this period represents
the initial revenue for this solutions area.  There can be no assurance,
however, that Knowledge Management revenue will continue to be realized at
levels similar to or greater than that realized during the second quarter of
1999.

     Allin Consulting is committed to further development of the Electronic
Business solutions area. A decline in revenue of $35,000 was realized in the
first half of 1998 as compared to the first half of 1999. As was noted
previously, the Company believes the decline in revenue and the relatively low
revenue level in both periods are attributable to the developmental stage of the
Company's operations in this solutions area. Allin Consulting's marketing
strategy seeks to develop and grow a solutions oriented Electronic Business
practice, although there can be no assurance that the Company will be successful
in developing this solutions area or that the desired improvements in revenue
and gross profit will be realized.

     Revenue from interactive media solutions and product sales was $3,439,000
for the six months ended June 30, 1999 as compared to $2,281,000 for the six
months ended June 30, 1998.  The increase in revenue of $1,158,000, or 51%, was
primarily attributable to substantial revenue growth in interactive television
systems integration and consulting services and digital imaging systems
integration services and ancillary sales.

     Allin Interactive recorded revenue of $2,064,000 during the six months
ended June 30, 1999, including $1,038,000 for interactive television systems
integration and consulting services and $1,026,000 for shipboard transactional
revenue and management fees.  Comparable first half 1998 revenue was $1,676,000
in total, including $111,000 for interactive television systems integration
services and $1,565,000 for shipboard transactional revenue and management fees.
The increase in interactive television systems integration and consulting
revenue of $927,000 is primarily attributable to the Voyager of the Seas
interactive system, which represents a majority of 1999 systems integration and
consulting revenue.  The decline in transactional revenue and management fees of
$539,000 is attributable to a reduction in the number of operating ship systems
from eleven to eight and changes in management fees for systems operated on
Celebrity ships, as was discussed previously in the comparison of results for
the three-month periods.

     Allin Digital recognized revenue of $1,126,000 during the six months ended
June 30, 1999 for digital imaging systems integration services and ancillary
product sales as compared to $449,000 for the six months ended June 30, 1998.
The increase in revenue from digital photography operations of $677,000 is
attributable to the Company's change in strategy in early 1998 to become a
provider of systems integration services for the installation of digital
photography systems.  The change in strategy was not fully implemented until
after the beginning of 1998, whereas it was in place for the full six-month
period in 1999.  Another contributing factor was the introduction of the
Portraits Online internet-based digital imaging sales and archival product
between the periods.  There can be no assurance, however, that either the
current revenue level or increases in revenue will continue to be realized.

     Allin Network recognized $249,000 in revenue for computer hardware and
software sales in the first half of 1999 as compared to $156,000 during the
first half of 1998.  The increase is attributable to several comparatively large
sales included in the first half of 1999 related to technology consulting
engagements being carried out by Allin Consulting-California.  There was only
one sale of comparable size in the first half of 1998.

Cost of Sales and Gross Profit

     The Company recognized cost of sales of $8,248,000 during the six months
ended June 30, 1999 as compared to $2,412,000 during the six months ended June
30, 1998. The primary reason for the increase in cost of sales of $5,836,000 was
the $4,685,000 increase in cost of sales for Allin Consulting's technology
consulting services, which corresponded to a substantial revenue increase from
these services. The increase in cost of sales is primarily attributable to the
inclusion of Allin Consulting-Pennsylvania's operations in the 1999 period.
Gross profit of $4,514,000 was recognized during the first half of 1999 as
compared to $2,616,000 during the first half of 1998, an increase of $1,898,000,
or 73%. Again, the increase in gross profit is mainly attributable to the
inclusion of Allin Consulting-Pennsylvania's operations in the first half of
1999. The percentage increase in gross profit between the periods was lower than
that of revenue due to significant growth in the Business Operations solutions
area and interactive television systems integration and consulting services, as
discussed previously. Another

                                      -29-
<PAGE>

contributing factor to the change for the six-month periods is the increase in
digital photography systems integration activity in 1999. Since digital
photography systems integration projects typically include a significant
equipment component, they carry a lower margin than other consulting services.
These changes in the mix of the Company's service offerings between the six-
month periods has resulted in a decrease in gross profit as a percentage of
revenue.

     Allin Consulting recorded a total of $6,315,000 for cost of sales during
the six months ended June 30, 1999, including $4,799,000 for Business
Operations, $1,186,000 for Information Technology Infrastructure, $122,000 for
Knowledge Management, $16,000 for Electronic Business and $192,000 for other
cost of sales. Comparable first half 1998 cost of sales was $1,630,000 in total,
including $166,000 for Business Operations, $1,426,000 for Information
Technology Infrastructure, $39,000 for Electronic Business and $(1,000) for
other cost of sales. Increases or decreases in cost of sales are also
attributable to the factors that resulted in changes in revenue for these
services, primarily the acquisition of Allin Consulting-Pennsylvania and
increased marketing emphasis on developing solutions-oriented practices. Gross
profit for the six months ended June 30, 1999 was $3,008,000, including
$2,003,000 for Business Operations, $947,000 for Information Technology
Infrastructure, $83,000 for Knowledge Management, $15,000 for Electronic
Business and a gross loss of $40,000 on other services. Comparable first half
1998 gross profit was $1,117,000 in total, including $114,000 for Business
Operations, $972,000 for Information Technology Infrastructure, $27,000 for
Electronic Business and $4,000 for other services. Again, the substantial
increase in consulting revenue is principally responsible for the increase in
gross profit. As discussed previously, the Company expects gross profit
generated by the Business Operations solutions area to decline over the
remainder of 1999.

     Cost of sales for interactive media solutions and product sales was
$1,933,000 in total for the first half of 1999 as compared to $782,000 for the
comparable period of 1998. The increase in cost of sales resulted from the
substantial increases in interactive television systems integration and
consulting services, digital photography systems integration services and
computer hardware and software sales. Gross profit on interactive media
solutions and product sales was $1,506,000 for the first half of 1999, as
compared with $1,499,000 for the first half of 1998. Although revenue for
interactive media solutions and product sales increased by 51%, the increase in
gross profit was negligible due to the change in strategic direction in both
interactive television and digital photography between the periods toward
systems integration services, which include a significant cost of sales
component.

     Allin Interactive recorded a total of $826,000 for cost of sales during the
six months ended June 30, 1999, including $686,000 related to interactive
television systems integration and consulting services and $140,000 related to
pay-per-view movies. Comparable first half 1998 cost of sales was $238,000,
including $80,000 for systems integration services and $158,000 for pay-per-view
movies. The increase in cost of sales for interactive television systems
integration and consulting is attributable to the inclusion of activity related
to the Voyager of the Seas project in the 1999 period. Gross profit recognized
by Allin Interactive during the six months ended June 30, 1999 was $1,238,000,
including $352,000 from interactive television systems integration and
consulting services and $886,000 from shipboard transactional revenue and
management fees. Comparable first half 1998 gross profit amounts were $1,438,000
in total, including $31,000 from systems integration and $1,407,000 from
shipboard transactional revenue and management fees. The overall decrease in
gross profit was $200,000. The decline is attributable to the reduction in the
number of operating ship systems and the reduction in management fees for the
Celebrity ship interactive systems. Since there are no cost of sales associated
with management fees, the reduction fully impacts gross profit. Gross profit for
interactive television systems integration and consulting increased due to
margin recognition for a portion of the Voyager of the Seas project under the
percentage of completion method. Gross profit from transactional revenue and
management fees will decline further during the second half of 1999 as
operational responsibility for five interactive systems is transferred to
Celebrity. Management expects gross profit to be recognized on the sale of the
Celebrity systems and maintenance fees to be earned over the remainder of 1999
will exceed the gross profit earned from transactional revenue and management
fees related to the systems immediately prior to the transfer. There can be no
assurance, however, that gross profit will continue to be realized at similar or
higher levels in 2000 after the completion of recognition of the system sale
gross profit over the minimum period of the maintenance obligation. Additionally
the Company has been notified by Carnival that it intends to discontinue payment
of management fees after August 1999.

     Allin Digital recognized cost of sales on its digital imaging operations of
$899,000 for the six months ended June 30, 1999 as compared to $404,000 for the
six months ended June 30, 1998.  Allin Digital recognized gross profit of
$227,000 for the first half of 1999 as compared with $45,000 for the first half
of 1998.  The increase

                                      -30-
<PAGE>

in gross profit is primarily attributable to operations under the systems
integration strategy during the full period in 1999. The change in strategy was
fully implemented in April 1998 and consequently was in place for only half of
the 1998 period. Another contributing factor to the increase in gross profit was
the introduction of the Portraits Online internet based image sales and archival
product, as discussed previously.

     Allin Network recognized cost of sales of $208,000 on computer hardware and
software sales during the first half of 1999 as compared to $140,000 during the
first half of 1998. Gross profit increased from $16,000 to $41,000 between the
semi-annual periods. The increase was attributable to the inclusion of several
large sales in connection with Allin Consulting-California engagements in the
1999 period.

Selling, General & Administrative Expenses

     The Company recorded $6,185,000 in selling, general & administrative
expenses during the six months ended June 30, 1999, as compared to $5,484,000
during the six months ended June 30, 1998, an increase of $701,000. The increase
in expenses is primarily attributable to the acquisitions of two companies
between the periods with the resultant inclusion of selling, general &
administrative costs related to those operations in the 1999 period. The
increase is also attributable to the addition of solution area operational and
sales personnel to the Company's technology consulting businesses to facilitate
the move toward a solutions-oriented project focus and to facilitate the
development of the Electronic Business and Knowledge Management solutions areas.

     There are a number of unusual items impacting both periods, as described in
the following paragraphs, including writedowns for non-recoverable portions of
ship interactive systems, severance accruals and a writedown of assets and
accrual of estimated lease termination costs related to Allin Consulting-
Pennsylvania's move from its former office in Pittsburgh.

     The capitalized costs of interactive television systems on ships include
costs related to the installation of equipment that are not recoverable and cost
for equipment that is not economically feasible to remove upon termination of
system operation.  During the six months ended June 30, 1998, Allin Interactive
recorded a loss of approximately $232,000 to writedown the non-recoverable
portions of capitalized interactive television systems aboard the RCCL ships
Enchantment of the Seas, Majesty of the Seas, and Rhapsody of the Seas due to
its March 1998 agreement with RCCL for termination of system operations.  There
was no comparable expense during the first half of 1999.

     During the six months ended June 30, 1998, a severance accrual of
approximately $491,000 was recorded in connection with certain executive
management changes undertaken in connection with the reorganization of the
Company's operations in early 1998, including the Company's President, Chief
Operating Officer and an administrative assistant.  An adjustment of $15,000 was
also recorded in the first quarter of 1998 to reflect additional severance costs
related to a 1997 severance accrual.  During the six months ended June 30, 1999,
a severance accrual of approximately $208,000 was recorded due to the Company's
termination of the employment contract for its President.

     During the first half of 1999, the Company recorded a writedown of
approximately $101,000 related to leasehold improvements, furniture and
equipment from Allin Consulting-Pennsylvania's former office in Pittsburgh.
Allin Consulting-Pennsylvania's Pittsburgh staff moved to the Company's
corporate headquarters office.  The assets written down were disposed of or were
not utilized subsequent to the move.  The Company also recorded an accrual of
approximately $116,000 during this period for estimated lease termination costs
for the office space formerly occupied by Allin Consulting-Pennsylvania.  There
was no comparable expense during the first half of 1998.

     Depreciation and amortization were $1,247,000 during the six months ended
June 30, 1999 as compared to $1,839,000 during the six months ended June 30,
1998.  The decline is due to August 1998 writedowns in capitalized interactive
television system assets, the majority of capitalized software development costs
reaching full amortization in 1998, and a significant intangible asset value for
an employment agreement recorded in connection with the 1996 acquisition of
Allin Consulting-California reaching full amortization in 1998.

     Research and development expense included in selling, general &
administrative expenses was $19,000 during the first half of 1999, as compared
to $60,000 during the first half of 1998.  The majority of the research and

                                      -31-
<PAGE>

development activity during 1999 related to development by Allin Digital of a
Portraits Online internet-based product targeted for photographic laboratories.

Loss from Continuing Operations

     The Company's loss from continuing operations decreased by $892,000 from
$2,762,000 for the six months ended June 30, 1998 to $1,870,000 for the six
months ended June 30, 1999, primarily as a result of the $1,898,000 increase in
gross profit between periods due to acquisition-driven growth in the technology
consulting business. The increase in gross profit was partially offset by a
$701,000 increase in selling, general & administrative expenses and a $256,000
change from a net interest income to net interest expense position.

Discontinued Operations

     The Company recorded income from the operation of its discontinued sports
marketing business of $284,000 during the first half of 1998. During the first
half of 1999, the Company recognized a gain of $2,000 on the disposal of
SportsWave. The gain resulted from the net effect of an adjustment to an accrual
of estimated transaction costs and recording of a local tax liability related to
the pre-disposal period.

Net Loss

     The Company's net loss for the six months ended June 30, 1999 was
$1,868,000, as compared to $2,478,000 for the six months ended June 30, 1998.
The decrease in net loss between the periods resulted from the increase in gross
profit in the Company's technology consulting business, partially offset by the
increase in selling, general & administrative expenses, a shift from a net
interest income to a net interest expense position and the inclusion of income
related to the discontinued sports marketing operations in the 1998 period.

Liquidity and Capital Resources

     At June 30, 1999 the Company had cash and liquid cash equivalents of
$1,744,000 available to meet its working capital and operational needs.  The net
change in cash from December 31, 1998 was a decrease of $766,000.  The net cash
used during the first half of 1999 resulted from net uses of approximately
$743,000 from operating activities and $412,000 from financing activities,
partially offset by net cash provided of approximately $389,000 from investing
activities.

     The Company recognized a net loss for the six months ended June 30, 1999 of
$1,868,000. Included in the net loss were non-cash expenses of $1,352,000
including depreciation, amortization of software development costs and other
intangible assets, amortization of deferred compensation, the loss from a non-
consolidated corporation and losses from write-down or sale of assets, resulting
in net cash used of $516,000 related to the income statement. The remaining net
use from operating activities of $227,000 was caused by working capital
adjustments, primarily increases in accounts receivable, assets held for sale
and inventory partially offset by increases to accounts payable and accrued
expenses.

     The net cash used for financing activities during the first half of 1999
related to partial repayments of notes and credit facilities and preferred stock
dividends. The net cash provided from investing activities during the first half
of 1999 was generated primarily by collection of a note receivable of $463,000
related to the sale of SportsWave.

     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 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, 1999, maximum borrowing availability under the S&T Loan Agreement was
approximately $2,671,000.  The outstanding balance as of June 30, 1999 was
$1,255,000. The expiration date of the S&T Loan Agreement is September 30, 1999.
The Company is currently in negotiations with S&T Bank for

                                      -32-
<PAGE>

renewal of the S&T Loan Agreement. There can be no assurance, however, that the
Company will successfully renew or replace its current credit facility or that
renewal or replacement, if any, will be on terms as favorable to the Company as
its present facility. Absent renewal or replacement of the current credit
facility or infusion of capital from another source, the Company believes that
available funds and cash flows expected to be generated from operations will be
sufficient to meet its working capital and capital expenditure needs for its
current operations for at least six months following expiration of the current
credit facility.

     Currently, borrowings may be made under the S&T Loan Agreement for general
working capital purposes, and initially could also be made to repay a portion of
certain indebtedness incurred by the Company in connection with its acquisition
of Allin Consulting-Pennsylvania.  On October 2, 1998, the Company borrowed
$1,000,000 under the S&T Loan Agreement, which was used to repay a portion of
the outstanding acquisition-related debt.  This borrowing remains outstanding as
of June 30, 1999.

     Loans made under the S&T Loan Agreement bear interest at the bank's prime
interest rate plus one percent.  During the first half of 1999, the applicable
interest rate was 8.75%.  The interest rate increases or decreases from time to
time as S&T Bank's prime rate changes.  The current interest rate is 9.0%.
Interest payments on any outstanding loan balances are due monthly on the first
day of the month.  The Company recorded approximately $45,000 in interest
expense related to this revolving credit loan for the six-month period ended
June 30, 1999.  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 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 B and D preferred shares or such distributions made from time to time to
compensate the Company's shareholders for income taxes attributed to them with
respect to the Company's financial performance. 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 Company is
not currently in compliance with this covenant. S&T Bank granted the Company a
three-month waiver of the cash flow covenant effective through June 30, 1999,
and the Company anticipates that this waiver will be extended through September
30, 1999. 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.

     During April 1999, the Company repaid a balance due on a line of credit
with Wells Fargo Bank of approximately $22,000.  This credit facility was
originally obtained by MEGAbase to finance equipment purchases.  The outstanding
balance was assumed by the Company upon acquisition of MEGAbase.  Approximately
$1,000 of interest expense was recorded for this loan during the six months
ended June 30, 1999.

     As of June 30, 1999, the Company has outstanding $2,500,000 in liquidation
preference of Series C Redeemable Preferred Stock.  On May 31, 1999, the holders
of all of the 25,000 then outstanding shares of the Company's Series A preferred
stock, which had been issued in August 1996, exchanged their shares for a like
number of shares of the Company's Series C preferred stock, having a liquidation
preference of $100 per share.  There is no mandatory redemption date for the
Series C preferred stock whereas mandatory redemption had been required on June
30, 2006 for the Series A preferred stock.  Accrued but unpaid dividends on the
Series C preferred stock were approximately $639,000 as of June 30, 1999.
Series C preferred stock earns dividends at the rate of 8% 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% per annum.  After June 30, 2006, dividends on the Series C preferred

                                      -33-
<PAGE>

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.

     On May 31, 1999, the holders of all of the 2,750 outstanding shares of the
Company's Series B preferred stock, which had been issued in August 1998,
exchanged their shares for a like number of shares of the Company's Series D
Convertible Redeemable Preferred Stock having a liquidation preference of $1,000
per share.  All of the 2,750 shares of Series D preferred stock remain
outstanding as of June 30, 1999.  There is no mandatory redemption date for the
Series D preferred stock whereas mandatory redemption had been required for
Series B preferred stock on the earlier of August 13, 2003 or following certain
asset sales by the Company, as defined in the Certificate of Designation for
Series B Preferred Stock, which is filed as an exhibit to the Company's Current
Report on Form 8-K dated as of August 13, 1998.  Series D preferred stock is
convertible into the Company's common stock on terms identical to those of
Series B preferred stock.  Until and including August 13, 1999, the first
anniversary of the original issuance of the Series B preferred shares, each
Series D share will be convertible into the number of shares of common stock
determined by (a) dividing 1,000 by $3.6125, which is 85% of the $4.25 per share
price prior to the date of closing of the acquisition of Allin Consulting-
Pennsylvania or (b) if it results in a greater number of shares of common stock,
dividing 1,000 by the greater of (i) 85% of the closing price of the common
stock as reported by The Nasdaq Stock Market ("Nasdaq") on the trading date
prior to the date of conversion, or (ii) $2.00.  From August 14, 1999 until
August 13, 2003, each share of Series D preferred stock is convertible into the
number of shares of common stock determined by (a) above, or if it results in a
greater number of shares of common stock, dividing 1,000 by 85% of the closing
price of the common stock as reported by Nasdaq on the first trading date
following the first anniversary of the closing date.  Series D preferred stock
earns dividends at the rate of 6% per annum, compounded quarterly.  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, 1999.

     On May 31, 1999, the holder of a promissory note issued by the Company in
connection with the acquisition of Allin Consulting-Pennsylvania, with an
outstanding principal balance of approximately $1,926,000 exchanged the
promissory note for 1,926 shares of the Company's Series E preferred stock
having a liquidation preference of $1,000 per share.  All of the 1,926 shares of
Series E preferred stock remain outstanding as of June 30, 1999.  There is no
mandatory redemption date for the Series E preferred stock.  Series E preferred
stock earns dividends at the rate of 6% per annum, payable quarterly, subject to
legally available funds.  The promissory note would have converted to the
Company's common stock if the principal balance was not repaid prior to August
13, 2000.  Series E preferred stock is convertible to the Company's common stock
on terms substantially identical to those of the promissory note.  If not
redeemed by the Company earlier, outstanding Series E preferred stock will
automatically convert as of August 13, 2000 into the number of shares of the
Company's common stock equal to the amount obtained by dividing the liquidation
preference of the outstanding shares of Series E preferred stock plus accrued
and unpaid dividends, if any, by (i) $4.406 or (ii) at the holder's option, the
average of the bid and asked prices of the common stock for the thirty days
preceding August 13, 2000, subject to a $2.00 minimum price.  Upon the happening
of certain events, the holder of Series E preferred stock will be able to
convert the shares of the Series E preferred stock into the Company's common
stock prior to August 13, 2000.  These events are disclosed in their entirety in
the text of the Certificate of Voting Powers, Designations, Preferences and
Relative, Participating, Optional or Other Rights, and the Qualifications,
Limitations or Restrictions Thereof, of the Series E Convertible Redeemable
Preferred Stock filed as an exhibit to the Company's Current Report on Form 8-K
dated as of June 15, 1999.   Accrued but unpaid dividends on Series E preferred
stock were approximately $10,000 as of June 30, 1999.

     On May 31, 1999, the holder of a promissory note issued by the Company in
connection with the acquisition of Allin Consulting-California, with an
outstanding principal balance of $2,000,000 agreed to a reduction in the
principal amount of the promissory note by $1,000,000 in exchange for 1,000
shares of the Company's Series F preferred stock having a liquidation preference
of $1,000 per share.  All of the 1,000 shares of Series F preferred stock remain
outstanding as of June 30, 1999.  There is no mandatory redemption date for the
Series F preferred stock.  Series F preferred stock earns dividends at the rate
of 7% per annum.  The dividends will accrue until April 15, 2000, when accrued
dividends will be payable subject to legally available funds.  Dividends will be
payable and will compound quarterly after April 15, 2000, subject to legally
available funds.  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, 2000, Series F
preferred stock is convertible into the number

                                      -34-
<PAGE>

of shares of the Company's common stock equal to the amount obtained by (i)
dividing 1,000 by $2.231, which is 85% of the closing price of the common stock
as reported by Nasdaq on the last trading date prior to the issuance of Series F
preferred stock or (ii) if it results in a greater number of common shares,
dividing 1,000 by the greater of (a) 85% of the closing price of the common
stock as reported by Nasdaq on the last trading date prior to conversion or (b)
$1.236, which is 47.1% of the closing price of the common stock as reported by
Nasdaq on the last trading date prior to the issuance of Series F preferred
stock. From June 1, 2000 until May 31, 2004, Series F preferred stock will be
convertible into the number of shares of the Company's common stock equal to the
amount obtained by (i) dividing 1,000 by $2.231, which is 85% of the closing
price of the common stock as reported by Nasdaq on the last trading date prior
to the issuance of Series F preferred stock or (ii) if it results in a greater
number of common shares, dividing 1,000 by the greater of (a) 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
or (b) $1.236, which is 47.1% of the closing price of the common stock as
reported by Nasdaq on the last trading date prior to the issuance of Series F
preferred stock. Accrued but unpaid dividends on Series F preferred stock were
approximately $6,000 as of June 30, 1999.

     The exchanges of securities described above were undertaken for purposes of
enhancing the Company's future liquidity by removing mandatory redemption
requirements, strengthening the Company's balance sheet by increasing equity,
improving the Company's results of operations by replacing interest expense with
dividends and maintaining compliance with the Nasdaq Stock Market's National
Market listing requirements.  The order of liquidation preference of the
Company's outstanding preferred stock, from senior to junior, is Series E,
Series F, Series D and Series C.

     In connection with the Company's original sale of Series B Redeemable
Preferred Stock in August 1998, the purchasers of Series B shares 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 Allin Consulting-Pennsylvania closing.  The
exercise price may be paid in cash or by delivery of a like value, including
accrued but unpaid dividends, of Series C Convertible Redeemable Preferred
Stock.

     The Company has outstanding an 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
preferred stock, as discussed previously, the outstanding principal balance of
the note is $1,000,000.  The amended note provides for two principal payments of
$500,000 each on April 15, 2000 and October 15, 2000.  The Company may, however,
defer payment of principal at its option until April 15, 2005.  The note
provides for interest at the rate of 7% per annum from the acquisition date of
November 6, 1996.  The Company has accrued interest of approximately $365,000 as
of June 30, 1999.  Accrued interest as of May 31, 1999, approximately $359,000,
is due and payable on or before April 1, 2000.  Other accrued interest is jue
and payable quarterly on the note beginning April 15, 2000.  The Company
believes that the ability to defer principal payments will be beneficial to its
liquidity over the next five years.

     The agreement for the Company's November 1998 acquisition of MEGAbase
provides for contingent payments of up to $800,000, to be determined on the
basis of Allin Consulting-California's Development Practice Gross Margin (as
provided in the stock purchase agreement for the acquisition) for the period
beginning January 1, 1999 and ending December 31, 1999.  The former MEGAbase
sole shareholder, Mark Gerow, is entitled to receive an aggregate contingent
payment equal to $1.00 for each dollar by which Allin Consulting-California's
Development Practice Gross Margin exceeds $500,000, subject to a maximum
contingent payment of $800,000.  Any contingent payment due may be made, at the
Company's sole option, (a) all in cash, (b) 50% in cash and 50% in the Company's
common stock based on a per share amount equal to the average of the bid and
asked prices for the five trading days preceding contingent payment, or (c) 50%
in cash and 50% in the form of a promissory note bearing interest at a rate of
8% per annum to be due one year from the date of such note.  The contingent
payment must be made no later than March 31, 2000, unless the Company selects
(c) above, under which 50% of the payment due must be made no later than March
31, 2000 and 50% one year later.  Emerging Issues Task Force Issue 95-8:
Accounting for Contingent Consideration Paid to the Shareholders of an Acquired
Company in a Purchase Business Combination ("EITF 95-8") describes five factors
that must be considered in evaluating the proper treatment of contingent
consideration, including the terms of continuing employment, the components of
the shareholder group, the reasons for contingent payment provisions, the
formula for determining contingent consideration and other agreements and
issues.  The Company's analysis of these factors indicates that any contingent
payments due will be

                                      -35-
<PAGE>

recorded as additional cost of the acquired enterprise. Key factors in the
evaluation include the Company's ability to control the form of principal
payments and the similarity of the development practice to the pre-acquisition
MEGAbase organization.

     The Company expects interactive television research and development
activities during the remainder of 1999 to focus on five areas.  Allin
Interactive is developing modifications to existing and development of new
software interfaces for interactive television applications to integrate new
hardware components and technology from On Command Corporation ("On Command")
for utilization in future interactive projects.  Any new system orders obtained,
such as the $1.9 million agreement entered into with RCCL in May 1999, will
necessitate some modification of existing content and applications or
development of new interactive applications that meet the specific needs of the
client.  Module development and modification of this type will only be conducted
as systems integration or consulting business is obtained.  Allin Interactive
intends to pursue development of interactive applications based on NetShow
Theatre, an emerging Microsoft product for delivering broadcast-quality video
content to personal computer networks.  The fourth area of development focuses
on delivery of interactive content and services across additional types of
information networks.  Research to date on alternate network types has been
performed in conjunction with interested technology industry parties.  The
Company anticipates further research and development activities in 1999 related
to Allin Digital's Portraits Online system for on-line viewing of digital
photographic images from an Internet based database archive.  Efforts will focus
on Portraits Online system improvements, added functionality, and modifications
necessary to integrate additional third party software and hardware components
necessary to expand Allin Digital's product portfolio.  Allin Digital is also
developing a Portraits Online product targeted for photographic laboratories
that would enable on-line viewing of archived images by laboratory clients.  The
Company incurred approximately $19,000 in research and development expense in
the first half of 1999 and currently anticipates expenditures of up to $50,000
during the remainder of 1999.  Management intends to evaluate any development
projects on an ongoing basis and may reduce or eliminate projects if alternate
technologies or products become available or if changing business conditions
warrant.

     Capital expenditures during the six months ended June 30, 1999 were
approximately $104,000 and related primarily to furniture and leasehold
improvements related to the relocation of Allin Consulting-Pennsylvania's
Pittsburgh staff to the corporate headquarters office and computer hardware,
software and communications equipment for the Company's periodic upgrading of
technology.  The Company anticipates capital expenditures of up to $260,000
during the remainder of 1999 for upgrades of computer hardware and software in
all of its operations and for leasehold improvements, furniture and equipment
related to expansion of its Ft. Lauderdale office.  Business conditions and
management's plans may change during the remainder of 1999, so there can be no
assurance that the Company's actual amount of capital expenditures will not
exceed the planned amount.

     As discussed above, the S&T Loan Agreement expires September 30, 1999.  So
long as a credit facility substantially similar to the current facility remains
in place, the Company believes, in light of its current operations as discussed
in the preceding paragraphs, that available funds and cash flows expected to be
generated by its 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 twenty-four months.  Absent renewal or
replacement of the credit facility or infusion of capital from another source,
the Company believes that available funds and cash flows expected to be
generated from operations will be sufficient to meet its anticipated cash needs
for at least six months following expiration of the current credit facility.  If
currently available funds and cash generated by operations were insufficient to
satisfy the Company's ongoing cash requirements, or if the Company identified an
attractive acquisition candidate in the consulting industry, 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.

                                      -36-
<PAGE>

YEAR 2000 ISSUE

     The Year 2000 computer issue primarily results from the fact that
information technology hardware and software systems and other non-information
technology products containing embedded microchip processors were originally
programmed using a two digit format, as opposed to four digits, to indicate the
year.   Such programming will be unable to interpret dates beyond the year 1999,
which could cause a system or product failure or other computer errors and a
disruption in the operation of such systems and products.

State of Readiness

     The Company has established an internally staffed project team to address
Year 2000 issues. The team is implementing a plan that focuses on Year 2000
compliance efforts for information and non-information technology systems for
the entire Company. The systems include (1) information systems software and
hardware such as accounting systems, personal computers, servers and software,
(2) shipboard equipment, including the Company's interactive systems currently
aboard cruise vessels and (3) certain essential non-information technology
systems such as telephones and HVAC. The Company has identified five phases for
the project team to address for each of the Company's risk areas. These phases
are (1) an inventory of the Company's systems described above, (2) assessment of
the systems to determine the risk and apparent extent of year 2000 problems, (3)
remediation of identified problems, (4) testing of systems and products for Year
2000 readiness and (5) contingency planning for the worst-case scenario.

     Inventories have been completed for all Company software applications,
hardware and shipboard operating systems, and at-risk non-information technology
systems. The project team has substantially completed an assessment of
compliance issues related to the Company's information hardware and software.
The Company undertook significant testing of shipboard equipment during the
assessment phase with no significant failures experienced to date. Thus far, the
task force believes that the Company's main accounting system is Year 2000
compliant, but it has identified a problem in certain of the Company's
information hardware programming related to the accounting system. The Company
has completed a plan for remediating this problem, which will involve
remediation steps immediately prior to the year-end. The Company has scheduled
the necessary remediation steps. The Company expects that additional testing of
all critical systems will be conducted during the remainder of 1999. The Company
has identified and created a list of its third party software manufacturers and
is either contacting them directly or monitoring their products through
published information concerning Year 2000 compliance. The Company has solicited
and intends to continue to solicit information regarding its internal non-
information technology systems such as telephones and HVAC during the third
quarter of 1999. To date the Company has identified a problem with the telephone
system in its Cleveland, Ohio office which has been remediated. The Company has
also identified a problem with the security system for the building housing the
Company's Pittsburgh office. Building management has indicated the problem is
expected to be remediated by the end of the third quarter of 1999. Any
additional required remediation and testing of the Company's non-information
technology systems is expected to be completed during the third quarter of 1999.
The Company is also monitoring information regarding Carnival's onboard billing
systems, which interfaces with the Company's interactive systems. The Company
expects to be operating only two ship interactive systems on Carnival ships as
of December 31, 1999. Any issues raised through these solicitations will be
remediated, if possible, or addressed in the Company's contingency plans.

     Although the Company's material supply requirements can predominantly be
filled by a large number of suppliers, the Company has implemented a program to
track the Year 2000 compliance status of its material vendors and suppliers.
Material vendors and suppliers have been surveyed to ascertain their risks
associated with Year 2000 issues, their state of readiness and the potential for
disruption of business operations. Similarly, the Company has also implemented a
program to survey and track the Year 2000 compliance status of its material
customers. A second request for completion of the Company's survey has been
circulated to all material suppliers, vendors and customers who had not replied
to the original request.

     Approximately 46% of the 381 surveys circulated to suppliers, vendors and
customers have been returned to date.  the Company believes that the responses
that have been received do not indicate any material risk to the Company from
these suppliers, vendors and customers as a result of the Year 2000 problem.
The Company's project team has to date evaluated any information obtained from
surveys received as well as other publicly available information on material
suppliers, vendors and customers.  During the remainder of the third quarter of

                                      -37-
<PAGE>

1999, the project team expects to continue analysis of any additional surveys
received and to perform an additional review of publicly available information
concerning each business unit's largest customers and vendors.  The project team
will analyze, to the extent information is available, the risk that disruption
of customers', vendors' and suppliers' business operations from Year 2000 issues
may negatively impact the Company.  Potential risks could arise from failure of
customers' vendor payment systems or cancellation or delay of service
engagements for the Company.  Potential risks could also arise if significant
suppliers or service providers do not successfully and in a timely manner
achieve Year 2000 compliance and the Company is unable to replace them.

     Management believes that information obtained to date through evaluation of
surveys received and research of publicly available information addressing these
matters and information to be obtained from additional research of public
information and survey responses during the third quarter of 1999 will provide
sufficient time to develop alternate service plans, such as requiring payments
in advance prior to the end of 1999 or rescheduling of engagements for customers
with high risk of business disruption due to Year 2000 issues.   Management
believes that this will also provide sufficient time to find other sources of
materials if information obtained indicates that any of the Company's vendors
may encounter delivery problems due to Year 2000 issues. There can be no
assurance, however, that the Company will be successful in identifying customers
with significant Year 2000 risk. There can also be no assurance that the Company
will be successful in finding alternative Year 2000 compliant suppliers and
vendors, if required.  In the event that any of the Company's significant
customers, vendors and suppliers do not successfully and in a timely manner
achieve Year 2000 compliance and the Company is unable to replace them, the
Company's business or operations could be adversely affected.

Risks of Company's Year 2000 Issues

     The Company is in the process of determining its contingency plans, which
are expected to include the identification of the Company's most reasonably
likely worst-case scenarios. At this time, the Company does not have sufficient
information to assess the likelihood of such worst-case scenarios. Currently,
the Company believes that the most reasonably likely sources of risk to the
Company include one or more of the following: (1) reduced opportunities for
technology consulting engagements due to clients' or potential clients' Year
2000 compliance expenditures on current systems reducing available funds for new
technology projects; (2) the inability of significant customers to be Year 2000
ready which could negatively impact the Company's revenue and cash receipts or
which could result in the postponement or cancellation of major client projects
due to clients' Year 2000 business disruption: (3) the possibility that Year
2000 issues develop in interactive systems sold by the Company or in any
contemplated future sales; (4) the possibility that disputes may arise with
clients regarding Year 2000 problems involving solutions developed or
implemented by the Company or the interaction of such solutions with other
applications; (5) the inability of principal product suppliers to be Year 2000
ready, which could result in delays in deliveries from such suppliers and (6)
the disruption of revenue production from the two interactive television systems
aboard cruise ships that the Company expects to be operating as of January 1,
2000, through failures in the systems or the failure of the cruise lines'
shipboard billing systems.

     Based on its assessment efforts to date and information obtained to date
from material customers, vendors and suppliers, the Company does not believe
that Year 2000 issues will have a material adverse effect on the Company's
financial condition or results of operations. However, the Company's Year 2000
issues and any potential business interruptions, costs, damages or losses
related thereto, are dependent, to a significant degree, upon completion of
identification and remediation of deficiencies and the Year 2000 compliance of
third parties, both domestic and international, such as customers, vendors and
suppliers. Consequently, the Company is unable to determine with certainty at
this time whether Year 2000 failures will materially affect the Company. If the
Company is unable to successfully identify and remediate Year 2000 problems in a
timely manner or the level of timely compliance by key customers, suppliers and
service providers is not sufficient, Year 2000 failures could have a material
adverse impact on the Company's operations including, but not limited to,
decreased revenue and cash flow, increased operating costs or other significant
business disruptions. The Company believes that its compliance efforts have and
will continue to reduce the impact on the Company of any such failures.

                                      -38-
<PAGE>

Contingency Plans

     The Company has commenced preparation of its contingency plans to identify
and determine how to handle its most reasonably likely worst-case scenarios.
Comprehensive contingency plans are expected to be completed during the third
quarter of 1999. Following Management's review, these plans are expected to be
finalized by the end of the third quarter of 1999.

Costs

     The Company does not expect that the costs associated with its Year 2000
efforts will be material. The Company anticipates that any work required for
assessment, remediation and testing efforts will be conducted using internal
resources. Without any allocation from the salaries of relevant internal
personnel, the Company has not to date expended a material amount of direct
costs for efforts to address Year 2000 issues. The Company does not expect that
material incremental labor charges will be incurred for remaining system testing
and remediation. Given the information that the Company has been able to
ascertain to date regarding potential Year 2000 problems relating to its
information technology and non-information technology systems, management does
not believe that external remediation costs will exceed $100,000 through
December 1999. It is anticipated that any costs associated with these
remediation efforts will be expensed.

Special Note on Forward Looking Statements

     The 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," variations of such words and similar expressions are intended to
identify such forward-looking statements.  Theses 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.

     Integration of Acquired Entities.  The Company acquired Allin Consulting-
Pennsylvania in August 1998.  The Company acquired MEGAbase in November 1998 and
subsequently merged it into Allin Consulting-California.  The Company intends to
operate all of these entities' businesses under a common Allin Consulting
business strategy and to undertake joint marketing, recruiting and training
programs for all entities.  Additionally, the Company seeks to promote an
orientation toward common solution area disciplines and methodologies across its
consulting operations.  Allin Consulting-California, Allin Consulting-
Pennsylvania and the former MEGAbase have no prior history of joint operations
and there can be no assurance that the entities will be able to effectively
carry out joint efforts.  Failure to do so may result in reduced revenue or
earnings for the Company.

     Limited Operating History Under New Marketing Strategies.  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 solutions areas meeting customer needs
for information technology infrastructure, business operations, electronic
business,knowledge management and interactive media solutions.  The Company is
seeking to develop additional solutions-oriented business for all of these
solution areas and seeks to reposition its operations away from the staffing-
oriented model formerly predominant in Allin Consulting-Pennsylvania.  The
majority of the Company's current Business Operations solution area revenue is
derived from services provided under the staffing model.  The Company has
experienced a decline in demand for Business Operations services during 1999,
particularly for staffing for mainframe computer systems.  Business Operations
activity in future periods under the staffing model is expected to decline as a
result of both industry trends and the Company's marketing focus on solutions-
oriented projects.  There can be no assurance that the Company will be
successful at growing solutions-oriented revenue in any or all of its solutions
areas or that

                                      -39-
<PAGE>

any growth obtained will offset or exceed expected declines in Business
Operations revenue. There can also be no assurance that any growth achieved for
solutions-oriented projects will result in the desired improvements to gross
profit.

     The Company fundamentally changed its marketing strategies with respect to
its interactive television operations during mid-1997 and with respect to its
digital photography operations in early 1998.  Allin Interactive's current
strategy is to sell customized applications and installations of its interactive
television systems on a systems integration basis where the customer bears the
capital cost of the system and to provide consulting services related to
interactive media.  Based on projects currently underway and a recently signed
contract for system sales with Celebrity, the Company expects Allin
Interactive's systems integration and consulting revenue will increase in the
second half of 1999 as compared with 1998 and the first half of 1999.  However,
the transition toward systems integration and consulting services has also
resulted in a decline in transactional and management fee revenue derived from
interactive television systems owned and operated by Allin Interactive.  A
significant decline in transactional and management fee revenue will occur over
the remainder of 1999 due to the transitioning of operational responsibility to
Celebrity for five interactive systems currently operated on their ships.  While
the Company expects systems sale and maintenance revenue from the Celebrity
systems to be recognized over the remainder of 1999 will exceed transactional
and management fee revenue immediately prior to the sales, there can be no
assurance that Allin Interactive will not experience declines in revenue and
gross margin during 2000 subsequent to completion of revenue recognition from
the Celebrity sale.  Because the Company has only a limited history of
operations with the current 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.

     Need for Management of Growth and Geographic Expansion.   The Company's
growth strategy will require its management to conduct operations, evaluate
acquisitions and respond to changes in technology and the market. The Company
intends to evaluate continued geographic growth of its operations, particularly
in technology consulting.  The Company has substantially expanded the geographic
scope of its operations in the Northeastern United States through the
acquisition of Allin Consulting-Pennsylvania, with offices in Pittsburgh,
Pennsylvania and Cleveland, Ohio.  Furthermore, Allin Consulting-Pennsylvania's
specialized banking industry technology consulting services operate on a
national scope.  Allin Consulting-California has also experienced growth in the
geographic scope of engagements serviced by personnel based in northern
California.  The Company is evaluating further geographic expansion of
operations through acquisition or investment.  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.  The Company is marketing interactive
television and digital photography services nationally and intends to undertake
installations throughout the United States, as 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 operations, development of new markets and products and timely
installation of its systems.  The Company's reorientation of marketing
strategies and operations during 1999 has also resulted in certain key
executives assuming different or additional responsibilities for the Company's
operations.  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 and to engage non-employee consultants. There can be no assurance that
the Company will be successful in attracting and retaining such personnel or
contracting with such non-employee consultants.

     Competitive Market Conditions.  The technology consulting industry is very
fragmented with a large number of participants due to growth of the overall
market for services and low capital barriers to entry.  There are also large
national or multinational firms competing in this market.  Rapid rates of change
in the development and usage of computer hardware, software, internet
applications and networking capabilities will require continuing education and
training of the Company's technical consultants and a sustained effort to
monitor developments in the technology industry to maintain services that
provide value to the Company's customers.  The Company's competitors may have
resources to develop training and industry monitoring programs that are superior
to the Company's.  There can also be no assurance that the Company will be able
to compete effectively with current or future competitors or that the
competitive pressures faced by the Company will not have a material adverse
effect on

                                      -40-
<PAGE>

the Company's business, financial condition and results of operations. The
market for interactive television and digital imaging systems integration
services is new and rapidly evolving. The types of interactive television
systems and applications offered by the Company are significant capital
expenditures for potential customers and do not have proven markets. Some of the
Company's current and potential competitors have longer operating histories and
significantly greater financial, technical, marketing and other resources than
the Company and therefore may be able to respond more quickly to new or changing
opportunities, technologies and customer requirements.

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

     Recent Net Losses and Accumulated Deficit. The Company sustained
substantial net losses during the years ended December 31, 1996, 1997 and 1998
and the six months ended June 30, 1999.  As of June 30, 1999, the Company had an
accumulated deficit of $29,620,000.  The Company anticipates that it will
continue to incur net losses at least through all or a portion of the remainder
of 1999, 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.  Since the beginning of the fourth quarter of 1998, the
Company's cash position declined significantly due primarily to the usage of
operating working capital to fund a portion of the retirement of a note payable
associated with the acquisition of Allin Consulting-Pennsylvania.  While the
Company's management believes the acquisition of Allin Consulting-Pennsylvania
has to date improved operating cash flow and expects this to continue, there can
be no assurance that a prolonged downturn in operations or business setbacks to
Allin Consulting-Pennsylvania or the Company's other operating entities will not
result in working capital shortages which may adversely impact the Company's
operations.  The cash decline has been mitigated somewhat by the Company
obtaining a line of credit facility during the same time period.  However, the
credit facility expires in September 1999.  The Company is currently in
negotiations for renewal of the credit facility.  There can be no assurance,
however, that the Company will successfully renew or replace its current credit
facility or that renewal or replacement, if any, will be on terms as favorable
to the Company as its present facility.  If the credit facility is not renewed
or replaced, there can be no assurance that available funds and cash flows
expected to be generated from operations will be adequate to meet the Company's
cash needs for working capital and capital expenditures for a prolonged period.

     Public Market and Trading Issues.  Following the Company's initial public
offering in November 1996, a public market for the Company's common stock did
develop.  However, trading of the common stock has been sporadic and the trading
volume has generally been low.  Even a small trading volume on a particular day
or over a few days may affect the market price of the common stock.  The market
price of the common stock could also be subject to fluctuations in response to
variations in results of operations, changes in earnings estimates by securities
analysts, announcements by competitors, general economic and market conditions
and other factors.  These market fluctuations may adversely affect the market
price of the common stock.  Additionally, the Company is required to maintain
certain financial and other criteria for continued listing of the common stock
on The Nasdaq Stock Market's National Market.  There can be no assurance the
Company will be able to meet such criteria on an ongoing basis.

     Risks Inherent in Development of New Markets.  The Company's strategy
includes attempting to enter new markets for new applications for interactive
technologies on a systems integration basis.  This strategy presents risks
inherent in assessing the value of development opportunities, in committing
resources in unproven markets and in integrating and managing new technologies
and applications.  Within these new markets, the Company will encounter
competition from a variety of sources.  It is also possible that the Company
will experience delays or setbacks in developing new applications of its
technology for new markets. There can be no assurance that the Company will be
successful at penetrating new markets for applications of interactive
technology, or that any contracts obtained will generate improvements to the
Company's profitability or cash flow.  During 1998, the Company entered a new
market by offering systems integration services to professional photography
businesses.

                                      -41-
<PAGE>

There can be no assurance that the Company will achieve ongoing success within
this market, or that any additional business obtained will generate improvements
to the Company's profitability or cash flow.

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

     Additional Interactive Television System Installations.  The Company is
currently marketing its interactive system to various cruise lines, hospitals
and educational institutions.  There can be no assurance that the Company will
be successful in obtaining additional contracts with these parties for system
installation, or that for any contracts obtained, the terms will be favorable to
the Company or will result in the desired improvements to Allin Interactive
revenue and operating income.

     Cruise Line's Rights to Terminate Operations or Management Fees.  Carnival
has the right to terminate the Company's operations on its ships, or to
discontinue payment of management fees, upon notice.  Any such termination of
operations would eliminate the Company's ability to share in revenue produced by
the affected interactive television system.  Any such discontinuation of
management fees would eliminate the Company's ability to charge fees for
operation of the system.  The loss or elimination of the Company's rights to any
of these sources of revenue resulting from any of the foregoing events could
have an adverse effect on the Company's business, financial condition, and
results of operations.  Carnival has notified the Company that it intends to
discontinue payment of management fees subsequent to August 1999, although the
Company does not expect this to materially adversely affect the Company's
financial condition.

     Proprietary Technology; Absence of Patents.  The Company does not have
patents on any of its technology and relies on a combination of copyright and
trade secret laws and contractual restrictions to protect its technology. 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 technology 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 technology. Any
misappropriation of the Company's technology 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 systems in a timely manner and on competitive terms.  There
can be no assurance that future technological advances by direct competitors or
other

                                      -42-
<PAGE>

providers will not result in improved equipment or software systems that could
adversely affect the Company's business, financial condition and results of
operations.

     Year 2000 issue.  Currently, the Company believes that the most reasonably
likely sources of risk to the Company from the Year 2000 computer problem
include one or more of the following:  (1) reduced opportunities for technology
consulting engagements due to clients' or potential clients' Year 2000
compliance expenditures on current systems reducing available funds for new
technology projects; (2) the inability of significant customers to be Year 2000
ready which could negatively impact the Company's revenue and cash receipts or
which could result in the postponement or cancellation of major client projects
due to clients' Year 2000 business disruption: (3) the possibility that Year
2000 issues develop in interactive systems sold by the Company or in any
contemplated future sales; (4) the possibility that disputes may arise with
clients regarding Year 2000 problems involving solutions developed or
implemented by the Company or the interaction of such solutions with other
applications; (5) the inability of principal product suppliers to be Year 2000
ready, which could result in delays in deliveries from such suppliers and (6)
the disruption of revenue production from the two interactive television systems
aboard cruise ships that the Company expects to be operating as of January 1,
2000, through failures in the systems or the failure of the cruise lines'
shipboard billing systems.  The Company's Year 2000 issues and any potential
business interruptions, costs, damages or losses related hereto are dependent,
to a significant degree, upon identification and remediation of deficiencies and
the Year 2000 compliance of third parties, both domestic and international, such
as customers, vendors and suppliers.  If the Company is unable to successfully
identify and timely remediate Year 2000 problems or the level of timely
compliance by key customers, suppliers and service providers is not sufficient,
Year 2000 failures could have a material impact on the Company's operations
including, but not limited to, increased operating costs or other significant
business disruptions.  See Year 2000 Issue above.

     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.

Recently Issued Accounting Standards

     In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). The Statement establishes
accounting and reporting standards requiring reporting of all derivative
instruments, including certain derivative instruments embedded in other
contracts, in the balance sheet as either an asset or liability measured at its
fair value. SFAS No. 133 requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. The FASB has approved Statement No. 137. Accounting for Derivative
                                              -------------------------
Instruments and Hedging Activities--Deferral of the effective date of FASB
--------------------------------------------------------------------------
Statement No. 133, which amends SFAS No. 133 to be effective for all fiscal
-----------------
quarters of all fiscal years beginning after June 15, 2000 (that is January 1,
2001 for companies with calendar years). Had the Company applied this standard
currently, the effect on the Company's results of operations for the period
ended June 30, 1999 would be immaterial.


                                      -43-
<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.

                                      -44-
<PAGE>

Part II - Other Information

Item 2.  Changes in Securities and Use of Proceeds

     On May 31, 1999, the Company issued 25,000 shares of its Series C preferred
stock, having a liquidation value of $100 per share, to the holders of the
25,000 outstanding shares of the Company's Series A preferred stock in exchange
for their shares of the Series A preferred stock. As no public offering was
involved in the exchange, the issuance of the Series C preferred stock was
exempt from registration under Section 4(2) of the Securities Act of 1933, as
amended (the "Securities Act"), as well as under Section 3(a)(9) of the
Securities Act. There is no mandatory redemption date for the Series C preferred
stock. Accrued but unpaid dividends on the Series C preferred stock were
approximately $639,000 as of June 30, 1999. Series C preferred stock earns
dividends at the rate of 8% 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% 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. Series C preferred stock is not convertible to the
Company's common stock. Series C preferred stock is senior in liquidation
preference to the Company's common stock, but junior to the Company's other
series of preferred stock.

     On May 31, 1999, , the Company issued 2,750 shares of its Series D
preferred stock, having a liquidation value of $1,000 per share, to the holders
of the 2,750 outstanding shares of the Company's Series B preferred stock in
exchange for their shares of the Series B preferred stock. As no
public offering was involved in the exchange, the issuance of the Series C
preferred stock was exempt from registration under Section 4(2) of the
Securities Act as well as under Section 3(a)(9) of the Securities Act. There is
no mandatory redemption date for the Series D preferred stock. Series D
preferred stock is convertible into the Company's common stock on terms
identical to those of Series B preferred stock. Until and including August 13,
1999, the first anniversary of the original issuance of the Series B preferred
shares, each Series D share will be convertible into the number of shares of
common stock determined by (a) dividing 1,000 by $3.6125, which is 85% of the
$4.25 per share price prior to the date of closing of the acquisition of Allin
Consulting-Pennsylvania or (b) if it results in a greater number of shares of
common stock, dividing 1,000 by the greater of (i) 85% of the closing price of
the common stock as reported by The Nasdaq Stock Market ("Nasdaq") on the
trading date prior to the date of conversion, or (ii) $2.00. From August 14,
1999 until August 13, 2003, each share of Series D preferred stock is
convertible into the number of shares of common stock determined in accordance
with clause (a) above, or if it results in a greater number of shares of common
stock, dividing 1,000 by 85% of the closing price of the common stock as
reported by Nasdaq on the first trading date following the first anniversary of
the closing date. Series D preferred stock earns dividends at the rate of 6% per
annum, compounded quarterly. 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, 1999. Series D
preferred stock is senior in liquidation preference to the Company's common
stock and Series C preferred stock, but junior to Series E and Series F
preferred stock.

     On May 31, 1999, , the Company issued 1,926 shares of its Series E
preferred stock, having a liquidation value of $1,000 per share, to the holder
of a promissory note issued by the Company, James S. Kelly, Jr., with an
outstanding principal balance of approximately $1,926,000 in exchange for the
promissory note. As no public offering was involved in the exchange, the
issuance of the Series C preferred stock was exempt from registration under
Section 4(2) of the Securities Act as well as under Section 3(a)(9) of
the Securities Act. There is no mandatory redemption date for the Series E
preferred stock. Series E preferred stock earns dividends at the rate of 6% per
annum, payable quarterly, subject to legally available funds. The promissory
note would have converted to the Company's common stock if the principal balance
was not repaid prior to August 13, 2000. Series E preferred stock is convertible
to the Company's common stock on terms substantially identical to those of the
promissory note. If not redeemed by the Company earlier, outstanding Series E
preferred stock will automatically convert as of August 13, 2000 into the number
of shares of the Company's common stock equal to the amount obtained by dividing
the liquidation preference of the outstanding shares of Series E preferred stock
plus accrued and unpaid dividends, if any, by (i) $4.406 or (ii) at the holder's
option, the average of the bid and asked prices of the common stock for the
thirty days preceding August 13, 2000, subject to a $2.00 minimum price. Upon
the happening of certain events, the holder of Series E preferred stock will be
able to convert the shares of the Series E preferred stock into the Company's
common stock prior to August 13, 2000. These events are disclosed in their
entirety in the text of the Certificate of Voting Powers, Designations,
Preferences and Relative, Participating, Optional or Other Rights, and the
Qualifications, Limitations or Restrictions Thereof, of


                                      -45-
<PAGE>

the Series E Convertible Redeemable Preferred Stock filed as an exhibit to the
Company's Current Report on Form 8-K dated as of June 15, 1999. Accrued but
unpaid dividends on Series E preferred stock were approximately $10,000 as of
June 30, 1999. Series E preferred stock is senior in liquidation preference to
the Company's common stock and other series of preferred stock.

     On May 31, 1999, the Company issued 1,000 shares of its Series F preferred
stock, having a liquidation value of $1,000 per share, to the holder of a
promissory note issued by the Company, Les D. Kent, with an outstanding
principal balance of approximately $2,000,000 in exchange for a reduction in the
principal amount of the promissory note of $1,000,000. As no public offering was
involved in the exchange, the issuance of the Series C preferred stock was
exempt from registration under Section 4(2) of the Securities Act as well as
under Section 3(a)(9) of the Securities Act. There is no mandatory redemption
date for the Series F preferred stock. Series F preferred stock earns dividends
at the rate of 7% per annum. The dividends will accrue until April 15, 2000,
when accrued dividends will be payable subject to legally available funds.
Dividends will be payable and will compound quarterly after April 15, 2000,
subject to legally available funds. 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, 2000,
Series F preferred stock is convertible into the number of shares of the
Company's common stock equal to the amount obtained by (i) dividing 1,000 by
$2.231, which is 85% of the closing price of the common stock as reported by
Nasdaq on the last trading date prior to the issuance of Series F preferred
stock or (ii) if it results in a greater number of common shares, dividing 1,000
by the greater of (a) 85% of the closing price of the common stock as reported
by Nasdaq on the last trading date prior to conversion or (b) $1.236, which is
47.1% of the closing price of the common stock as reported by Nasdaq on the last
trading date prior to the issuance of Series F preferred stock. From June 1,
2000 until May 31, 2004, Series F preferred stock will be convertible into the
number of shares of the Company's common stock equal to the amount obtained by
(i) dividing 1,000 by $2.231, which is 85% of the closing price of the common
stock as reported by Nasdaq on the last trading date prior to the issuance of
Series F preferred stock or (ii) if it results in a greater number of common
shares, dividing 1,000 by the greater of (a) 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 or (b)
$1.236, which is 47.1% of the closing price of the common stock as reported by
Nasdaq on the last trading date prior to the issuance of Series F preferred
stock. Series F preferred stock is junior in liquidation preference to Series E
preferred stock but senior to the Company's common stock and Series C and D
preferred stock.

     Each of the Certificates of Designation governing the Series C, D, E and F
preferred stock prohibits the Company from declaring or paying dividends or
making 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.

                                      -46-
<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 13, 1999.

     (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 for   Votes Against   Votes Abstaining
                    <S>                       <C>         <C>             <C>
                    Richard W. Talarico       4,526,016               0             52,700
                    Brian K. Blair            4,519,416               0             59,300
                    Anthony L. Bucci          4,519,416               0             59,300
                    William C. Kavan          4,519,316               0             59,400
                    James S. Kelly, Jr.       4,526,016               0             52,700
                    James C. Roddey           4,525,916               0             52,800
</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, 1999. Votes
                    cast were 4,571,716 for ratification, -0- against
                    ratification, and 7,200 abstaining.

               There were a total of 5,988,063 shares of the Company's Common
               Stock eligible to vote at the Annual Meeting.

     (d)  Not applicable.

                                      -47-
<PAGE>

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

      (a)  Exhibits.

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

4.1       Certificate of Voting Powers, Designations, Preferences and Relative,
          Participating, Optional or Other Rights, and the Qualifications,
          Limitations or Restrictions Thereof, of the Series C Redeemable
          Preferred Stock of Allin Corporation (incorporated by reference to
          Exhibit 4.1 to Allin Corporation's Report on Form 8-K filed on June
          18, 1999).

4.2       Certificate of Voting Powers, Designations, Preferences and Relative,
          Participating, Optional or Other Rights, and the Qualifications,
          Limitations or Restrictions Thereof, of the Series D Convertible
          Redeemable Preferred Stock of Allin Corporation (incorporated by
          reference to Exhibit 4.2 to Allin Corporation's Report on Form 8-K
          filed on June 18, 1999).

4.3       Certificate of Voting Powers, Designations, Preferences and Relative,
          Participating, Optional or Other Rights, and the Qualifications,
          Limitations or Restrictions Thereof, of the Series E Convertible
          Redeemable Preferred Stock of Allin Corporation (incorporated by
          reference to Exhibit 4.3 to Allin Corporation's Report on Form 8-K
          filed on June 18, 1999).

4.4       Certificate of Voting Powers, Designations, Preferences and Relative,
          Participating, Optional or Other Rights, and the Qualifications,
          Limitations or Restrictions Thereof, of the Series F Convertible
          Redeemable Preferred Stock of Allin Corporation (incorporated by
          reference to Exhibit 4.4 to Allin Corporation's Report on Form 8-K
          filed on June 18, 1999).

4.5       Second Amended and Restated Promissory Note dated as of June 1, 1999
          by and between Allin Corporation and Les Kent (incorporated by
          reference to Exhibit 4.5 to Allin Corporation's Report on Form 8-K
          filed on June 18, 1999).

11        Computation of Earnings per Share.

27        Financial Data Schedule

   (b)  Reports on Form 8-K.

        On June 18, 1999, Allin Corporation filed with the Securities and
        Exchange Commission a Current Report on Form 8-K (date of earliest event
        reported - May 31, 1999) to disseminate information concerning the
        effect on the Company's capital structure of preferred stock newly
        issued in May 1999 in exchange for previously outstanding preferred
        stock and promissory notes of the Company.  The following consolidated
        financial statements of Allin Corporation and subsidiaries were filed:

        .    Unaudited Consolidated Balance Sheet of Allin Corporation &
             Subsidiaries as of May 31,1999
        .    Unaudited Consolidated Statement of Operations of Allin Corporation
             & Subsidiaries for the Five Months Ended May 31, 1999
        .    Unaudited Consolidated Statement of Cash Flows of Allin Corporation
             & Subsidiaries for the Five Months Ended May 31, 1999
        .    Notes to Unaudited Consolidated Financial Statements of Allin
             Corporation

                                      -48-
<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 4, 1999               By:  /s/   Richard W. Talarico
                                        ---------------------------------------
                                        Richard W. Talarico
                                        Chairman and Chief Executive Officer


Date: August 4, 1999                By:  /s/   Dean C. Praskach
                                         --------------------------------------
                                         Dean C. Praskach
                                         Vice President-Finance and Chief
                                         Accounting Officer

                                      -49-
<PAGE>

Allin Corporation
Form 10-Q
June 30, 1999
Exhibit Index



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


4.1       Certificate of Voting Powers, Designations, Preferences and Relative,
          Participating, Optional or Other Rights, and the Qualifications,
          Limitations or Restrictions Thereof, of the Series C Redeemable
          Preferred Stock of Allin Corporation (incorporated by reference to
          Exhibit 4.1 to Allin Corporation's Report on Form 8-K filed on June
          18, 1999).

4.2       Certificate of Voting Powers, Designations, Preferences and Relative,
          Participating, Optional or Other Rights, and the Qualifications,
          Limitations or Restrictions Thereof, of the Series D Convertible
          Redeemable Preferred Stock of Allin Corporation (incorporated by
          reference to Exhibit 4.2 to Allin Corporation's Report on Form 8-K
          filed on of June 18, 1999).

4.3       Certificate of Voting Powers, Designations, Preferences and Relative,
          Participating, Optional or Other Rights, and the Qualifications,
          Limitations or Restrictions Thereof, of the Series E Convertible
          Redeemable Preferred Stock of Allin Corporation (incorporated by
          reference to Exhibit 4.3 to Allin Corporation's Report on Form 8-K
          filed on June 18, 1999).

4.4       Certificate of Voting Powers, Designations, Preferences and Relative,
          Participating, Optional or Other Rights, and the Qualifications,
          Limitations or Restrictions Thereof, of the Series F Convertible
          Redeemable Preferred Stock of Allin Corporation (incorporated by
          reference to Exhibit 4.4 to Allin Corporation's Report on Form 8-K
          filed on June 18, 1999).

4.5       Second Amended and Restated Promissory Note dated as of June 1, 1999
          by and between Allin Corporation and Les Kent (incorporated by
          reference to Exhibit 4.5 to Allin Corporation's Report on Form 8-K
          filed on June 18, 1999).

11        Computation of Earnings per Share

27        Financial Data Schedule

                                      -50-