<PAGE>
 
                                   FORM 10-Q
                                        
                       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, 1997

                                       OR

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

                        Commission file number:  0-21395

                        ALLIN COMMUNICATIONS 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.)


                  300 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 August 4, 1997

                        Common Stock,  5,184,067 Shares
<PAGE>
 
                        Allin Communications Corporation

                                   Form 10-Q

                                     Index
 
 
Part I  -  Financial Information
 
      Item 1.  Financial Statements                                    Page  3
 
      Item 2.  Management's Discussion and Analysis of Financial       Page  8
               Condition and Results of Operations
 
      Item 3.  Quantitative and Qualitative Disclosure about Market    Page  18
               Sensitive Instruments
 
 
Part II -  Other Information
 
      Item 4.  Submission of Matters to a Vote of Security Holders     Page  19
 
      Item 5.  Other Information                                       Page  20
 
      Item 6.  Exhibits and Reports on Form 8-K                        Page  21
 
Signatures                                                             Page  22

                                      -2-
<PAGE>
 
Part I - Financial Information

ALLIN COMMUNICATIONS CORPORATION & SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

                              (Dollars in thousands)
                          (Unaudited at June 30, 1997)

<TABLE>
<CAPTION>
                                                                                December 31,             June 30,
                                                                                    1996                   1997
                                                                             -----------------       ------------------
<S>                                                                          <C>                     <C>

                  ASSETS

Current assets:
          Cash and cash equivalents                                          $         16,227        $           7,164
          Accounts receivable, net of allowance for doubtful
                  accounts of $-0- and $54                                              1,169                    2,940
          Inventory                                                                        53                       39
          Prepaid expenses                                                                477                      797
                                                                             -----------------       ------------------
                  Total current assets                                                 17,926                   10,940

          Property and equipment, at cost:
          Leasehold improvements                                                           48                      341
          Furniture and equipment                                                       1,227                    1,804
          On-board equipment                                                            4,312                    6,396
          Construction-in-progress                                                      2,329                    2,427
                                                                             -----------------       ------------------
                                                                                        7,916                   10,968
          Less--accumulated depreciation                                                 (911)                  (1,745)
                                                                             -----------------       ------------------
                                                                                        7,005                    9,223

          Assets held for resale                                                          624                     ---
          Other assets, net of accumulated amortization of
                  $728 and $1,832                                                       7,122                    6,603
                                                                             -----------------       ------------------

Total assets                                                                 $         32,677        $          26,766
                                                                             =================       ==================



                  LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
          Notes payable                                                      $             69        $              59
          Accounts payable                                                              1,768                      405
          Accrued liabilities:
                  Compensation and payroll taxes                                          233                      761
                  Other                                                                   601                    1,112
          Deferred revenues                                                               509                    1,404
          Customer deposits                                                               695                     ---
                                                                             -----------------       ------------------

                  Total liabilities                                                     3,875                    3,741

Series A convertible, redeemable preferred stock, par
          value $.01 per share - authorized 100,000 shares,
          issued and outstanding 25,000 shares                                          2,480                    2,500

Shareholders' equity:
          Common stock, par value $.01 per share - authorized
                  20,000,000 shares, issued and
                  outstanding 5,184,067 shares                                             52                       52
          Additional paid-in-capital                                                   37,905                   37,905
          Deferred compensation                                                          (377)                    (311)
          Retained deficit                                                            (11,258)                 (17,121)
                                                                             -----------------       ------------------
                  Total shareholders' equity                                           26,322                   20,525
                                                                             -----------------       ------------------

Total liabilities and shareholders' equity                                   $         32,677        $          26,766
                                                                             =================       ==================

</TABLE>

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


                                      -3-
<PAGE>
 
ALLIN COMMUNICATIONS CORPORATION & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

                  (Dollars in thousands, except per share data)


<TABLE>
<CAPTION>
                                                   Three Months   Three Months   Six Months      Six Months
                                                       Ended         Ended         Ended           Ended
                                                      June 30,      June 30,      June 30,        June 30,
                                                       1996           1997          1996            1997
                                                   ------------   -----------   ------------    -----------
                                                    (Unaudited)   (Unaudited)                   (Unaudited)
<S>                                                <C>            <C>             <C>           <C>     
Revenue                                            $       84       $   2,543     $       163   $     6,625
                                                                                                  
Cost of sales                                              21           1,383              40         4,086
                                                   ----------       ---------     -----------    ----------
                                                                                                  
Gross profit                                               63           1,160             123         2,539
                                                                                                  
Selling, general & administrative                       1,408           4,370           2,167         8,518
                                                   ----------       ---------     -----------    ----------
                                                                                                  
Loss from operations                                   (1,345)         (3,210)         (2,044)       (5,979)
                                                                                                  
Interest expense (income), net                            267            (106)            468          (283)
                                                   ----------       ---------     -----------    ----------
                                                                                                  
Loss before provision for income taxes                 (1,612)         (3,104)         (2,512)       (5,696)
                                                                                                  
Provision for income taxes                               ---               48            ---             48
                                                   ----------       ---------     -----------    ----------
                                                                                                  
Net loss                                               (1,612)         (3,152)         (2,512)       (5,744)
                                                                                                  
Accretion and dividends on preferred stock               ---               55            ---            119
                                                   ----------       ---------     -----------    ----------
                                                                                                  
Net loss attributable to common shareholders       $   (1,612)      $  (3,207)    $    (2,512)   $   (5,863)
                                                   ==========       =========     ===========    ==========
                                                                                                  
Net loss per common share                          $    (0.62)      $   (0.62)    $     (0.96)   $    (1.13)
                                                   ==========       =========     ===========    ==========
                                                                                                  
Weighted average common and common equivalent                                                     
          shares outstanding during the period      2,603,385       5,184,067       2,603,385     5,184,067
                                                   ==========      ==========      ==========    ==========

</TABLE>

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


                                      -4-
<PAGE>
 
ALLIN COMMUNICATIONS CORPORATION & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS


                     (Dollars in thousands)
                          (Unaudited)

<TABLE>
<CAPTION>
                                                                                   Six Months               Six Months
                                                                                      Ended                    Ended
                                                                                     June 30,                 June 30,
                                                                                       1996                     1997
                                                                                   ---------                ---------
<S>                                                                          <C>                     <C>
Cash flows from operating activities:
          Net loss                                                                   $ (2,512)                $ (5,744)
          Adjustments to reconcile net loss to net cash flows
             from operating activities:
                  Depreciation and amortization                                           350                    1,990
                  Accrued interest on shareholder notes payable                           414                     ---
                  Amortization of deferred compensation                                   ---                       67
                  Loss from sale of assets                                                ---                       13
          Changes in certain assets and liabilities:
                  Accounts receivable                                                     (37)                  (1,771)
                  Related party receivable                                                (10)                    ---
                  Inventory                                                               ---                       14
                  Prepaid expenses                                                       (116)                    (320)
                  Software development costs                                             (130)                    (469)
                  Other assets                                                            ---                      483
                  Accounts and notes payable                                              402                   (1,373)
                  Accrued liabilities                                                     133                    1,039
                  Deferred revenues                                                       ---                      895
                  Customer deposits                                                       ---                     (695)
                                                                             -----------------       ------------------
             Net cash flows from operating activities                                  (1,506)                  (5,871)
                                                                             -----------------       ------------------

Cash flows from investing activities:
          Proceeds from sale of assets                                                    ---                       31
          Capital expenditures                                                         (1,472)                  (3,223)
                                                                             -----------------       ------------------
             Net cash flows from investing activities                                  (1,472)                  (3,192)
                                                                             -----------------       ------------------

Cash flows from financing activities:
          Proceeds from shareholder notes payable                                       2,128                     ---
          Proceeds from line of credit                                                  4,850                     ---
          Payments on shareholder notes payable                                        (3,621)                    ---
                                                                             -----------------       ------------------
             Net cash flows from financing activities                                   3,357                     ---
                                                                             -----------------       ------------------

Net change in cash and cash equivalents                                                   379                   (9,063)
Cash and cash equivalents, beginning of period                                            193                   16,227
                                                                             -----------------       ------------------
Cash and cash equivalents, end of period                                             $    572                 $  7,164
                                                                             =================       ==================


</TABLE>

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


                                      -5-
<PAGE>
 
               Allin Communications 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, 1996 and 1997 should be read in
  conjunction with the audited financial statements and notes for the years
  ended December 31, 1995 and 1996, contained in Allin Communications
  Corporation's (the "Company") Annual Report on Form 10-K for the year ended
  December 31, 1996.  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.

  Earnings Per Share

  Earnings per share ("EPS") of common stock have been computed using the
  weighted average number of common and common equivalent shares outstanding
  during the period.  In periods the Company has losses, common share
  equivalents are not included as their inclusion would be anti-dilutive.  For
  periods presented prior to the Company's initial public offering, the weighted
  average number of common and common equivalent shares include instruments
  convertible into common stock, issued within one year of the initial public
  offering.  Fully diluted EPS is presented when it differs by more than three
  percent.

  Financial Accounting Standards Board Statement No. 128, "Earnings Per Share"
  ("SFAS No. 128") was issued in February 1997 and is effective for fiscal years
  beginning after December 15, 1997.  This statement, upon adoption, will
  require all prior-period EPS to be restated, to conform to the provisions of
  the statement.  This statement's objective is to simplify the computation of
  EPS and to make the U.S. standard for EPS computations more compatible with
  that of the International Accounting Standards Committee.  The Company will
  adopt SFAS No. 128 in fiscal 1998 and does not anticipate that the statement
  will have a significant impact on its reported EPS.  There are no differences
  in EPS calculated under SFAS No. 128 and that presented in the Consolidated
  Statements of Operations for the three and six month periods ended June 30,
  1996 and 1997, as calculated in accordance with Accounting Principals Bulletin
  No. 15, "Earnings per Share."

  Supplemental Disclosure Of Cash Flow Information

  Cash payments for income taxes were $-0- and approximately $56,000 during the
  three months ended June 30, 1996 and 1997, respectively.  Cash payments for
  interest were approximately $23,000 and $-0- during the three months ended
  June 30, 1996 and 1997, respectively.

  Cash payments for income taxes were $-0- and approximately $100,000 during the
  six months ended June 30, 1996 and 1997, respectively.  Cash payments for
  interest were approximately $23,000 and $29,000 during the six months ended
  June 30, 1996 and 1997, respectively.

  Inventory

  Inventory, consisting principally of computer system hardware, components and
  technical supplies, is stated at the lower of cost (determined on the first-
  in, first-out method) or market.


2. Accrual for Severance Costs
   ---------------------------

  An accrual of approximately $300,000 has been recorded as of June 30, 1997 to
  establish a liability for severance costs associated with workforce
  reductions.

                                      -6-
<PAGE>
 
3. Equity Transactions
   -------------------

  During the three months ended June 30, 1997, the Company's Board of Directors
  approved the creation of the Company's 1997 Stock Plan under which up to
  300,000 shares of common stock may be awarded as stock options, stock
  appreciation rights, restricted shares and restricted units to officers, other
  employees, consultants and advisors (including non-employee directors) of the
  Company.

  During the three months ended June 30, 1997, options to purchase 30,900 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 this period.  Options to purchase 199,150 shares of
  common stock remain outstanding as of June 30, 1997.

                                      -7-
<PAGE>
 
Item 2.


                        Allin Communications 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, 1997 and 1996.  This discussion
should be read in connection 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, 1996.


Overview of Organization, Products & Markets

     Allin Communications Corporation (the "Company") was organized under the
laws of the State of Delaware in July 1996 to act as a holding company for five
operating subsidiaries which  focus on particular aspects of the Company's
business: SeaVision, Inc., a Delaware corporation ("SeaVision"), PhotoWave,
Inc., a Delaware corporation ("PhotoWave"), SportsWave, Inc., a Pennsylvania
corporation ("SportsWave"), Kent Consulting Group, Inc., a California
corporation ("KCG"), and Netright, Inc., a California corporation ("Netright").
All such subsidiaries, as well as Allin Holdings Corporation, a Delaware
corporation and non-operating subsidiary, are wholly owned by the Company.
Unless the context otherwise requires, all references herein to the "Company"
refer to Allin Communications Corporation and its subsidiaries.

     Allin Communications Corporation is a media and technology company, which
combines advanced technology capabilities with focused marketing skills in a
variety of niche markets.  The Company provides customized interactive
television ("ITV"), digital imaging and other communications, information and
media services to users in the travel and leisure and sports marketing and
promotion industries.  Many of these services are provided through the use of
the Company's proprietary interactive media and information platform which was
created to run on the Microsoft Windows NT operating system.  The platform
includes a multimedia digital file server and Windows-based software
applications, and features high resolution and animated graphics, compressed
full motion video, superior quality audio and flexible input capacity.  The
Company's platform features rapid response and real time interfacing with a
variety of third party software and systems permitting the immediate execution
and confirmation of transactions.  The platform, which received an applications
development award from Microsoft in 1995, can provide its media and imaging
services over a variety of network architectures, including the Internet,
telephone and cable television systems, and other public and private
communications networks.

     The Company's ITV system offers customers a variety of interactive services
through separate system modules.  The pay services currently offered are video-
on-demand, shopping and games of chance.  Free-to-user services provided to date
include event ticketing, informational messages, account review and room
service. Free services have historically been provided to enhance the usefulness
of the system, afford the Company a competitive advantage in marketing its
system, and attract users to other services offered on the Company's system.

     The Operating Subsidiaries.  SeaVision was formed in June 1994 and focuses
on the travel and leisure industry.  SeaVision became a subsidiary of the
Company in August 1996 through a merger.  Its operations to date have involved
the development of an interactive media and information platform and the
installation and operation of ITV systems in the international cruise industry.
SeaVision has become a significant supplier of ITV systems to the cruise
industry.  The Company has contracts in place to provide ITV services to each of
Carnival Cruise Lines ("Carnival"), Celebrity Cruises, Inc. ("Celebrity"),
Cunard Lines Limited, Norwegian Cruise Lines ("Norwegian") and Royal Caribbean
International ("Royal Caribbean").  At June 30, 1997, a total of nine systems
were in operation on cruise ships with an annual capacity of approximately
865,000 passengers.  SeaVision also offers and performs shipboard systems
integration services.

     PhotoWave was formed as a subsidiary of the Company in August 1996 to
pursue the development and marketing of digital imaging services, and currently
applies the Company's proprietary interactive media and information platform on
a limited basis in this emerging industry.

                                      -8-
<PAGE>
 
     SportsWave, formerly International Sports Marketing, Inc., was formed in
1989 and was acquired by the Company in November 1996.  SportsWave provides a
full range of sports marketing and promotion services such as promotions,
premiums, corporate incentive programs and event marketing and licensing.
Additionally, SportsWave is currently seeking opportunities to develop
adaptations of the Company's interactive media and information platform for
possible use in sports venues and as a mobile media center for deployment to
sporting and other promotional events.

     In November 1996, Kent Consulting Group, Inc., an entity formed in 1994,
but which had been operating through a predecessor since 1983, merged with and
into a wholly owned subsidiary of the Company, which then changed its name to
Kent Consulting Group, Inc.  KCG provides varied software design and network
solution services to corporate clients worldwide and supports the development
and technology efforts of the Company.

     Netright sells computer-related hardware and software, and was acquired by
the Company in November 1996 primarily to support the operations of the Company
through its purchasing capabilities and agreements with vendors.  Netright's
operations are not material to the Company as a whole.

     The Company's historical results of operations reflect the operations of
SeaVision for the three- and six-month periods ended June 30, 1996 and for all
companies for the three- and six-month periods ended June 30, 1997.


Overview of the Company's Operations for the Quarter Ended June 30,1997
-----------------------------------------------------------------------

     During the quarter ended June 30, 1997, the Company's management completed
a thorough evaluation of operating results, marketing efforts, technological
developments and the impact that external market forces have had on the
Company's operations.  This evaluation resulted in significant changes in the
Company's operations including streamlining the Company's product focus, the
pace of technological development, workforce size, and marketing initiatives.
This overview section provides discussion of these changes.  Certain of these
changes may affect the Company's future results of operations and financial
condition more significantly than they have to date; however, such effect, if
any, cannot be quantified at this time.  Detailed comparisons of results of
operations for the three- and six-month periods ended June 30, 1997 and the same
periods of the prior year  and discussion of liquidity and capital resources can
be found immediately following this overview.

SeaVision Operations and Cruise Line Contract Status

     The number of SeaVision's installed and operating ITV systems had increased
from three at the time of the Company's initial public offering in November 1996
to nine as of June 30, 1997.  The increase in both the number of systems
operating and the lengthening time periods for which historical results are
available have given management more comprehensive data for evaluating the ITV
systems' economic performance.  Revenue and operating income have been less than
original expectations, in part because significant advertising revenue has not
been realized and revenue derived from the digital photography module to date
has been minimal.  The Company continues to pursue negotiations with various
advertisers and, during the second quarter of 1997, engaged an agency
specializing in transportation industry media advertising in this regard.
Compensation for the advertising agency will be substantially on a commission
basis.  There can be no assurance, however, that any contracts resulting in
advertising revenue will result from the Company's negotiations or the efforts
of its advertising agency.

     SeaVision has implemented several initiatives designed to increase revenue
on operational cruise ship systems.  Included have been price increases for pay-
per-view movies, improvements in and refinements to movie selections and
increases to the gaming minimum buy-in and wager default.  Based on the limited
time period since implementation of these initiatives, results indicate an
incremental increase in pay-per-view and gaming revenues, although there can be
no assurance that these initiatives will continue to result in increased
revenue.  SeaVision plans to implement additional initiatives to improve revenue
from pay-per-view movies and gaming during the third and fourth quarters of
1997, including additional changes to movie content and selections, additional
options for movie purchases, higher wagering options, the addition of a new game
of chance and promotional and usage incentives for the games of chance module.
There can be no assurance, however, that these initiatives will result in
increased revenue or operating income from the ship systems.

                                      -9-
<PAGE>
 
     During the quarter ended June 30, 1997, SeaVision began the process of
renegotiating its existing contracts with its clients Carnival, Celebrity,
Norwegian, and Royal Caribbean.  Included in the discussions are methods for
enhancing SeaVision revenue such as transactional fees for cruise line services,
guaranteed in-cabin revenue targets, the sharing of system operation costs and
increased cruise line capital commitments for new system installations as well
as existing systems. SeaVision intends to discontinue new system installations
after completion of those under firm commitment pending the results of the
contract renegotiation initiatives.  Two additional systems under firm
commitment are expected to be activated in the third quarter of 1997.  This
approach has been adopted so that additional capital outlays for ship ITV
systems will only be made when the prospects for profitable system operation can
be more reasonably expected.  While substantive discussions are currently
underway, there can be no assurance that SeaVision will be successful in
attaining revised contract terms with the cruise lines, or that revised terms
will result in the desired improvements to SeaVision revenue and operating
income.

Marketing and Services Agreement with EDS

     In December 1996 and January 1997, the Company and Electronic Data Systems
Corporation ("EDS") entered into marketing and services agreements.  Under the
agreements, EDS was to assist the Company in the marketing of its media and
information platform to key sectors of the travel and leisure industry and EDS
would provide personnel for installing the Company's ITV system and media and
information platform in both shipboard and land-based applications as well as
providing technical support for the operational systems.  Under these
agreements, target figures were set for annual revenue dollars to be obtained by
the Company as a result of joint marketing efforts and cost rates were
established for EDS personnel to work on shipboard systems and other projects.
Joint marketing efforts carried out during the first half of 1997 have not
resulted in the Company obtaining contracts for additional installations of its
ITV system and media and information platform.  Furthermore, as of June 30,
1997, there was no substantive prospect that such joint marketing efforts would
lead to contracts being obtained during the second half of 1997 that would
approach the agreement targets.  Under the services agreements, SeaVision began
to utilize EDS personnel for ITV system operation and installation in March
1997.  The cost of EDS personnel was significantly higher than had been the
compensation and associated costs of SeaVision personnel  who earlier had
fulfilled the same duties.  Evaluation of ongoing activity under the agreements
with EDS led the Company's management to the conclusion during the second
quarter of 1997 that the lack of progress under the agreements was not resulting
in, and did not have any immediate prospect to result in, such additional
revenue as to warrant the increased cost of operation being borne by SeaVision.
Accordingly, the Company and EDS entered into a Termination Agreement, effective
as of July 1, 1997, which terminates the current services and marketing
agreements with EDS.  Concurrently, the Company and EDS entered into an Amended
and Restated Joint Marketing Agreement.  This amended agreement calls for each
of the parties to cooperate with the other to enhance their respective abilities
to market their respective businesses.  The amended agreement does not set
targets for revenue dollars to be obtained and makes compensation of the Company
and EDS negotiable for each contract obtained by one of the parties through
joint marketing efforts.


Technological Development

     During the quarter ended June 30, 1997, the Company's management evaluated
its plans for research and development activities for various applications of
its media and information platform and digital photography technologies.
Factors affecting this evaluation included the historical economic performance
of the installed systems, the financial results of the Company and external
market forces driving the valuation of the Company's publicly traded common
stock.  Throughout the Company's first fiscal quarter of 1997 and early in the
Company's second fiscal quarter, considerable efforts and resources were
directed to research and development of a number of the Company's product lines
including, a) SeaVision activity for shore excursion ticketing software, video
server integration and hardware development to improve the integration of the
media and information platform with radio frequency broadcast and Internet
information sources, b) PhotoWave development of ship-based and mobile digital
photography  systems and Internet-based digital image archival technology and c)
SportsWave development of the VuWit system, a handheld wireless interactive
terminal designed for use at sports venues.

                                      -10-
<PAGE>
 
     In addition to operational initiatives that the Company's management
instituted subsequent to a thorough review of its operations, management
evaluated research and development projects as to their ability to yield short
term economic benefits to the Company.  Management determined that the interests
of the Company would best be served for the short term through conservation of
its liquid resources and a reduction of its non-essential development costs.
SeaVision has curtailed development projects related to its ITV systems with the
exception of certain hardware projects intended to result in short term cost
savings.  PhotoWave research and development has been limited to that necessary
to facilitate basic operation of its mobile digital photography system and its
Internet based digital imaging archival system.  SportsWave research and
development has similarly been curtailed until a contract for system
installation is obtained.  KCG's software development and network systems
consultants had been responsible for a significant portion of ongoing research
and development activities.  The majority of the consultants working on the
Company's various projects are being redeployed toward consulting projects for
third parties.  If third-party business can be obtained, this should result in
improved revenue and operating income for the consulting services portion of the
Company's business, although no assurance can be given that additional third
party business will be obtained.  KCG's compensation structure is production
based so compensation for the consultants in question will not be incurred
without corresponding third-party revenue.

Workforce Reductions

     As part of the aforementioned management evaluation, the organizational
structures of all of the Company's entities were reviewed and positions were
identified that were closely related to curtailed research and development
projects, or that were related to activities with operating losses and/or slower
growth expectations.  The Company eliminated positions representing in excess of
20% of its workforce during the Company's second fiscal quarter.  An accrual of
approximately $300,000 has been recorded as of June 30, 1997 to establish a
liability for severance costs associated with the workforce reductions.


Results of Operations:
--------------------- 

Three Months Ended June 30, 1997 compared to Three Months Ended June 30, 1996

     For the three-month period ended June 30, 1997, the Company reported
revenue of  $2,543,000 versus $84,000 for the three months ended June 30, 1996.
PhotoWave was formed in August 1996, and SportsWave, KCG and Netright were
acquired in November 1996.  Accordingly a comparison of revenue for those
companies for the periods ended June 30, 1997 and June 30, 1996 is not
meaningful.

     As of June 30, 1997, SeaVision had installed its ITV system on ten cruise
ships and activated the system on nine ships with an annual passenger capacity
of approximately 865,000, based on their itineraries and passenger
configurations at that time.  As of June 30, 1996, SeaVision had installed and
activated its ITV system on two cruise ships with an annual passenger capacity
of approximately 151,000.

     Total revenue for SeaVision for the three months ended June 30, 1997 was
$560,000, including $197,000 for pay-per-view movies, $120,000 for games of
chance, $238,000 for systems integration contracts and $5,000 in other revenue.
For the three months ended June 30, 1996, total SeaVision revenue was $84,000,
including $45,000 for pay-per-view movies, $38,000 for games of chance and
$1,000 in other revenue.

     Direct costs for SeaVision for the three-month period ended June 30, 1997
were $390,000, including $78,000 for pay-per-view movies and $312,000 for
systems integration contracts.  The majority of the systems integration revenue
and direct costs recognized during this three-month period were associated with
one cruise line ITV services contract.  Under the terms of the contract, the
cruise line had agreed to contribute toward the overall capital cost of the ITV
system by assuming ownership of certain installed in-cabin hardware integral to
the functioning of the ITV system at an agreed upon price.  The actual cost of
this equipment was in excess of the agreed upon price, resulting in direct costs
for this systems integration component of the project being in excess of the
revenue.  Under the terms of certain other contracts, SeaVision bears the full
cost of this essential hardware.  Direct costs for SeaVision for the three
months ended June 30, 1996 were $21,000 and related primarily to cost of sales
for the video-on-demand module.

                                      -11-
<PAGE>
 
     For the three months ended June 30, 1997, SportsWave realized revenue of
$1,153,000 and direct costs of  $480,000.  KCG, during the same period,
recognized revenue of  $776,000 with direct costs of $469,000.  Netright had
sales totalling $18,000 with direct costs of $17,000.  PhotoWave realized
$33,000 of revenue during the period with direct costs of $27,000.

     During the three months ended June 30, 1997, selling, general and
administrative expenses, excluding depreciation and amortization, increased to
$3,253,000  from $1,146,000 for the corresponding period in 1996.  This increase
is attributable primarily to the costs of additional personnel as the Company
moved from the developmental stage to the operational stage of its ITV system
between these periods, as well as the addition of PhotoWave, SportsWave, KCG and
Netright operations.  This increase also reflects approximately $300,000 of
expense recognized during the three months ended June 30, 1997 for severance
costs related to workforce reductions.  The workforce as of June 30, 1997 after
the reductions is still significantly larger than that at June 30, 1996.
Included in selling, general and administrative expenses for the three-month
period ended June 30, 1997 was $40,000 in research and development expense.  For
the same period in 1996, $402,000 in research and development expense was
recognized.  For the three months ended June 30, 1997, a total of $191,000 in
research and development relating to PhotoWave operations was capitalized.

     Depreciation and amortization expense increased to $1,117,000 during the
three months ended June 30, 1997 as compared to $262,000 in the corresponding
period in 1996, principally as a result of the completed installation of
additional ITV systems and corporate office leasehold improvements and $430,000
of amortization related to the November 1996 purchase of KCG and SportsWave.

     The Company's operating loss was $3,210,000 for the three months ended June
30, 1997, as compared to $1,345,000 for the three months ended June 30, 1996.
This increase is attributable primarily to the costs of additional personnel and
infrastructure as the Company moved from the developmental stage to the
operational stage of its SeaVision ITV systems between these periods and it
reflects the operations of additional entities.  The Company realized net
interest income of $106,000 for the three months ended June 30, 1997 as compared
to interest expense of $267,000 in the three months ended June 30, 1996 relating
to accrued interest on stockholder loans, which was accrued but unpaid during
the period.  Provision for income taxes of $48,000 recognized during the three
month period ended June 30, 1997 reflects estimated state income tax expense for
certain subsidiaries.  The Company sustained a net loss of $3,152,000 during the
three months ended June 30, 1997, compared to a net loss of $1,612,000 for the
three months ended June 30, 1996, as a result of the increased operating losses
discussed above.


Results of Operations:
--------------------- 

Six Months Ended June 30, 1997 compared to Six Months Ended June 30, 1996

     For the six-month period ended June 30, 1997, the Company reported revenue
of  $6,625,000 versus $163,000 for the six months ended June 30, 1996.  As noted
above, PhotoWave was formed in August 1996, and SportsWave, KCG and Netright
were acquired in November 1996.  Accordingly a comparison of revenue for those
companies for the six month periods ended June 30, 1997 and June 30, 1996 is not
meaningful.

     Total revenue for SeaVision for the six months ended June 30, 1997 was
$3,145,000, including $372,000 for pay-per-view movies, $225,000 for games of
chance, $2,442,000 for systems integration contracts and $106,000 for
advertising and other revenue.  For the period ended June 30, 1996, total
SeaVision revenue was $163,000, including $86,000 for pay-per-view movies,
$75,000 for games of chance and $2,000 in other revenue.

     Direct costs for SeaVision for the six-month period ended June 30, 1997
were $2,092,000, including $146,000 for pay-per-view movies and $1,945,000 for
systems integration contracts.  Direct costs for SeaVision for the six months
ended June 30, 1996 were $40,000 and related primarily to cost of sales for the
video-on-demand module.

     For the six months ended June 30, 1997, SportsWave realized revenue of
$1,878,000 and direct costs of  $987,000.  KCG, during the same period,
recognized revenue of  $1,469,000 with direct costs of $905,000.  Netright had
sales totalling $83,000 with direct costs of $76,000.  PhotoWave realized
$36,000 of revenue during the period with direct costs of $27,000.

                                      -12-
<PAGE>
 
     During the six months ended June 30, 1997, selling, general and
administrative expenses, excluding depreciation and amortization, increased to
$6,528,000  from $1,817,000 for the corresponding period in 1996.  This increase
is attributable primarily to the costs of additional personnel as the Company
moved from the developmental stage to the operational stage of its ITV system
between the two periods, as well as the addition of PhotoWave, SportsWave, KCG
and Netright operations.  The increase also reflects approximately $300,000 of
severance costs recorded in the 1997 period, as discussed above in the three-
month period analysis. Included in selling, general and administrative expenses
for the six-month period ended June 30, 1997 was $136,000 in research and
development expense.  This amount reflects expenses for the six month period net
of a reallocation of an elimination entry for intercompany services which
recategorized $109,000 of expenses within the selling, general and
administrative category.  For the same period in 1996, $401,000 of research and
development expense was recognized with $145,000 being capitalized.  For the six
months ended June 30, 1997, a total of $463,000 in research and development
relating to PhotoWave operations was capitalized.

     Depreciation and amortization expense increased to $1,990,000 during the
six months ended June 30, 1997 as compared to $350,000 in the corresponding
period in 1996, principally as a result of the completed installation of
additional ITV systems and corporate office leasehold improvements and $860,000
of amortization related to the November 1996 purchase of KCG and SportsWave.

     The Company's operating loss was $5,979,000 for the six months ended June
30, 1997, as compared to $2,044,000 for the six months ended June 30, 1996.
This increase is attributable primarily to the costs of additional personnel and
infrastructure as the Company moved from the developmental stage to the
operational stage of its SeaVision ITV systems between the two periods and
supported the development of Photowave and SportsWave.  It also reflects the
operations of additional entities.  The Company realized net interest income of
$283,000 for the six months ended June 30, 1997 as compared to interest expense
of $468,000 in the six months ended June 30, 1996, relating to accrued interest
on stockholder loans, which was accrued but unpaid during the period. Provision
for income taxes of $48,000 recognized during the 1997 period reflects estimated
state income tax expense for certain subsidiaries.  The Company sustained a net
loss of $5,744,000 during the six months ended June 30, 1997, compared to a net
loss of $2,512,000 for the six months ended June 30, 1996, as a result of the
increased operating losses discussed above.


Liquidity and Capital Resources

     From its organization in June 1994 through May 31, 1996, the working
capital needs of the Company were funded through stockholder loans.  On May 31,
1996, SeaVision entered into a line of credit with Integra Bank (now National
City Bank).  The maximum amount of borrowing initially allowed under the line of
credit was $5 million.  On October 28, 1996, the maximum amount of borrowing
allowed under the line of credit was increased to $7.5 million.  The amount
outstanding at closing of the initial public offering on November 6, 1996 was $6
million, which was repaid coincident with the closing.  The initial funding
under the line of credit occurred May 31, 1996 and was in the amount of $4.3
million, $3.6 million of which was used to repay a portion of the principal
amount of stockholder loans.  The remaining amounts funded under the line of
credit were used as general working capital in the operation of the Company. The
line of credit expired on May 31, 1997 and was guaranteed by certain
stockholders of the Company.  The guarantors were entitled to a guarantee fee
from the Company equal to the difference between 15% per annum and the rate
which the Company was charged under the terms of the line of credit.  No
borrowings were permitted on the line of credit subsequent to December 31, 1996
and there was no balance outstanding under the line of credit at that date.  The
Company is not currently in negotiation for a line of credit.

     At June 30, 1997, the Company had cash and liquid cash equivalents of
$7,164,000 available to meet its working capital and operational needs.

                                      -13-
<PAGE>
 
     The Company recognized an operating loss during the six months ended June
30, 1997 of $5,979,000.  Capital expenditures were $3.2 million during the six
months ended June 30, 1997.  Given its resources in hand, its operating results
and the absence of in-place third party financing, the Company has taken steps
to reduce its cash expenditures significantly.  These include a moratorium on
additional installations of shipboard ITV systems, curtailment of research and
development activities and significant workforce reductions, each as discussed
in detail above under the heading "Overview of the Company's Operations during
the Quarter Ended June 30,1997".  These steps have reduced the Company's
anticipated capital expenditures to approximately $500,000 during the remainder
of the year ending December 31, 1997.  The actual amount and timing of the
Company's capital expenditures will vary (and such variations could be material)
depending primarily upon the Company's success in obtaining renegotiated
contracts with cruise lines regarding operation and installation of ITV systems
and in obtaining contracts for the installation of SportsWave's VuWit system.
SeaVision currently is in the process of renegotiating its cruise line contracts
to include revenue from shore excursion ticket sales and other modifications
designed to improve SeaVision's ITV platform revenue.  Pending the outcome of
these negotiations, the Company currently intends to limit its cruise line
installations to eleven ships, which are expected to be completed before the end
of the third quarter.  If these negotiations are successful, the Company will
selectively continue cruise line installations.  The Company intends to pursue
financing of the capital cost of additional installations collateralized by the
revised contract revenue stream for a given ship, although there can be no
assurance that such financing could be obtained.  Furthermore, there can be no
assurances that the Company will be able to successfully renegotiate cruise line
contracts for more favorable terms.  In addition to the moratorium on additional
cruise ship ITV system installations, the Company has sharply curtailed further
development in SportsWave beyond the current prototype of the VuWit project.
PhotoWave will emphasize operational improvement of revenue from both its mobile
digital platform as well as fixed site event digital photography and curtail
further development of its technology until the revenue streams are proven.

     The Company believes, in light of the modifications to its business plan
discussed in the preceding paragraph,  that the remaining proceeds from its
initial public stock offering, together with available funds and cash flows
expected to be generated by operations, will be sufficient to meet its
anticipated cash needs for working capital and capital expenditures for at least
the next 18 months.  If cash generated by operations, together with the
remaining proceeds of the offering, were insufficient to satisfy the Company's
cash requirement, the Company would be required to consider other financing
alternatives, such as selling additional equity or debt securities or obtaining
long or short-term credit facilities, although no assurance can be given that
the Company could obtain such financing.  Any sale of additional equity or
convertible debt securities would result in additional dilution to the Company's
shareholders.

     SportsWave has been notified by the Major League Baseball Players Alumni
("MLBPA"),  that MLBPA does not wish to renew its present contract with
SportsWave, which expires on December 31, 1998.  MLBPA has indicated, however,
that it is willing  to negotiate a contract for the period beginning January 1,
1999.  The Company intends to pursue negotiations with MLBPA for a contract
renewal, although there can be no assurance that the Company will be successful
or that the terms of any contract renewal will be favorable to the Company.  The
Company does not believe this matter will have a material adverse effect on the
Company's business, financial condition or results of operations.


Special Note on Forward-Looking Statements

     Certain statements in the preceding discussion and analysis constitute
"forward-looking statements" within the meaning of the Federal Private
Securities Litigation Reform Act of 1995.  Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance, or achievements of the Company 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:

                                      -14-
<PAGE>
 
     Limited Operating History.  The Company was not organized until July 1996
and did not until November 1996 conduct any operations as a combined entity
consisting of the businesses of SeaVision, PhotoWave, SportsWave and KCG.
Furthermore, SeaVision has been in operation only since 1994 and has
concentrated on developing its media and information platform and ITV system and
on securing contracts to install and operate the ITV system on cruise ships. To
date, SeaVision is operating its ITV system in only nine installations, and
revenue generated by the ITV system has not been significant. Although
SeaVision, SportsWave and KCG have had prior relationships, there can be no
assurance that the Company will be able to integrate the businesses
successfully. Because SeaVision has only a limited operating history and the
Company has only a limited operating history as a combined entity, there can be
no assurance that the Company will succeed in implementing its strategy for
development and growth or that it will obtain financial returns sufficient to
justify its investment in the markets in which it participates.

     Recent Net Losses and Accumulated Deficit. The Company has sustained
substantial net losses during the years ended December 31, 1995 and 1996 and the
six months ended June 30, 1997 and, as of June 30, 1997, had an accumulated
deficit of $17.1 million. SeaVision has recognized net losses since inception in
1994 primarily because of the limited revenue generated during its start-up
phase. During the start-up phase, the Company has researched, developed and
installed the only ITV system presently in use in the cruise industry, and has
incurred substantial costs in doing so. The Company anticipates that it will
continue to incur losses at least through 1997, and there can be no assurance
that it will be able to achieve revenue growth or profitability on an ongoing
basis in the future.

     Contract Renegotiations.  The Company is currently attempting to
renegotiate the economic terms of its ITV system contracts with each of
Carnival, Celebrity, Norwegian, and Royal Caribbean to make such terms more
favorable to the Company.  Included in the discussions are methods for enhancing
SeaVision revenue such as  transactional fees for cruise line services,
guaranteed in-cabin revenue targets, sharing of system operation costs and
increased cruise line capital commitments for new system installations as well
as for existing systems.  Pending satisfactory outcome of such renegotiations,
the Company has determined to discontinue new system installations after
completion of two additional installations under firm commitment.  There can be
no assurance that the Company will be successful in renegotiating its contracts
with the cruise lines to obtain terms more favorable to the Company or that, if
successful, that the revised terms will result in the desired improvements to
SeaVision's revenue and operating income.  In the event such negotiations are
not successful, additional cruise ship ITV installations may not be undertaken
on such cruise lines' ships.  There can also be no assurance that negotiations
could be concluded with other cruise lines for ITV system contracts on terms
more favorable than the existing contracts.  Additionally, the Company may
determine to re-evaluate the ongoing operation of ITV systems currently in
place.  Any such event could have an adverse effect on the Company's business,
financial condition and results of operations.

     Risks Inherent in Development of New Products and Markets.  The Company's
strategy includes developing new applications for its interactive entertainment
and media and information technologies and entering new markets. This strategy
presents risks inherent in assessing the value of development opportunities, in
committing capital 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.  Additionally, management has
evaluated its plans for research and development activities for various
applications of its media and information platform and digital photography
technologies and has determined that the interests of the Company would best be
served for the short term through conservation of its liquid resources and a
reduction of its non-essential development costs.  SeaVision has curtailed
development projects related to its ITV systems with the exception of certain
hardware projects.  PhotoWave research and development has been limited to that
necessary to facilitate basic operation of its mobile digital photography system
and its Internet-based digital imaging archival system.  SportsWave research and
development has similarly been curtailed until a contract for system
installation has been obtained, and there can be no assurance that any such
contract will be obtained. .  KCG's software development and network systems
consultants had been responsible for a significant portion of ongoing research
and development activities.  The majority of the KCG consultants are being
redeployed toward consulting projects for third parties, although no assurance
can be given that additional third-party business will be obtained. It is also
possible that the Company will experience delays or setbacks in developing new
applications of its technology. There can be no assurance that the Company's new
products and applications, if any, will generate additional revenue for the
Company or that the Company will successfully penetrate these additional
markets.

                                      -15-
<PAGE>
 
     Dependence on Proprietary Technology; Absence of Patents.   The Company's
success is highly dependent upon its proprietary technology. 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 identify promising emerging technologies and to develop, refine and introduce
high quality services in a timely manner and on competitive terms.  However, as
discussed above, the Company has significantly curtailed research and
development activity which limits the Company's ability to so identify and
develop technologies and services. There can be no assurance that future
technological advances by direct competitors or other providers will not result
in improved equipment or software systems that could adversely affect the
Company's business, financial condition and results of operations.

     Need for Management of Growth.   The Company's growth strategy will require
its management to conduct operations and respond to changes in technology and
the market.  If the Company's management is unable to manage growth 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, research and operational personnel for the management
of operations, development of new products and timely installation of its
systems. The loss of one or more of these individuals could have an adverse
effect on the Company's business and results of operations. The Company has in
place key person life insurance policies on certain of its key employees. 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.

     Dependence on Major League Sports.   The Company's sports marketing and
promotion business conducted through SportsWave is dependent on the success and
continued popularity of major league sports. Factors which adversely affect
major league sports could also adversely affect the Company's business and
results of operations. For example, SportsWave's business was adversely impacted
by the players' strike and owners' lockout during the 1994 and 1995 Major League
Baseball seasons. There can be no assurance that there will be no strike or
other event with a similar adverse impact in the future involving one or more of
Major League Baseball, the National Football League, the National Basketball
Association or the National Hockey League.

     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 seasonal aspects of SportsWave's business.
Accordingly, quarterly revenues 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.

                                      -16-
<PAGE>
 
     Potential Impact of Privacy Concerns.   One of the features of the
Company's ITV system is the ability to develop and maintain information
regarding usage of the system by cruise ship passengers and other parties. The
perception by the users of substantial security and privacy concerns, whether or
not valid, may cause users to resist providing the personal information that
might be useful for demographic purposes and may inhibit market acceptance and
usage of the Company's video systems. In the event such concerns are not
adequately addressed, the Company's business, financial condition and results of
operations could be materially adversely affected.

     Competitive Market Conditions.   The market for interactive communications
and digital imaging is new, rapidly evolving and highly competitive. Many 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. There can be no assurance
that the Company will be able to compete effectively with current or future
competitors or that the competitive pressures faced by the Company will not have
a material adverse effect on the Company's business, financial condition and
results of operations.

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


Effect of Recently Issued Accounting Standards

     Financial Accounting Standards Board Statement No.128, "Earnings Per Share"
("SFAS No. 128") was issued in February 1997 and is effective for fiscal years
beginning after December 15, 1997.  This statement, upon adoption, will require
all prior-period earnings per share ("EPS") data to be restated, to conform to
the provisions of the statement.  This statement's objective is to simplify the
computation of EPS and to make the U.S. standard for EPS computations more
compatible with that of the International Accounting Standards Committee.  The
Company will adopt SFAS No. 128 in fiscal 1998 and does not anticipate that the
statement will have a significant impact on its reported EPS. There are no
differences in EPS calculated under SFAS No. 128 and that presented in the
Consolidated Statements of Operations for the three and six month periods ended
June 30, 1996 and 1997, as calculated in accordance with Accounting Principals
Bulletin No. 15, "Earnings per Share."

     Financial Accounting Standards Board Statement No. 129, "Disclosure of
Information about Capital Structure" ("SFAS No. 129"), was issued in February
1997 and is effective for periods ending after December 15, 1997.  This
statement, upon adoption, will require all companies to provide specific
disclosure regarding the entity's capital structure.  SFAS No. 129 will specify
the disclosures, for all companies, including descriptions of the securities
comprising the capital structure and the contractual rights of the holders of
such securities.  The Company will adopt SFAS No. 129 in fiscal 1997 and does
not anticipate that the statement will have a significant impact on its
disclosures.

     In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130 "Reporting Comprehensive
Income", which establishes standards for reporting and display of comprehensive
income and its components in financial statements.  SFAS No. 130 is effective
for fiscal years beginning after December 15, 1997.  Currently there are no
components of comprehensive income which apply to the Company.

                                      -17-
<PAGE>
 
Part I  Financial Information

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.

                                      -18-
<PAGE>
 
Part II  Other Information


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 8, 1997.

(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           4,164,677                  0                54,690
             R. Daniel Foreman             4,164,677                  0                54,690
             Brian K. Blair                4,164,677                  0                54,690
             William C. Kavan              4,164,677                  0                54,690
             Paul J. Pasquarelli           4,206,917                  0                12,450
             James C. Roddey               4,164,677                  0                54,690
             Richard S. Trutanic           4,164,677                  0                54,690
</TABLE>

        (2)  Approval of  the Company's 1997 Stock Plan which reserves an 
             aggregate of 300,000 shares of the Company's Common Stock to be
             awarded as stock options, stock appreciation rights, restricted
             shares and restricted units to officers and other employees of the
             Company and its subsidiaries and to consultants and advisors
             (including non-employee directors) of the Company and its
             subsidiaries. Votes cast were 3,518,445 for approval, 169,990
             against approval and 10,180 abstaining.


        (3)  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, 1997. Votes cast were
             4,209,367 for ratification, 100 against ratification, and 9,900
             abstaining.

        There were a total of 5,184,067 shares of the Company's Common Stock 
        eligible to vote at the Annual Meeting.

     (d)  Not applicable.

                                      -19-
<PAGE>
 
Part II  Other Information

Item 5.  Other Information
         -----------------

Resignation of Director

          On May 9, 1997, Richard S. Trutanic submitted his resignation as a
Director of the Company.  The Board of Directors has begun the process of
identifying qualified candidates to replace Mr. Trutanic.


Resignation of Chief Financial Officer

          In June 1997, Jon E. VanAmringe resigned as the Company's Chief
Financial Officer.  This decision was jointly reached by the Company's Executive
Management and Mr. VanAmringe.  Severance costs associated with Mr. VanAmringe's
departure have been included in the accrual noted above in Item 2 under
Workforce Reductions.

          Dean C. Praskach has been promoted to Vice President-Finance and will
assume the duties previously administered by Mr. VanAmringe.

                                      -20-
<PAGE>
 
Part II - Other Information

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

         (a)  Exhibits.

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

10.21         Termination Agreement dated as of July 1, 1997 by and between
              Allin Communications Corporation and Electronic Data Systems
              Corporation.

10.22         Amended and Restated Joint Marketing Agreement dated as of July 1,
              1997 by and between Allin Communications Corporation and
              Electronic Data Systems Corporation.

11            Computation of Earnings per Share.

27            Financial Data Schedule

         (b)  Reports on Form 8-K.

              No report on Form 8-K was filed by the Company during the quarter
              ended June 30, 1997.

                                      -21-
<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 COMMUNICATIONS CORPORATION
                                      (Registrant)

Date: August 11, 1997                 By:  /s/   Richard W. Talarico
                                           --------------------------
                                           Richard W. Talarico
                                           Chairman and Chief Executive Officer


Date: August 11, 1997                 By:  /s/   Dean C. Praskach
                                           ----------------------
                                           Dean C. Praskach
                                           Vice President-Finance and 
                                           Chief Accounting Officer

                                      -22-
<PAGE>
 
Allin Communications Corporation
Form 10-Q
June 30, 1997
Exhibit Index



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

10.21            Termination Agreement dated as of July 1, 1997 by and between
                 Allin Communications Corporation and Electronic Data Systems
                 Corporation.

10.22            Amended and Restated Joint Marketing Agreement dated as of July
                 1, 1997 by and between Allin Communications Corporation and
                 Electronic Data Systems Corporation.

11               Computation of Earnings per Share

27               Financial Data Schedule