<PAGE>

                                   FORM 10-Q

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

      (Mark One)

      (X)  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
           THE SECURITIES EXCHANGE ACT OF 1934
           For the quarterly period ended:  March 31, 2000

                                       OR

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

                        Commission file number:  0-21395

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

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

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

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

                  400 Greentree Commons, 381 Mansfield Avenue
                      Pittsburgh, Pennsylvania  15220-2751
                 (Former address, if changed since last report)

      Indicate by check mark whether the registrant: (1) has filed all reports
      required to be filed by Section 13 or 15 (d) of the Securities Exchange
      Act of 1934 during the preceding 12 months (or for such shorter period
      that the registrant was required to file such reports); and (2) has been
      subject to such filing requirements for the past 90 days.

                       ( X )    Yes      (    )   No

              Shares Outstanding of the Registrant's Common Stock

                              As of April 28, 2000

                        Common Stock,  6,010,973 Shares
<PAGE>

                               Allin Corporation

                                   Form 10-Q

                                     Index

<TABLE>
<CAPTION>

<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 16
               Condition and Results of Operations

      Item 3.  Quantitative and Qualitative Disclosure about Market    Page 34
               Sensitive Instruments


Part II -  Other Information

      Item 2.  Changes in Securities and Use of Proceeds               Page 35

      Item 6.  Exhibits and Reports on Form 8-K                        Page 36

Signatures                                                             Page 37
</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," and similar expressions. In addition, any
statements that refer to expectations or other characterizations of future
events or circumstances are forward-looking statements. Readers are cautioned
that any such forward-looking statements are not guarantees of performance and
that matters referred to in such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause actual results,
performance or achievements of Allin Corporation to be materially different from
any future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among other things, risks and
uncertainties discussed throughout Part I - Item 2 - Management's Discussion and
Analysis of Financial Condition and Results of Operations and under the caption
"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,                   March 31,
                                                                                     1999                          2000
                                                                            -----------------------       -----------------------

<S>                                                                          <C>                           <C>
ASSETS

Current assets:
           Cash and cash equivalents                                         $               1,888         $               1,922
           Accounts receivable, net of allowance for
                   doubtful accounts of $274                                                 4,134                         5,788
           Notes receivable from employees                                                     ---                            15
           Inventory                                                                           741                         1,037
           Prepaid expenses                                                                    429                           450
                                                                             ----------------------       -----------------------
                   Total current assets                                                      7,192                         9,212

Property and equipment, at cost:
Leasehold improvements                                                                         473                           474
Furniture and equipment                                                                      2,684                         2,898
On-board equipment                                                                             951                           951
                                                                             ----------------------       -----------------------
                                                                                             4,108                         4,323
Less--accumulated depreciation                                                              (2,607)                       (2,793)
                                                                             ----------------------       -----------------------
                                                                                             1,501                         1,530

Assets held for resale                                                                          19                           111
Notes receivable from employees                                                                 17                           ---
Software development costs, net of accumulated
           amortization of $887 and $889                                                        26                            24
Goodwill, net of accumulated amortization of
           $1,775 and $2,038                                                                12,986                        12,723
Other assets, net of accumulated amortization of
           $522 and $587                                                                     2,285                         2,264
                                                                             ----------------------       -----------------------

Total assets                                                                 $              24,026        $               25,864
                                                                             ======================       =======================


</TABLE>

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

                                      -4-
<PAGE>

ALLIN CORPORATION & SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

                                    (Dollars in thousands)
                                         (Unaudited)

<TABLE>
<CAPTION>

                                                                                         December 31,                  March 31,
                                                                                             1999                        2000
                                                                                        ---------------           ----------------

<S>                                                                                      <C>                      <C>
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
   Current portion of notes payable                                                  $                2           $            2
   Bank lines of credit                                                                             650                     1,565
   Accounts payable                                                                                 665                     1,977
   Accrued liabilities:
        Compensation and payroll taxes                                                              615                       804
        Dividends on preferred stock                                                                865                       947
        Other                                                                                       756                       790
   Billings in excess of costs                                                                      415                       731
   Deferred revenue                                                                                 996                        27
                                                                                     ------------------          -----------------
        Total current liabilities                                                                 4,964                     6,843

Non-current portion of notes payable                                                              1,002                     1,002
Deferred income taxes                                                                                81                        81
Commitments and contingencies

Shareholders' equity:
        Preferred stock, par value $.01 per share, authorized
              100,000 shares:
              Series C redeemable preferred stock, designated,
                     issued and outstanding 25,000 shares                                         2,500                     2,500
              Series D convertible redeemable preferred stock,
                     designated, issued and outstanding
                     2,750 shares                                                                 2,152                     2,152
              Series E convertible redeemable preferred stock,
                     designated 2,000 shares, issued and
                     outstanding 1,926 shares                                                     1,926                     1,926
              Series F convertible redeemable preferred stock,
                     designated, issued and outstanding
                     1,000 shares                                                                 1,000                     1,000
           Common stock, par value $.01 per share, authorized
                20,000,000 shares, issued 5,995,830 and
                6,019,140 shares                                                                     60                        60
           Additional paid-in-capital                                                            40,198                    40,138
           Warrants                                                                                 598                       598
           Retained deficit                                                                     (30,428)                  (30,409)
           Treasury stock at cost, 8,167 common shares                                              (27)                      (27)
                                                                                     ------------------       -------------------
Total shareholders' equity                                                                       17,979                    17,938
                                                                                    -------------------       -------------------

Total liabilities and shareholders' equity                                          $            24,026       $            25,864
                                                                                    ===================       ===================

</TABLE>


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

                                      -5-
<PAGE>

ALLIN CORPORATION & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

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


<TABLE>
<CAPTION>


                                                                                 Three Months                  Three Months
                                                                                    Ended                         Ended
                                                                                  March 31,                     March 31,
                                                                                     1999                          2000
                                                                            -----------------------       ----------------------
<S>                                                                         <C>                           <C>
Revenue                                                                     $                6,133        $                7,087

Cost of sales                                                                                3,822                         4,098
                                                                            -----------------------       ----------------------

Gross profit                                                                                 2,311                         2,989

Selling, general & administrative                                                            3,073                         2,905
                                                                            -----------------------       ----------------------

(Loss) income from operations                                                                 (762)                           84

Interest expense, net                                                                           75                            65
                                                                            -----------------------       ----------------------

(Loss) income before provision for income taxes                                               (837)                           19

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

(Loss) income from continuing operations                                                      (856)                           19

Gain from discontinued operations                                                               (5)                          ---
                                                                            -----------------------       ----------------------

Net (loss) income                                                                             (851)                           19

Dividends on preferred stock                                                                   100                           153
                                                                            -----------------------       ----------------------

Net loss attributable to common shareholders                                $                 (951)       $                 (134)
                                                                            =======================       ======================

Loss per common share from continuing operations
           attributable to common shareholders -
           basic and diluted                                                $                (0.16)       $                (0.02)
                                                                            =======================       ======================

Income per common share from discontinued
           operations - basic and diluted                                   $                  0.00       $                  0.00
                                                                            =======================       =======================

Net loss per common share attributable to common
           shareholders  - basic and diluted                                $                 (0.16)      $                 (0.02)
                                                                            =======================       =======================

Weighted average shares outstanding - basic and diluted                                   5,969,162                     6,002,520
                                                                            -----------------------       -----------------------


</TABLE>


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

                                      -6-
<PAGE>

ALLIN CORPORATION & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

                                             (Dollars in thousands)
                                                  (Unaudited)

<TABLE>
<CAPTION>


                                                                                 Three Months                  Three Months
                                                                                    Ended                         Ended
                                                                                  March 31,                     March 31,
                                                                                     1999                          2000
                                                                            -----------------------       -----------------------

<S>                                                                         <C>                           <C>
Cash flows from operating activities:
           Net (loss) income                                                                  (851)                           19
           Adjustments to reconcile net (loss) income to net
           cash flows from operating activities:
                   Depreciation and amortization                                               626                           523
                   Amortization of deferred compensation                                       (41)                          ---
                   Loss from writedown and sale of assets                                       96                           ---
                   Cost of fixed assets sold                                                   ---                           237
           Changes in certain assets and liabilities:
                   Accounts receivable                                                        (683)                       (1,655)
                   Inventory                                                                  (318)                         (279)
                   Prepaid expenses                                                            (11)                          (20)
                   Assets held for resale                                                      (60)                         (111)
                   Other assets                                                                ---                             2
                   Accounts and notes payable                                                  283                         1,313
                   Accrued liabilities                                                         389                           226
                   Billings in excess of costs                                                 ---                            79
                   Income taxes payable                                                        (42)                          ---
                   Deferred revenues                                                            21                          (969)
                                                                            -----------------------       -----------------------
           Net cash flows from operating activities                                           (591)                         (635)
                                                                            -----------------------       -----------------------

Cash flows from investing activities:
           Proceeds from sale of assets                                                         13                             4
           Proceeds from note receivable related to
                   sale of subsidiary                                                          463                           ---
           Capital expenditures                                                                (78)                         (178)
                                                                            -----------------------       -----------------------
           Net cash flows from investing activities                                            398                          (174)
                                                                            -----------------------       -----------------------

Cash flows from financing activities:
           Payment of dividends on preferred stock                                             (42)                          (71)
           Debt acquisition costs                                                               (1)                          ---
           Net (repayment) proceeds on lines of credit                                         (19)                          915
           Repayment of note payable                                                           (59)                          ---
           Repayment of capital lease obligations                                               (2)                           (1)
                                                                            -----------------------       -----------------------
           Net cash flows from financing activities                                           (123)                          843
                                                                            -----------------------       -----------------------

Net change in cash and cash equivalents                                                       (316)                           34
Cash and cash equivalents, beginning of period                                               2,510                         1,888
                                                                            -----------------------       -----------------------
Cash and cash equivalents, end of period                                                     2,194                         1,922
                                                                            =======================       =======================


</TABLE>


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



                                      -7-
<PAGE>

                       Allin Corporation and Subsidiaries

                   Notes to Consolidated Financial Statements



1.  Basis of Presentation

    The information contained in these financial statements and notes for the
    three-month periods ended March 31, 1999 and 2000 should be read in
    conjunction with the audited financial statements and notes for the years
    ended December 31, 1998 and 1999, contained in Allin Corporation's (the
    "Company") Annual Report on Form 10-K for the year ended December 31, 1999.
    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

    An adjustment to the gain on the September 1998 disposal of SportsWave, Inc.
    was recorded during the three-month period ended March 31, 1999 and is
    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 to their clients for their technology consulting services.
    The majority of fees are charged on an hourly basis with revenue and related
    cost of sales recognized as services are performed. Revenue and cost of
    sales for fixed price projects are recognized on a percentage of completion
    basis.

    Allin Interactive Corporation's ("Allin Interactive") recognition method for
    revenue and cost of sales for systems integration services is determined
    based on the size and expected duration of the project. For systems
    integration projects in excess of $250,000 of revenue and expected to be of
    greater than 90 days duration, the Company recognizes revenue and cost of
    sales based on percentage of completion. Allin Interactive utilizes the
    proportion of labor cost incurred to expected total project labor cost as a
    quantitative factor in determining the percentage of completion recognized
    for projects when the proportion of total project costs incurred to expected
    total project costs is not representative of actual project completion
    status. For all other systems integration projects, revenue and cost of
    sales are recognized upon completion of the project. Revenue and cost of
    sales for fixed price consulting services are recognized on a percentage of
    completion basis. Time based consulting revenue and cost of sales are
    recognized as services are performed. Interactive television transactional
    revenue and management fees and any associated cost of sales are recognized
    as the services are performed.

                                      -8-
<PAGE>

    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. Consulting and service revenue and cost of sales are recognized as
    services are performed. Revenue earned under material prepaid service
    contracts is recognized pro-rata over the lives of the contracts.

    Earnings Per Share

    Earnings per share ("EPS") of common stock have been computed in accordance
    with Financial Accounting Standards Board Statement No. 128, "Earnings Per
    Share" ("SFAS No. 128"). The shares used in calculating basic and diluted
    EPS include the weighted average of the outstanding common shares of the
    Company, excluding 18,901 shares of outstanding restricted stock for the
    three-month period ended March 31, 1999. The restriction on these shares of
    common stock lapsed in November 1999. The restricted stock, outstanding
    stock options, convertible note 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 options and warrants to
    purchase shares that would have been considered in the calculation of
    diluted EPS, if their effect was not anti-dilutive, were 18,901 and 733,075
    for the three-month periods ended March 31, 1999 and 2000, respectively.

    Inventory

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

    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 March 31, 2000, the Company's Consolidated Balance Sheet includes a
    note payable which relates to the acquisition of Allin Consulting-
    California. The note payable is recorded at the face value of the
    instrument. The Company accrues interest at fixed rates and makes interest
    payments in accordance with the terms of the note. All other financial
    instruments are classified as current and will be utilized within the next
    operating cycle.

    Supplemental Disclosure Of Cash Flow Information

    Cash payments for income taxes were approximately $6,000 during both of the
    three-month periods ended March 31, 1999 and 2000. Cash payments for
    interest were approximately $-0- and $1,000 during the three months ended
    March 31, 1999 and 2000, respectively. Cash payments for dividends were
    approximately $42,000 and $71,000 during the three months ended March 31,
    1999 and 2000, respectively. Dividends on preferred stock of approximately
    $86,000 and $139,000 were accrued but unpaid during the three-month periods
    ended March 31, 1999 and 2000, respectively.

                                      -9-
<PAGE>

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. As of March 31, 2000,
   the Company has outstanding 25,000, 2,750, 1,926 and 1,000 shares of Series
   C, D, E and F preferred stock, respectively. All previously outstanding
   shares of the Company's Series A and B preferred stock were exchanged in May
   1999 for a like number of shares of Series C and D preferred stock,
   respectively.

3. Liability for Employee Termination Benefits

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

   Reorganization charges of approximately $70,000 were recorded in February
   2000 to establish a liability for severance costs associated with the
   termination of services of two managerial personnel associated with the
   staffing services provided by the Company's Business Operations Solution
   Area. Associated expenses are reflected in Selling, general & administrative
   expenses on the Consolidated Statement of Operations during that period. As
   of March 31, 2000, approximately $26,000 of the amount accrued under the
   February 2000 charges had been paid. The remaining balance, approximately
   $44,000, is included in accrued compensation and payroll taxes on the
   Consolidated Balance Sheet. It is anticipated that payments under this plan
   will be completed by June 2000.

   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. During the quarterly
   period ended December 31, 1999, additional expense of approximately $18,000
   was recorded to adjust the reorganization charge previously recorded.
   Associated expenses are reflected in Selling, general & administrative
   expenses on the Consolidated Statement of Operations during these periods. As
   of March 31, 2000, all of the amount accrued under the January 12, 1999
   charge had been paid.

4. Acquisition of Erie Computer Company

   On February 3, 2000, Allin Network acquired certain assets utilized in the
   operations of Erie Computer Company ("Erie Computer"), previously an
   operating division of Patterson-Erie Corporation ("Patterson-Erie"). Erie
   Computer's operations include information technology consulting services,
   computer hardware, software and networking equipment sales and computer
   hardware service. Erie Computer is located in Erie, Pennsylvania and had
   operated for twenty-three years prior to Allin Network's acquisition of its
   assets. The asset acquisition was effective for accounting purposes as of
   February 1, 2000.

   The purchased assets included the computer hardware and software,
   furnishings, office equipment and supplies utilized in Erie Computer's
   operations, inventory consisting of computer-related hardware, software and
   supplies, vehicles, customer lists, rights to the name "Erie Computer
   Company" and all other tangible and intangible assets utilized in Erie
   Computer's operations. Allin Network has retained the Erie Computer employees
   and intends to continue use of the tradename "Erie Computer Company". The
   Company has also entered a lease with Patterson-Erie for occupancy of the
   building utilized for Erie Computer's operations. The term of the lease is
   for one year through January 31, 2001, but the Company may terminate the
   lease during the term on fifteen days written notice.

                                      -10-
<PAGE>

   Purchase consideration was the Company's issuance of 23,310 shares of its
   common stock to Patterson-Erie, based on a rate of $4.29 per share as
   specified in the acquisition agreement. There are no terms for contingent
   consideration associated with the agreement. The Company recorded the stock
   issuance based on the market price on the date of closing of the acquisition.

   The acquisition price has been allocated among the purchased assets,
   including the capital assets utilized in Erie Computer's operations,
   inventory, customer list and assembled workforce. Estimated remaining
   economic lives for customer list and assembled workforce are eight and three
   years, respectively.

5. Equity Transactions

   The Company issued 23,310 shares of its common stock on February 3, 2000 in
   connection with Allin Network's acquisition of certain assets utilized in the
   operations of Erie Computer. The Company recorded the stock issuance based on
   the market price on the date of closing of the acquisition, which resulted in
   the recording of approximately $93,000 of additional paid-in-capital.

   A total of 51,867 options for common shares, exercisable at an average
   exercise price of $4.14 per share, were awarded under the Company's 1998
   Stock Plan during the three months ended March 31, 2000. The exercise prices
   of the options awarded ranged from $4.00 per share to $4.50 per share. All of
   the options will vest with respect to 20% of the shares subject to each grant
   on each of the first through fifth anniversaries of the grant date. The right
   to exercise options to purchase shares expires seven years from the grant
   date or earlier for certain of the options if the option holder ceases to be
   employed by the Company or a subsidiary. During the three months ended March
   31, 2000, vested options to purchase 570 shares and non-vested options to
   purchase 20,420 shares of common stock previously awarded under the Company's
   1998 Stock Plan were forfeited under the terms of the Plan. Options granted
   under the 1998 Stock Plan to purchase 334,635 shares of common stock remain
   outstanding as of March 31, 2000.

   A total of 10,000 options for common shares, exercisable at $4.50 per share,
   were awarded under the Company's 1997 Stock Plan during the three months
   ended March 31, 2000. All of the options will vest with respect to 20% of the
   shares subject to each grant on each of the first through fifth anniversaries
   of the grant date. The right to exercise options to purchase shares expires
   seven years from the grant date or earlier for certain of the options if the
   option holder ceases to be employed by the Company or a subsidiary. During
   the three months ended March 31, 2000, vested options to purchase 280 shares
   and non-vested options to purchase 280 shares of common stock previously
   awarded under the Company's 1997 Stock Plan were forfeited under the terms of
   the Plan. Options granted under the 1997 Stock Plan to purchase 298,650
   shares of common stock remain outstanding as of March 31, 2000.

   A total of 60,000 options for common shares, exercisable at an average
   exercise price of $4.46 per share, were awarded under the Company's 1996
   Stock Plan during the three months ended March 31, 2000. A total of 40,000 of
   the options will vest with respect to 20% of the shares subject to each grant
   on each of the first through fifth anniversaries of the grant date, except
   that 21,250 options will vest earlier in the event of a change in control of
   the Company, as defined in certain employment agreements. A total of 5,000 of
   the options vested immediately upon grant. A total of 15,000 of the options
   will vest on the earlier to occur of May 15, 2001 or a change in control of
   the Company. See Item 11 - Executive Compensation of the Company's Annual
   Report on Form 10-K for the year ended December 31, 1999 for additional
   information concerning the vesting of options in the event of a change in
   control of the Company. The right to exercise options to purchase shares
   expires seven years from the grant date or earlier for certain of the options
   if the option holder ceases to be employed by the Company or a subsidiary.
   During the three months ended March 31, 2000, vested options to purchase
   3,150 shares and non-vested options to purchase 100 shares of common stock
   previously awarded under the Company's 1996 Stock Plan were forfeited under
   the terms of the Plan. Options granted under the 1996 Stock Plan to purchase
   231,550 shares of common stock remain outstanding as of March 31, 2000.

                                      -11-
<PAGE>

6. Industry Segment Information

   Basis for Determining Segments

   The Company follows Financial Accounting Standards Board Statement No. 131,
   "Disclosures about Segments of an Enterprise and Related Information" ("SFAS
   No. 131") as the basis for determining its segments. SFAS No. 131 introduces
   a new model for segment reporting called the "management approach". The
   management approach is based on the way the chief operating decision maker
   organizes segments within a company for making decisions and assessing
   performance. Segments to be reported will fall under two groups, Solution
   Area Services and Ancillary Services & Product Sales. The Company's
   operations and management's evaluations are primarily oriented around five
   solution areas: Information Technology Infrastructure, Business Operations,
   Knowledge Management, Electronic Business and Interactive Media. Solution
   Area Services comprise the substantial majority of the Company's current
   activities and are most closely associated with its strategic focus of being
   a solutions-oriented information technology consulting company. Grouping the
   solution area services in segment reporting emphasizes their commonality of
   purpose in meeting the core marketing strategy of the Company. In connection
   with its solutions-oriented services, clients will request that the Company
   also provide technology-related products necessary for implementation or
   ongoing use of technology solutions recommended and implemented by the
   solution areas. To ensure client satisfaction, the Company maintains an
   ancillary capability to provide product sales of information system hardware,
   software and equipment and supplies utilized by interactive media systems.
   The Company also continues to own and operate two interactive television
   systems as a result of a discontinued operating model. The segment group
   Ancillary Services & Product Sales will include these activities which are
   ancillary to or outside of the Company's current strategic focus.

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

   Measurement Method

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



                                      -12-
<PAGE>

Revenue

  Information on revenue derived from external customers is as follows:

<TABLE>
<CAPTION>
(Dollars in thousands)                                                      Revenue from External
                                                                                 Customers
Three Month Periods ended March 31                                              1999       2000
                                                                          -----------------------

<S>                                                                        <C>              <C>
Solution Area Services:
    Information Technology Infrastructure                                       $1,014      $  947
    Business Operations                                                          3,650       2,060
    Knowledge Management                                                           ---         356
    Electronic Business                                                              3         234
    Interactive Media:
        Interactive Media Consulting                                                63         263
        Interactive Media Systems Integration                                       20       1,703
        Digital Imaging Systems Integration                                        512         718
                                                                         -------------------------
Total Solution Area Services                                                    $5,262      $6,281

Ancillary Services & Product Sales:
    Interactive Television Transactional Revenue & Management Fees              $  663      $  148
    Digital Imaging Product Sales                                                   97         317
    Information System Product Sales                                                43         260
    Other Services                                                                  68          81
                                                                         -------------------------
Total Ancillary Services & Product Sales                                        $  871      $  806
                                                                         -------------------------


Consolidated Revenue from External Customers                                    $6,133      $7,087
                                                                         =========================
</TABLE>

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

<TABLE>
<CAPTION>

(Dollars in thousands)                                                   Revenue from Related Entities
Three Month Periods ended March 31                                               1999        2000
                                                                        --------------------------------
<S>                                                                     <C>               <C>
Solution Area Services                                                           $  57       $  78
Ancillary Services & Product Sales                                                  80          85
                                                                        ---------------------------------

Total Revenue from Related Entities in Other Segments                            $ 137       $ 163
                                                                        =================================
</TABLE>

                                      -13-
<PAGE>

  Gross Profit

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

<TABLE>
<CAPTION>

(Dollars in thousands)                                                               Gross Profit
Three Month Periods ended March 31                                                1999            2000
                                                                              ------------------------
<S>                                                                             <C>             <C>
Solutions Area Services:
    Information Technology Infrastructure                                       $  443          $  488
    Business Operations                                                          1,119             573
    Knowledge Management                                                           ---             173
    Electronic Business                                                              1             121
    Interactive Media:
        Interactive Media Consulting                                                36             161
        Interactive Media Systems Integration                                        8             964
        Digital Imaging Systems Integration                                        118             234
                                                                              ------------------------
Total Solution Area Services                                                    $1,725          $2,714

Ancillary Services & Product Sales:
    Interactive Television Transactional Revenue & Management Fees              $  593          $  101
    Digital Imaging Product Sales                                                   15              26
    Information System Product Sales                                                 7              88
    Other Services                                                                 (29)             60
                                                                              ------------------------
Total Ancillary Services & Product Sales                                        $  586          $  275
                                                                              ------------------------

Consolidated Gross Profit                                                       $2,311          $2,989
                                                                              ========================
</TABLE>

                                      -14-
<PAGE>

  Assets

  Information on total assets attributable to segments is as follows:

<TABLE>
<CAPTION>

(Dollars in thousands)                                                             Total Assets
As of March 31                                                                  1999            2000
                                                                              -------------------------
<S>                                                                           <C>              <C>
Solution Area Services:
    Information Technology Infrastructure                                     $ 8,297          $ 6,931
    Business Operations                                                        12,179           11,011
    Knowledge Management                                                          ---              431
    Electronic Business                                                           259              504
    Interactive Media:
        Interactive Media Consulting                                               48              229
        Interactive Media Systems Integration                                     208            1,377
        Digital Imaging Systems Integration                                       800            1,744
                                                                              ------------------------
Total Solution Area Services                                                  $21,791          $22,227

Ancillary Services & Product Sales:
    Interactive Television Transactional Revenue & Management Fees            $ 2,183          $   399
    Digital Imaging Product Sales                                                 152              666
    Information System Product Sales                                              113              281
    Other Services                                                                 59              126
                                                                              ------------------------
Total Ancillary Services & Product Sales                                      $ 2,507          $ 1,472

Corporate                                                                       1,650            2,165
                                                                              ------------------------

Consolidated Total Assets                                                     $25,948          $25,864
                                                                              ========================
</TABLE>


7. 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
   previously owned by Allin Interactive and operated on Celebrity ships. Sale
   proceeds were received by Allin Interactive subsequent to satisfactory joint
   inspections of the systems by Allin Interactive and Celebrity. Two ship
   system sales were completed in each of August and September 1999. Allin
   Interactive and Celebrity also entered related agreements providing for
   operation and maintenance of the interactive systems sold.

   Under the maintenance agreement between Allin Interactive and Celebrity,
   Allin Interactive was obligated to provide ongoing technical support for the
   four interactive television systems sold to Celebrity, as well as a fifth
   system previously sold to Celebrity, for a minimum period of six months
   following completion of all system sales and transfers of operational
   responsibility. The minimum maintenance period ended March 17, 2000. Allin
   Interactive earned fixed monthly maintenance fees during the initial six-
   month maintenance period. Revenue for the four interactive television system
   sales was recognized over the minimum period of the maintenance agreement
   concurrent with Allin Interactive's minimum technical maintenance obligation.

                                      -15-
<PAGE>

Item 2.


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


     The following discussion and analysis by management provides information
with respect to the Company's financial condition and results of operations for
the three-month periods ended March 31, 2000 and 1999.  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, 1999, 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 "expects," "anticipates," "believes," and other similar
expressions, are intended to identify forward-looking information that involves
risks and uncertainties.  In addition, any statements that refer to expectations
or other characterizations of future events or circumstances are forward-looking
statements.  Actual results and outcomes could differ materially as a result of
important factors including, among other things, uncertainty as to the Company's
future profitability; fluctuations in operating results, accumulated deficit,
and liquidity; risks associated with the Company's limited operating history
under new marketing strategies, the need for management of growth and geographic
expansion; dependence on key personnel; the risks inherent in development of new
products and markets; competition in the Company's existing and potential future
lines of business and rapidly changing technology as well as other risks and
uncertainties. See "Special Note on Forward-Looking Statements" below.

Overview of Organization, Products & Markets

     Allin Corporation (the "Company") is a solutions-oriented information
technology consulting company that teams with businesses to help them transform
the promise of the internet into practical business realities through five
interrelated solution areas:  Information Technology Infrastructure, Business
Operations, Knowledge Management, Electronic Business and Interactive Media.
The Company offers Microsoft-focused technology consulting, application
development and systems integration services specializing in Windows NT-based
and Windows 2000-based software.  The Company maintains a customer-oriented
focus in its marketing strategy and operations.  The Company is intent on
building long-term customer relationships by providing value in the form of
solutions that address specific customer information technology needs.  In both
1998 and 1999, 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 March 31, 2000, the
organizational legal structure consists of Allin Corporation, five wholly owned
operating subsidiaries and one wholly owned non-operating subsidiary.  The
operating subsidiaries are Allin Corporation of California ("Allin Consulting-
California"), Allin Consulting of Pennsylvania, Inc. ("Allin Consulting-
Pennsylvania"), Allin Interactive Corporation ("Allin Interactive"), Allin
Digital Imaging Corp. ("Allin Digital Imaging") and Allin Network Products, Inc.
("Allin Network").  Allin Holdings Corporation ("Allin Holdings") is a non-
operating subsidiary that provides treasury management services to the Company.
Allin Consulting-California and Allin Network are California corporations, Allin
Consulting-Pennsylvania is a Pennsylvania corporation and Allin Interactive,
Allin Digital and Allin Holdings are Delaware corporations.  Unless the context
otherwise requires, all references herein to the "Company" mean Allin
Corporation and its subsidiaries.  The Company utilizes the trade-names Allin
Consulting, Allin Interactive, Allin Digital Imaging and Erie Computer Company
in its operations.  The Company is headquartered in Pittsburgh, Pennsylvania and
operates additional offices in San Jose, Walnut Creek and Oakland, California,
Ft. Lauderdale, Florida, Cleveland, Ohio and Erie, Pennsylvania.

                                      -16-
<PAGE>

     On February 3, 2000, Allin Network acquired certain assets utilized in the
operations of Erie Computer Company ("Erie Computer"), previously an operating
division of Patterson-Erie Corporation ("Patterson-Erie").  Erie Computer's
operations include information technology consulting services, computer
hardware, software and networking equipment sales and computer hardware service.
Erie Computer is located in Erie, Pennsylvania and had operated for twenty-three
years prior to Allin Network's acquisition of its assets.  Allin Network has
retained the Erie Computer employees and intends to continue use of the trade-
name "Erie Computer Company".  The acquisition did not meet the requirements to
be considered a significant subsidiary under SEC regulations.

     As noted previously, the Company's operations and marketing strategy are
oriented around five interrelated solution areas.  A brief description of each
solution area is as follows:

 .  The Information Technology Infrastructure Solution Area focuses on the
   underlying platforms and operating systems necessary to take advantage of the
   latest 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, monitoring
   and support of customer operating systems, management and maintenance of
   database platforms, messaging systems, information system security solutions
   such as firewalls and proxy servers, help desk support and application
   services such as message queing and transaction servers.

 .  The Business Operations Solution 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 Company's Business Operations Solution Area also
   provides consulting and development for mainframe systems and specialized
   consulting services for the banking industry.

 .  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 Electronic Business Solution 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.

 .  The Interactive Media Solution Area focuses on the Company's expertise in the
   digital media applications including streaming video, interactive television
   and digital imaging solutions. Interactive Media delivers business-to-
   business and business-to-consumer E-Commerce platforms. Interactive Media
   performs services on both a consulting and systems integration basis.

     The operations of each solution area are discussed in more detail below in
this Overview of Organization, Products & Markets.

     The solution area structure is defined more by a customer's use of the
services than the technological disciplines utilized in the engagement.
Management believes that it fosters a customer-oriented focus. The Company is
intent on building long-term customer relationships by providing value in the
form of solutions that address specific customer information technology needs.
Solution area sales and operational personnel must understand a customer's
business issues to provide a customized solution for their particular needs. The
ability of customers to manage information has become a prerequisite for their
success. A company's knowledge capital has become increasingly critical in
allowing it to react more quickly to customer needs, bring products to market
with greater speed and respond more completely and competitively to changing
business conditions. The growing influence of the Internet in the business arena
is also fundamentally changing how businesses interact with customers and
suppliers. The Company believes that the effective delivery of customer-oriented
technology solutions will foster the growth of long-term customer relationships
with ongoing service opportunities. There can be no assurance, however, that the
Company will realize revenue at current or increased levels in future periods as
a result of its strategy. The Company's target market is emerging small and
medium-sized businesses seeking to achieve a competitive advantage through
technology. The Company believes that businesses with annual revenue ranging
from $250 million to $1 billion afford the Company the best opportunities to
offer solutions creating value for the customers and to foster the development
of long-term business relationships. Management believes customers of this size
are more likely to

                                      -17-
<PAGE>

utilize Microsoft-oriented information technology than larger organizations and
typically have less sophisticated internal technical resources. The Company will
not, however, limit its marketing and sales efforts solely to customers of this
size. A major marketing initiative of 2000 is to build awareness among
businesses in the Company's target market that the Company is an organization
focused on the realities of the Internet and Internet-based business solutions.
The Information Technology Infrastructure, Business Operations, Knowledge
Management and Electronic Business Solution Areas target horizontal markets,
meaning businesses across a broad spectrum of industries. Interactive Media
targets certain vertical markets where the Company believes industry conditions
are conducive to acceptance of the Company's services, including the cruise,
healthcare, education and professional photography markets. Solution area
services comprise the substantial majority of the Company's current activities,
are most closely associated with its strategic focus and have a commonality of
purpose in meeting the core strategic objectives of the Company.

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

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

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

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

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

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

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



                                      -18-
<PAGE>

      The Company has established operating relationships with some of the
leading suppliers of information technology products to complement its solution
area services.  Foremost among these is the operating relationship with
Microsoft Corporation ("Microsoft").  Both of the Company's Allin Consulting
subsidiaries are certified as Microsoft Solutions Provider Partners. Allin
Consulting is also a member of Microsoft's Infrastructure and Knowledge
Management Partner Advisory Councils.  Council members are a select group of
Microsoft Solution Providers with a successful history of implementing Microsoft
information technology who work closely with Microsoft to provide guidance on
key issues that ultimately shape Microsoft's channel-based strategy for
delivering customer solutions and services.  The Company's role as a member of
these Advisory Councils has also positioned it to quickly develop solutions
expertise in new Microsoft technologies such as Windows 2000.  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
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.  The Company intends to continue its
specialization in Microsoft-based technology products.


     Technology infrastructure is comprised of three significant components: the
physical network, the operating system and back-office applications.  The
physical network component deals with network design, network security, local
and remote access and Internet connectivity.  The operating system encompasses
all aspects of the design and implementation of a network operating system
including protocol design, policies, profiles, desktop standards, client
installation/imaging and backup schemas.  Back-office operations encompass the
design and installation of communications servers, database servers and
application servers.  Information Technology Infrastructure Solution Area
services focus on the proper selection, implementation and management of the
underlying platforms driving customers' information systems.  Services include
design, configuration, implementation, monitoring 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
Information Technology Infrastructure Solution Area services for the
client/server environment maintain a focus on Microsoft BackOffice technology
including Windows 2000, Windows NT Server, SQL Server, SNA Server, Systems
Management Server, Exchange Server and Internet Information Server.  This
solution area also creates network solutions that integrate Unix, Lotus, Oracle,
Novell and IBM mainframe systems with Windows NT-based networks.

     The Business Operations Solution Area provides custom software development
services for the client/server environment, offering a full spectrum of services
including business requirements analysis, data modeling and design, project and
technical management, programming, documentation and support.  The Business
Operations Solution 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.  Additionally, Business Operations 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.

     The Knowledge Management Solution Area focuses on five knowledge services,
collaboration, content and document management, business intelligence, search
and delivery and workflow, which enhance an organization's ability to
disseminate knowledge.  These services provide tools to empower customer
personnel with business intelligence for fast and effective decision making.
Knowledge Management designs and implements solutions establishing collaborative
systems that enable enterprise-wide users to innovate through threaded
decisions, document management and workflow.  Knowledge Management's solutions
enable all functional areas of an enterprise to monitor key business indicators
such as sales orders, schedules and customer requests through a knowledge base
consisting of relational data, e-mail messages, files and dynamic web content.

     The Electronic Business Solution Area provides solutions implementing
revenue-generating customer-accessible E-commerce applications, business-to-
business extranets and internally-focused intranets.  Solutions are developed
that address E-business implementation issues such as cost, value, security,
integration and interoperability.  Electronic Business develops solutions based
on Microsoft's Internet Explorer which allows software systems that support many
features of traditional client/server applications while reducing development
and deployment costs.  Electronic Business utilizes the latest Microsoft web
development tools, such as Visual Studio to

                                      -19-
<PAGE>

develop cost effective, scalable solutions. Electronic Business solutions
include company web sites, web catalogues, web-based customer support
information, commerce enabled web storefronts, and intranet and extranet serving
of corporate databases.

     The Company's Interactive Media Solution Area utilizes the Company's
expertise in digital media applications to provide solutions based on streaming
of media, interactive television and digital imaging.  These solutions utilize
advanced technology and can help customers utilize the power of the Internet to
differentiate products and services.  Interactive Media delivers business-to-
business and business-to-consumer E-commerce platforms currently focused on four
vertical target markets:  the cruise industry, healthcare, education and
professional photography.  Interactive Media consulting services specialize in
interactive media design and specification and application development.
Management believes that the Interactive Media Solution Area is a leader in the
development of interactive television platforms.  Interactive Media currently
offers systems integration services for installation of business-to-consumer E-
commerce platforms featuring new hardware configurations utilizing state of the
art equipment from On Command Corporation (On Command").  The On Command
equipment offers substantial functionality improvements over end-user and head
end components previously used in the Company's interactive television systems.

     The Interactive Media Solution Area also provides comprehensive systems
integration services in digital imaging technology to the professional
photography industry.  The Company believes that the Internet will be a driving
force accelerating a market trend in the professional photography industry
toward digital imaging.  The Company believes that its Interactive Media
Solution Area is on the forefront of developing Internet-based business-to-
business and business-to-consumer E-commerce solutions for the professional
photography industry.  The Company's Portraits Online/TM/ proprietary Internet-
based portrait viewing and selling systems allow photography customers to view
and order their portraits online at the studio following their portrait session.
In addition, the system gives the consumer the ability to access and order their
images via the studio's Portraits Online/TM/ Internet site. There can be no
assurance, however, that competing or superior digital imaging products or
systems may emerge which may adversely impact the Company.

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

   .  The Company continues to derive revenue for transactional interactive
      services such as pay-per-view movies and video gaming from interactive
      television operations on two cruise ships. Operations of this type
      originated when the Company followed an owner-operator model from 1995 to
      1997 for its interactive television system operations. The Company expects
      that interactive television transactional revenue to be realized in 2000
      will be significantly reduced from previous levels due to a reduction in
      the number of systems operated on this basis.

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

   .  The Company's information system product sales historically have been
      primarily obtained in connection with technology consulting engagements
      carried out by the Company's solution areas. The Company views being a
      source of information system products as a complementary service to
      solution area customers and as an aid in maintaining established
      relationships. Erie Computer also maintains information system product
      sale operations that are not dependent on its consulting operations.

                                      -20-
<PAGE>

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

Results of Operations

Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999

Revenue

     The Company's total revenue for the three months ended March 31, 2000 was
$7,087,000, an increase from total revenue of $6,133,000 for the three months
ended March 31, 1999.  The increase of $954,000, or 16%, is attributable to a
$1,019,000, or 19%, increase in revenue for the Company's solution area
operations.  Significant revenue increases of $2,676,000 were realized
collectively among the Company's Knowledge Management, Electronic Business and
Interactive Media Solution Areas, which more than offset a $1,590,000 decline in
revenue for the Business Operations Solution Area.  The Company's management
believes that the revenue realized in the first quarter of 2000 reflects the
Company's strategic emphasis now and throughout 1999 on promoting solutions-
oriented services.  The Knowledge Management, Electronic Business and
Interactive Media Solution Areas perform primarily solutions-oriented services
provided on a managed or co-managed delivery method.

     The Company's solution areas recognized revenue, after elimination of
intercompany sales, of $6,281,000 during the three months ended March 31, 2000,
including $947,000 for Information Technology Infrastructure, $2,060,000 for
Business Operations, $356,000 for Knowledge Management, $234,000 for Electronic
Business and $2,684,000 in Interactive Media.  Comparable solution area revenue
for the three months ended March 31, 1999 was $5,262,000 in total, including
$1,014,000 from Information Technology Infrastructure, $3,650,000 from Business
Operations, $3,000 from Electronic Business and $595,000 from Interactive Media.

     Information Technology Infrastructure revenue decreased $67,000, or 7%, in
the three months ended March 31, 2000 as compared to the three months ended
March 31, 1999.  The decline is attributable to the reorientation of the
Company's solutions-oriented consulting offerings from primarily Information
Technology Infrastructure to a broader array of services.  The solutions-
oriented sales staff emphasized development of Knowledge Management and
Electronic Business revenue throughout 1999 in order to broaden the Company's
revenue base, with the result that Information Technology Infrastructure revenue
has declined slightly.  The Company's management believes several market forces
will contribute to increasing opportunities for Information System
Infrastructure sales in 2000, including the introduction of Windows 2000 and the
need for companies to improve their technical infrastructure to support
Internet-driven business capabilities.  There can be no assurance, however, that
the Company will realize increases in, or maintain current levels of, revenue in
the Information Technology Infrastructure Solution Area in the future.

     The substantial decrease in Business Operations revenue of $1,590,000, or
44%, in the three months ended March 31, 2000 as compared to the three months
ended March 31, 1999 is attributable to significant declines experienced due to
the impact of the Year 2000 computer problem and from the Company's strategic
shift to emphasizing the development of solutions-oriented operations under the
managed or co-managed delivery methods.  The majority of Business Operations
consulting has historically been delivered through the staffing model including
most of Business Operations' mainframe computer services and specialized banking
industry consulting services.  As was discussed in the Industry Overview -
Technology Consulting Services section in Item 1 - Business of the Company's
Annual Report on Form 10-K for the year ended December 31, 1999, the Year 2000
problem negatively impacted demand for technology consulting services industry-
wide in 1999 from customers' postponement of new technology initiatives or
development projects in order to be conducting a more simple scope of operations
when the full impact of any concerns regarding possible Year 2000 problems would
be realized.  The largest declines in demand for technology consulting services
were noted for technology staffing operations.  Business Operations revenue
continued to be impacted by this industry trend in the first quarter of 2000, as
the level of demand for staffing services continued to be low.  The Company's
shift in strategy toward solutions-oriented services has also increased the
emphasis placed by the sales staff on revenue development in other solution
areas.

                                      -21-
<PAGE>

     The Knowledge Management Solution Area was organized in early 1999, but
revenue was not realized until the second quarter of 1999.  Knowledge Management
revenue has grown substantially during the first year of operations and
represents 6% of solution area revenue and 5% of overall revenue during the
three months ended March 31, 2000.  Management believes the performance of this
solution area in its initial year of operation confirms that a market exists for
solutions based on key knowledge services including collaboration, content and
document management, business intelligence, search and delivery and workflow.
Management believes the business opportunities obtained to date for Knowledge
Management services have been consistent with the Company's solutions-oriented
strategy and have significantly contributed to the increase in solutions-
oriented revenue realized in the first quarter of 2000 as compared to the first
quarter of 1999.  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 three months ended March 31, 2000.

     The Electronic Business Solution Area recorded a revenue increase of
$231,000 for the three months ended March 31, 2000 as compared with the three
months ended March 31, 1999.  As was discussed in the Industry Overview -
Technology Consulting Services section in Part 1 - Business of the Company's
Annual Report on Form 10-K, the Internet is viewed by industry analysts as the
next significant wave of technological and business innovation, with Internet-
related business activity expected to grow significantly over the early years of
the 2000's.  Internet-based technology consulting is also expected to share in
the rapid growth.  The Company's management believes that the compelling market
forces represent an opportunity for growth in Electronic Business services that
started to be realized late in 1999 and continued through the first quarter of
2000.  The Company is committed to further development of this solution area in
2000 with additional technical and sales resources.  There can be no assurance,
however, that the Company will realize revenue equal to or greater than current
levels for its Electronic Business Solution Area in the future.

     Interactive Media Solution Area revenue totaled $2,684,000 for the three
months ended March 31, 2000, including $263,000 for interactive media
consulting, $1,703,000 for interactive media systems integration and $718,000
for digital imaging systems integration.  Comparable Interactive Media revenue
for the three months ended March 31, 1999 was $595,000 in total, including
$63,000 for interactive media consulting, $20,000 for interactive media systems
integration, and $512,000 for digital imaging systems integration.  The increase
in revenue was 351% comparing the first quarter of 2000 to the first quarter of
1999.

     Revenue for Interactive Media consulting services increased by $200,000, or
317%, comparing the first quarter of 2000 to the first quarter of 1999. Services
provided include application design and development for business-to-consumer
E-business platforms. The Company's management believes the growth of
interactive media technology in the markets targeted by the Interactive Media
Solution Area and the Company's extensive experience with interactive technology
offer the opportunity for revenue growth. There can be no assurance, however,
that the Company's Interactive Media Solution Area will continue to realize
consulting revenue equal to or greater than was realized in the first quarter of
2000.

     Revenue for Interactive Media systems integration services increased by
$1,683,000 in the three months ended March 31, 2000 as compared to the three
months ended March 31, 1999.  The most significant sources of revenue during the
first quarter of 2000 were the interactive television system being installed on
the Celebrity ship Millennium and continuing revenue recognition from the 1999
sale of four shipboard interactive television systems to Celebrity.  The
Celebrity ship systems had been installed from 1995 to 1997 on an owner-operator
model followed by the Company at that time.  Revenue from the Celebrity system
sales was recognized over the minimum period of a related maintenance obligation
for the systems, which ended March 17, 2000.  Revenue from Interactive Media
systems integration services is expected to decline in the second quarter of
2000 due to completion of revenue recognition for the Celebrity system sales in
March 2000.  Additional sources of revenue during the first quarter of 2000 were
the installation of interactive media platforms for healthcare and educational
institutions.

     Digital imaging systems integration revenue increased by $206,000, or 40%,
in the three months ended March 31, 2000 as compared to the three months ended
March 31, 1999.  The Company's management believes the increase in revenue
resulted from the efforts of a larger internal sales force and greater industry
recognition of the Company's services as a result of advertising and trade show
presentations.

                                      -22-
<PAGE>

     The Company recognized revenue for ancillary services and product sales of
$806,000 during the three months ended March 31, 2000, including $148,000 for
interactive television transactional revenue & management fees, $317,000 for
digital imaging product sales, $260,000 for information system product sales and
$81,000 for other services.  Ancillary services and product sales revenue of
$871,000 was recognized during the three months ended March 31, 1999, including
$663,000 for interactive television transactional revenue & management fees,
$97,000 for digital imaging product sales, $43,000 for information system
product sales and $68,000 for other services.

     Interactive television transactional revenue & management fees decreased by
$515,000, or 78%, in the three months ended March 31, 2000 as compared to the
three months ended March 31, 1999.  The revenue decrease is attributable to the
Company's transition from an owner-operator model for interactive television
systems to a systems integration and consulting services model.  The Company
began 1999 operating interactive television systems on eight ships and ended the
year operating two of the systems.  The Company believes the transactional
revenue realized from these remaining systems justifies their continued
operation.  Digital imaging product sales increased by $220,000, or 227%, in the
first quarter of 2000 as compared to the first quarter of 1999.  The Company
derives the majority of this revenue from the sale of consumable products and
equipment utilized in the digital photography process to customers for which the
Company had previously installed a digital imaging system.  The increase in
revenue in 2000 resulted from a substantially larger base of customers with
installed systems than had been present in 1999 and several sales of high value
equipment such as digital cameras during the first quarter of 2000.  Information
system product sale revenue increased by $217,000, or 505%, in the three months
ended March 31, 2000 as compared to the three months ended March 31, 1999.  The
most significant factor contributing to the increase was the Company's
acquisition of Erie Computer in February 2000.  Erie Computer's revenue base
includes a significant component of information system product sales that are
not dependent on its technology consulting operations.  There can be no
assurance, however, that revenue increases will continue to be realized as a
result of the acquisition.  Revenue from other services increased by $13,000 in
the first quarter of 2000 as compared to the first quarter of 1999 due to a
higher level of placement fees recorded in 2000.

Cost of Sales and Gross Profit

     The Company recognized cost of sales of $4,098,000 during the three months
ended March 31, 2000 as compared to $3,822,000 during the three months ended
March 31, 1999.  The increase in cost of sales of $276,000 resulted primarily
from a $1,186,000 increase in cost of sales for the Company's Interactive Media,
Knowledge Management and Electronic Business Solution Areas, which was
attributable to the substantial revenue increase from these services.  The
majority of the increase in cost of sales was offset by a decline in Business
Operations cost of sales of $1,044,000 related to a substantial decline in
Business Operations revenue comparing the first quarter of 2000 to the first
quarter of 1999.  Gross profit of $2,989,000 was recognized for the three months
ended March 31, 2000 as compared to $2,311,000 for the three months ended March
31, 1999, an increase of $678,000, or 29%.  The 29% increase in gross profit in
the first quarter of 2000 as compared to the first quarter of 1999 was higher
than the 16% revenue increase.  The Company's management attributes the
improvement in gross profit as a percent of revenue to the increase in the
solutions-oriented consulting and integration services provided by the Knowledge
Management, Electronic Business and Interactive Media Solution Areas in 2000.
Management believes solutions-oriented services provided under the managed and
co-managed delivery methods offer the potential for higher billing rates and
margins than staffing-oriented services and that the substitution of solutions-
oriented services for staffing services from the first quarter of 1999 to the
first quarter of 2000 resulted in improvement to the Company's gross profit both
in aggregate dollars and percent of revenue.

     The Company's solution areas recorded a total of $3,567,000 for cost of
sales during the three months ended March 31, 2000, including $459,000 for
Information Technology Infrastructure, $1,487,000 for Business Operations,
$183,000 for Knowledge Management, $113,000 for Electronic Business and
$1,325,000 for Interactive Media.  Comparable cost of sales for the three months
ended March 31, 1999 was $3,537,000 in total, including $571,000 for Information
Technology Infrastructure, $2,531,000 for Business Operations, $2,000 for
Electronic Business and $433,000 for Interactive Media.  Increases or decreases
in cost of sales are also attributable to the factors that resulted in changes
in revenue for these services, including growth in the solutions-oriented
consulting and systems integration services provided by the Knowledge
Management, Electronic Business and Interactive Media Solution Areas and the
decline in Business Operations services provided on a staffing delivery method.
Gross profit for the Company's solution areas for the three months ended March
31, 2000 was $2,714,000, including

                                      -23-
<PAGE>

$488,000 for Information Technology Infrastructure, $573,000 for Business
Operations, $173,000 for Knowledge Management, $121,000 for Electronic Business
and $1,359,000 for Interactive Media. Comparable gross profit for the three
months ended March 31, 2000 was $1,725,000 in total, including $443,000 for
Information Technology Infrastructure, $1,119,000 for Business Operations,
$1,000 for Electronic Business and $162,000 for Interactive Media. The
substantial increase in consulting and systems integration revenue in the
Knowledge Management, Electronic Business and Interactive Media Solution Areas,
partially offset by the decline in Business Operations revenue, is responsible
for the increase in gross profit in the first quarter of 2000 as compared to the
first quarter of 1999.

     Information Technology Infrastructure gross profit increased $45,000 in the
three months ended March 31, 2000 as compared to the three months ended March
31, 1999 while revenue decreased by $67,000.  The Company was able to realize a
10% increase in gross profit in the first quarter of 2000 as compared to the
first quarter of 1999 despite a 7% revenue decline.  The increase in gross
profit was realized through growth in high-margin solutions-oriented projects
for Allin Consulting-Pennsylvania.

     The Business Operations Solution Area experienced a decrease in gross
profit of $546,000 in the three months ended March 31, 2000 as compared to the
three months ended March 31, 1999.  The Company attributes the decline to
lessened demand for mainframe-oriented technology services and the Company's
specialized bank consulting services due to customers' postponement of
technology projects pending evaluation of the impact of the Year 2000 rollover.
The Company is also emphasizing other solutions-oriented services more strongly
in its sales and marketing efforts.

     The Knowledge Management Solution Area realized gross profit of $173,000,
or 48% of revenue, during the three months ended March 31, 2000.  Knowledge
Management operations did not commence until the second quarter of 1999 so no
comparison can be made to prior year results.  The Company's management believes
results from the first quarter of 2000 continue to validate the existence of a
market for Knowledge Management services and demonstrate the Knowledge
Management Solution Area's consistency with the Company's strategy of developing
solutions-oriented consulting services.

     The Electronic Business Solution Area realized gross profit of $121,000 in
the first three months of 2000 as compared to $1,000 in the first three months
of 1999.  The 2000 gross profit represented 52% of the Electronic Business
Solution Area 2000 revenue.  The Company has added technical and sales resources
to this solution area in 2000 because of management's belief that there will be
substantial market-driven growth in the demand for Internet-based technology
services in the early years of the 2000's.  Revenue and gross profit during the
first quarter of 2000 represent 82% and 74%, respectively, of revenue and gross
profit realized during the full year of 1999.  Management believes that the
first quarter 2000 results indicate the continued progress of the Electronic
Business Solution Area toward becoming a significant source of high-margin
growth for the Company.  There can be no assurance, however, that the Company
will be able to realize continued growth in revenue or gross profit from its
Electronic Business Solution Area services.

     Cost of sales for the Interactive Media Solution Area was $1,325,000 in
total for the three months ended March 31, 2000, including $102,000 for
interactive media consulting, $739,000 for interactive media systems integration
and $484,000 for digital imaging systems integration.  Interactive Media cost of
sales for the three months ended March 31, 1999 was $433,000 in total, including
$27,000 for interactive media consulting, $12,000 for interactive media systems
integration and $394,000 for digital imaging systems integration.  Interactive
Media Solution Area gross profit was $1,359,000 for the three months ended March
31, 2000, including $161,000 for interactive media consulting, $964,000 for
interactive media systems integration and $234,000 for digital imaging systems
integration.  Interactive Media gross profit was $162,000 for the three months
ended March 31, 1999, including $36,000 for interactive media consulting, $8,000
for interactive media systems integration and $118,000 for digital imaging
systems integration.  The increases in cost of sales and gross profit primarily
resulted from the substantial increases in consulting and systems integration
activity related to development and installation of the interactive television
system aboard the Millennium and the sale of four Celebrity ship interactive
systems.  The increase in gross profit on digital imaging systems integration
was driven by both significant revenue growth and an improvement in the gross
profit as a percent of revenue from 23% in the first quarter of 1999 to 33% in
the first quarter of 2000.  The Interactive Media Solution Area as a whole
realized gross profit of 51% of revenue in the three months ended March 31, 2000
as compared to 27% in the three months ended March 31, 1999.

                                      -24-
<PAGE>

     Cost of sales for the Company's ancillary services and product sales was
$531,000 for the three months ended March 31, 2000, including $47,000 for pay-
per-view movies associated with interactive television transactional revenue and
management fees, $291,000 for digital imaging product sales, $172,000 for
information system product sales and $21,000 for other services. Cost of sales
for ancillary services and product sales was $285,000 for the three months ended
March 31, 1999, including $70,000 for pay-per-view movies, $82,000 for digital
imaging product sales, $36,000 for information system product sales and $97,000
for other services. Gross profit on ancillary services and product sales was
$275,000 for the three months ended March 31, 2000, including $101,000 for
interactive television transactional revenue and management fees, $26,000 for
digital imaging product sales, $88,000 for information system product sales and
$60,000 for other services. Gross profit for ancillary services and product
sales was $586,000 for the three months ended March 31, 1999, including $593,000
for interactive television transactional revenue and management fees, $15,000
for digital imaging product sales, $7,000 for information system product sales
and a gross loss of $29,000 for other services. The decline in gross profit of
$492,000 on interactive television transactional revenue and management fees was
attributable to the reduction in the number of operating ship systems from eight
to two. The growth of gross profit on information system product sales of
$81,000 in the first quarter of 2000 as compared to the first quarter of 1999
reflects both growth in sales and improvement in the profit margin on sales.

Selling, General & Administrative Expenses

     The Company recorded $2,905,000 in selling, general & administrative
expenses during the three months ended March 31, 2000 as compared to $3,073,000
during the three months ended March 31, 1999, a decrease of $168,000, or 5%.
The two largest factors contributing to the decline in selling, general and
administrative expenses were lower expenses recorded related to severance
accruals and depreciation and amortization during the first quarter of 2000 than
during the first quarter of 1999.

     During the three months ended March 31, 2000, a severance accrual of
approximately $70,000 was recorded as a result of the termination of services of
two managerial personnel associated with the staffing services provided by the
Company's Business Operations Solution Area.  During the three months ended
March 31, 1999, a severance accrual of approximately $208,000 was recorded due
to the Company's termination of the employment contract for its then President.

     Depreciation and amortization were $523,000 for the three months ended
March 31, 2000 as compared to $626,000 for the three months ended March 31,
1999.  The decline is due to the inclusion of depreciation expense during the
first quarter of 1999 for four shipboard interactive television systems
subsequently sold to Celebrity.

     During the three months ended March 31, 1999, the Company recorded a write-
down 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 during this period.  The assets written down were
disposed of or were not utilized subsequent to the move.  No comparable expense
was recorded during the three months ended March 31, 2000.

     Research and development expense included in selling, general &
administrative expenses was $13,000 for the three months ended March 31, 2000 as
compared to $6,000 for the three months ended March 31, 1999.  Research and
development activity during the first quarter of 2000 was carried out by the
Interactive Media Solution Area and included continuing development of the
Portraits Online/TM/ Internet-based E-Commerce platforms and development
activities associated with On Command's equipment platform, which is utilized by
the Company for interactive media systems integration projects.

     Selling, general & administrative expenses declined as a percentage of
revenue from 50% in the first quarter of 1999 to 41% in the first quarter of
2000.  Despite the decline, the Company has continued to invest in additional
sales and delivery resources for its solutions-oriented operations.  These
investments were offset by reductions in selling, general & administrative
expenses related to areas of declining revenue such as staffing-oriented
consulting services and interactive television transactional services.  The
Company plans to continue investments in those segments of its business that
management believes are most closely aligned with the Company's strategic
objectives.  Management believes that selling, general & administrative expenses
will continue

                                      -25-
<PAGE>

to decline as a percentage of revenue, although there can be no assurance that
this result will continue to occur in future periods.

Net Income or Loss

     For the three months ended March 31, 2000, the Company recorded net income
of $19,000.  This was the first quarterly period during which the Company
recorded net income.  For the three months ended March 31, 1999, a net loss of
$851,000 was recorded.  The $870,000 improvement in profitability was
attributable to both the $678,000 improvement in gross profit and the $168,000
reduction in selling, general & administrative expenses from the first quarter
of 1999 to the first quarter of 2000, as discussed previously.

Liquidity and Capital Resources

     At March 31, 2000 the Company had cash and liquid cash equivalents of
$1,922,000 available to meet its working capital and operational needs.  The net
change in cash from December 31, 1999 was an increase of $34,000.  The net cash
provided from financing activities during the three months ended March 31, 2000
resulted from borrowings on the Company's line of credit, which offset net cash
used in operating activities and for capital expenditures.

     The Company recognized net income for the three months ended March 31, 2000
of $19,000.  Additionally, the Company recorded non-cash expenses of $760,000
for depreciation, amortization of software development costs and other
intangible assets and cost of fixed assets sold, resulting in net cash provided
of $779,000 related to the income statement.  Working capital adjustments
resulted in a net cash use of $1,414,000.  Foremost among the working capital
adjustments were an increase of $1,655,000 in accounts receivable due to
increased quarterly sales and a decrease of $969,000 in deferred revenue related
to revenue recognition for the Celebrity system sales.  These cash uses were
partially offset by an increase in accounts payable of $1,313,000.  The net
result of the income statement activity and working capital adjustments was a
net cash use of $635,000 related to operating activities.

     The net cash provided from financing activities of $843,000 during the
three months ended March 31, 2000 resulted from borrowings on the Company's line
of credit, offset by payments for preferred stock dividends and capital lease
obligations.  The net cash used of $174,000 for investing activities during the
three months ended March 31, 2000 was primarily for capital expenditures.

     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.  During the third quarter of 1999, the S&T Loan Agreement was
renewed for a second year, and expires on September 30, 2000.  The maximum
borrowing availability under the S&T Loan Agreement is the lesser of $5,000,000
or eighty-five percent of the aggregate gross amount of eligible trade accounts
receivable aged sixty days or less from the date of invoice.  Accounts
receivable qualifying for inclusion in the borrowing base are net of any
prepayments, progress payments, deposits or retention and must not be subject to
any prior assignment, claim, lien, or security interest.  As of March 31, 2000,
maximum borrowing availability under the S&T Loan Agreement was approximately
$4,291,000.  The outstanding balance as of March 31, 2000 was $1,565,000.

     Borrowings may be made under the S&T Loan Agreement for general working
capital purposes.  Loans made under the S&T Loan Agreement bear interest at the
bank's prime interest rate plus one percent.  During 2000, the applicable
interest rate ranged from 9.50% to 10.00%, which was in effect at March 31,
2000.  The interest rate increases or decreases from time to time as S&T Bank's
prime rate changes.  Interest payments on any outstanding loan balances are due
monthly on the first day of the month.  The Company recorded approximately
$1,000 in interest expense related to this revolving credit loan for the three
months ended March 31, 2000.  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

                                      -26-
<PAGE>

Holdings, are required to maintain depository accounts with S&T Bank, in which
accounts the bank has a collateral interest.

     The S&T Loan Agreement includes various covenants relating to matters
affecting the Company including insurance coverage, financial accounting
practices, audit rights, prohibited transactions, dividends and stock purchases,
which are disclosed in their entirety in the text of the S&T Loan Agreement
filed as an exhibit to the Company's Current Report on Form 8-K filed on October
9, 1998 and the Second Amendment to Note and Loan and Security Agreement filed
as Exhibit 4.1 to the Company's Report on Form 10-Q for the quarterly period
ended September 30, 1999.  The covenant concerning dividends and purchases of
stock prohibits the Company from declaring or paying cash dividends or
redeeming, purchasing or otherwise acquiring outstanding shares of any class of
the Company's stock, except for dividends payable in the ordinary course of
business on the Company's Series D, E and F 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 amendment between S&T Bank and the
Company renewing the revolving credit facility changed the measurement period
for this covenant.  The cash flow coverage ratio is now measured for each of the
Company's fiscal quarters.  The Company is in compliance with all covenants as
of March 31, 2000.  The S&T Loan Agreement also includes reporting requirements
regarding annual and monthly financial reports, accounts receivable and payable
statements, weekly borrowing base certificates and audit reports.

     As of March 31, 2000, the Company had 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.  Accrued but unpaid dividends on the Series C
preferred stock were approximately $832,000 as of March 31, 2000 and
approximately $862,000 as of May 11, 2000.  Series C preferred stock earns
dividends at the rate of 8% of the liquidation value thereof per annum,
compounded quarterly, until June 30, 2006, when the Company will be obligated to
pay accrued dividends, subject to legally available funds.  Any accrued
dividends on the Series C preferred stock not paid by this date will compound
thereafter at a rate of 12% of the liquidation value thereof per annum.  After
June 30, 2006, dividends on the Series C preferred stock will accrue and
compound at a rate of 12% per annum and will be payable quarterly, subject to
legally available funds.  The Company's current credit agreement with S&T Bank
prohibits payment of dividends on Series C preferred stock during the term of
the agreement.

     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 remained
outstanding as of March 31, 2000.  There is no mandatory redemption date for the
Series D preferred stock.  Series D preferred stock is convertible into the
Company's common stock until August 13, 2003.  Each share of Series D preferred
stock is convertible into the number of shares of common stock determined by
dividing 1,000 by $3.6125, which is 85% of the $4.25 per share price on the last
trading day prior to the date of closing of the acquisition of Allin Consulting-
Pennsylvania.  Series D preferred stock earns dividends at the rate of 6% of the
liquidation value thereof per annum, compounded quarterly.  Dividends on Series
D preferred stock are payable quarterly in arrears as of the last day of
October, January, April and July, subject to legally available funds.  Accrued
but unpaid dividends on Series D preferred stock were approximately $27,000 as
of March 31, 2000 and approximately $5,000 as of May 11, 2000.

     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 Convertible
Redeemable Preferred Stock having a liquidation preference of $1,000 per share.
All of the 1,926 shares of Series E preferred stock remained outstanding as of
March 31, 2000.  There is no mandatory redemption date for the Series E
preferred stock.  Series E preferred stock is convertible to the Company's
common stock.  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

                                      -27-
<PAGE>

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 filed on June 15, 1999. Series E preferred stock earns dividends at
the rate of 6% of the liquidation value thereof per annum, payable quarterly in
arrears on the first business day of each calendar quarter, subject to legally
available funds. Accrued but unpaid dividends on Series E preferred stock were
approximately $29,000 as of March 31, 2000 and approximately $13,000 as of May
11, 2000.

     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 Convertible Redeemable Preferred Stock having a
liquidation preference of $1,000 per share.  All of the 1,000 shares of Series F
preferred stock remained outstanding as of March 31, 2000.  There is no
mandatory redemption date for the Series F preferred stock.  Series F preferred
stock is convertible to the Company's Common Stock until the earlier of May 31,
2004 or the Company's redemption of the Series F preferred shares.  Until and
including May 31, 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 earns dividends at the rate of 7% of
the liquidation value thereof per annum.  Dividends are payable quarterly on the
15th of the first month of each calendar quarter subject to legally available
funds.  April 15, 2000 was the initial dividend payment date.  After April 15,
2000, any unpaid dividends will compound quarterly.  Accrued but unpaid
dividends on Series F preferred stock were approximately $58,000 as of March 31,
2000 and approximately $49,000 as of May 11, 2000.

     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.  The
S&T Loan Agreement prohibits the Company from declaring or paying dividends on
any shares of its capital stock, except for current dividends payable in the
ordinary course of business on the Company's Series D, E and F 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 any
other distribution on the common stock or any other class of stock ranking
junior as to dividends and upon liquidation unless all dividends on the senior
series of preferred stock for the dividend payment date immediately prior to or
concurrent with the dividend or distribution as to the junior securities are
paid or are declared and funds are set aside for payment.

     In 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

                                      -28-
<PAGE>

$1,000,000. The amended note provided for two principal payments of $500,000
each on April 15, 2000 and October 15, 2000. The Company deferred payment of
principal, in accordance with the terms of the note, 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 $473,000
as of March 31, 2000. Accrued interest as of May 31, 1999 of approximately
$390,000 was paid on April 1, 2000. Quarterly interest payments began April 15,
2000. The Company believes that the deferral of 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 ("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 exceeded $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.  Any
contingent payment due was originally to have been paid no later than March 31,
2000, unless the Company selected (c) above, under which 50% of the payment due
was due one year later.

     On or about November 22, 1999, the Company commenced an action in the Court
of Common Pleas of Allegheny County, Pennsylvania, against Gerow.  The Company
is seeking declaratory relief pertaining to certain claims made by Gerow under
the stock purchase agreement pursuant to which the Company acquired all of the
stock of MEGAbase.  Gerow has filed Preliminary Objections challenging the
Court's jurisdiction over him.  The Company and Gerow have not been able to
reach agreement on the calculation of the Development Practice Gross Margin due
to disagreement over interpretation of its definition per the purchase
agreement.  Gerow has not to date filed a claim for a specific dollar amount.
The Company is seeking the Court's assistance in determining the amount, if any,
of contingent purchase consideration to be paid.

     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
determined to be due as a result of the ongoing litigation or agreement between
the Company and Gerow will be 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 incurred approximately $13,000 in research and development
expense for the three months ended March 31, 2000.  The Interactive Media
Solution Area's research and development activity included ongoing development
of functional and graphical improvements to the Portraits Online/TM/ Internet-
based E-Commerce platforms and development activities associated with On
Command's equipment platform, which is utilized by the Company for interactive
media systems integration projects. Forecasts for the remainder of 2000 indicate
expected research and development expenditures of approximately $160,000 related
to these Interactive Media research and development projects. Management intends
to evaluate any development projects on an ongoing basis and may reduce or
eliminate projects if alternate technologies or products become available or if
changing business conditions so warrant.

  Capital expenditures during the three months ended March 31, 2000 were
approximately $178,000 and included furniture and leasehold improvements related
to the opening of the Company's Walnut Creek, California office, the purchase of
enterprise resource planning software and computer hardware, software and
communications equipment for the Company's periodic upgrading of technology.
Forecasts for the remainder of 2000 indicate expected capital expenditures of
approximately $300,000.  The Company anticipates remaining 2000 capital
expenditures will include hardware, software and networking equipment for the
Company's ongoing upgrading of

                                      -29-
<PAGE>

technology. Business conditions and management's plans may change during the
remainder of 2000, so there can be no assurance that the Company's actual amount
of capital expenditures will not exceed the planned amount.

     The Company believes that available funds and cash flows expected to be
generated by 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 twelve months.  As discussed above, the S&T
Loan Agreement expires September 30, 2000.  The Company believes it will be able
to refinance its existing credit facility or obtain another credit facility on
similar terms upon the expiration of the current credit facility.  If currently
available funds and cash generated by operations were insufficient to satisfy
the Company's ongoing cash requirements, 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.

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,"
variations of such words and similar expressions are intended to identify such
forward-looking statements.  These statements constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and
are subject to the safe harbors created thereby.  These statements are based on
a number of assumptions that could ultimately prove inaccurate and, therefore,
there can be no assurance that they will prove to be accurate.  Factors that
could affect performance include those listed below, which are representative of
factors which could affect the outcome of the forward-looking statements.  In
addition, such statements could be affected by general industry and market
conditions and growth rates, and general domestic and international economic
conditions.  The Company undertakes no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.

     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 solution areas meeting customer needs
for information technology infrastructure, business operations, knowledge
management, electronic business 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 and
the first quarter of 2000, particularly for staffing for mainframe computer
systems and its specialized banking industry services.  While the Company
attributes a significant portion of the decline to client postponement of
technology projects due to the Year 2000 issue, 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.  While the Company obtained revenue growth in the first quarter of
2000 from the solutions-oriented operations of the Knowledge Management,
Electronic Business and Interactive Media Solution Areas, there can be no
assurance that the Company will be successful at growing solutions-oriented
revenue in any of its solution areas in the future or that any growth obtained
will offset or exceed the expected declines in 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.  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.

     Loss of Interactive Television Transactional Revenue and Management Fees.
As a result of the Company's reorientation of its marketing strategy for Allin
Interactive's operations in mid-1997, the operation of ship-based interactive
television systems under an owner-operator model was deemphasized.  The
transition toward provision

                                      -30-
<PAGE>

of 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 has been realized in the first quarter
of 2000 and is expected to continue in the second and third quarters of 2000 as
compared to the same periods of 1999 due to the transitioning of operational
responsibility to Celebrity for five interactive systems on its ships.

  Completion of Revenue Recognition for Celebrity Interactive Television System
Sales.  During August 1999, Allin Interactive entered an agreement with
Celebrity providing for Celebrity's purchase for approximately $2,400,000 of the
four interactive television systems previously owned by Allin Interactive and
operated on Celebrity ships.  Two ship system sales were completed in each of
August and September 1999.  Allin Interactive and Celebrity also entered related
agreements providing for operation and maintenance of the interactive systems
sold.  Under the maintenance agreement between Allin Interactive and Celebrity,
Allin Interactive was obligated to provide ongoing technical support for the
four interactive television systems sold to Celebrity, as well as a fifth system
previously sold to Celebrity, for a minimum period of six months following
completion of all system sales and transfers of operational responsibility.  The
minimum maintenance period ended March 17, 2000.  Revenue for the four
interactive television system sales was recognized over the minimum period of
the maintenance agreement concurrent with Allin Interactive's minimum technical
maintenance obligation.  These system sales reflected unusually high gross
profit since the related equipment cost had been depreciated during the period
the Allin Interactive owned and operated the systems.  Allin Interactive may
experience declines in revenue and gross profit during the remainder of 2000 as
compared to the first quarter due to completion of revenue and gross profit
recognition from the Celebrity sale.

     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 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.  There can also be no
assurance that the Company would be able to successfully integrate any business
acquired with the other businesses of the Company.  The Company markets
interactive media projects and its specialized bank consulting services
nationally and undertakes projects throughout the United States as obtained.  If
the Company's management is unable to manage growth, if any, effectively, the
Company's 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 the Company's business, financial condition and results of operations.
The market for interactive media and digital imaging systems integration
services is new and rapidly evolving.  The types of interactive media 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

                                      -31-
<PAGE>

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.

     Historical Net Losses and Accumulated Deficit.  The Company sustained
substantial net losses during the years ended December 31, 1996, 1997, 1998 and
1999.  The first quarter of 2000 represents the first quarterly period during
which the Company's operations resulted in net income.  As of March 31, 2000,
the Company had an accumulated deficit of $30,409,000.  The Company anticipates
that it may incur net losses at least through all or a portion of the remainder
of 2000, and there can be no assurance that it will be able to achieve revenue
growth or improvements to profitability on an ongoing basis in the future.

     Liquidity Risk.  The Company's cash resources and cash flow generated from
operations have been adequate to meet its needs to date, but there can be no
assurance that a prolonged downturn in operations or business setbacks to the
Company's operating entities will not result in working capital shortages which
may adversely impact the Company's operations.  The liquidity risk has been
mitigated somewhat by the Company obtaining a line of credit facility for its
short term working capital needs.  The line of credit facility expires September
30, 2000.  Failure of the Company to renew its existing credit facility or
replace it with another facility with similar terms may adversely impact the
Company's operations.

     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 develop an ongoing business base for its interactive
media systems integration and consulting services in the healthcare and
education industries.  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.
There can be no assurance that the Company will be successful at establishing an
ongoing base of revenue in these new markets, or that any contracts obtained
will generate improvements to the Company's profitability or cash flow.

     Risks Inherent in Development of New Products.  The Company recently
developed software interfaces and modifications for end-user operating
components from On Command to be utilized in interactive system installations,
which the Company believes 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
applications 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.

                                      -32-
<PAGE>

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

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

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

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

Effect of Recently Issued Accounting Standards

     In 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 March 31, 2000 would be immaterial.

                                      -33-
<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.

                                      -34-
<PAGE>

Part II

Item 2.  Changes is Securities and Use of Proceeds

     On February 3, 2000, the Company issued 23,310 shares of its common stock
to Patterson-Erie Corporation as consideration for the acquisition of certain
assets used in the operation of Erie Computer.  As no public offering was
involved, the issuance of these shares of common stock was exempt from
registration under Section 4(2) of the Securities Act of 1933, as amended.

                                      -35-
<PAGE>

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

         (a)  Exhibits.

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


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 March 31, 2000.

                                      -36-
<PAGE>

                                   Signatures


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


                              ALLIN CORPORATION
                              (Registrant)

Date: May 11, 2000    By:  /s/   Richard W. Talarico
                           --------------------------
                           Richard W. Talarico
                           Chairman and Chief Executive Officer


Date: May 11, 2000    By:  /s/   Dean C. Praskach
                           ----------------------
                           Dean C. Praskach
                           Chief Financial Officer and Chief Accounting Officer

                                      -37-
<PAGE>

Allin Corporation
Form 10-Q
March 31, 2000
Exhibit Index



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


11         Computation of Earnings per Share

27         Financial Data Schedule

                                      -38-