<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, 1999

                                       OR

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

                        Commission file number:  0-21395

                               ALLIN CORPORATION
             (Exact name of registrant as specified in its charter)

           Delaware                                    25-1795265
(STATE OR OTHER JURISDICTION OF                     (I. R. S. EMPLOYER
INCORPORATION OR ORGANIZATION)                       IDENTIFICATION NO.)


                  400 GREENTREE COMMONS, 381 MANSFIELD AVENUE,
                      PITTSBURGH, PENNSYLVANIA  15220-2751
          (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)

                                 (412) 928-8800
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

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

                       (  X  )    Yes      (    )    No

              Shares Outstanding of the Registrant's Common Stock

                              As of April 29, 1999

                        Common Stock,  5,988,063 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  35
                    Sensitive Instruments


Part II -  Other Information

           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," "estimates," "and similar expressions.
Readers are cautioned that any such forward-looking statements are not
guarantees of performance and that matters referred to in such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause actual results, performance or achievements of Allin Corporation
to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among other things, risks and uncertainties discussed throughout Part I - Item 2
 - Management's Discussion and Analysis of Financial Condition and Results of
Operations and under the caption "Special Note on Forward-Looking Statements"
included therein. Allin Corporation undertakes no obligation to update publicly
any forward-looking statements, whether as a result of new information, future
events or otherwise.

                                      -3-
<PAGE>
 
Part I - Financial Information

ALLIN CORPORATION & SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

                                   (Dollars in thousands)
                                         (Unaudited)

<TABLE>
<CAPTION> 
                                                                         December 31,          March 31,
                                                                             1998                1999
                                                                        ---------------      --------------
<S>                                                                     <C>                  <C> 
ASSETS                                                           
                                                                 
Current assets:                                                  
          Cash and cash equivalents                                       $       2,510        $     2,194
          Accounts receivable, net of allowance for                                           
                   doubtful accounts of $316 and $313                             2,768              3,451
          Note receivable                                                           463                ---
          Inventory                                                                 396                714
          Prepaid expenses                                                          317                328
                                                                          --------------       ------------
                   Total current assets                                           6,454              6,687
                                                                                              
Property and equipment, at cost:                                                              
Leasehold improvements                                                              478                457
Furniture and equipment                                                           2,477              2,436
On-board equipment                                                                3,688              3,686
                                                                          --------------       ------------
                                                                                  6,643              6,579
Less--accumulated depreciation                                                   (3,559)            (3,811)
                                                                          --------------       ------------
                                                                                  3,084              2,768
                                                                                              
Assets held for resale                                                               15                 75
Notes receivable from employees                                                      35                 35
Software development costs, net of accumulated                                                
          amortization of $877 and $880                                              36                 33
Other assets, net of accumulated amortization of                                              
          $3,629 and $3,968                                                      16,688             16,350
                                                                         --------------       ------------
                                                                                              
Total assets                                                             $       26,312       $     25,948
                                                                         ==============       ============

</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,
                                                                                   1998              1999
                                                                             ---------------     -------------
<S>                                                                          <C>                 <C> 
LIABILITIES AND SHAREHOLDERS' EQUITY                                     
                                                                         
Current liabilities:                                                     
          Bank lines of credit                                               $        1,506      $     1,488
          Notes payable                                                                   2                1
          Accounts payable                                                              575              858
          Accrued liabilities:                                                                     
                   Compensation and payroll taxes                                       475              795
                   Dividends on Series A convertible,                                              
                      redeemable preferred stock                                        518              578
                   Dividends on Series B redeemable                                                
                      preferred stock                                                    28               28
                  Other                                                                 694              756
          Current portion of deferred revenue                                            76               97
          Customer deposits                                                             ---                3
          Income taxes payable                                                           67               25
                                                                             ---------------     -----------
                   Total current liabilities                                          3,941            4,629
                                                                                                   
Non-current portion of notes payable                                                  4,004            3,944
Deferred income taxes                                                                   126              126
Commitments and contingencies                                                                      
                                                                                                   
Preferred stock, par value $.01 per share,                                                         
          authorized 100,000 shares:                                                               
          Series A convertible, redeemable preferred stock,                                        
                   designated 40,000 shares, issued and                                            
                   outstanding 25,000 shares                                          2,500            2,500
          Series B redeemable preferred stock, designated                                          
                   5,000 shares, issued and outstanding                                         
                   2,750 shares                                                       2,152            2,152
                                                                                                   
Shareholders' equity:                                                                              
          Common stock, par value $.01 per share - authorized                                      
                   20,000,000 shares, issued 5,995,830 shares                            60               60
          Additional paid-in-capital                                                 40,793           40,622
          Warrants                                                                      598              598
          Deferred compensation                                                        (104)             (55)
          Treasury stock at cost, 1,800 and 7,767 shares                                 (6)             (25)
          Retained deficit                                                          (27,752)         (28,603)
                                                                             ---------------     -----------
Total shareholders' equity                                                           13,589           12,597
                                                                             ---------------     -----------
                                                                                                   
Total liabilities and shareholders' equity                                   $       26,312      $    25,948
                                                                             ===============     ===========
</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,
                                                                         1998           1999
                                                                    --------------  -------------
<S>                                                                 <C>             <C> 
Revenue                                                             $      2,499      $    6,133
                                                                                        
Cost of sales                                                              1,137           3,822
                                                                    -------------     ----------
                                                                                        
Gross profit                                                               1,362           2,311
                                                                                        
Selling, general & administrative                                          3,104           3,073
                                                                    -------------     ----------
                                                                                        
Loss from operations                                                      (1,742)           (762)
                                                                                        
Interest (income) expense, net                                               (64)             75
                                                                    -------------     ----------
                                                                                        
Loss before provision for income taxes                                    (1,678)           (837)
                                                                                        
Provision for income taxes                                                     6              19
                                                                    -------------     ----------
                                                                                        
Loss from continuing operations                                           (1,684)           (856)
                                                                                        
Loss from operation of disposed segment,                                                
     net of income tax                                                        62             ---
Gain on disposal of segment                                                  ---              (5)
                                                                    -------------     ----------
                                                                                        
(Gain) loss from discontinued operations                                      62              (5)
                                                                    -------------     ----------
                                                                                        
Net loss                                                                  (1,746)           (851)
                                                                                        
Accretion and dividends on preferred stock                                    55             100
                                                                    -------------     ----------
                                                                                        
Net loss attributable to common shareholders                        $     (1,801)     $     (951)
                                                                    =============     ==========
                                                   
Loss per common share from continuing operations    
     attributable to common shareholders -     
     basic and diluted                                             $       (0.34)     $    (0.16)
                                                                    =============     ==========
                                                    
Income (loss) per common share from discontinued    
          operations - basic and diluted                            $      (0.01)     $     0.00
                                                                    =============     ==========
                                                    
Net loss per common share attributable to common    
          shareholders  - basic and diluted                         $      (0.35)     $    (0.16)
                                                                    =============     ==========

Weighted average shares outstanding - basic and diluted                5,157,399       5,969,162
                                                                    -------------     ----------

</TABLE> 

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

                                      -6-
<PAGE>
 
ALLIN CORPORATION & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

                            (Dollars in thousands)
                                  (Unaudited)

<TABLE> 
<CAPTION> 
                                                                                   Three Months        Three Months
                                                                                      Ended                Ended
                                                                                    March 31,             March 31,
                                                                                       1998                 1999
                                                                                 ---------------       --------------
<S>                                                                              <C>                   <C> 
Cash flows from operating activities:                                        
          Net loss                                                                    (1,746)                (851)
          Adjustments to reconcile net loss to net cash flows                                         
          from operating activities:                                                                  
                   Depreciation and amortization                                         967                  626
                   Amortization of deferred compensation                                  31                  (41)
                   Loss from writedown and sale of assets                                256                   96
          Changes in certain assets and liabilities:                                                  
                   Accounts receivable                                                  (524)                (683)
                   Inventory                                                             (29)                (318)
                   Prepaid expenses                                                       (6)                 (11)
                   Assets held for resale                                                ---                  (60)
                   Other assets                                                          (22)                 ---
                   Accounts and notes payable                                             92                  283
                   Accrued liabilities                                                  (104)                 386
                   Income taxes payable                                                  ---                  (42)
                   Deferred revenues                                                    (220)                  21
                   Customer deposits                                                     ---                    3
                                                                                 ------------          -----------
          Net cash flows from operating activities                                    (1,305)                (591)
                                                                                 ------------          -----------
                                                                                                      
Cash flows from investing activities:                                                                 
          Proceeds from sale of assets                                                     8                   13
          Proceeds from note receivable related to                                                    
                   sale of subsidiary                                                    ---                  463
          Capital expenditures                                                          (247)                 (78)
                                                                                 ------------          -----------
          Net cash flows from investing activities                                      (239)                 398
                                                                                 ------------          -----------
                                                                                                      
Cash flows from financing activities:                                                                 
          Payment of dividends on Series B preferred stock                               ---                  (42)
          Debt acquisition costs                                                         ---                   (1)
          Repayment on lines of credit                                                   ---                  (19)
          Repayment of note payable                                                      ---                  (59)
          Repayment of capital lease obligations                                         ---                   (2)
                                                                                 ------------          -----------
                                                                                         ---                 (123)
                                                                                 ------------          -----------
                                                                                                      
Net change in cash and cash equivalents                                               (1,544)                (316)
Cash and cash equivalents, beginning of period                                         6,802                2,510
                                                                                 ------------          -----------
Cash and cash equivalents, end of period                                               5,258                2,194
                                                                                 ============          ===========

</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, 1998 and 1999 should be read in
  conjunction with the audited financial statements and notes for the years
  ended December 31, 1997 and 1998, contained in Allin Corporation's (the
  "Company") Annual Report on Form 10-K for the year ended December 31, 1998.
  The accompanying unaudited Consolidated Financial Statements have been
  prepared in accordance with generally accepted accounting principles and the
  rules and regulations of the Securities and Exchange Commission.  These
  interim statements do not include all of the information and footnotes
  required for complete financial statements.  It is management's opinion that
  all adjustments (including all normal recurring accruals) considered necessary
  for a fair presentation have been made; however, results for these interim
  periods are not necessarily indicative of results to be expected for the full
  year.

  Principles of Consolidation

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

  Disposal of Segment

  On September 30, 1998, the Company sold all of the issued and outstanding
  capital stock of SportsWave, Inc. ("SportsWave"), a wholly-owned subsidiary.
  The sale of SportsWave represents the disposal of a segment since SportsWave
  comprised the entirety of the Company's sports marketing business.
  Accordingly, the results of operations for SportsWave for three-month period
  ended March 31, 1998 presented in the Company's Consolidated Statements of
  Operations have been reclassified to loss of disposed segment, which is
  presented after net loss from continuing operations.  An adjustment to the
  gain recorded on the disposal of SportsWave recorded during the three-month
  period ended March 31, 1999 is also presented after net loss from continuing
  operations.

  Use of Estimates in the Preparation of Financial Statements

  The preparation of financial statements in conformity with generally accepted
  accounting principles requires management to make estimates and assumptions
  that affect the reported amounts of assets and liabilities and disclosure of
  contingent assets and liabilities at the date of the financial statements and
  the reported amounts of revenue and expenses during the reporting period.
  Actual results could differ from those estimates.

  Revenue and Cost of Sales Recognition

  Allin Corporation of California ("Allin Consulting-California") and Allin
  Consulting of Pennsylvania, Inc. ("Allin Consulting-Pennsylvania") charge
  consulting fees, typically on an hourly basis, to their clients for their
  technology consulting services.  Revenue and related cost of sales are
  recognized as services are performed.

  Allin Interactive Corporation ("Allin Interactive") recognizes revenue and
  cost of sales for systems integration services upon completion of the
  respective projects.  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.
 
  Earnings Per Share

  Earnings per share ("EPS") of common stock have been computed in accordance
  with Financial Accounting Standards Board Statement No. 128, "Earnings Per
  Share" ("SFAS No. 128").  The shares used in calculating basic and diluted EPS
  includes the weighted average of the outstanding common shares of the Company,
  excluding 24,868 and 18,901 shares of outstanding restricted stock for the
  three-month periods ended March 31, 1998 and 1999, respectively.  The
  restricted stock, outstanding stock options, convertible note and the
  Company's Series B redeemable preferred stock would all be considered dilutive
  securities under SFAS No. 128; however, these securities have not been
  included in the calculation of diluted EPS, for the applicable periods, as
  their effect would be anti-dilutive.  The additional shares that would have
  been included in the diluted EPS calculation, if their effect was not anti-
  dilutive, were 24,868 and 18,901 for the three-month periods ended March 31,
  1998 and 1999, respectively.

  Inventory

  Inventory, consisting principally of digital photography equipment and
  software, and computer hardware, software and communications equipment, is
  stated at the lower of cost (determined on the first-in, first-out 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, 1999, the Company's Consolidated Balance Sheet includes two
  notes payable to shareholders which relate to the acquisitions of Allin
  Consulting-California and Allin Consulting-Pennsylvania.  The notes payable
  are recorded at the face value of the instruments.  The Company accrues
  interest at fixed rates and makes interest payments in accordance with the
  terms of the notes.  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 $121,000 and $6,000 during
  the three months ended March 31, 1998 and 1999, respectively.  Cash payments
  for interest were approximately $-0- and $58,000 during the three months ended
  March 31, 1998 and 1999, respectively.

  Dividends of approximately $55,000 and $86,000 were accrued but unpaid during
  the three-month periods ended March 31, 1998 and 1999, respectively, on Series
  A convertible, redeemable preferred stock and Series B redeemable preferred
  stock.

                                      -9-
<PAGE>
 
2. Preferred Stock

  The Company has authorized the issuance of 100,000 shares of preferred stock
  with par value of $.01 per share.  Of the authorized shares, 40,000 have been
  designated as Series A convertible, redeemable preferred stock.  In August
  1996, 25,000 Series A preferred shares were issued, all of which remain
  outstanding as of March 31, 1999.  The Company designated 5,000 preferred
  shares as Series B redeemable preferred shares.  The Company issued 2,750
  Series B preferred shares during August 1998, all of which remain outstanding
  as of March 31, 1999.  See Note 7 - Subsequent Events for additional
  information regarding anticipated exchanges of preferred stock subsequent to
  March 31, 1999.


3. Liability for Employee Termination Benefits

  The Company recognizes liabilities for involuntary employee termination
  benefits in the period management approves the plan of termination if during
  that period management has approved and committed to the plan of termination
  and established the benefits to be received; communicated benefit plans to
  employees; identified numbers, functions and locations of anticipated
  terminations; and the period of time for the plan of termination indicates
  significant changes are not likely.
 
  A reorganization charge of approximately $208,000 was recorded as of
  January 12, 1999 to establish a liability for severance costs associated with
  the termination of services of the Company's president.  Associated expenses
  are reflected in Selling, general & administrative expenses on the
  Consolidated Statement of Operations during that period.  As of March 31,
  1999, approximately $47,000 of the amount accrued under the January 12, 1999
  charge had been paid.  The remaining balance, approximately $161,000, is
  included in accrued compensation and payroll taxes on the Consolidated Balance
  Sheet.  It is anticipated that payments under this plan will be completed by
  January 2000.

  A reorganization charge of approximately $491,000 was recorded as of
  February 4, 1998 to establish a liability for separation costs associated with
  a plan for reorganization of operations, including the resignations of certain
  senior executives.  Associated expenses are reflected in Selling, general &
  administrative expenses on the Consolidated Statement of Operations during
  that period.  The plan included three positions including the Company's
  president, chief operating officer and an administrative assistant, all of
  whom have ceased employment with the Company.  As of March 31, 1999, all of
  the amount accrued under the February 4, 1998 charge had been paid.
 
  An accrual of approximately $298,000 was recorded as of June 30, 1997 to
  establish a liability for severance costs associated with a plan for
  involuntary employee terminations.  During the quarterly period ended March
  31, 1998, additional expense of approximately $15,000 was recorded to adjust
  the severance accrual previously recorded.  Associated expenses were reflected
  in Selling, general & administrative expenses on the Consolidated Statement of
  Operations during these periods.  The plan included eleven employee
  terminations.  Included in the plan were financial and marketing executive
  positions, marketing and administrative staff positions, operational
  management, staff, and sales positions associated with digital photography
  operations, and clerical support staff positions.  All of the positions
  included in the plan were eliminated.  All of the amounts accrued under the
  June 30, 1997 plan had been paid prior to September 30, 1998.


4.  Termination of Interactive Television Contract

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

                                      -10-
<PAGE>
 
  During August 1998, Allin Interactive received notice from Norwegian Cruise
  Line ("NCL") that it intended to discontinue management fees subsequent to
  December 31, 1998 in accordance with the terms of their agreement.  NCL
  subsequently agreed to a significantly reduced management fee for the interim
  period from January 1, 1999 until cessation of operations.  Operation of the
  interactive television system aboard the Norwegian Dream ceased in April 1999.
  Allin Interactive will lose transactional revenue, including pay-per-view
  movies and gaming, and management fee revenue related to this ship subsequent
  to cessation of operations.

  Revenue and gross profit derived from interactive television and systems
  integration services for RCCL and NCL were:

<TABLE>
<CAPTION>
                                               Royal Caribbean Cruise Lines                    Norwegian Cruise Line
                                      ---------------------------------------------  ----------------------------------------
                                       Three Months Ended        Three Months Ended   Three Months Ended   Three Months Ended
        (Dollars in thousands)           March 31, 1998            March 31, 1999        March 31, 1998      March 31, 1999
                                      ---------------------------------------------  ----------------------------------------
<S>                                   <C>                        <C>                  <C>                  <C>
Shipboard Transactional Revenue &
 Management Fees                                  $  215                $ -0-                 $  38              $  39
                                                                                                       
Gross Profit                                         192                  -0-                    31                 28
                                                                                                       
Systems Integration Revenue                       $   14                $   5                 $ -0-              $ -0-
Gross Profit                                           9                    3                   -0-                -0-
                                                                                                       
% of Consolidated Revenue                            9.2%                 0.1%                 1.5%               0.6%
% of Consolidated Gross Profit                      14.8%                 0.1%                 2.3%               1.2%
</TABLE>


5. Equity Transactions

  A total of 340,998 options for common shares, exercisable at an average
  exercise price of $3.25 per share were awarded under the Company's 1998 Stock
  Plan during the three months ended March 31, 1999.  The exercise prices of the
  options awarded ranged from $3.00 per share to $3.25 per share.  A total of
  280,998 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 78,750 will vest earlier in the event of a change in control of
  the Company, as defined in certain employment agreements.  A total of 60,000
  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, 1998 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.  Non-vested options to purchase 3,800 shares of common stock
  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 337,198
  shares of common stock remain outstanding as of March 31, 1999.

  During the three months ended March 31, 1999, vested options to purchase 1,120
  shares and non-vested options to purchase 480 shares of common stock
  previously awarded under the Company's 1997 Stock Plan were forfeited under
  the terms of the Plan.  There were no options awarded under the 1997 Stock
  Plan during the three months ended March 31, 1999.  Options granted under the
  1997 Stock Plan to purchase 289,400 shares of common stock remain outstanding
  as of March 31, 1999.

  During the three months ended March 31, 1999, there were no options to
  purchase shares of the Company's common stock awarded or forfeited under the
  terms of the Company's 1996 Stock Plan.  Options granted under the 1996 Stock
  Plan to purchase 233,400 shares of common stock remain outstanding as of March
  31, 1999.

                                      -11-
<PAGE>
 
  During the three months ended March 31, 1999, a total of 5,967 restricted
  shares of the Company's common stock were forfeited due to their holders'
  termination of employment.  The forfeited restricted stock reverted to
  treasury stock, which the Company has recorded at cost.

6.  Industry Segment Information

  Basis for Determining Segments

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

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

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

  The Company conducted a sports marketing business until the sale of its
  subsidiary SportsWave in September 1998.  Results of SportsWave operations are
  reflected as discontinued operations on the Company's Consolidated Statements
  of Operations and accordingly, sports marketing is not included in segment
  revenue or gross profit information.  Sports marketing is included as a
  segment for asset information as of March 31, 1998.

  Measurement Method

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

                                      -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                                    1998               1999
                                                                 -------------------------------
<S>                                                              <C>                    <C>
Allin Consulting Solutions Areas:
Information Technology Infrastructure                             $    1,450            $1,014
Business Operations                                                      109             3,650
Electronic Business                                                        6                 3
Other                                                                      3                68
                                                                  ----------------------------
  Total Allin Consulting                                          $    1,568            $4,735
                                                                   
Interactive Media Solutions & Product Sales:                       
Interactive Television Systems Integration & Consulting           $       23            $   83
Interactive Television Transactional Revenue & Management Fees           793               663
Digital Imaging Systems Integration & Ancillary Products                  16               609
Computer Hardware & Software Sales                                        99                43
                                                                  ----------------------------
  Total Interactive Media Solutions & Product Sales               $      931            $1,398
                                                                  ----------------------------
                                                                  
  Consolidated Revenue from External Customers                    $    2,499            $6,133
                                                                  ============================
</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                                      1998              1999
                                                                    -----------------------------
 
<S>                                                                      <C>               <C>
Technology Consulting                                                    $ 200              $  36
Interactive Television Systems Integration & Consulting                    ---                 21
Computer Hardware & Software Sales                                         176                 80
                                                                    -----------------------------
                                                                    
  Total Revenue from Related Entities in Other Segments                  $ 376              $ 137
                                                                    =============================
</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                                      1998               1999
                                                                    -----------------------------
<S>                                                                 <C>                <C>
Allin Consulting Solutions Areas:
Information Technology Infrastructure                                    $  588            $  443
Business Operations                                                          44             1,119
Electronic Business                                                           2                 1
Other                                                                         2               (29)
                                                                    -----------------------------
  Total Allin Consulting                                                 $  636            $1,534
                                                                     
Interactive Media Solutions & Product Sales:                         
Interactive Television Systems Integration & Consulting                  $   10            $   44
Interactive Television Transactional Revenue & Management Fees              704               593
Digital Imaging Systems Integration & Ancillary Products                      2               133
Computer Hardware & Software Sales                                           10                 7
                                                                    -----------------------------
  Total Interactive Media Solutions & Product Sales                      $  726            $  777
                                                                    -----------------------------
                                                                     
  Consolidated Gross Profit                                              $1,362            $2,311
                                                                    =============================
</TABLE>

  Assets

  Information on total assets attributable to segments is as follows:

<TABLE>
<CAPTION>
(Dollars in thousands)                                                       Total Assets
As of March 31                                                           1998             1999
                                                                    -----------------------------
<S>                                                                 <C>                 <C>
Allin Consulting Solutions Areas:
Information Technology Infrastructure                                    $ 4,125          $ 8,297
Business Operations                                                          639           12,179
Electronic Business                                                           19              259
Other                                                                        ---               59
                                                                    -----------------------------
  Total Allin Consulting                                                 $ 4,783          $20,794
                                                                    
Interactive Media Solutions & Product Sales:                        
Interactive Television Systems Integration & Consulting                  $   190          $   256
Interactive Television Transactional Revenue & Management Fees             6,524            2,183
Digital Imaging Systems Integration & Ancillary Products                     254              952
Computer Hardware & Software Sales                                           222              113
                                                                    -----------------------------
  Total Interactive Media Solutions & Product Sales                      $ 7,190          $ 3,504
                                                                    
Sports Marketing                                                           3,315              ---
Corporate & Other                                                          4,420            1,650
                                                                    -----------------------------
                                                                    
  Consolidated Total Assets                                              $19,708          $25,948
                                                                    =============================
</TABLE>

                                      -14-
<PAGE>
 
7.  Subsequent Events

a)  Agreement to Exchange Series A Convertible, Redeemable Preferred Stock for
    Series C Preferred Stock

     During April and May 1999, the holders of all of the outstanding shares
     of the Company's Series A convertible, redeemable preferred stock agreed to
     exchange their shares for a like number of shares of the Company's Series C
     preferred stock, which has not yet been designated.  There will be no
     mandatory redemption date for the Series C preferred stock whereas
     mandatory redemption is required on June 30, 2006 for the Series A
     preferred stock.  Series C preferred stock will earn dividends at the rate
     of 8% per annum, compounded quarterly, until June 30, 2006, when the
     Company will be obligated to pay accrued dividends, subject to legally
     available funds.  Any accrued dividends not paid by this date will compound
     thereafter at a rate of 12% per annum.  After June 30, 2006, dividends will
     accrue at a rate of 12% per annum and will be payable quarterly, subject to
     legally available funds.  It is anticipated that the exchange of these
     securities, as well as the designation of the Series C preferred stock,
     will occur during the second quarter of 1999.

b)  Agreement to Exchange Series B Redeemable Preferred Stock for Series D
    Preferred Stock

     During April 1999, the holders of all of the 2,750 outstanding shares of
     the Company's Series B redeemable preferred stock agreed to exchange their
     shares for a like number of shares of the Company's Series D preferred
     stock, which has not yet been designated. There will be no mandatory
     redemption date for the Series D preferred stock whereas mandatory
     redemption is required for Series B Redeemable Preferred Stock on the
     earlier of August 13, 2003 or following certain asset sales by the Company,
     as defined in the Certificate of Designation for Series B Preferred Stock,
     which is filed as an exhibit to the Company's Current Report on Form 8-K
     dated as of August 13, 1998. Series D preferred stock will earn dividends
     at the rate of 6% per annum, payable quarterly. Series D preferred stock
     will be convertible into the Company's common stock on terms identical to
     those of Series B preferred stock. It is anticipated that the exchange of
     these securities, as well as the designation of the Series D preferred
     stock, will occur during the second quarter of 1999.

c)  Agreement to Exchange of Promissory Note for Series E Preferred Stock

     During April 1999, the holder of a promissory note issued by the Company
     with an outstanding principal balance of approximately $1,926,000 agreed to
     exchange the promissory note for 1,926 shares of the Company's Series E
     preferred stock having a liquidation preference of $1,000 per share, which
     has not yet been designated. There will be no mandatory redemption date for
     the Series E preferred stock. Series E preferred stock will earn dividends
     at the rate of 6% per annum, payable quarterly. The promissory note would
     have converted to the Company's common stock if the principal balance was
     not repaid prior to August 13, 2000. Series E preferred stock will be
     convertible to the Company's common stock on terms substantially identical
     to those of the promissory note. If not redeemed by the Company earlier,
     outstanding Series E preferred stock will automatically convert as of
     August 13, 2000 into the number of shares of the Company's common stock
     equal to the amount obtained by dividing the liquidation preference of the
     outstanding shares plus accrued and unpaid dividends, if any, by (i) $4.406
     or (ii) at the holder's option, the average of the bid and asked prices of
     the common stock for the thirty days preceding August 13, 2000, subject to
     a $2.00 minimum price. Upon the happening of certain events, the holder of
     Series E preferred stock will be able to convert the shares of Series E
     preferred stock into the Company's common stock prior to August 13, 2000.
     It is anticipated that the conversion of the note into shares of Series E
     preferred stock, as well as the designation of the Series E preferred
     stock, will occur during the second quarter of 1999.
 

                                      -15-
<PAGE>
 
Item 2.

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


     The following discussion and analysis by management provides information
with respect to the Company's financial condition and results of operations for
the three-month periods ended March 31, 1999 and 1998.  This discussion should
be read in conjunction with the information in the consolidated financial
statements and the notes pertaining thereto contained in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998, as well as the
information discussed herein under "Special Note on Forward Looking Statements".
Unless the context otherwise requires, all references herein to the "Company"
refer to Allin Corporation and its subsidiaries.

     In the following Management's Discussion and Analysis of Financial
Condition and Results of Operations and elsewhere in this quarterly report on
Form 10-Q, words such as "estimates," "expects," "anticipates," "believes," and
other similar expressions, are intended to identify forward-looking information
that involves risks and uncertainties. Actual results and outcomes could differ
materially as a result of such important factors including, among other things,
the Company's limited operating history with its recent acquisitions;
uncertainty as to the Company's future profitability; the Company's history of
net losses, accumulated deficit, and liquidity; the risks inherent in
development of new products and markets; certain customers' rights to terminate
operations; competition in the Company's existing and potential future lines of
business; risks associated with the Company's management of growth; dependence
on key personnel; rapidly changing technology and a rapidly evolving market for
interactive applications; and fluctuations in operating results, as well as
other risks and uncertainties. See "Special Note on Forward-Looking Statements"
below.

Overview of Organization, Products & Markets

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

     The Company was organized under the laws of the State of Delaware in July
1996 to act as a holding company for operating subsidiaries which focus on
particular aspects of the Company's business.  As of March 31, 1999, the
organizational legal structure consists of Allin Corporation, five wholly owned
operating subsidiaries and one non-operating wholly owned subsidiary.  The
operating subsidiaries are Allin Corporation of California ("Allin Consulting-
California"), Allin Consulting of Pennsylvania, Inc. ("Allin Consulting-
Pennsylvania"), Allin Interactive Corporation ("Allin Interactive"), Allin
Digital Imaging Corp. ("Allin Digital Imaging") and Allin Network Products, Inc.
("Allin Network").  Allin Holdings Corporation ("Allin Holdings") is a non-
operating subsidiary providing treasury management services to the Company.
Allin Consulting-California and Allin Network are California corporations, Allin
Consulting-Pennsylvania is a Pennsylvania corporation and Allin Interactive,
Allin Digital and Allin Holdings are Delaware corporations.

     The Company's Annual Report on Form 10-K for the year ended December 31,
1998 presents a description of the Company's business as organized into two
business units, Allin Consulting and Allin Systems. Allin Consulting consisted
of the operating entities engaged in technology consulting services while Allin
Systems consisted of the operating entities engaged in services related to
interactive television, digital photography and computer hardware and software
sales. During the first quarter of 1999, the Company reoriented its marketing
and operational strategies to emphasize that all of its service and product
offerings are intended to meet customers' needs for information

                                      -16-
<PAGE>
 
technology solutions. The Company has adopted a customer-oriented marketing and
operational approach that organizes operations into five solutions areas that
are currently operating or that the Company is committed to developing in 1999.
The five solutions areas are Information Technology Infrastructure, Business
Operations, Electronic Business, Knowledge Management and Interactive Media.
Management believes the prior presentation of Allin Consulting and Allin Systems
as two business units does not properly emphasize the commonality of purpose of
all of the Company's operations to meet customer needs for information
technology solutions. Therefore, the Company will discontinue the prior
presentation.

     Discussion and analysis of results of operations will follow the new
operational model and will focus on the Company's solutions areas.  Information
technology infrastructure, business operations, electronic business and
knowledge management solutions consulting are performed by Allin Consulting-
California and Allin Consulting-Pennsylvania.  The term "Allin Consulting" as
used throughout this Report on Form 10-Q refers collectively to the two
subsidiaries, Allin Consulting-California and Allin Consulting-Pennsylvania.
Financial information is  presented for these subsidiaries collectively due to
the similarity of their service offerings.  Interactive media solutions services
are performed by Allin Interactive and Allin Digital.  Allin Interactive
provides specialized systems integration, consulting and operational services
related to interactive television systems and applications.  Allin Digital
provides specialized systems integration and technical support for digital
photography systems and also sells ancillary products related to digital
photography operations.  Interactive media solutions activity is discussed and
analyzed separately from the Company's other technology consulting solutions
areas because of the specialized nature of the interactive technology and
because the sales activity and strategies for these operations involve projects
with significant equipment components in addition to consulting expertise.
Allin Network's computer hardware and software sales, which are not material to
the Company as a whole, are grouped with interactive media solutions for
financial presentation.  The term "interactive media solutions and product
sales" is used to denote collectively the Company's operational activity related
to interactive television and digital photography systems and applications as
well as computer hardware and software sales.

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

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

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

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

 .  Knowledge Management solutions focus on the flow and processing of
   information within an organization. These solutions typically include data
   warehousing or work flow systems requiring expertise in business processes as
   well as the implementation of technology. These solutions will typically
   interface with the business operation transaction systems to access
   information from the captured data for wide accessibility within customer
   organizations. The Company has engaged a solutions area director to develop
   the Knowledge Management solution area in 1999.

     The customer-oriented strategic model for Allin Consulting's operations,
with Information Technology Infrastructure, Business Operations, Electronic
Business and Knowledge Management solutions areas, is intentionally similar to
Microsoft's product and service groupings.  Management believes this structural
focus will foster more focused communication and interaction with the Microsoft
organization and will promote the continued development of technological
expertise within the Company focused on products and applications that closely
correspond to particular disciplines of the Allin Consulting organization,
although there can be no assurance that the

                                      -17-
<PAGE>
 
strategic model will lead to increased revenue or profitability in the future.
Management intends to enhance the Microsoft focus in Allin Consulting's
operations through continued training and certification of its consultants and
through joint marketing efforts with Microsoft. Both of the Allin Consulting
operating entities are authorized as Microsoft Solutions Provider Partners. In
March 1999, Allin Consulting-California was among four firms nominated as
finalists for Microsoft Solutions Provider Partner of the Year in Northern
California from among approximately fifty-five eligible firms. The Partner of
the Year award honors those firms whose work and achievements have demonstrated
excellence in Microsoft-oriented consulting services. Allin Consulting is also a
member of Microsoft's Infrastructure Partner Advisory Council. Council members
are a select group of Microsoft Solution Providers with a successful history of
implementing Microsoft infrastructure technology and who participate in the
development of Microsoft's message and focus within its infrastructure products
group. Management believes Allin Consulting's established relationship with
Microsoft as a Solution Provider Partner and the quality of its services, as
recognized by Microsoft, will position the Company to benefit from Microsoft's
expected growth in infrastructure and interactive media products since Microsoft
has historically relied on third parties extensively for custom development and
integration services. No assurance can be given, however, that any growth or
change in Microsoft's product sales will result in growth in the Company's
revenue or improvements to its financial condition or results of operations.

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

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

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

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

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

     The Company believes demand for interactive services will increase in the
healthcare industry as hospitals are driven to market better services and state
of the art systems and to invest in labor saving tools such as interactive

                                      -18-
<PAGE>
 
systems to improve the efficiency of their staffs by facilitating more efficient
flow of information and order processing and a more flexible training process.
The Company believes that an education industry market is emerging for
interactive systems that can facilitate wide area networking connections and
Internet and Intranet accessibility and that utilize on-demand educational video
content that is both digital and analog based. The Company believes that the
interactive television applications Allin Interactive has developed and
implemented in the cruise and healthcare markets are well suited for application
to the education industry. There can be no assurance, however, that Allin
Interactive will be successful in selling interactive television systems and
services to the healthcare and education industries during 1999 and beyond or
that any business obtained from these industries will result in the desired
improvements to the Company's financial condition or results of operations.

     The majority of historical activity for Allin Interactive's interactive
television and systems integration services has been concentrated in the cruise
industry.  Services provided for the cruise industry remained the dominant
operating activity during the first quarter of 1999 despite the reorientation of
marketing efforts to include additional target industries as described above.
Management believes that the newer, larger ships that are being developed within
the cruise industry will require a heightened level of automation to effectively
service the larger number of cruise passengers.  Allin Interactive's historical
operations within the cruise industry have resulted in the development of many
applications that could be readily implemented on new ships.  In May 1999, Allin
Interactive entered a $1.9 million contract with Royal Caribbean Cruises Ltd.
("RCCL") to develop and install an interactive television system for RCCL's new
Eagle Class ship Voyager of the Seas.  The new system will use web technology to
enable RCCL passengers to use the cabin televisions to access a variety of
services such as previewing and reserving shore excursions, watching on-demand
movies and informational videos, ordering room service and reviewing shipboard
activities.  It is anticipated that the Voyager of the Seas will be the world's
largest cruise ship upon its introduction to service, currently scheduled for
November 1999.  There can be no assurance, however, that Allin Interactive will
obtain additional system sales in the cruise industry in the future or that any
sales made will result in the desired improvements to the Company's financial
condition or results of operations.

     Allin Interactive continues to operate interactive television systems
installed on cruise ships between 1995 and 1997 on an owner-operator model from
which it derives transactional revenue from pay-per-view movies and video
gaming and management fees.  Allin Interactive has not marketed additional
systems on this basis since early 1997.  Revenue from interactive television
operations during the first quarter of 1999 resulted primarily from
transactional interactive services such as pay-per-view movies and video gaming
and from management fees derived from cruise lines for operation of the systems.
During the three months ended March 31, 1999, Allin Interactive operated
interactive systems on eight cruise ships, including five Celebrity Cruises,
Inc. ("Celebrity") ships, two Carnival Cruise Lines ("Carnival") ships and one
Norwegian Cruise Lines ("NCL") ship. During the first quarter of 1998, Allin
Interactive additionally operated systems aboard three RCCL ships. Operations
for the three RCCL systems ceased in the second quarter of 1998. Operation of
the interactive television system aboard the NCL ship Norwegian Dream ceased in
April 1999. Transactional, management fee and systems integration revenue and
gross profit derived from operations for RCCL (1998 only) and NCL represented
approximately 10.7% and 17.1% of the Company's consolidated revenue and gross
profit, respectively, during the first quarter of 1998, and approximately 0.7%
and 1.3% of the Company's consolidated revenue and gross profit, respectively,
during the first quarter of 1999. Allin Interactive's agreement with Carnival
allows Carnival to discontinue services or management fees after specified
notice periods, so there can be no assurance that transactional revenue or
management fees will continue to be earned for all ship systems currently in
operation.

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

     The hardware and software configurations Allin Digital provides for systems
integration customers utilize, for the most part, readily available "off the
shelf" components purchased from third parties.  However, Allin Digital released
a proprietary portrait viewing and selling system in August 1998 named Portraits
Online.  This product,

                                      -19-
<PAGE>
 
sold as a digital system add-on, allows the portrait studio's customers to view
and order their portraits on a touchscreen monitor immediately following their
portrait session. In addition, the system gives the consumer the ability to
access and order their images via the Portraits Online Internet site. The
Company believes the Portraits Online features offer it a competitive advantage
over competing integration services because of the functionality and sales
opportunity advantages it presents to potential customers. There can be no
assurance, however, that the Company will be successful in continuing to
generate increased sales because of the Portraits Online system or that sales
obtained will result in the desired improvements to the Company's financial
condition or results of operations. There can also be no assurance that
competitors will not develop similar or superior products which may adversely
affect Allin Digital's sales efforts.

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

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

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

Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998

     The September 1998 sale of SportsWave, Inc. ("SportsWave") has been treated
as the disposal of a segment since SportsWave included all of the Company's
sports marketing activities.  The results of operations of SportsWave for the
three months ended March 31, 1998 and an adjustment to the gain on disposal
recognized during the three months ended March 31, 1999 are presented after loss
from continuing operations in the Company's Consolidated Statements of
Operations.  Information presented herein concerning revenue, cost of sales,
gross profit, and selling, general and administrative expenses excludes the
operations of SportsWave for the three months ended March 31, 1998 and 1999.

Revenue

     The Company's total revenue for the three months ended March 31, 1999 was
$6,133,000, an increase from total revenue of $2,499,000 for the three months
ended March 31, 1998.  The increase of $3,634,000, or 145%, between the periods
is attributable primarily to a $3,167,000, or 202%, increase in revenue for
Allin Consulting operations.  This increase is the result of the inclusion of
revenue from Allin Consulting-Pennsylvania in the 1999 period.  Allin
Consulting-Pennsylvania was acquired in August 1998, resulting in an approximate
tripling of monthly technology consulting revenue immediately prior to the
acquisition.

     Allin Consulting recognized revenue, after elimination of intercompany
sales, of $4,735,000 during the three months ended March 31, 1999, including
$3,650,000 for the Business Operations solutions area, $1,014,000 for
Information Technology Infrastructure, $3,000 for Electronic Business and
$68,000 in other revenue.  Comparable first quarter 1998 revenue was $1,568,000
in total, including $109,000 from Business Operations, $1,450,000 from
Information Technology Infrastructure, $6,000 from Electronic Business and
$3,000 in other revenue.

     The substantial increase in Business Operations revenue of $3,541,000 is
attributable to the acquisition of Allin Consulting-Pennsylvania.  The
specialized bank consulting operations of Allin Consulting-Pennsylvania focus

                                      -20-
<PAGE>
 
on this solutions area, as well as a significant portion of Allin Consulting-
Pennsylvania's Pittsburgh consulting operations. Allin Consulting-California has
also experienced a significant growth in Business Operations revenue between the
quarters due to a change in the mix of its solution area revenue. Another factor
contributing to the growth of Allin Consulting-California's Business Operations
solutions area was the November 1998 acquisition of MEGAbase, Inc. ("MEGAbase")
and its subsequent merger into Allin Consulting-California's operations.

     The decline in Information Technology Infrastructure revenue of $436,000
between the periods is attributable to the shift in Allin Consulting-
California's business toward Business Operations.  In the first quarter of 1998,
Allin Consulting-California's operations had been very focused on the
infrastructure area, with that solution area representing over 90% of quarterly
technology consulting revenue.

     Electronic business is a developing area of technology.  Allin Consulting's
Electronic Business solutions area did not undertake significant projects of
this type in either of the first quarters of 1998 or 1999.  Allin Consulting is
committed to further development of this solutions area and recently engaged a
solutions director to manage the growth of this practice.  Similarly, the
Company is committed to the development of the Knowledge Management solutions
area in 1999 and has also engaged a solutions director for this area.  Revenue
has not been recognized to date for the Knowledge Management solutions area.
The Company expects growth in the Knowledge Management solutions area will be
generated from a Solutions Provider relationship with FileNET, a large provider
of workflow and document management systems, which the Company expects to
implement shortly.

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

     Revenue from interactive media solutions and product sales was $1,398,000
for the three months ended March 31, 1999, as compared to $931,000 for the three
months ended March 31, 1998.  The increase in revenue of $467,000, or 50%, was
primarily attributable to substantial revenue growth in digital imaging systems
integration services and ancillary product sales.

     Allin Interactive recorded revenue of $746,000 during the three months
ended March 31, 1999, including $663,000 for shipboard transactional revenue and
management fees and $83,000 for interactive television systems integration and
consulting services.  Comparable first quarter 1998 revenue was $816,000 in
total, including $793,000 for shipboard transactional revenue and management
fees and $23,000 for interactive television systems integration services.  The
decline between periods in transactional revenue and management fees of $130,000
is attributable primarily to the decrease in the number of operating shipboard
interactive television systems from eleven to eight between the periods.  The
increase in interactive television systems integration and consulting revenue of
$60,000 from the first quarter of 1998 to the first quarter of 1999 is
attributable to the introduction of consulting services specializing in
interactive television technology and applications development between the
periods.  During the first quarter of 1999, Allin Interactive completed a
significant consulting engagement with RCCL to prepare design specifications for
an interactive television system anticipated to be installed on RCCL's new
cruise ship Voyager of the Seas.  In May 1999, Allin Interactive entered a $1.9
million contract with RCCL to develop and install the interactive television
system for the Voyager of the Seas.

     Allin Digital recognized revenue of $609,000 during the three months ended
March 31, 1999 for digital imaging systems integration services and ancillary
product sales, as compared to $16,000 for the three months ended March 31, 1998.
The increase in revenue from digital photography operations of $593,000 between
the periods is attributable to the Company's change in strategy in early 1998 to
become a provider of systems integration services

                                      -21-
<PAGE>
 
for the installation of digital photography systems, a provider of technical
support, and a seller of ancillary products related to the systems. The timing
of the reorientation of Allin Digital operations to follow the new strategy
precluded significant sales activity during the first quarter of 1998.
Significant revenue growth was achieved under the new strategy during the final
three quarters of 1998. Another significant increase was obtained in the first
quarter of 1999 with quarterly revenue exceeding 50% of that realized for the
full year of 1998. There can be no assurance, however, that either the current
revenue level or increases in revenue will continue to be realized.

     Allin Network recognized $43,000 in revenue for computer hardware and
software sales in the first quarter of 1999, as compared with $99,000 during the
first quarter of 1998.  The decline is attributable to one comparatively large
sale of $72,000 being included in the first quarter of 1998.  There were no
sales of comparable size in the first quarter of 1999.

Cost of Sales and Gross Profit

     The Company recognized cost of sales of $3,822,000 during the three months
ended March 31, 1999 as compared to $1,137,000 during the three months ended
March 31, 1998.  The primary reason for the increase in cost of sales of
$2,685,000 between the periods was the $2,269,000 increase in cost of sales for
Allin Consulting's technology consulting services, which corresponded to a
substantial revenue increase from these services.  The increases in cost of
sales are primarily attributable to the inclusion of Allin Consulting-
Pennsylvania's operations in the 1999 quarterly period.  Gross profit of
$2,311,000 was recognized during the first quarter of 1999, as compared with
$1,362,000 during the prior-year quarter, an increase of $949,000, or 70%.
Again, the increase in gross profit is mainly attributable to the inclusion of
Allin Consulting-Pennsylvania's operations in the first quarter of 1999.  The
percentage increase in gross profit between the periods was lower than that of
revenue due to significant growth in the Business Operations solutions area and
digital photography services.  The majority of the acquired entities' Business
Operations activity has traditionally been delivered through a staffing model,
which typically carries a lower margin than the project solutions model used
predominantly in the Company's other technology consulting services.  Digital
photography systems integration projects include a significant equipment
component which typically carries a lower margin than services.

     Allin Consulting recorded a total of $3,201,000 for cost of sales for
technology consulting during the three months ended March 31, 1999, including
$2,531,000 for the Business Operations solutions area, $571,000 for Information
Technology Infrastructure, $2,000 for Electronic Business and $97,000 for other
cost of sales.  Comparable first quarter 1998 cost of sales was $932,000 in
total, including $65,000 for Business Operations, $862,000 for Information
Technology Infrastructure, $4,000 for Electronic Business and $1,000 for other
cost of sales.  Increases in cost of sales are also attributable to the factors
that resulted in increases in revenue for these services, primarily the
acquisition of Allin Consulting-Pennsylvania and increased demand for Microsoft
focused services.  Gross profit for the three months ended March 31, 1999 was
$1,534,000 related to technology consulting, including $1,119,000 for Business
Operations, $443,000 for Information Technology Infrastructure, $1,000 for
Electronic Business and a gross loss of $29,000 on other services.  Comparable
first quarter 1998 gross profit was $636,000 in total, including $44,000 for
Business Operations, $588,000 for Information Technology Infrastructure, $2,000
for Electronic Business and $2,000 for other services.  Again, the substantial
increase in consulting revenue is principally responsible for the increase in
gross profit.

     Cost of sales for interactive media solutions and product sales was
$621,000 in total for the first quarter of 1999, as compared with $205,000 for
the comparable period of 1998.  The increase in cost of sales resulted from the
substantial increase in digital photography operations between the periods.
Gross profit on interactive media solutions and product sales was $777,000 for
the first quarter of 1999, as compared with $726,000 for the first quarter of
1998.

     Allin Interactive recorded a total of $109,000 for cost of sales during the
three months ended March 31, 1999, including, $70,000 related to pay-per-view
movies and $39,000 for interactive television systems integration and consulting
services.  Comparable first quarter 1998 cost of sales was $102,000, including
$89,000 for pay-per-view movies and $13,000 for systems integration services.
The decrease in cost of sales for pay-per-view movies between the periods is
attributable to three fewer shipboard interactive television systems operating
during the first quarter of 1999 and corresponds with a decrease in revenue.
The increase in cost of sales for interactive television systems integration and
consulting is attributable to the addition of consulting activity between the
periods.  Gross

                                      -22-
<PAGE>
 
profit recognized by Allin Interactive during the three months ended March 31,
1999 was $637,000, including $593,000 from shipboard transactional revenue and
management fees and $44,000 from interactive television systems integration and
consulting services. Comparable first quarter 1998 gross profit amounts were
$714,000 in total, including $704,000 from shipboard transactional revenue and
management fees and $10,000 from systems integration. The overall decrease in
gross profit between the periods was $77,000, due primarily to the decrease in
the number of operating ship systems between the periods. There is no cost of
sales associated with management fees. The increase in gross profit for
interactive television systems integration and consulting is primarily
attributable to the addition of consulting activity between the periods.

     Allin Digital recognized cost of sales on its digital imaging operations of
$476,000 for the three months ended March 31, 1999 as compared with $14,000 for
the three months ended March 31, 1998.  The increase in cost of sales for
digital photography operations is attributable to the substantial increase in
revenue under the new operating strategy.  Allin Digital recognized gross profit
of $133,000 for the first quarter of 1999 as compared with $2,000 for the first
quarter of 1998.  Again, the substantial increase in revenue under the new
operating strategy resulted in the increase to gross profit.

     Allin Network recognized cost of sales of $36,000 on computer hardware and
software sales during the first quarter of 1999 as compared with $89,000 during
the first quarter of 1998.  Gross profit declined from $10,000 to $7,000 between
the quarterly periods.  The declines were attributable to the inclusion of
a comparatively large sale in the 1998 period.

Selling, General & Administrative Expenses

     The Company recorded $3,073,000 in selling, general & administrative
expenses during the three months ended March 31, 1999, as compared with
$3,104,000 during the three months ended March 31, 1998, a decrease of $31,000,
or 1% between the periods.

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

     The capitalized costs of interactive television systems on ships include
costs related to the installation of equipment that are not recoverable and cost
for equipment that is not economically feasible to remove upon termination of
system operation.  During the three months ended March 31, 1998, Allin
Interactive recorded a loss of approximately $232,000 to writedown the non-
recoverable portions of capitalized interactive television systems aboard the
RCCL ships Enchantment of the Seas, Majesty of the Seas, and Rhapsody of the
Seas due to its March 1998 agreement with RCCL for termination of system
operations.

     During the three months ended March 31, 1998, a severance accrual of
approximately $491,000 was recorded in connection with certain executive
management changes undertaken in connection with the reorganization of the
Company's operations in early 1998, including the Company's President, Chief
Operating Officer and an administrative assistant.  An adjustment of $15,000 was
also recorded in the first quarter of 1998 to reflect additional severance costs
related to a 1997 severance accrual.  During the 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 President.

     During the first quarter of 1999, the Company recorded a writedown of
approximately $101,000 related to leasehold improvements, furniture and
equipment from Allin Consulting-Pennsylvania's former office in Pittsburgh.
Allin Consulting-Pennsylvania's Pittsburgh staff moved to the Company's
corporate headquarters office in February 1999.  The assets written down were
disposed of or were not anticipated to be utilized subsequent to the move.

     The totals reflected in selling, general and administrative expense related
to these unusual items were $309,000 and $738,000, respectively, for the three-
month periods ended March 31, 1999 and 1998.  Net of the unusual items,
remaining selling, general and administrative expenses were $2,764,000 and
$2,366,000, respectively, for the 1999 and 1998 periods.  The increase of
$398,000, or 17%, resulted from the addition of selling, general and
administrative expense related to the operations of the two acquired entities,
Allin Consulting-

                                      -23-
<PAGE>
 
Pennsylvania and MEGAbase, between the periods. The Company has achieved a 145%
increase in revenue between the periods, primarily from acquisition activity,
while holding its selling, general and administrative expenses, net of unusual
items, for the expanded operations to an increase of only 17%. The level of
expenses incurred in relation to revenue in the first quarter of 1999 may not be
indicative of future results.

     Depreciation and amortization were $626,000 during the three months ended
March 31, 1999 as compared to $967,000 during the three months ended March 31,
1998.  The decline is due to 1998 writedowns in capitalized interactive
television system assets, the majority of capitalized software development costs
reaching full amortization in 1998, and a significant intangible asset value for
an employment agreement recorded in connection with the 1996 acquisition of
Allin Consulting-California reaching full amortization in 1998.

     Research and development expense included in selling, general &
administrative expenses was $6,000 during the first quarter of 1999, as compared
to $23,000 during the first quarter of 1998.  The reduction in expense reflects
the Company's continued move to being a provider of consulting and systems
integration services and away from proprietary technological systems.

Loss from Continuing Operations

     The Company's loss from continuing operations decreased from $1,684,000 for
the three months ended March 31, 1998 to $856,000 for the three months ended
March 31, 1999.  The decrease in loss from operations of $828,000, or 49%,
resulted primarily from the $949,000 increase in gross profit between periods
due to growth in the technology consulting business, partially offset by a
$139,000 change from a net interest income to net interest expense position
between the periods. Exclusive of the severance accrual and asset writedown for
Allin Consulting-Pennsylvania's office move totalling $309,000 and non-cash
expenses for depreciation and amortization of $626,000, operating income from
continuing operations would have been $79,000 for the three months ended March
31, 1999.

Discontinued Operations

     The Company recorded a loss from the operation of its discontinued sports
marketing business of $62,000 during the first quarter of 1998.  During the
first quarter of 1999, the Company recognized a gain of $5,000 on the disposal
of SportsWave.  The gain resulted from an adjustment of a previously accrued
liability for professional services related to the disposal.

Net Loss

     The Company's net loss for the three months ended March 31, 1999 was
$851,000, as compared to $1,746,000 for the three months ended March 31, 1998.
The decrease in net loss between the periods resulted primarily from
improvements to gross profit as described above.

Liquidity and Capital Resources

     At March 31, 1999 the Company had cash and liquid cash equivalents of
$2,194,000 available to meet its working capital and operational needs.  The net
change in cash from December 31, 1998 was a decrease of $316,000.  The net cash
used during the first quarter of 1999 resulted from net uses of approximately
$591,000 from operating activities and $123,000 from financing activities,
partially offset by net cash provided of approximately $398,000 from investing
activities.

     The Company recognized a net loss for the quarter ended March 31, 1999 of
$851,000.  Included in the net loss were non-cash expenses of $681,000 including
depreciation, amortization of software development costs and other intangible
assets, amortization of deferred compensation and losses from write-down or sale
of assets, resulting in net cash used of $170,000 related to the income
statement.  The remaining net use from operating activities of $421,000 was
caused by working capital adjustments, primarily increases in accounts
receivable and inventory.

     The net cash used for financing activities during the first quarter of
1999 related to partial repayments of notes and credit facilities and preferred
stock dividends.  The net cash provided from investing activities during the

                                      -24-
<PAGE>
 
first quarter  was generated primarily by collection of a note receivable of
$463,000 related to the sale of SportsWave.

     On October 1, 1998, the Company and S&T Bank, a Pennsylvania banking
association, entered into a Loan and Security Agreement (the "S&T Loan
Agreement"), under which S&T Bank agreed to extend the Company a revolving
credit loan.  The maximum borrowing availability under the S&T Loan Agreement is
the lesser of $5,000,000 or eighty-five percent of the aggregate gross amount of
eligible trade accounts receivable aged sixty days or less from the date of
invoice.  Accounts receivable qualifying for inclusion in the borrowing base
are net of any prepayments, progress payments, deposits or retention and
must not be subject to any prior assignment, claim, lien, or security interest.
As of March 31, 1999, maximum borrowing availability under the S&T Loan
Agreement was approximately $2,527,000.  The outstanding balance as of March 31,
1999 was $1,465,000. The expiration date of the S&T Loan Agreement is September
30, 1999.  During the third quarter of 1999, the Company expects to solicit a
renewal proposal for the S&T Loan Agreement as well as proposals for replacement
of the facility from other financing sources.  There can be no assurance,
however, that the Company will successfully renew or replace its current credit
facility or that renewal or replacement, if any, will be on terms as favorable
to the Company as its present facility. Absent renewal or replacement of the 
current credit facility or infusion of capital from another source, the Company
believes that available funds and cash flows expected to be generated from 
operations will be sufficient to meet its working capital and capital 
expenditure needs for existing operations for several months following 
expiration of the current credit facility.

     Currently, borrowings may be made under the S&T Loan Agreement for general
working capital purposes, and initially could also be made to repay a portion of
certain indebtedness incurred by the Company in connection with its acquisition
of Allin Consulting-Pennsylvania.  On October 2, 1998, the Company borrowed
$1,000,000 under the S&T Loan Agreement, which was used to repay a portion of
the outstanding acquisition related debt.  This borrowing remains outstanding as
of March 31, 1999.

     Loans made under the S&T Loan Agreement bear interest at the bank's prime
interest rate plus one percent.  During the first quarter of 1999, the
applicable interest rate was 8.75%.  The applicable interest rate increases
or decreases from time to time as S&T Bank's prime rate changes.  Interest
payments due on any outstanding loan balances are to be made monthly on the
first day of the month.  The Company recorded approximately $22,000 in interest
expense related to this revolving credit loan for the three-month period ended
March 31, 1999.  The principal will be due at maturity, although any outstanding
principal balances may be repaid in whole or part at any time without penalty.

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

     The S&T Loan Agreement includes various covenants relating to matters
affecting the Company including insurance coverage, financial accounting
practices, audit rights, prohibited transactions, dividends and stock purchases,
which are disclosed in their entirety in the text of the S&T Loan Agreement
filed as an exhibit to the Company's Current Report on Form 8-K dated as of
September 30, 1998.  The covenant concerning dividends and purchases of stock
prohibits the Company from declaring or paying cash dividends or redeeming,
purchasing or otherwise acquiring outstanding shares of any class of the
Company's stock, except for dividends payable in the ordinary course of business
on the Company's Series B 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.  S&T
Bank has granted the Company a three-month waiver of the cash flow covenant
effective as of March 31, 1999.  The S&T Loan Agreement also includes reporting
requirements regarding annual and monthly financial reports, accounts receivable
and payable statements, weekly borrowing base certificates and audit reports.

     As of March 31, 1999, the Company had a balance due on a line of credit
with Wells Fargo Bank of approximately $22,000. This credit facility was
originally obtained by MEGAbase to finance equipment purchases. The outstanding
balance was assumed by the Company upon acquisition of MEGAbase. Outstanding
borrowings under the line of credit bore interest ranging from 9.50% to 9.85%
and were to mature in May 2003. Interest was fixed on the date of each principal
borrowing. Repayment of principal and interest was to be over five years for

                                      -25-
<PAGE>
 
each borrowing.  No additional borrowings were permitted under this facility
after June 5, 1998.  During April 1999, balances due Wells Fargo Bank under
these credit facilities were repaid in full.

     As of March 31, 1999, the Company has outstanding $2,500,000 in liquidation
preference of Series A Convertible Redeemable Preferred Stock. Accrued but
unpaid dividends on the Series A preferred stock were approximately $578,000 as
of March 31, 1999. Dividends are payable at a rate of 8% and are cumulative. The
Company is not obligated to pay dividends on Series A preferred stock until June
30, 2006, unless shares are redeemed by the Company earlier. The S&T Loan
Agreement prohibits payment of dividends on Series A preferred stock during the
term of the agreement. During April and May 1999, the holders of all of the
outstanding shares of the Company's Series A preferred stock agreed to exchange
their shares for a like number shares of the Company's Series C preferred stock,
which has not yet been designated. There will be no mandatory redemption date
for the Series C preferred stock whereas mandatory redemption is required on
June 30, 2006 for the Series A preferred stock. Series C preferred stock will
earn dividends at the rate of 8% per annum, compounded quarterly until June 30,
2006, when the Company will be obligated to pay accrued dividends, subject to
legally available funds. Any accrued dividends not paid by this date will
compound thereafter at a rate of 12% per annum. After June 30, 2006, dividends
will accrue at a rate of 12% per annum and will be payable quarterly, subject to
legally available funds. It is anticipated that the exchange of these
securities, as well as the designation of the Series C preferred stock, will
occur during the second quarter of 1999.

     In August 1998, the Company sold 2,750 shares of Series B Redeemable
Preferred Stock, and related warrants to purchase shares of common stock, at the
purchase price of $1,000 per Series B share.  The Series B preferred stock is
convertible into the Company's common stock.  Until and including August 13,
1999, the first anniversary of the original issuance of the Series B preferred
shares, each share will be convertible into the number of shares of common stock
determined by (a) dividing 1,000 by $3.6125, which is 85% of the $4.25
price prior to the date of closing of the acquisition of Allin Consulting-
Pennsylvania or (b) if it results in a greater number of shares of common stock,
dividing 1,000 by the greater of (i) 85% of the closing price of the common
stock as reported by Nasdaq on the trading date prior to the date of conversion,
or (ii) $2.00.  After the first anniversary of the original issuance of Series B
preferred shares, each share is convertible into the number of shares of common
stock determined by (a) above, or (b) if it results in a greater number of
shares of common stock, dividing 1,000 by 85% of the closing price of the common
stock as reported by Nasdaq on the trading date following the first anniversary
of the closing date.   Purchasers of Series B shares 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 A Convertible Redeemable Preferred Stock.  Series B
shareholders are entitled to receive payment of cumulative quarterly dividends
at a rate of 6% payable in arrears as of the last day of October, January, April
and July, subject to legally available funds.  Accrued but unpaid dividends on
the Series B preferred stock were approximately $27,000 as of March 31, 1999.
During April 1999, the holders of all of the 2,750 outstanding shares of the
Company's Series B redeemable preferred stock agreed to exchange their shares
for a like number of shares of the Company's Series D preferred stock, which has
not yet been designated. There will be no mandatory redemption date for the
Series D preferred stock whereas mandatory redemption is required for Series B
preferred stock on the earlier of August 13, 2003 or following
certain asset sales by the Company, as defined in the Certificate of Designation
for Series B preferred stock. Series D preferred stock will earn dividends at
the rate of 6% per annum, payable quarterly on the same dates as Series B
preferred stock dividends. Series D preferred stock will be convertible into the
Company's common stock on terms identical to those of Series B preferred stock.
It is anticipated that the exchange of these securities, as well as the
designation of the Series D preferred stock, will occur during the second
quarter of 1999.

     The August 1998 acquisition of Allin Consulting-Pennsylvania included the
delivery by the Company of a note payable in the principal amounts of $2,000,000
to the former majority owner of Allin Consulting-Pennsylvania, James S. Kelly,
Jr. During March and April 1999, the note balance was reduced for Allin
Consulting-Pennsylvania's payment of $73,321 of tax liabilities related to the
pre-acquisition period. The note bears interest at the rate of 6% payable
quarterly on the first business day of each calendar quarter. As of March 31,
1999, approximately $31,000 of interest was accrued but unpaid on the note. The
principal amount of the note matures August 13, 2000. The principal amount of
the note is convertible at maturity, if not repaid by the Company, into the
Company's common stock at a conversion rate equal to that used for the stock
issued in the Allin Consulting-Pennsylvania acquisition of $4.406 per share or,
at the holder's option, the average of the bid and asked prices of the common
stock for the thirty days preceding maturity, subject to a $2.00 minimum

                                      -26-
<PAGE>
 
price. Upon the happening of certain events, the holder of the note payable will
be able to convert the note into the Company's common stock prior to August 13,
2000, as described in the Company's Current Report on Form 8-K dated as of
August 13, 1998. During April 1999, the holder agreed to exchange the promissory
note for 1,926 shares of the Company's Series E preferred stock having a
liquidation preference of $1,000 per share, which has not yet been designated.
There will be no mandatory redemption date for the Series E preferred stock.
Series E preferred stock will earn dividends at the rate of 6% per annum,
payable quarterly on the same dates as the note interest payments. Series E
preferred stock will be convertible to the Company's common stock on terms
substantially identical to those of the promissory note. If converted, the
Company will record any issuance of common stock based on the market price on
the date of conversion. It is anticipated that the conversion of the note into
shares of Series E preferred stock, as well as the designation of the Series E
preferred stock, will occur during the second quarter of 1999.

     The anticipated exchanges of securities described above are being
undertaken for purposes of enhancing the Company's future liquidity by removing
mandatory redemption requirements, strengthening the Company's balance sheet by
increasing equity, improving the Company's results of operations by replacing
interest expense with dividends and maintaining compliance with the Nasdaq Stock
Market's National Market listing requirements.

     The Company has outstanding a note payable to Les D. Kent in the amount of
$2,000,000 related to the November 1996 acquisition of Allin Consulting-
California and the November 1998 amendment of the original note for contingent
payments relating to the acquisition.  The amended note provides for two
principal payments of $1,000,000 each plus any accrued interest due on April 15,
2000 and October 15, 2000.  The Company may, however, defer payment of principal
at its option until April 15, 2005.  The note provides for interest at the rate
of 7% per annum from the acquisition date of November 6, 1996.  The Company has
accrued interest of approximately $336,000 as of March 31, 1999.  Accrued
interest is payable quarterly beginning on April 15, 2000.  The Company believes
that the ability to defer principal payments will be beneficial to its liquidity
over the next five years.

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

     The Company expects interactive television research and development
activities during the remainder of 1999 to focus on five areas.  Allin
Interactive is developing modifications to existing and development of new
software interfaces for interactive television applications to integrate new
hardware components and technology from On Command Corporation ("On Command")
for utilization in future interactive projects.  Any new system orders obtained,
such as the $1.9 million agreement entered into with RCCL in May 1999, will
necessitate some modification of existing content and applications or
development of new interactive applications that meet the specific needs of the
client.  Module development and modification of this type will only be conducted
as systems integration or consulting business is obtained.  Allin Interactive
intends to pursue development of interactive applications based on NetShow
Theatre, an emerging Microsoft product for delivering broadcast-quality video
content to personal computer networks.  The fourth area of development focuses
on delivery of interactive content and services across additional types of
information networks.  Research to date on alternate network types has been

                                     -27-
<PAGE>
 
performed in conjunction with interested technology industry parties.  The
Company anticipates further research and development activities in 1999 related
to Allin Digital's Portraits Online system for on-line viewing of digital
photographic images from an Internet based database archive.  Efforts will focus
on Portraits Online system improvements, added functionality, and modifications
necessary to integrate additional third party software and hardware components
necessary to expand Allin Digital's product portfolio.  The Company incurred
approximately $6,000 in research and development expense in the first quarter of
1999 and currently anticipates expenditures of approximately $65,000 during the
remainder of 1999.  Management intends to evaluate any development projects on
an ongoing basis and may reduce or eliminate projects if alternate technologies
or products become available or if changing business conditions warrant.

  Capital expenditures during the three months ended March 31, 1999 totaled
approximately $78,000 and related primarily to furniture and leasehold
improvements related to the relocation of Allin Consulting-Pennsylvania's
Pittsburgh staff to the corporate headquarters office and computer hardware,
software and communications equipment for the Company's periodic upgrading of
technology.  The Company anticipates capital expenditures of approximately
$285,000 during the remainder of 1999 for upgrades of computer hardware and
software in all of its operations.  Business conditions and management's plans
may change during the remainder of 1999, so there can be no assurance that the
Company's actual amount of capital expenditures will not exceed the planned
amount.

     As discussed above, the S&T Loan Agreement expires September 30, 1999. So 
long as a credit facility substantially similar to the current facility remains
in place, the Company believes, in light of its current operations as discussed
in the preceding paragraphs, that available funds and cash flows expected to be
generated by its current operations, will be sufficient to meet its anticipated
cash needs for working capital and capital expenditures for its existing
operations for at least the next twenty-four months. Absent renewal or
replacement of the credit facility or infusion of capital from another source,
the Company believes that available funds and cash flows expected to be
generated from operations will be sufficient to meet its anticipated cash needs
for several months following expiration of the current credit facility. If
currently available funds and cash generated by operations were insufficient to
satisfy the Company's ongoing cash requirements, or if the Company identified an
attractive acquisition candidate in the consulting industry, the Company would
be required to consider other financing alternatives, such as selling additional
equity or debt securities, obtaining long or short-term credit facilities, or
selling other operating assets, although no assurance can be given that the
Company could obtain such financing on terms favorable to the Company or at all.
Any sale of additional common or convertible equity or convertible debt
securities would result in additional dilution to the Company's shareholders.



Year 2000 Issue

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

State of Readiness

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

     Inventories have been completed for all Company software applications,
hardware and shipboard operating systems, and the Company expects to complete an
inventory of at-risk non-information technology systems by the second quarter of
1999.   The project team has substantially completed an assessment of compliance
issues related to the Company's information hardware and software.  The Company
undertook significant testing of shipboard

                                      -28-
<PAGE>
 
equipment during the assessment phase with no significant failures experienced
to date. Thus far, the task force believes that the Company's main accounting
system is Year 2000 compliant, but it has identified a problem in certain of the
Company's information hardware programming related to the accounting system.
Remediation of this identified problem as well as other hardware and software
problems that may be identified is expected to begin in the second quarter
of 1999 and to be completed early in the third quarter of 1999. The Company
expects that additional testing of all critical systems will be conducted during
the third and fourth quarters of 1999. The Company has identified and created a
list of its third party software manufacturers and is either contacting them
directly or monitoring their products through published information concerning
Year 2000 compliance. The Company has solicited and intends to continue to
solicit information regarding its internal non-information technology systems
such as telephones and HVAC during the second quarter of 1999. To date the
Company has identified a problem with the telephone system in its Cleveland,
Ohio office which has been remediated. Any additional required remediation and
testing of the Company's non-information technology systems is expected to be
completed during the third quarter of 1999. The Company is also soliciting or
monitoring information regarding the cruise lines' onboard billing systems,
which interface with the Company's interactive systems. Any issues raised
through these solicitations will be remediated, if possible, or addressed in the
Company's contingency plans.

     Although the Company's material supply requirements can predominantly be
filled by a large number of suppliers, the Company has implemented a program to
track the Year 2000 compliance status of its material vendors and suppliers.
Material vendors and suppliers have been surveyed to ascertain their risks
associated with Year 2000 issues, their state of readiness and the potential for
disruption of business operations.  Similarly, the Company has also implemented
a program to survey and track the Year 2000 compliance status of its material
customers.

     Approximately 35% of the 381 surveys circulated to suppliers, vendors and
customers have been returned to date.  The responses that have been received do
not indicate any material risk to the Company from these suppliers, vendors and
customers as a result of the Year 2000 problem.  The Company's project team
expects to evaluate any information obtained from additional surveys received as
well as other publicly available information on material suppliers, vendors and
customers during the remainder of the second quarter of 1999.  The project team
will analyze, to the extent information is available, the risk that disruption
of customers', vendors' and suppliers' business operations from Year 2000 issues
may negatively impact the Company.  Potential risks could arise from failure of
customers' vendor payment systems or cancellation or delay of service
engagements for the Company.  Potential risks could also arise if significant
suppliers or service providers do not successfully and in a timely manner
achieve Year 2000 compliance and the Company is unable to replace them.  The
Company intends to circulate second requests for information by the end of the
second quarter of 1999 to any material vendors, suppliers and customers who have
not responded to the Company's survey.

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

Risks of Company's Year 2000 Issues

     The Company is in the process of determining its contingency plans, which
are expected to include the identification of the Company's most reasonably
likely worst-case scenarios.  At this time, the Company does not have sufficient
information to assess the likelihood of such worst-case scenarios.  Currently,
the Company believes that the most reasonably likely sources of risk to the
Company include one or more of the following:  (1) the disruption of revenue
production from the seven interactive television systems aboard cruise ships
that may be in operation as of January 1, 2000, through failures in the systems
or the failure of the cruise lines' shipboard billing systems; (2) reduced
opportunities for technology consulting engagements due to clients' or potential
clients' Year

                                      -29-
<PAGE>
 
2000 compliance expenditures on current systems thereby reducing available funds
for new technology projects; (3) the inability of significant customers to be
Year 2000 ready which could negatively impact the Company's revenue and cash
receipts or which could result in the postponement or cancellation of major
client projects due to clients' Year 2000 business disruption: (4) the
possibility that Year 2000 issues develop in interactive systems sold by the
Company or in any contemplated future sales; (5) the possibility that disputes
may arise with clients regarding Year 2000 problems involving solutions
developed or implemented by the Company or the interaction of such solutions
with other applications and (6) the inability of principal product suppliers to
be Year 2000 ready, which could result in delays in deliveries from such
suppliers.

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

Contingency Plans

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

Costs

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

Special Note on Forward Looking Statements

     The Management's Discussion and Analysis and other sections of this Report
on Form 10-Q contain forward-looking statements that are based on current
expectations, estimates and projections about the industries in which the
Company operates, management's beliefs and assumptions made by management.
Words such as "expects," "anticipates," "intends," "plans," "believes,"
"estimates," variations of such words and similar expressions are intended to
identify such forward-looking statements.  Theses statements constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, and are subject to the safe harbors created thereby.  These
statements are based on a number of assumptions that could ultimately prove
inaccurate and, therefore, there can be no assurance that they will prove to be
accurate.  Factors that could affect performance include those listed below,
which are representative of factors which could affect the outcome of the
forward-looking statements.  In addition, such statements could be affected by
general industry and market conditions and growth rates, and general domestic
and international economic conditions.  The Company undertakes no obligation to
update publicly any forward-looking statements, whether as a result of new
information, future events or otherwise.

                                      -30-
<PAGE>
 
     Integration of Acquired Entities.  The Company acquired Allin Consulting-
Pennsylvania in August 1998.  The Company acquired MEGAbase in November 1998 and
subsequently merged it into Allin Consulting-California. The Company intends to
operate all of these entities' businesses under a common Allin Consulting
business strategy and to undertake joint marketing, recruiting and training
programs for all entities. Additionally, the Company seeks to promote an
orientation toward common solution area disciplines and methodologies across its
consulting operations. Allin Consulting-California, Allin Consulting-
Pennsylvania and the former MEGAbase have no prior history of joint operations
and there can be no assurance that the entities will be able to effectively
carry out joint efforts. Failure to do so may result in reduced revenues or
earnings for the Company.
 
     Need for Management of Growth and Geographic Expansion. The Company's
growth strategy will require its management to conduct operations, evaluate
acquisitions and respond to changes in technology and the market. The Company
intends to evaluate continued geographic growth of its operations, particularly
in technology consulting. The Company has substantially expanded the geographic
scope of its operations in the Northeastern United States through the
acquisition of Allin Consulting-Pennsylvania, with offices in Pittsburgh,
Pennsylvania and Cleveland, Ohio. Furthermore, Allin Consulting-Pennsylvania's
specialized banking industry technology consulting services operate on a
national scope. Allin Consulting-California has also experienced growth in the
geographic scope of engagements serviced by personnel based in northern
California. The Company is evaluating further geographic expansion of operations
through acquisition or investment. There can be no assurance, however, that the
Company will be successful in identifying or acquiring other businesses, or that
any business that may be acquired will result in the desired improvements to
financial results. The Company is marketing interactive television and digital
photography services nationally and intends to undertake installations
throughout the United States, if obtained. If the Company's management is unable
to manage growth, if any, effectively, its business, financial condition and
results of operations will be materially adversely affected.

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

     Fluctuations in Operating Results.   The Company expects to experience
significant fluctuations in its future quarterly operating results that may be
caused by many factors, including the addition or conclusion of significant
consulting or systems integration engagements or the acquisition of businesses.
Accordingly, quarterly revenue and operating results will be difficult to
forecast, and the Company believes that period-to-period

                                      -31-
<PAGE>
 
comparisons of its operating results will not necessarily be meaningful and
should not be relied upon as an indication of future performance.

     Recent Net Losses and Accumulated Deficit. The Company sustained
substantial net losses during the years ended December 31, 1996, 1997 and 1998
and the three months ended March 31, 1999.  As of March 31, 1999, the Company
had an accumulated deficit of $28,603,000.  The Company anticipates that it will
continue to incur net losses at least through all or a portion of the remainder
of 1999, and there can be no assurance that it will be able to achieve revenue
growth or profitability on an ongoing basis in the future.

     Liquidity Risk.  Since the beginning of the fourth quarter of 1998, the
Company's cash position declined significantly due primarily to the usage of
operating working capital to fund a portion of the retirement of a note payable
associated with the acquisition of Allin Consulting-Pennsylvania.  While the
Company's management believes the acquisition of Allin Consulting-Pennsylvania
has to date improved operating cash flow and expects this to continue, there can
be no assurance that a prolonged downturn in operations or business setbacks to
Allin Consulting-Pennsylvania or the Company's other operating entities will not
result in working capital shortages which may adversely impact the Company's
operations. The cash decline has been mitigated somewhat by the Company
obtaining a line of credit facility during the same time period. However, the
credit facility expires in September 1999. The Company expects to solicit a
renewal proposal for the credit facility as well as proposals for replacement of
the facility from other financing sources during the third quarter of 1999.
There can be no assurance, however, that the Company will successfully renew or
replace its current credit facility or that renewal or replacement, if any, will
be on terms as favorable to the Company as its present facility. If the credit 
facility is not renewed or replaced, there can be no assurance that available 
funds and cash flows expected to be generated from operations will be adequate 
to meet the Company's cash needs for working capital and capital expenditures 
for a prolonged period.

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

     Limited Operating History Under New Marketing Strategies.  The Company
fundamentally changed the marketing strategies for its technology consulting
operations in early 1999 to emphasize a customer-oriented marketing approach and
the delivery of services oriented around solutions areas meeting customer needs
for information technology infrastructure, business operations, electronic
business and knowledge management solutions.  The Company fundamentally changed
its marketing strategies with respect to its interactive television operations
during mid-1997 and with respect to its digital photography operations in early
1998.  Allin Interactive's strategy of selling customized applications and
installations of its interactive television systems on a systems integration
basis where the customer bears the capital cost of the system has not to date
yielded significant sales.  Allin Digital has moved from a retail digital
photography strategy to providing systems integration services specializing in
the installation of digital photography systems for professional photography
businesses.  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.

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

                                      -32-
<PAGE>
 
There can be no assurance that the Company will achieve ongoing success within
this market, or that any additional business obtained will generate improvements
to the Company's profitability or cash flow.

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

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

     Cruise Line's Rights to Terminate Operations or Management Fees. Carnival
has the right to terminate the Company's operations on its ships, or to
discontinue payment of management fees, upon notice. Any such termination of
operations would eliminate the Company's ability to share in revenue produced by
the affected interactive television system. Any such discontinuation of
management fees would eliminate the Company's ability to charge fees for
operation of the system. The loss or elimination of the Company's rights to any
of these sources of revenue resulting from any of the foregoing events could
have an adverse effect on the Company's business, financial condition, and
results of operations.

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

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

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

                                      -33-
<PAGE>
 
     Year 2000 issue. Currently, the Company believes that the most reasonably
likely sources of risk to the Company include one or more of the following: (1)
the disruption of revenue production from the seven interactive television
systems aboard cruise ships that may be in operation as of January 1, 2000,
through failures in the systems or the failure of the cruise lines' shipboard
billing systems; (2) reduced opportunities for technology consulting engagements
due to clients' or potential clients' Year 2000 compliance expenditures on
current systems thereby reducing available funds for new technology projects;
(3) the inability of significant customers to be Year 2000 ready which could
negatively impact the Company's revenue and cash receipts or which could result
in the postponement or cancellation of major client projects due to clients'
Year 2000 business disruption: (4) the possibility that Year 2000 issues develop
in interactive systems sold by the Company or in any contemplated future sales;
(5) the possibility that disputes may arise with clients regarding Year 2000
problems involving solutions developed or implemented by the Company or the
interaction of such solutions with other applications and (6) the inability of
principal product suppliers to be Year 2000 ready, which could result in delays
in deliveries from such suppliers. The Company's Year 2000 issues and any
potential business interruptions, costs, damages or losses related hereto are
dependent, to a significant degree, upon identification and remediation of
deficiencies and the Year 2000 compliance of third parties, both domestic and
international, such as customers, vendors and suppliers. If the Company is
unable to successfully identify and timely remediate Year 2000 problems or the
level of timely compliance by key customers, suppliers and service providers is
not sufficient, Year 2000 failures could have a material impact on the Company's
operations including, but not limited to, increased operating costs or other
significant business disruptions. See Year 2000 Issue above.

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

Recently Issued Accounting Standards

     In June 1998, the Financial Accounting Standards Board 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.  SFAS
No. 133 is effective for fiscal years beginning after June 15, 1999, although
earlier adoption as of the beginning of any fiscal quarter after issuance is
permitted.  The Company plans to adopt SFAS No. 133 during 1999.  Since the
Company does not invest excess funds in derivative financial instruments or
other market rate sensitive instruments currently, adoption of the new standard
is not anticipated to have a financial impact on the Company.

                                      -34-
<PAGE>
 
Part I - Financial Information

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

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

                                      -35-
<PAGE>
 
Part II - Other Information

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, 1999.

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


Date: May 11, 1999         By:  /s/   Dean C. Praskach
                                ----------------------
                                Dean C. Praskach
                                Vice President-Finance and 
                                Chief Accounting Officer

                                      -37-
<PAGE>
 
Allin Corporation
Form 10-Q
March 31, 1999
Exhibit Index



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


11          Computation of Earnings per Share

27          Financial Data Schedule

                                      -38-