<PAGE>

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

                                    FORM 10-K

(Mark One)

|X|   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
      ACT OF 1934
      For the fiscal year ended: December 31, 2000

                                       OR

|_|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
      EXCHANGE ACT OF 1934
      For the transition period from ________ to _________ .

                         Commission file number: 0-21395

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

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

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

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

          Securities registered pursuant to Section 12(b) of the Act:
                                      None

          Securities registered pursuant to Section 12(g) of the Act:
                     Common Stock, $0.01 Par Value per Share
                                (Title of Class)

      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

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|

      The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based upon the closing sale price of the Common Stock on March
19, 2001 as reported on the Nasdaq National Market tier of the Nasdaq Stock
Market, was approximately $2,800,000. Shares of Common Stock held by each
officer and director and by each person who beneficially owns 5% or more of the
Common Stock have been excluded in that such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.

      As of March 19, 2001, the Registrant had outstanding 6,967,339 shares of
Common Stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None
<PAGE>

                                Allin Corporation
                                    Form 10-K
                                December 31, 2000

                                      Index

Forward-looking Information                                              Page  3

Part I

Item 1  -   Business                                                    Page   4

Item 2  -   Properties                                                  Page  32

Item 3  -   Legal Proceedings                                           Page  32

Item 4  -   Submission of Matters to a Vote of Security Holders         Page  33

Part II

Item 5  -   Market For Registrant's Common Equity and Related
            Stockholder Matters                                         Page  34

Item 6  -   Selected Financial Data                                     Page  36

Item 7  -   Management's Discussion and Analysis of Financial
            Condition and Results of Operations                         Page  38

Item 7A  -  Quantitative and Qualitative Disclosures About
            Market Risk                                                 Page  55

Item 8  -   Financial Statements and Supplementary Data                 Page  56

Item 9  -   Changes In and Disagreements With Accountants on
            Accounting and Financial Disclosure                         Page 102

Part III

Item 10 -   Directors and Executive Officers of the Registrant          Page 102

Item 11 -   Executive Compensation                                      Page 105

Item 12 -   Security Ownership of Certain Beneficial Owners and
            Management                                                  Page 111

Item 13 -   Certain Relationships and Related Transactions              Page 116


Part IV

Item 14 -   Exhibits, Financial Statement Schedules and Reports
            on Form 8-K                                                 Page 118

Signatures                                                              Page 122


                                      -2-
<PAGE>

Forward-Looking Information

      Certain matters in this Form 10-K, including, without limitation, certain
matters discussed under Item 1 - Business, Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations and Item 7A -
Quantitative and Qualitative Disclosures about Market Risk, constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Forward-looking statements are typically identified by the words
"believes," "expects," "anticipates," "intends," "estimates," "will" and similar
expressions. In addition, any statements that refer to expectations or other
characterizations of future events or circumstances are forward-looking
statements. Readers are cautioned that any such forward-looking statements are
not guarantees of performance and that matters referred to in such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause actual results, performance or achievements of
Allin Corporation to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among other things, risks and uncertainties
discussed throughout Item 1 - Business, and under the caption "Risk Factors,"
and in Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations and Item 7A - Quantitative and Qualitative Disclosures
about Market Risk. 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

Item 1 - Business

(a) General Development of Business

      Allin Corporation (the "Company") is a solutions-oriented information
technology consulting company that teams with businesses to help them transform
the promise of the Internet into practical business realities through three
interrelated solution areas: Technology Infrastructure, E-Business and
Interactive Media. The Company offers technology consulting, application
development and systems integration services specializing in Windows 2000-based
and Exchange 2000-based software from Microsoft Corporation. The Company
maintains a customer-oriented focus in its marketing strategy and operations.
The Company is intent on building long-term customer relationships by providing
value in the form of solutions that address specific customer information
technology needs.

      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 December 31, 2000, the
organizational legal structure consists of Allin Corporation, five wholly owned
operating subsidiaries and one wholly owned non-operating subsidiary. The
operating subsidiaries are Allin Corporation of California ("Allin
Consulting-California"), Allin Consulting of Pennsylvania, Inc. ("Allin
Consulting-Pennsylvania"), Allin Interactive Corporation ("Allin Interactive"),
Allin Digital Imaging Corp. ("Allin Digital Imaging") and Allin Network
Products, Inc. ("Allin Network"). Allin Holdings Corporation ("Allin Holdings")
is a non-operating subsidiary that provides treasury management services to the
Company. Allin Consulting-California and Allin Network are California
corporations, Allin Consulting-Pennsylvania is a Pennsylvania corporation and
Allin Interactive, Allin Digital and Allin Holdings are Delaware corporations.
The Company is headquartered in Pittsburgh, Pennsylvania with additional offices
located in San Jose and Walnut Creek, California and Ft. Lauderdale, Florida.
The Company utilizes the trade-names Allin Consulting, Allin Interactive and
Allin Digital Imaging in its operations. All trade- and brand-names included in
this Report on Form 10-K are the property of their respective owners.

      The Company's solution area-based organizational structure is designed to
complement the customer-oriented focus of the Company's marketing strategy. The
solution area structure is defined more by a customer's use of the services
rather than technological disciplines. Solution area sales and operational
personnel must understand a customer's business issues to provide a customized
solution to their particular needs. The ability of customers to manage
information has become a prerequisite for their success. A company's knowledge
capital has become increasingly critical in allowing it to react more quickly to
customer needs, bring products to market with greater speed and respond more
completely and competitively to changing business conditions. The growing
influence of the Internet in the business arena is also fundamentally changing
how businesses interact with customers and suppliers. The Company believes the
customer-based focus of its solution area organizational structure and marketing
strategy promote the effective delivery of customer-oriented technology
solutions and will foster the growth of long-term customer relationships with
ongoing service opportunities.

      A brief description of the Company's solution areas follows:

 .     The Technology Infrastructure Solution Area focuses on customers' network
      and application architecture, messaging and collaboration systems and
      security issues. Technology Infrastructure designs and implements
      enterprise-quality systems that maximize network availability and
      efficiency, and enable customers to reduce costs and protect vital
      resources. Technology Infrastructure solutions provide the underlying
      platforms and operating systems necessary to take advantage of the latest
      technology capabilities. Services include design, configuration,
      implementation, evaluation of customer operating systems and database
      platforms, messaging systems, information system security solutions such
      as firewalls and proxy servers and application services such as message
      queing and transaction servers. Technology Infrastructure targets
      horizontal markets, meaning businesses across a broad spectrum of
      industries.

 .     The E-Business Solution Area provides solutions that enable organizations
      to evaluate and optimize business processes and extend corporate messages,
      products, services and processes to customers, partners and suppliers.
      E-Business delivers portal and business intelligence solutions that
      automate and streamline information creation, storage, sharing and
      retrieval. E-Business solutions enable customers to increase productivity
      by


                                      -4-
<PAGE>

      improving the flow and accessibility of information, thereby eliminating
      inefficiencies and reducing costs. Solutions emphasize Internet- and
      intranet-capabilities including company portals, extranet-based value
      chains and electronic commerce sites, data warehousing, work flow, and
      interfaces with, or custom development for, business operation transaction
      systems. E-Business also targets horizontal markets.

 .     The Interactive Media Solution Area focuses on the Company's expertise in
      digital media applications including interactive television and digital
      imaging solutions. Interactive Media enables customers to convert manual
      and analog processes into interactive digital solutions. Interactive Media
      delivers business-to-business and business-to-consumer E-commerce
      platforms that enable customers to improve service, and increase
      productivity and revenue. Interactive television operations are currently
      focused on two vertical markets, the cruise line segment of the travel and
      leisure market and the healthcare market. Digital imaging solutions are
      focused on the professional photography market. Interactive Media performs
      services on both a consulting and systems integration basis.

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

      The Company was a recipient of Pittsburgh Technology 50 awards in 1998,
1999 and 2000. The award recognizes the highest three-year revenue growth rates
among technology-based businesses in the Pittsburgh region. Allin Digital was
also recently recognized by the Eastman Kodak Company as "Digital Integrator of
the Year" at the Photo Marketing Association International Trade Show.

      The year 2000 brought continued progress in the Company's development as a
solutions-oriented technology consulting organization. Revenue from the solution
area services most consistent with the Company's strategic and marketing
objectives increased substantially in 2000. This revenue growth replaced most of
the revenue lost due to a continuing decline in the level of legacy technology
consulting services provided by the Company. Overall revenue for 2000 of
$24,089,000 represented a 4% decrease from 1999 revenue of $24,977,000. Revenue
recognized in 1999 represented a 63% increase over 1998 revenue of $15,291,000,
primarily due to a significant acquisition in August 1998. See Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations and Item 8 - Financial Statements and Supplementary Data for detailed
information concerning the Company's revenue growth and results of operations.

(b) Financial Information About Industry Segments

      Financial information concerning the industry segments in which the
Company operates is included in Note 21 of the Notes to the Company's
Consolidated Financial Statements included herein in Item 8 - Financial
Statements and Supplementary Data.

(c) Narrative Description of Business

      Operating segments to be discussed fall under two groups, Solution Area
Services and Ancillary Services & Product Sales. This presentation of segments
falling under Solution Area Services represents a change from the presentation
in the Company's Annual Report on Form 10-K for the year ended December 31,
1999. Beginning in 2001, the Company has changed its solution area structure to
reflect changes in technology, customers' maturing integration of electronic
business capabilities with ongoing business operations and the Company's desire
to simplify its delivery message. As will be discussed in detail following under
the heading Industry Overview - Technology Consulting Services, developments in
technology driven by the fundamental changes the Internet is bringing to how
business is conducted are fostering the development of technology products aimed
at integrating electronic commerce capabilities with all aspects of business
operations. Two years ago, companies typically viewed electronic commerce
capabilities as critical but often largely separate from the traditional
operations of their businesses. Similarly, knowledge management products and
projects were typically oriented toward sharing of information within an
organization. When the Company introduced its solution area-based organizational
structure


                                      -5-
<PAGE>

in 1999, the solution areas reflected the business realities of that time.
Solution areas introduced in 1999 included Business Operations, which focused on
customers' traditional ongoing business functions such as sales or purchasing,
Knowledge Management, which focused on customers' systems for handling knowledge
capital, and E-Business, which focused on enhancing customers' electronic
commerce presence and capabilities. An additional two years in the evolution of
the Internet's impact on business and the evolution of business intelligence
technology has resulted in a melding of past distinctions. In 2001, business and
technology trends point to electronic business capabilities fully mainstreamed
and integrated with all aspects of business operations, with business
intelligence and transactional capability easily accessible to all business
stakeholders, including customers, suppliers and employees. The Company's
management believes that the Company's solution area structure must be dynamic
and responsive to changes in the technology landscape. It must both maximize the
value for customers and enable the Company's delivery message to resonate with
potential customers' technology needs. Management came to believe that a simpler
solution area structure would both reflect the ongoing changes in the technology
marketplace and enable a simpler, more cogent delivery message. Accordingly, the
Company's E-Business Solution Area now reflects the combined solution-oriented
consulting activities consistent with the Company's Microsoft-based technology
focus that would have been reflected as Business Operations, Knowledge
Management and Electronic Business Solution Areas under the previous solution
area structure.

      One portion of the Company's operations that were previously carried out
under the Business Operations Solution Area is not being carried forward under
the newly constituted E-Business Solution Area. The Company has historically
performed technology consulting services for certain legacy technologies,
including IBM proprietary mainframe systems and Hogan IBA software applications,
which are specialized products for the banking industry. While such operations
will continue, the level of these services has declined significantly in 1999
and 2000. Management believes the Company's best interests will be served with
the E-Business Solution Area concentrating on projects more closely consistent
with the Company's Microsoft-based technology focus. Legacy technology
consulting services will be overseen by executive management and support
personnel in the Company's Pittsburgh office with responsibility for all of the
Pittsburgh-based solution area operations. Legacy technology consulting services
will be shown separately under the new solution area structure. Discussion of
the Company's solution areas in this Item 1 - Business is organized to reflect
the newly implemented solution area structure. To enhance comparability of
financial information with reporting of results of the Company's future
operations, financial information as of December 31, 1998, 1999 and 2000 and for
the years then ended included in this Report on Form 10-K has been restated to
conform to the new solution area structure.

      Solution area services comprise the substantial majority of the Company's
current activities and are most closely associated with its strategic focus.
Grouping the solution area services for discussion in this report emphasizes
their commonality of purpose in meeting the core strategic objectives of the
Company. Under the heading "Solution Area Operations" following, discussion will
include an overview of the Company's marketing strategy, operations model,
solutions framework and delivery methods, which are common to all solutions
areas, an industry overview for technology consulting services which is
applicable to the Technology Infrastructure and E-Business solutions areas, a
review of the operations of these two solutions areas, discussion of backlog,
supply considerations and sources of competition common to these two solution
areas, a review of Interactive Media operations including industry overviews of
the cruise, healthcare and professional photography industries, the vertical
markets where services are targeted, a discussion of Interactive Media backlog,
supply considerations and competitive conditions, and a discussion of legacy
technology services including an industry overview, a review of operations,
backlog, supply considerations and competitive conditions.

      In connection with solutions-oriented services, customers often request
that the Company also provide technology-related products necessary for
implementation or ongoing use of technology solutions recommended and
implemented by the solution areas. To ensure client satisfaction, the Company
maintains an ancillary capability to provide product sales of information system
hardware and software and equipment and supplies utilized by digital imaging
systems. The Company has also operated interactive television systems installed
on cruise ships from which it realized transaction-based revenue. Under the
heading "Ancillary Services & Product Sales" following, discussion will include
reviews of the Company's transactional-based interactive television operations
and digital imaging product sales, a review of information system product sales
operations including an industry overview of computer hardware, software and
networking equipment and a brief discussion of other services provided by the
Company.

      During 2000, one significant customer, Celebrity Cruises, Inc.
("Celebrity"), accounted for 11% of the Company's consolidated revenue.


                                      -6-
<PAGE>

Solution Area Services

      Revenue from the Company's solution area services increased as a
proportion of the Company's overall revenue from 1998 to 2000. The Company's
management believes that this trend reflects the Company's evolution to becoming
predominantly a provider of solutions-oriented technology consulting and systems
integration services. The percentages of total revenue represented by the
Company's solution areas for the three years ended December 31, 2000 are as
follows:

                                         Year Ended December 31
            Solution Area Services       ----------------------
            Percentage of           1998          1999          2000
                                    ----          ----          ----

            Total Revenue            76%           89%           90%

      During 2000, two significant customers, Celebrity and Wells Fargo Bank,
accounted for greater than 10% of solution area revenue.

Marketing Strategy, Operations Model, Solutions Framework and Delivery Methods

      The Company maintains a customer-oriented focus in its marketing strategy.
The Company is intent on building long-term customer relationships by providing
value in the form of solutions that address specific customer information
technology needs. The ability of customers to manage information and allow
significant stakeholders such as customers, suppliers and employees to access
information and transactional capabilities have become prerequisites for their
success. A company's knowledge capital has become increasingly critical in
allowing it to react more quickly to customer needs, bring products to market
with greater speed and respond more completely and competitively to changing
business conditions. The growing influence of the Internet in the business arena
has and will continue to fundamentally change how businesses interact with
customers and suppliers. The Company believes that the effective delivery of
customer-oriented technology solutions will foster the growth of long-term
customer relationships with ongoing service opportunities. There can be no
assurance, however, that the Company will realize revenue at current or
increased levels in future periods as a result of its current strategy. The
Company's current target market is mid-market to Fortune 1000 companies seeking
to achieve a competitive advantage through technology. The Company believes that
businesses with annual revenue ranging from $250 million to $1 billion afford
the Company the best opportunities to offer solutions creating value for the
customers and to foster the development of long-term business relationships.
Management believes customers of this size are more likely to utilize
Microsoft-oriented information technology than larger organizations and
typically have less sophisticated internal technical resources. The Company will
not, however, limit its marketing and sales efforts solely to customers of this
size. Management believes that the customer-oriented focus that is the
fundamental principal of its marketing strategy is firmly established throughout
the Company.

      The Company's operations model, with Technology Infrastructure, E-Business
and Interactive Media Solution Areas, is intentionally similar to Microsoft's
product and service groupings. Management believes this structural focus fosters
more focused communication and interaction with the Microsoft organization and
promotes the continued development of technological expertise within the Company
focused on products and applications that closely correspond to particular
disciplines of the solution areas. However, there can be no assurance that the
strategic model will lead to increased revenue or profitability in the future.
Management intends to continue the Microsoft focus in the Company's operations
through ongoing training and certification of its consultants and through joint
marketing efforts with Microsoft. Both of the Allin Consulting operating
entities and Allin Interactive 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 in recognition of its work and achievements demonstrating
excellence in Microsoft-oriented consulting services. Allin Consulting is also a
member of Microsoft's Infrastructure and Collaborative Solutions Portal Partner
Advisory Councils, which are select groups of Microsoft Solution Providers with
a successful history of implementing Microsoft information technology. Council
members work closely with Microsoft to provide guidance on key issues that
ultimately shape Microsoft's channel-based strategy for delivering customer
solutions and services. The Company believes that its role in helping to
formulate Microsoft's message and focus has enabled it to quickly develop
solutions capabilities for new Microsoft product offerings such as Windows 2000
and will continue to do so with new Microsoft product developments. Management
also believes the subsidiaries' established relationship with Microsoft as
Solution Provider Partners and the quality of their services, as recognized by
Microsoft, will position the Company to benefit from Microsoft's expected growth
in Internet, business intelligence, infrastructure and interactive media
products since Microsoft has historically relied extensively on third parties
for custom


                                      -7-
<PAGE>

development and integration services. No assurance can be given, however, that
any growth or change in Microsoft's product sales will result in increased
revenue or profitability for the Company.

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

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

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

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

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

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

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

      Management views services delivered through the Allin-managed or
co-managed methods as being solutions-oriented services because the Company is
fully or partially responsible for development and implementation of
technology-based solutions to customers' business problems. Services delivered
under the Allin-managed or co-managed methods are viewed as the most consistent
with the Company's overall marketing strategy and business objectives.
References in this report to solutions-oriented services mean services delivered
through the Allin-managed or co-managed methods. Currently, the majority of the
services of the Technology Infrastructure, E-Business and Interactive Media
Solution Areas are solutions-oriented services because they are delivered on the
Allin-managed or co-managed methods. The Company's long-term marketing strategy
will seek development of additional solutions-oriented business in all solutions
areas. During the first half of 2000, the E-Business and


                                      -8-
<PAGE>

Interactive Media solutions-oriented services received the strongest marketing
efforts because the Company's management believed they offered the best
short-term growth prospects and due to management's desire to broaden the
Company's service offerings. During the second half of 2000, Technology
Infrastructure solutions-oriented services received strong marketing emphasis as
well due to management's belief that market adoption of Microsoft Windows 2000
and Exchange 2000 products will generate increased demand for Technology
Infrastructure services.

Industry Overview - Technology Consulting Services

      The market for information technology services has experienced rapid
growth throughout the 1990's and 2000 and this trend is expected to continue
into the future. The Gartner Group, Inc. report Consulting and Systems
Integration Market Size and Forecast, 2000 of November 13, 2000 sizes the North
American information technology consulting, development and integration services
market at an estimated $101 billion in 2000 with an expected annual growth rate
of 17% through 2004, when the estimated market size will be $191 billion. The
Gartner Group report cites a number of factors leading to the significant growth
expectations through 2004. The most significant factor cited as causing the
expected rapid growth in demand for services is the fundamental way in which the
Internet has changed the conduct of business. The Standard & Poor's Industry
Survey for Computers: Commercial Services of June 1, 2000 cites a number of
additional factors spurring growth in technology consulting, including mergers
and acquisitions, deregulation, privatization, technological advancements and
globalization. The Standard & Poor's Survey also concludes, however, that the
Internet is the predominant cause of recent growth in the demand for technology
consulting services.

      The Gartner Group, Inc. report Consulting and Systems Integration Market
Size and Forecast, 2000 describes three waves to the Internet's expected impact
on businesses and their resultant pursuit of electronic business solutions. The
first wave was characterized by the creation of Web presence, interactive sites,
basic commerce transactions, limited back-office integration and Web-enablement
of selected applications. The second wave involves significant enhancement to
electronic business capabilities through back-office integration and supply
chain optimization and partner integration investments that transform how
businesses interact with customers and partners. The third wave is characterized
by a transformation to fully mainstreamed electronic business operations,
increased use of partners for non-core operations and the ability to deliver
integrated and personalized service to customers regardless of channel. The
Gartner Group report indicates that the first wave, initiated in the 1990's, is
now substantially complete, with most businesses implementing or developing
solutions to make the second wave a reality. The Gartner Group expects the
widespread adoption of second wave capabilities from 2000 to 2002, with the
third wave characteristics a future condition for most organizations, but
expected to be realized starting in 2002 and beyond. The Gartner Group report
expects the waves of electronic business capability adoption to generate
substantial demand for technology consulting, development and integration
services because the technical challenges are significantly greater than with
the establishment of first wave capabilities. Another Gartner Group report,
Heavy Lifting and Customer Communities: 2000 Consulting and Systems Integration
in North America, January 29, 2001, uses the term "heavy lifting" to describe
the delivery of more complex electronic business integration, transformation and
optimization services throughout entire organizations. The report notes demand
for services moving away from the small "e-consultancies" that proliferated
rapidly in the late 1990's and focused on first wave electronic business
capabilities. The more complex technical challenges of the second and third
waves are shifting demand to organizations with deeper experience and broader
capabilities with all aspects of business technology. The Company believes that
the trends identified in the Gartner Group reports represent a significant
growth opportunity for the Company's E-Business and Technology Infrastructure
Solution Areas as customers and potential customers enhance both their
electronic business capabilities and the underlying technological architecture.
There can be no assurance given, however, that the Company will realize growth
in revenue or improvement in results from operations due to overall industry
trends.

      Another aspect of the Internet-driven changes to both the domestic and
worldwide marketplaces is the sheer magnitude of the expected growth in
business-to-business electronic commerce. A 2000 Microsoft report Empowering
Suppliers for Integrated Business-to-Business E-Commerce notes industry analyst
International Data Corporation's expectations for a $2.2 trillion Internet
commerce market by 2004, 88 percent of which will be business-to-business. This
represents an expected increase in Internet commerce of over 6000 percent from
1998. The report also cites Gartner Group research forecasting the volume of
non-financial goods and services sold over the Internet to reach $7.29 trillion
by 2004. The Standard & Poor's Industry Survey for Computers: Commercial
Services forecasts significant growth in e-marketplaces, which are
Internet-based networks of business-to-business buyers and sellers within a
particular industry or geographic region. The Standard & Poor's survey cites
Gartner Group research projecting $2.7 trillion in e-marketplace transactions by
2004, which would represent 37% of expected Internet business-to-business sales
and 2.6% of all worldwide business sales. The advanced electronic


                                      -9-
<PAGE>

transactional capability needed to facilitate e-marketplaces and the projected
transactional volume increase in overall business-to-business electronic
commerce will require businesses to invest in more robust technology and will
further accelerate the integration of electronic sales with traditional
production and fulfillment operations, all of which will create additional
technology consulting opportunities. There can be no assurance given, however,
that the Company will realize growth in revenue or improvement in results from
operations due to overall industry trends.

      The Internet is fundamentally changing communication patterns among
businesses and their customers and suppliers. The Knowledge Management Magazine
article Through the Looking Glass, from the February 2001 edition, predicts
significant near-term investment by businesses in portal technology to
facilitate this communication. The article cites a September 2000 survey from
the Delphi Group of Boston reporting that while only a quarter of the business
respondents had invested in portal technology to date, more than half expected
to make significant investments within the next year. The article forecasts
several developments in portal technology which could create significant demand
for technology consulting services. One is the near-term availability of a
second generation of portal technology products that will be more effective in
providing enterprise-wide information access, supporting collaborative work and
interfacing with business systems to facilitate transactions. Another is the
expected availability of communication features such as instant text and voice
messaging, audio and video conferencing, shared calendaring and dynamic document
sharing. Much of the second generation portal technology is being developed on
Web application server platforms to deliver the scalability, robustness and
interactivity necessary to effectively integrate information feeds, workflow
options and back-office transactional systems. The Giga Information Group report
Key Trends for 2001: Information and Knowledge Management of December 7, 2000
also predicts that portals will continue to be a primary focus for information
management and knowledge management plans. The Company's management believes
that effective implementation of the new generation of portal technology will
involve complex technological architecture issues, data communications issues
and integration of information from multiple and diverse systems, which will
likely exceed the technological capabilities of many business information
technology functions. Management believes industry trends related to portal
technology will likely result in increased demand for the type of
solutions-oriented technological capabilities offered by the Company's solution
areas. There can be no assurance given, however, that the Company will realize
growth in revenue or improvement in results from operations due to overall
industry trends.

      The Giga Information Group report Key Trends for 2001: Information and
Knowledge Management also predicts that the growing implementation of portal
technology will reveal commonplace weaknesses in businesses' access to
knowledge. The report predicts that effective utilization of portals will be
hampered by a multiplicity of inconsistent and overlapping information files, a
lack of interaction between data information warehouses and transaction systems,
and a widespread lack of investment in developing high-value, high-quality
content for the portal applications. The Giga Information Group report predicts
the problems revealed by the increasing implementation of second generation
portal technology will help accelerate another trend in technology, the growing
implementation of advanced business intelligence technology.

      Business intelligence technology seeks to provide an integrated
environment promoting effective and efficient data storage and retrieval
systems, analytic functionality for the data, and information accessibility
inside and outside the organization. The growth of business intelligence
applications represents a move toward an integrated enterprise-wide approach to
the handling of knowledge capital. The ServiceWare White Paper: The Strategic
Benefits of Knowledge Management of November 2000 notes the need of businesses
to implement effective e-business strategies that enhance customer satisfaction
while improving enterprise efficiency. The ServiceWare White Paper identifies
effective collection, structuring, organization and availability of knowledge as
the keys to improving e-business strategies and operations. Business
intelligence integrates many applications heretofore seen as separate products
such as customer relationship management, data warehousing and enterprise
resource planning applications. The trend toward integrated business
intelligence technology is expected to be a continuum over the next few years.
Customer relationship management and data warehousing applications remain in
high demand currently because they can bring about incremental improvements to
the heightened customer interaction and knowledge sharing requirements brought
about by the growth in electronic business. The Company's management expects
implementation of advanced business intelligence technology will grow
significantly over the next few years. Business intelligence technology also
involves complex technological architecture issues, data communications issues
and integration of information from multiple and diverse systems, which will
likely exceed the technological capabilities of many business information
technology functions. Management believes industry trends related to business
intelligence technology will likely result in increased demand for the type of
solutions-oriented technological capabilities offered by the Company's solution
areas. There


                                      -10-
<PAGE>

can be no assurance given, however, that the Company will realize growth in
revenue or improvement in results from operations due to overall industry
trends.

      A labor shortage for computer programmers and system designers continues
to contribute to increased demand for technology services firms. The Standard &
Poor's Industry Survey for Computers: Commercial Services of June 1, 2000
projects that demand for talented computer services professionals will outstrip
supply over the next few years. The United States Bureau of Labor Statistics
information as of February 2000 indicates computer scientists, computer
engineers and systems analysts were expected to be the three occupations with
the fastest growth rate in job openings in 2000. The Bureau of Labor Statistics
also expects computer and data processing services to be the domestic industry
with the fastest wage and employment growth for the period 1998 to 2008. The
Standard & Poor's survey indicates consulting firms are seen as having an
advantage in recruiting technical personnel by offering greater career mobility
and opportunities and more extensive training programs. The labor shortage has
resulted in increased labor cost and mobility for skilled technical personnel,
thereby making it difficult for companies to retain technical staff and control
costs. The proliferation of software and increasingly complex computer networks,
intranets and extranets have also increased the difficulty of maintaining
diverse and up-to-date technical capabilities within many companies. The result
has been increased demand for technical services firms to obtain specialized
expertise relevant to specific systems integration and software application
development projects and to control costs by enabling companies to maintain
smaller technical support staffs with less technological expertise. Management
believes that technology consulting firms allow for greater efficiencies in
allocating scarce skilled technical resources to areas of highest demand than
does the maintenance of in-house technical support staff.

      The Company maintains a strong Microsoft focus in its solutions areas.
Microsoft is a dominant force in the information technology industry,
particularly in software for personal computer operating systems. Microsoft's
dominance to date has been in mass-market oriented products engineered to meet
the most common information processing needs of individuals and small to
medium-sized businesses. Recent areas of dominance include server and
infrastructure software products such as Windows NT and the BackOffice suite of
products. Last year's introduction of the Windows 2000 operating system is
expected to create significant activity in operating system conversions over the
next two years. The Computerworld article Big Push to Win2k Expected in '01 of
February 19, 2001 projects that 40% of all business servers currently utilizing
Windows NT 4.0 will be upgraded to Windows 2000 in 2001. Similarly, the
InfoWorld article Windows 2000 at 1 of February 12, 2001, projects That Windows
2000 will surpass Windows NT as Microsoft's leading server platform by July
2001. The InfoWorld article reports that Windows 2000 will continue to be
marketed as providing significant increases in operating system reliability,
performance, scalability and stability. The benefits are expected to add
economic value to businesses by enabling them to consolidate servers and support
more data-intensive applications such as e-commerce, Web hosting and extranets.
Microsoft is expected to continue to be dependent on third parties for service
and support for its products. Management believes that short term growth in
Microsoft's server and infrastructure products, particularly the increasing
implementation of Windows 2000, will lead to increased demand for the services
offered by the Company's Technology Infrastructure Solution Area. The Company's
position as a member of Microsoft's Infrastructure Partner Advisory Council has
provided the opportunity to participate in the development of Windows 2000
expertise, which the Company's management believes will afford the Company a
competitive advantage in obtaining consulting engagements related to Windows
2000 installations. There can be no assurance, however, that revenue growth or
profitability improvements will be realized by the Company's Information
Technology Infrastructure solution area.

      Management believes the economic downturn experienced in early 2001 has,
on at least a short-term basis, negatively impacted the demand for technology
consulting services. Management believes the trends previously discussed in this
Industry Overview - Technology Consulting Services are long-term trends which
will continue to affect long-term demand for technology consulting services in
the ways indicated. Other factors, such as the economic downturn, may cause
short-term variations in the level of demand. The computer services industry
includes companies diverse in size and scope of activities and includes hardware
and software vendors with significant computer services operations, large
technology consulting entities associated with large public accounting firms and
entities primarily focused on technology related consulting. The industry is
presently fragmented and has experienced significant acquisition activity in
recent years as firms have sought to broaden technological skills or
geographical presence. Management expects this consolidation trend to continue.


                                      -11-
<PAGE>

Technology Infrastructure

      Revenue from the Company's Technology Infrastructure Solution Area
rebounded in 2000, with a 31% increase from 1999. Revenue recorded in 1999 had
represented a 27% decline from 1998, when the Company's California-based
consulting operations had been predominantly oriented toward
infrastructure-based services. There has been a significant decline in the
percentage of overall revenue, primarily due to the significant growth in
revenue from the Interactive Media Solution Area. The percentage of solution
area and total revenue for the three years ended December 31, 2000 is as
follows:

                                                Year Ended December 31
            Technology Infrastructure           ----------------------
            Percentage of                  1998          1999          2000
                                           ----          ----          ----

            Solution Area Revenue           34%           13%           18%
            Total Revenue                   26%           12%           16%

      The Company has developed a long-standing expertise in technology
infrastructure and is a member of Microsoft's Infrastructure Partner Advisory
Council. Technology Infrastructure contributed solidly to the growth in the
Company's solutions-oriented revenue in 2000. The Company's management believes
developments in technology, including the introduction of Microsoft's Windows
2000 operating system and the growing focus on integration of electronic
business capabilities with traditional business operating systems have created
conditions favorable to growth for Technology Infrastructure and contributed to
the revenue growth realized in 2000. Management attributes the 1999 decline in
revenue to a general softening of demand for technology consulting services in
the second half of 1999 due to a lock-down of customer information systems in
preparation for the Year 2000 rollover.

      Technology Infrastructure Solution Area services focus on customers'
underlying platforms and operating systems. Technology infrastructure is the
foundation upon which technology applications are built. Technology
infrastructure is comprised of three significant components: the physical
network, the operating system and back-office applications. The physical network
component deals with network design, network security, local and remote access
and Internet connectivity. The operating system encompasses all aspects of the
design and implementation of a network operating system including protocol
design, policies, profiles, desktop standards, client installation/imaging and
backup schemas. Back-office operations encompasses the design and installation
of communications servers, database servers and application servers. Technology
Infrastructure Solution Area services focus on the proper selection,
implementation and management of the underlying platforms driving customers'
information systems. Services include design, configuration, implementation,
monitoring and support of customer operating systems, management and maintenance
of database platforms, messaging systems, information system security solutions
and application services such as message queing and transaction servers.

      The goal of the Technology Infrastructure Solution Area is to develop and
implement solutions solving business problems thereby bringing tangible benefits
to customers. Technology Infrastructure follows the Allin Solutions Framework in
planning and executing its engagements. The framework is intended to assure
proper identification of customer goals for each project and that the
recommended solutions provide benefits to customer businesses.

      The Technology Infrastructure Solution Area meets customer needs for
network and application architecture, messaging and collaboration and security.
Network and application architecture solutions maximize uptime, avoiding costly
productivity losses for internal systems, and damage to partner and customer
relations from external-facing systems. Solutions that enhance a customer's
messaging and collaboration capabilities allow knowledge workers to make
informed decisions expediently and promote shared project vision across
geographic and organizational boundaries. Security-based solutions protect vital
information and critical systems. Examples of recent projects include:

      .     a Small Business Server to Windows 2000 migration that reduced the
            customer's system administration costs, increased reliability and
            enabled essential services,

      .     the implementation of a Windows NT infrastructure with Exchange
            Internet connectivity to remedy a valve manufacturer's messaging
            delivery problems,

      .     the implementation of a messaging system based on Microsoft Exchange
            and Microsoft Outlook for a large urban school district, and


                                      -12-
<PAGE>

      .     migration of all student and faculty desktops to Windows 2000 for a
            university graduate business school.

      The Technology Infrastructure Solution Area services maintain a focus on
Microsoft BackOffice technology including Windows 2000, Windows NT Server, SQL
Server, SNA Server, Systems Management Server, Exchange Server and Internet
Information Server. Messaging and collaboration projects focus on technologies
such as Microsoft Exchange 2000 and SharePoint and utilize the Research in
Motion Blackberry products for wireless communication. The Company believes that
Technology Infrastructure enables its customers to incorporate new applications
and new technologies into existing information systems quickly and with minimal
disruption. Management believes that this solution area has been on the leading
edge in developing structures for multi-site computing to enhance the
productivity of travelers, workers in remote and field offices and virtual
office environments.

      This solution area offers a number of packaged solution products which
offer state of the art diagnostic technology assessments at reasonable fixed
prices as part of the Allin Solution Products program. Technology Infrastructure
offerings of this type include:

      .     Windows 2000 Server and Professional Gap/Readiness Analysis assesses
            customers' technology environments focusing on Windows NT, TCP/IP
            networking schema and remote access issues. These service products
            include preparation plans for migration to the Windows 2000 Server
            and Windows 2000 Professional operating systems.

      .     Internet Connect for Small Business connects customers to the
            Internet, providing secure local and remote access and laying the
            foundation for e-business capability.

      .     Unlimited Use Asset Management includes installation and
            configuration of Microsoft Systems Management Server on the
            customer's network to collect hardware and software information from
            all connected workstations, providing comprehensive reports
            addressing configuration issues.

      .     Microsoft Small Business Server leverages expertise in multiple
            technologies, including cabling, hubs, routers, switches and
            operating systems for installation and configuration of Microsoft's
            Small Business Server technology.

      .     NetIQ Proof of Concept includes the installation and configuration
            of Net IQ on up to five Windows NT servers for proactive monitoring
            and dispatch of notification when server thresholds are reached.

      .     Network Assessment analyzes customers' current network environment
            emphasizing security, capacity, efficiency and disaster recovery
            issues to prepare for large system upgrades or conversions.

      .     Office 2000 Migration provides customers with expertise in planning,
            installation, migration, deployment, support and training for
            Microsoft Office 2000.

      .     Blackberry Wireless Messaging leverages expertise in multiple
            technologies to install and configure a Blackberry server within the
            customer's existing Exchange environment.

      Technology Infrastructure consulting is performed by both of the Company's
Allin Consulting subsidiaries utilizing personnel based in the Company's
Northern California and Pittsburgh locations. The majority of services were
billed on an hourly basis with the remainder based on fixed prices. No
significant customer accounted for 10% or greater of Technology Infrastructure
revenue in 2000.

E-Business

      Revenue from the Company's E-Business Solution Area remained relatively
steady over 1999 and 2000. The 1998 revenue, while smaller in aggregate dollars,
represented a greater percentage of solution area and total revenue due to a
smaller revenue base in that year. The percentage of solution area and total
revenue for the three years ended December 31, 2000 is as follows:

                                             Year Ended December 31
            E-Business                       ----------------------
            Percentage of                1998         1999         2000
                                         ----         ----         ----

            Solution Area Revenue          17%          11%          10%
            Total Revenue                  13%           9%           9%

      As was discussed above in the Industry Overview for technology consulting
services, the Internet is viewed by industry analysts as driving the next
significant wave of technological and business innovation. Internet-related


                                      -13-
<PAGE>

business activity is expected to grow dramatically over the early years of the
2000's and will also significantly increase markets for new generations of
portal and business intelligence technology products. Technology consulting is
also expected to share in the growth due to the complex nature of the products
and integration of electronic business with traditional business operating
systems. The Company's expertise in these areas of technology is demonstrated by
its inclusion in Microsoft's Collaborative Solutions Portal Partner Advisory
Council. The Company's management believes that the compelling market forces
represent an opportunity for growth in future periods for the E-Business
Solution Area. There can be no assurance, however, that the Company will realize
revenue growth related to its E-Business services.

      While early electronic business applications focused on creating a
presence or selling products through a Web site, the Internet's impact on
business has evolved. Today it also includes opening up systems to partners,
suppliers and customers in a secure fashion. In the near future it will involve
widespread seamless access of employees, customers and suppliers to business
knowledge capital and transactional systems. The E-Business Solution Area
provides solutions implementing revenue-generating customer-accessible
E-commerce applications, business-to-business extranets and internally-focused
intranets. E-Business solutions also focus on knowledge services such as
collaboration, content and document management, business intelligence, search
and delivery and workflow which enhance an organization's ability to disseminate
knowledge. These services provide tools to empower customer personnel with the
business intelligence for fast and effective decision making. These solutions
will typically interface with the business operation transaction systems to
access information from the captured data for wide accessibility within
organizations and with customers and suppliers through portals. One of the
dynamic impacts of the Internet on business is the need to integrate electronic
commerce capabilities with all traditional business operational systems such as
sales and purchasing. Consequently, E-Business solutions also focus on
application development or enhancement related to customers' core operating
systems. E-Business solutions are targeted at increasing customer productivity,
eliminating inefficiencies and reducing costs.

      Solutions are developed that address E-business implementation issues such
as cost, value, security, integration and interoperability. E-Business develops
solutions based on Microsoft's Internet Explorer which allows software systems
that support many features of traditional client/server applications while
reducing development and deployment costs. E-Business utilizes the latest
Microsoft Web enabling technology, such as BizTalk, Commerce Server, SQL Server
and .NET to develop cost effective, scalable solutions. Internet Information
Server provides the means of delivering Web-based solutions while assuring data
encryption and security through its support of digital signatures. Using
Microsoft technology such as SharePoint, Digital Dashboard, SQL Server and
Exchange 2000, the E-Business Solution Area enables customers to centralize
information stores, develop security schemes to regulate access to data and
establish personalized points of access to all relevant business information,
regardless of location or format. E-Business performs solutions services for Web
applications using Visual InterDev and ASP with SQL Server and performs
Web-based development services using Java and HTML. Examples of recent projects
completed by the E-Business Solution Area include:

      .     development and implementation of a customer Web site featuring
            secure and customized ordering capabilities plus delivery and
            service information,

      .     development of a project management intranet for a national
            engineering consulting firm,

      .     creation of a portal Web site for a transplant pharmacy providing
            on-line prescription ordering, e-mail access to pharmacists, and
            general transplant information to site visitors,

      .     development of a project cycle Web site for a high-tech equipment
            manufacturer that enables any of the customer's worldwide employees
            to enter or view project status, and

      .     development of a field engineering intranet to enable a customer's
            field engineers to receive, sort and report status on service
            notifications, resulting in improved data flow and reduced response
            time.

      This solution area offers a number of packaged solution products which
offer state of the art diagnostic technology assessments at reasonable fixed
prices as part of the Allin Solution Products program. E-Business offerings of
this type include:

      .     Interactive Web Solutions, Commerce Edition provides customers with
            a quick start-up of Web sales while maintaining a database of
            customer products. This product includes valid digital signature
            capability and secure credit card routing to the customer's
            preferred financial institution.

      .     Interactive Web Solutions, Extranet Edition provides customers with
            restricted access web pages with administrator control of access
            authorization requirements and access information history.


                                      -14-
<PAGE>

      .     Interactive Web Solutions, Information Center Edition provides
            customers with an intercompany communication system including
            functions to facilitate publishing and accessing recent information,
            for publishing company policies and procedures and for organization
            charts and phone lists.

      .     Interactive Web Solutions, Standard Edition provides customers with
            functional, secure web sites. The product includes planning and
            implementation of web hosting considerations through internal web
            servers or through third party hosting providers.

      .     Site Server Knowledge Base involves installation and configuration
            of Microsoft Site Server Search to access documents on file servers,
            intranet web pages, Exchange public folders, corporate databases or
            Internet sites. This provides user friendly search interfaces
            matching queries and lists of related documents.

      .     Outlook 2000 Collaboration creates outlook forms and Exchange public
            folders allowing effective, efficient collaboration among employees.

      .     Digital Dashboard represents a customized Microsoft Office
            2000-based solution for knowledge workers consolidating personal,
            team, corporate and external information with access to analytical
            and collaborative tools that can be integrated with existing
            systems.

      .     SQL 7 OLAP with Excel 2000 creates a multi-dimensional database
            based on existing data. When combined with Excel 2000 pivot table
            reports and graphs, this provides for an effective management tool
            allowing for quick and effective analysis.

      E-Business consulting was performed by both of the Company's Allin
Consulting subsidiaries utilizing personnel based in the Company's Northern
California and Pittsburgh locations. The majority of services were billed on an
hourly basis with the remainder based on fixed prices. During 2000, three
significant clients each accounted for greater than 10% of E-Business revenue.
The Company expects that if this solution area grows, the concentration of
revenue among a few significant clients will decrease.

Backlog, Pricing, Suppliers and Competitors

      As of December 31, 2000, the Technology Infrastructure and E-Business
Solution Areas had a committed backlog of approximately $710,000, all of which
is expected to be earned in 2001.

      Average billing rates for the Technology Infrastructure and E-Business
solution areas as of December 31, 2000 were $136 per hour for Northern
California-based operations and $96 for Pittsburgh-based operations. This
represents an approximate 19% increase from average billing rates as of December
31, 1999.

      The Technology Infrastructure and E-Business Solution Areas have similar
supply considerations and have some competitors in common. Consequently, the
following information about these matters apply to both of these solution areas
unless otherwise indicated.

      The services performed by the Technology Infrastructure and E-Business
Solution Areas are primarily labor intensive and are provided by the Company's
consultants and engineers. The Company's Allin Consulting subsidiaries maintain
a continual search and recruitment process through a dedicated recruiting staff,
referrals from consultants and industry contacts and through advertising and
other means as necessary. The Company has not, to date, experienced undue
difficulty in recruiting qualified consultants, despite a general labor shortage
for technically skilled personnel. Industry trends are resulting in a greater
level of technical services being performed by consulting firms, which
management believes makes them more attractive as places of employment for
technically skilled individuals. Compensation for the Company's technical
consulting staff is primarily salary-based, with some hourly production-based
employees. The Company's management believes that a salary-based model helps to
foster continuity in the consulting staff and long-term improvement of its
technical knowledge capital while reducing the costs of employee turnover. The
computer hardware, software and supplies purchased to support the operations and
consultants of these solution areas are readily available from a large number of
suppliers.

      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. Competitors include very large consulting organizations such
as Electronic Data Systems, Accenture, Computer Sciences Corp., Cambridge
Technology Partners and CompuCom. Computer hardware and software manufacturers
and vendors also provide a significant level of computer consulting services
although these are generally oriented toward development and support for their
other products. Companies such as IBM, Oracle, Compaq, Sybase and Ikon are in
this category. Management believes the larger competitors are generally oriented
to very large engagements.


                                      -15-
<PAGE>

      Management believes that the solution areas' strongest competition comes
from smaller regional or local consulting firms with service specialties similar
to the Company's and from smaller national organizations with strong operations
in the markets where the Company's services are concentrated. In the
Northeastern United States, competitors would include firms such as MarchFirst,
Idea Integration and XeroxConnect. In Northern California, competitors would
include firms such as Terrace, Convergent Computing, and Plural.

      Allin Consulting competes primarily on a service and performance basis.
The Company's customer-oriented approach seeks to develop long-term
relationships where Allin Consulting becomes the established consultant helping
customers solve their business problems through technology. Management believes
the Company's competitive advantage is the quality and broad scope of services
that it can provide to customers.

Interactive Media

      Revenue from the Company's Interactive Media Solution Area was a
significant source of growth in 2000. The percentage of solution area and total
revenue for the three years ended December 31, 2000 is as follows:

                                                  Year Ended December 31
      Interactive Media                           ----------------------
      Percentage of                           1998        1999        2000
                                              ----        ----        ----

      Solution Area Revenue:
      Interactive Media Consulting               0%          3%          6%
      Interactive Media Systems Integration      3%         14%         27%
      Digital Imaging Systems Integration        7%          7%          8%
                                                ---         ---         ---
                                                10%         24%         41%

      Total Revenue:
      Interactive Media Consulting               0%          3%          5%
      Interactive Media Systems Integration      2%         12%         25%
      Digital Imaging Systems Integration        6%          6%          8%
                                                ---         ---         ---
                                                 8%         21%         38%

      The Company's Interactive Media Solution Area utilizes the Company's
expertise in digital media applications to provide solutions based on streaming
of media, interactive television and digital imaging. These solutions utilize
advanced technology and can help customers utilize the power of the Internet to
differentiate products and services. Interactive Media delivers
business-to-business and business-to-consumer E-commerce platforms currently
focused on three vertical target markets: the cruise industry, healthcare and
professional photography. Interactive Media services are provided on both a
consulting and systems integration basis. The Company's management has
identified three segments that more directly define solution area activity:
Interactive Media Consulting, Interactive Media Systems Integration and Digital
Imaging Systems Integration. The first two target the cruise and healthcare
industries while Digital Imaging Systems Integration focuses on the professional
photography market. Presented below are industry overviews of the cruise and
healthcare industries, a review of Interactive Media Consulting and Systems
Integration operations, an industry overview of professional photography, a
review of Digital Imaging Systems Integration operations, and a review of
backlog, research and development, suppliers and competition.

Industry Overview - Cruise Industry.

      The cruise industry is one the fastest growing segments of the worldwide
travel business. The cruise industry has been able to sustain high growth
throughout the 1990's and is projected to continue to do so in the early years
of the 2000's. The Cruise Lines International Association, an industry trade
association, reports cruise passenger levels growing from 5.9 million in 1999 to
of 6.9 million in 2000, a 17% growth rate. The industry capacity utilization was
in excess of 90% in 2000. The Cruise Lines International Association projects
passenger growth for 2001 to correspond to an expected 8.5% increase in
passenger capacity.

      The cruise industry has responded to growing demand by building new ships
to increase their capacity. The Cruise Lines International Association projects
sixty new ships will be built by member cruise lines by 2004. The newer ships
typically are significantly larger and wider than most of the ships in operation
today and offer more passenger amenities. The Company's management believes that
the newer, larger ships that are being developed


                                      -16-
<PAGE>

within the cruise industry will require a heightened level of automation to
effectively service the larger number of cruise passengers. Electronic commerce
services such as shore excursion ticketing and room service ordering can be
effectively handled through interactive television, in addition to a wide range
of entertainment and informational options. The New York Times Spring-Summer
Cruises survey of February 4, 2001 reports that thirteen large cruise ships will
enter service in 2001. The Interactive Media Solution Area is presently
installing or has an agreement to install interactive television systems on five
of these ships. There can be no assurance, however, that the cruise industry
will experience continued growth. There can also be no assurance that the
Company will continue to receive contracts for future interactive television
installations in the cruise industry, or that any sales will result in the
desired improvements to financial condition or results of operations.

Industry Overview - Healthcare.

      Healthcare is one of the most significant segments of the American
economy. There are approximately 6,500 acute care hospitals in the United
States, according to the Standard & Poor's Industry Survey for Healthcare:
Facilities of December 21, 2000. The Standard & Poor's survey notes acute care
hospitals are the largest segment in the healthcare industry, representing
approximately $400 billion in annual revenue. Hospital revenue faced significant
pressure in the late 1990's from an overall trend away from inpatient services
to ambulatory care and managed care driven both by changes in Medicare and
Medicaid and private insurers. This pressure has been somewhat alleviated
recently with the anticipated federal government reversal of some previously
enacted Medicare reductions and improvement in the managed care reimbursement
rate environment. These changes are expected to generate near-term revenue
increases for hospitals.

      Controlling labor costs and achieving more efficient labor utilization are
expected to remain key objectives for hospitals, however. The Standard & Poor's
Industry Survey notes expectations for rising expenditures on information
technology to upgrade data management capabilities. The survey identifies
spending on technologies that capture and utilize patient data and promote
effective utilization of hospital resources as one of the keys to survival in
the highly competitive healthcare industry. Recent revenue improvement and more
optimistic near-term expectations for the industry have resulted in additional
funds becoming available for technological improvements. The Company believes
that a market exists for interactive media that can effectively deliver
on-demand patient and staff educational content and information about hospital
services and facilities and that can effectively gather patient information.
Management believes that interactive media applications that can effectively
deliver these services can both increase patient satisfaction and labor
efficiency. There can be no assurance, however, that the Company will be
effective at securing additional business from the healthcare industry or that
any orders received will result in the desired improvements to financial
condition or results of operations.

Interactive Media Consulting

      The Company offers consulting services specializing in interactive media
design and applications. The Company's extensive experience with interactive
television technology, originally on an owner-operator model and subsequently as
a systems integrator, resulted in the development of a substantial knowledge
base of expertise with interactive media technology. The Company's management
believes that the growing presence of digital media technology combined with the
Company's expertise presents an additional opportunity to provide interactive
media service offerings beyond the provision of systems integration services.
Management pursues consulting opportunities in the same vertical industries in
which it pursues systems integration business, the cruise and healthcare
industries. The Company believes the cruise industry offers consulting
opportunities for applications development, interactive system design and
specifications, and maintenance and trouble-shooting of existing interactive
systems. The Company believes demand for interactive media consulting services
will increase in the healthcare industry as both private and public sector
hospitals are driven to implement labor saving technology applications such as
interactive media to improve the efficiency of staffs by facilitating more
efficient flow of information and order processing and by providing a more
flexible training process.

      Interactive Media consulting solutions enable customers to leverage analog
television infrastructure to decrease costs, improve services and generate new
revenue streams. For example, the ship-based interactive television applications
designed by the Interactive Media Solution Area empower ship passengers to book
shore excursions, meals and planned activities without waiting or inconvenience.
The applications help the cruise line customers to maintain a high level of
customer service without increasing staff requirements. The open architecture of
the interactive television platform utilized by Interactive Media allows for
extensive customization of applications for each customer. Interactive Media's
healthcare industry applications enable customers to decrease costs and increase
efficiency by reducing delivery time for administrative and educational
services.


                                      -17-
<PAGE>

      The majority of interactive media consulting revenue was derived from
cruise industry opportunities in 2000. Services provided included application
development and implementation for Celebrity and Royal Caribbean Cruise Lines,
Ltd. ("Royal Caribbean") for the interactive television systems installed on the
Millennium and Explorer of the Seas, respectively. Development included
electronic commerce applications such as on-demand access to shore excursion
previews and ticketing, room service ordering, pay-per-view movies, Internet
access capabilities, and ship information dissemination capabilities. Other
consulting projects included extensive applications design and development for a
third party's hospital-based interactive television system, development of
application design specifications for Carnival Corporation ("Carnival") and
maintenance and trouble-shooting services for ship-based interactive television
systems. In February 2001, the Company entered into a contract with Carnival for
applications development for interactive television systems to be installed on
six Carnival ships under a related agreement.

      During 2000, Interactive Media consulting operations were conducted
primarily through technical consultants and administrative personnel based in
the Company's Ft. Lauderdale, Florida office. Portions of larger engagements
were performed at sites designated by customers. It is anticipated that 2001
operations will be conducted in a similar manner. During 2000, three significant
clients, Celebrity, Royal Caribbean and EdeNET Communications, Inc.,
collectively accounted for 86% of Interactive Media consulting revenue. Revenue
is expected to remain highly concentrated in 2001.

Interactive Media Systems Integration

      Systems integration services target two vertical markets, the cruise and
healthcare industries. However, the majority of historical activity for
Interactive Media systems integration services has been concentrated in the
cruise industry. Interactive Media continued the momentum begun in 1999 with its
second generation interactive television system with completion of installations
aboard the Celebrity Millennium and Royal Caribbean Explorer of the Seas.
Installation was also begun in 2000 for interactive television systems aboard
the Celebrity Infinity and Royal Caribbean Radiance of the Seas, which will be
completed in the spring of 2001. During 2000, the Interactive Media Solution
Area also substantially increased the level of systems integration services
provided for healthcare industry clients.

      In February 2001, the Company entered into an agreement with Carnival for
installation of interactive television systems on six Carnival vessels in 2001
and 2002 and also announced receipt of orders for systems for the Celebrity
Summit and Royal Caribbean Adventure of the Seas. The installation agreement
with Carnival is for interactive television system installations on ships
operated by only one of Carnival's subsidiary cruise lines. The Company is
actively seeking to secure installation contracts with other Carnival
subsidiaries, although there can be no assurance the Company will be successful
in obtaining additional system installation contracts. As a result of the
committed installations for Carnival, Celebrity and Royal Caribbean, management
accordingly expects Interactive Media systems integration revenue to be
substantially higher in 2001 than in preceding years. There can be no assurance,
however, that revenue will be earned in 2002 or beyond at levels expected for
2001 or that systems integration projects to be carried out will result in the
desired improvements to the Company's financial condition or results of
operations. During 2000, the Interactive Media Solution Area added technical and
managerial staff to meet increased demand for systems integration services.
Management expects this trend will continue in 2001.

      The second generation interactive television system that Interactive Media
began implementing in 1999 features an entirely new hardware configuration
utilizing state of the art equipment from On Command Corporation ("On Command").
Interactive Media's interactive television solutions integrate the On Command
hardware platform with the ship or healthcare facility's radio frequency-based
cable infrastructure. Interactive Media leverages the advanced research and
development that On Command has put into the hardware platform it utilizes in
over one million hotel rooms. Interactive Media solutions are cost-effective
because they leverage a pooled set of advanced head-end equipment to deliver
advanced applications across the radio frequency distribution system to the
end-user televisions. The interactive television system architecture features a
centralized head-end that interfaces with the customer's other information
systems. The open architecture of the head-end operating systems based on
Microsoft BackOffice products such as Windows NT, SQL Server and Internet
Information Server enables customer co-development of applications. The solution
is Internet accessible and supports highly-functional applications and high-end
graphics and MPEG content. Applications developed for and utilized by customers
to generate revenue, promote operating efficiencies and enhance customer service
include pay-per-view movies, shore excursion ticketing, in-cabin gaming, meal
service ordering, on-demand viewing of information related to medical conditions


                                      -18-
<PAGE>

and procedures, on-demand viewing of educational programs, , and distribution of
activities and informational content.

      Management believes that the newer, larger ships that are being developed
within the cruise industry, such as Royal Caribbean's Explorer of the Seas,
require a heightened level of automation to effectively service the larger
number of cruise passengers. E-commerce services such as shore excursion
ticketing and room service ordering can be effectively handled through
interactive television, in addition to a wide range of entertainment and
informational options. The Company's historical operations within the cruise
industry have resulted in the development of expertise in installing and
operating interactive systems. The Company believes this gives it an advantage
over competitors for system sales within the cruise industry. The Company
believes that it is the only business which has implemented effective,
consistently operating interactive television solutions in the cruise industry.
The Company's expertise in this area has been recognized in the cruise industry,
where its interactive television solutions are now the system of choice for the
world's two largest cruise lines. There can be no assurance, however, that the
Company will continue to receive orders for additional system sales beyond those
already obtained or that any sales made will result in the desired improvements
to the Company's financial condition or results of operations.

      The Company believes a healthcare-based market exists for
business-to-consumer E-commerce platforms that can effectively deliver on-demand
patient and staff educational content and information about hospital services
and facilities, process food service orders, gather patient information through
surveys and storage of demographic information and provide entertainment
options. Management believes that interactive television that can effectively
deliver these E-commerce services can both increase patient satisfaction and
hospital labor efficiency. There can be no assurance, however, that the
Interactive Media Solution Area will be able to obtain additional system orders
from customers in the healthcare industry or that any orders obtained will
result in the desired improvements to the Company's financial condition and
results of operations.

      Interactive Media systems integration revenue recognized during 2000
included a portion of sales revenue associated with four interactive systems
originally installed on Celebrity ships under the owner-operator model utilized
by the Company from 1995 to 1997. The sale agreement was coupled with a
maintenance agreement for all of the Celebrity ship systems which had previously
been operated by the Company. Systems integration revenue and cost of sales was
recognized on the Celebrity ship system sales over the minimum life of an
associated maintenance agreement, through March 17, 2000.

      During 2000, Interactive Media systems integration operations were
conducted primarily through technical consultants and administrative personnel
based in the Company's Ft. Lauderdale, Florida office. A portion of the work
associated with certain systems integration projects was performed onsite by
Interactive Media personnel at various domestic and international locations. It
is anticipated that 2001 operations will be conducted in a similar manner.
Services provided for the cruise industry remained the dominant operating
activity during 2000. Three significant customers, Celebrity, Royal Caribbean
and Norstan Communications, Inc., collectively accounted for 90% of Interactive
Media systems integration revenue during 2000. Revenue is expected to remain
highly concentrated in 2001.

      Backlog and Pricing. As of December 31, 2000, the Company had a committed
backlog of approximately $2,010,000 for Interactive Media consulting and systems
integration services, all of which is expected to be earned in 2001. To date in
2001, the Company has added in excess of $12,000,000 in committed backlog for
Interactive Media consulting and systems integration services. Of this,
approximately 75% is expected to be earned in 2001 with the remaining 25%
expected to be earned in 2002.

      Because of the significant proportion of fixed price services included in
Interactive Media's 2000 consulting and systems integration operations,
meaningful hourly rate information is not available. Interactive Media's gross
profit percentage on consulting and systems integration services declined from
49% in 1999 to 40% in 2000. The decline is attributable to a higher proportion
of integration services, with typically lower equipment-associated margins, in
2000 and a greater portion of the gross profit from the sale to Celebrity of
four shipboard interactive television systems, previously owned by the Company,
being included in 1999. The Celebrity system sales featured unusually high gross
profit due to the depreciated values of the equipment at the time of sale.

      Research and Development. Interactive Media development efforts in 2000
included continuing development of new applications and software interfaces for
On Command hardware components and technology. The Company expects that further
research and development efforts in 2001 will be focused on the same areas.


                                      -19-
<PAGE>

      Suppliers. In 1998, the Company entered a Supplier Agreement with On
Command for end user and other interactive television components to be used in
future system installations utilizing radio frequency-based networks. Under the
Supplier Agreement, On Command agreed to exclusively sell Allin Interactive its
proprietary components for use in certain markets and provide Allin Interactive
with an exclusive license to use certain software necessary to operate the On
Command equipment in these markets. Under the agreement, On Command may request
a license to use any modifications to the On Command software developed by the
Company. The Company believes the On Command product offers substantial
functionality improvements over components previously used in certain areas of
interactive systems such as with end user components. The Company purchased in
excess of $3,000,000 of products from On Command in 2000. The original term of
the Supplier Agreement will expire on December 31, 2001. The Supplier Agreement
will automatically renew for one-year periods unless either party provides 180
days notice of their intent to terminate the agreement. The Company anticipates
the Supplier Agreement will be renewed.

      In connection with projects not utilizing radio frequency-based networks,
the Company uses readily available hardware and software components. The Company
does not manufacture any of the hardware components utilized in systems
integration projects. The Company did not experience any problems obtaining
components necessary for carrying out its 2000 systems integration projects on a
timely basis.

      Interactive Media consulting and systems integration services are labor
intensive and are provided by the Company's consultants and engineers. The
Company maintains an ongoing search and recruitment process through a dedicated
recruiting staff, referrals from consultants and industry contacts and through
advertising and other means as necessary. The Company has not, to date,
experienced undue difficulty in recruiting qualified consultants, despite a
general labor shortage for technically skilled personnel. Because the
Interactive Media Solution Area offers services in specialized technology
niches, extensive training is provided to consultants and engineers to enhance
their skills. Compensation for Interactive Media's technical staff is primarily
salary-based.

      Competition. The market for interactive media consulting and systems
integration services remains in the early stages of its development. The Company
competes with other companies utilizing various technologies and marketing
approaches, some of which are larger than and may have greater financial
resources than the Company. In the cruise line market, primary domestic
competition to date has come from Cruise Market and The Network Connection,
Inc., which have installed interactive television systems on ships. In March
2001, The Network Connection, Inc. announced it will no longer compete in the
cruise industry. In the healthcare market, the Company is aware of several
competitors developing interactive systems specifically for a health care
environment. The Company believes the most prominent of these are Telehealth
Services, Allen Technologies, Newborn, Healthway and DGA Technologies.

      The Company believes that its strategy of focusing on consulting and
systems integration services and applications for other suppliers' interactive
technology hardware and its extensive experience developing and installing
interactive applications and systems provide it with a competitive advantage.
However, there can be no assurance that competitors, some of which may have
greater financial resources than the Company, will not enter the field or
successfully compete with the Company. There can also be no assurance that
competition will be solely for system sales as interactive competitors,
including the Company, have at certain times been willing to make significant
capital commitments to obtain system installations.

Digital Imaging Systems Integration

      Industry Overview - Professional Photography. Digital imaging involves the
capture of images in, or conversion of images to, a digital format, the
manipulation and storage of images in a computer, the printing of images via
digital printers, and the transmission of the images over electronic networks
and the Internet. Once an image is stored in a computer, software can be used to
manipulate and enhance the image in various ways such as changing the size,
rotating it, or changing the color, saturation, or density. Digital photography
is currently utilized by a minority of photography studios nationally, but
management believes its use is growing and expects it to rapidly increase over
the next five to ten years. Another factor driving the industry movement toward
digital is the opportunity for improved efficiencies in order-taking practices
and the resultant sales increases. Digital images can be immediately displayed
on the studio's computer or can be archived for viewing on the Internet,
simplifying the customer order process by avoiding the delays caused by film
development. The Photo Marketing Association's 1999-2000 U.S. Industry Trends
Report notes that 56% of portrait studio customers rated availability of
electronic image previews as important to very important in selecting a portrait
studio and that portrait package sales were 4% higher among customers who had
viewed images electronically than among those who had not. In its October 1999
edition, Studio Photography & Design notes the popularity of Internet access to
view images with young customers.


                                      -20-
<PAGE>

The industry periodical views Internet image archival as a means for studios to
differentiate themselves in marketing and to increase returns with a continuing
stream of Web site orders. Internet-based sales are expected to continue to
grow. The Photo Marketing Association's 1999-2000 Data Report for Digital
Imaging Firms projected greater than 25% of 2000 digital imaging sales to be on
the Internet.

      The professional photography industry is very fragmented, with portrait
studios commonly being entrepreneurial operations. The Photo Marketing
Association's 1999-2000 U.S. Industry Trends Report notes a 6.8% increase in the
number of portrait studios in operation in the beginning of 2000 as compared to
the beginning of 1999. The report also notes the industry has shown consistent
growth, with in excess of 57% of portrait studios reporting increased sales each
year from 1995 to 1999. The Company believes that digital photography's
fundamental advantages over conventional wet photography in the areas of image
manipulation and enhancement, new product creation, and image transmission and
storage are likely to become increasingly pronounced. The Company believes the
continuing trend toward digital imaging will enable the professional photography
industry to improve sales, improve consumer product and process satisfaction,
improve image processing time and reduce processing labor. The Company expects
that within ten years, the professional portraiture industry will have a
significant migration from conventional wet photography to digital systems,
although there can be no assurance that the the Company will be able to maintain
or increase its market share or that any revenue increases realized will result
in the desired improvements to the Company's financial condition or results of
operations.

      Operations. The Interactive Media Solution Area continued to grow its
digital imaging systems integration business in 2000. A 21% increase in revenue
was realized in 2000 as compared to 1999. In February 2001, Allin Digital was
recognized by the Eastman Kodak Company as "Digital Integrator of the Year" at
the Photo Marketing Association International Trade Show. The reward recognized
the Company's expertise in digital imaging technology, high-quality customer
service and high volume of sales growth in digital imaging systems integration.

      The Company's management believes that market conditions, as described
above in the Industry Overview-Professional Photography, are conducive to
continued growth in the Company's digital imaging operations. The professional
photography industry is in the early phases of a migration toward digital
technology and away from conventional film images. The Company believes that the
Internet will be a driving force accelerating the market trend toward digital
imaging. The electronic commerce opportunities offered by Internet accessible
images and order capability are likely to be critical requirements for success
in the future for professional photography businesses. The Company believes that
its Interactive Media Solution Area is on the forefront of developing Internet
based business-to-business and business-to-consumer E-commerce solutions for the
professional photography industry with its Portraits Online(TM) Internet-based
image archival and order system. There can be no assurance, however that the
revenue growth will continue to be realized from the Company's digital imaging
systems integration operations or that any growth realized will result in the
desired improvements to the Company's financial condition or results of
operations.

      Digital imaging solutions convert professional portrait studios to digital
capture and presentation capabilities. The solutions provide portrait studios
with the equipment and off-the-shelf and proprietary software necessary for
conversion, on-site equipment, software and process-flow training, ongoing
technical support and the Internet presence and e-commerce solution necessary to
maximize the Internet as a marketing and sales tool. Portraits Online(TM), the
Company's proprietary Internet-based portrait viewing and selling system, when
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 studio's Portraits Online(TM) Internet
site. During the third quarter of 2000, the Company implemented changes to the
marketing strategy for digital imaging systems integration services to more
closely focus on high value-added integration projects including Portraits
Online(TM) technology. Management believes this type of project offers a higher
potential for margin due to the complexity and functionality of the technology.
The Company believes the Portraits Online(TM) program offers it a competitive
advantage over competing integration businesses because of the functionality and
electronic commerce advantages it presents to potential customers. There can be
no assurance, however, that the Company will be successful in generating
increased sales because of the Portraits Online(TM) program or that any 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 the Company's sales efforts.

      Conversion to a digital system is a significant commitment for potential
customers. A potential customer's needs and operational plans are thoroughly
evaluated in preparing proposed system configurations and quotations.


                                      -21-
<PAGE>

The hardware and software configurations provided for systems integration
customers utilize state of the art digital photography equipment and software.
Interactive Media personnel have developed a high level of expertise through
years of working with a wide array of digital cameras, scanners, printers,
computer workstations and peripheral devices. Interactive Media technical
personnel routinely work with state of the art digital imaging, operating system
and studio management software programs. This experience enables a thorough
understanding of customer needs, expert configuration and system installation
and thorough training of studio personnel. The Company offers technical support
on a 24 hour-basis subsequent to installation.

      Systems integration projects have to date been conducted on a fixed price
basis. The growth of this Interactive Media segment is dependent on continued
identification and effective marketing to new customers. The member businesses
of the Professional Photographers of America continue to be identified as the
primary target market for Interactive Media's digital imaging systems
integration activities. These photography operations typically represent larger,
more established businesses utilizing more master photographers than the rest of
the industry. The Interactive Media Solution Area utilizes internal sales and
marketing personnel, trade publication advertising and national and regional
trade show presentations to build brand awareness and identify potential
customers for its digital imaging systems integration activities.

      Interactive Media's digital imaging systems integration 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 based in the Company's Ft.
Lauderdale, Florida office. Digital imaging systems integration services are
marketed under the brand-name Allin Digital Imaging. Revenue has not been
dependent on a limited number of customers although one customer accounted for
14% of digital imaging systems integration revenue in 2000.

      Backlog and Pricing. As of December 31, 2000, the Company had a committed
backlog of approximately $85,000 for digital imaging systems integration
services, all of which is expected to be earned in 2001.

      Because of the predominance of fixed price services included in the
Company's digital imaging systems integration operations, meaningful hourly rate
information is not available. The Interactive Media Solution Area's gross profit
percentage on digital imaging systems integration services increased from 20% in
1999 to 21% in 2000. Digital imaging systems integration services have a higher
equipment component to total costs than the other services offered by the
Company's solution areas, and typically have lower margins due to the equipment
component.

      Research and Development. Development efforts in 2000 included continuing
functional and graphical improvements to the previously developed Portraits
Online(TM) Internet-based online image selling and archival system. The Company
expects that further research and development efforts in 2001 will be focused on
improvements to the Portraits Online(TM) system by adding functional and
graphical improvements to Web sites and sales presentation templates.

      Suppliers. The Company does not manufacture the hardware components it
uses in conjunction with its digital imaging systems integration services and
has one or more sources of supply for all such components. Certain equipment
utilized in digital imaging systems integration projects, such as digital
cameras, may require significant order lead times. The Eastman Kodak Company
supplies the largest proportion of the components purchased for Interactive
Media's digital imaging systems integration projects. In excess of $1,000,000 of
equipment, software and photographic supplies were purchased from Eastman Kodak
in 2000. The Company maintains an inventory of equipment and supplies to
minimize any potential negative impact on systems integration projects due to
unavailability of system components. The third party software utilized in these
projects is widely marketed and readily available from a number of suppliers.
The Company purchases and intends to continue to purchase components through
purchase orders and does not have long-term supply contracts. The Company plans
to use readily available hardware and software in its activities to the extent
possible to help ensure ready availability of components. The Company believes
that reasonable alternative sources of supply currently exist for all
components.

      Digital imaging systems integration projects are less labor intensive than
the Company's other solution area services. The services are performed by a
dedicated technical staff. The Company recruits digital imaging consultants on
an as-needed basis. The Company has not, to date, experienced undue difficulty
in recruiting qualified consultants, despite a general labor shortage for
technically skilled personnel. Compensation for the technical staff is primarily
salary-based.


                                      -22-
<PAGE>

      Competition. The market for digital imaging systems integration services,
primarily for conversion of established businesses from use of conventional wet
photography to digital imaging technology, is small at present, although
growing. The market is expected to grow rapidly over the next five to ten years
as the pace of the expected industry wide conversion grows. Desktop Darkroom,
Express Digital and Calumet Photographic are currently the Company's major
competitors for systems integration projects with photography studios. The rest
of the competition is fragmented among small providers, typically local or
regional stockhouses specializing in marketing photographic products and
services to commercial photography businesses. These stockhouses currently place
primary emphasis on products and services related to conventional wet
photography, as this method is still in predominant usage. The Company believes
that its specialized focus on digital imaging systems will be advantageous in
competing with the stockhouses and will help to mitigate their advantage of
having prior established relationships with existing photography businesses.
Interactive Media's digital imaging systems integration services compete on the
basis of quality of service and believes the Portraits Online(TM) system
currently offers it a competitive advantage.

Legacy Technology Consulting

      Revenue from the Company's legacy technology consulting services
significantly declined as a portion of solution area and total revenue from 1999
to 2000. The Company's legacy technology consulting services are performed by
Allin Consulting-Pennsylvania and represent the majority of that entity's
services when it was acquired in August 1998. The increase in legacy technology
consulting services as a percentage of solution area and total revenue from 1998
to 1999 is attributable to the inclusion of only five months of revenue for
Allin Consulting-Pennsylvania in 1998. From August to December 1998, legacy
technology services would have represented a larger proportion of solution area
and total revenue than in 1999. The percentage of solution area and total
revenue for the three years ended December 31, 2000 is as follows:

                                       Year Ended December 31
      Legacy Technology                ----------------------
      Percentage of                1998         1999         2000
                                   ----         ----         ----

      Solution Area Revenue          39%          52%          31%
      Total Revenue                  29%          46%          28%

      Industry Overview. Although the market for technology consulting services
in general remains robust, demand for legacy technology services remained flat
or declined in 2000 as compared with immediately preceding years. A significant
factor in the decline in demand over the last two years was the Year 2000
computer issue. This had been a significant factor driving growth in services in
the late 1990's as businesses sought assistance in evaluating and subsequently
remediating deficiencies in their information networks and computer hardware and
software. However, the Year 2000 problem also accelerated movement from older
mainframe systems less likely to be Year 2000 compliant to newer client/server
network configurations. The Standard & Poor's Industry Survey for Computers:
Commercial Services of June 1, 2000 notes continued slowing of revenue for
mainframe custom programming. The survey attributes the decline to the
significant transition from mainframe to client/server network configurations,
where the availability of pre-packaged software and software application
development tools have lessened the need for legacy technology programming.

      Operations. Allin Consulting-Pennsylvania has historically performed
technology consulting services for certain legacy technologies, including IBM
proprietary mainframe systems and Hogan IBA software applications, which are
specialized products for the banking industry. While such operations will
continue, the level of these services has declined significantly in 1999 and
2000. Management expects a continued significant decline in the level of legacy
technology services performed in 2001. Historically, virtually all of legacy
technology consulting services have been delivered on a customer-managed basis.
In the Company's recent restructuring of solution area operations, legacy
technology consulting services have been separated from other solution area
services that are more closely consistent with the Company's Microsoft-based
technology focus. Legacy technology consulting services will be overseen by
executive management and support personnel in the Company's Pittsburgh office
with responsibility for all of the Pittsburgh-based solution area operations.

      The Company provides legacy technology 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-


                                      -23-
<PAGE>

Pennsylvania 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.

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

      The Company's legacy technology consulting services experienced the
strongest Year 2000 impact of any of the Company's solutions area operations.
Management believes that many of the Company's customers have moved significant
focus in their organizations from mainframe to client/server systems. The
Company also placed significantly greater marketing emphasis on the
Microsoft-based solutions-oriented services offered by the Technology
Infrastructure, E-Business and Interactive Media Solution Areas in 1999 and
2000. While the Company is not aggressively seeking new clients for these
services, renewal or expansion of services with existing clients is being
solicited.

      Legacy technology consulting services were performed by Allin
Consulting-Pennsylvania in 2000. Consulting services related to mainframe
systems were based in Pittsburgh while the specialized bank industry consulting
services were managed from the Pittsburgh office but operated on a national
scale. The majority of services were billed on an hourly basis with the
remainder based on fixed prices. During 2000, one significant customer, Wells
Fargo Bank, accounted for 36% of legacy technology consulting revenue.
Concentration among customers is expected to increase in 2001 due to a declining
customer base for these services.

      Backlog and Pricing.. As of December 31, 2000, the Company had a committed
backlog for legacy technology consulting services of approximately $596,000, all
of which is expected to be earned in 2001.

      Average billing rates for legacy technology consulting services as of
December 31, 2000 were $101 per hour for Hogan IBA-based consulting and $55 per
hour for mainframe-based consulting. Average bill rates did not change
significantly from 1999.

      Suppliers. Legacy technology consulting services are primarily labor
intensive and are provided by the Company's consultants and engineers. Due to
the declining nature of these services, the Company recruits only on an
as-needed basis. Compensation for the Company's legacy technology consulting
staff is a mix of salary- and hourly-based employees and hourly-based
independent contractors. There is a limited market of consultants familiar with
Hogan IBA software which may negatively impact the Company's continued
performance of legacy technology services for the banking industry.

      Competitors. For mainframe-based legacy technology consulting services,
competitors include Ciber, A. C. Coy and Rapidigm. Competition for specialized
legacy technology consulting services for the banking industry comes from firms
such as Moskowitz and Co. and Logica. The Company competes on the basis of the
high quality of the services offered.

Ancillary Services & Product Sales

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

      Revenue from the Company's Ancillary Services & Product Sales has
decreased as a proportion of the Company's overall revenue from 1998 to 2000.
The Company's management believes that this trend is consistent with the
Company's evolution to becoming predominantly a provider of technology
consulting and systems integration services, which are reflected as Solution
Area Services above. The percentages of total revenue


                                      -24-
<PAGE>

represented by the Company's Ancillary Services & Product Sales for the three
years ended December 31, 2000 are as follows:

                                                  Year Ended December 31
      Ancillary Services & Product Sales          ----------------------
      Percentage of                        1998            1999            2000
                                           ----            ----            ----

      Total Revenue                          24%             11%             10%

      One customer, Carnival, accounted for greater than 10% of Ancillary
Services & Product Sales during 2000.

Interactive Television Transactional Revenue & Management Fees

      The percentage of total revenue derived from interactive television
transactional revenue and management fees for the three years ended December 31,
2000 is as follows:


      Interactive Television
      Transactional Revenue &               Year Ended December 31
      Management Fees                       ----------------------
      Percentage of                  1998            1999            2000
                                     ----            ----            ----

      Total Revenue                    20%              6%              2%

      The Company continued to derive revenue from interactive television
operations on two cruise ships during 2000 for transactional interactive
services such as pay-per-view movies and video gaming. No management fees were
earned in 2000 for operation of interactive television systems, as had been the
case in 1998 and 1999. In 2000, operations of this type were provided under a
contract with Carnival that originated when the Company followed an
owner-operator model from 1995 to 1997 and installed interactive television
systems on cruise ships with the Company bearing a significant portion or all of
the system capital cost. The level of operations of this type was significantly
reduced in 2000 as compared to prior years. The Company began 1999 and 1998
operating interactive systems on a total of eight and eleven cruise ships,
respectively, for Celebrity, Royal Caribbean, Carnival and Norwegian Cruise
Lines. The systems aboard the two Carnival ships that continued operation in
2000 historically provided the highest per-ship revenue from pay-per-view
movies. Carnival purchased the systems in February 2001. The Company expects
operation of the systems will be transitioned to Carnival no later than April
2001, after which ship-based transactional services will be discontinued as a
revenue stream for the Company.

      The Company has entered into agreements with distributors of motion
pictures for non-theatrical viewing under which the distributor licenses to the
Company the right to make pay-per-view movies available on the Company's
interactive television systems. Payment to the distributors is based on revenue
derived from the sale of such movies on the Company's interactive television
systems or on a fixed price basis for certain time periods. The distributor pays
the associated royalties to the motion picture studios and other third parties.
Such agreements will be terminated upon transfer of operations to Carnival.

Digital Imaging Product Sales

      The percentage of total revenue derived from digital imaging product sales
for the three years ended December 31, 2000 is as follows:

                                            Year Ended December 31
      Digital Imaging Product Sales         ----------------------
      Percentage of                  1998            1999            2000
                                     ----            ----            ----

      Total Revenue                     2%              3%              5%

      Operation of digital imaging systems involves the continual usage of
consumables such as photographic paper, photographic ribbons and compact discs.
Studios will also from time to time purchase additional equipment to enhance the
capabilities of systems they have installed or in response to increasing
business volume. Most of the components utilized in digital imaging systems can
be sold separately to be utilized in conjunction with previously


                                      -25-
<PAGE>

installed systems, including cameras, printers, computer workstations, scanners
and software. The Company views being a source of digital consumable supplies
and ongoing equipment upgrades as an aid in maintaining the relationships it
establishes with its digital imaging systems integration customers. The Company
has to date generated ancillary sales from the majority of customers for which
it has performed digital imaging systems integration services. The Company
believes that being an ongoing source for equipment and consumable purchases
enhances customer satisfaction with their digital imaging systems. The Company
also believes that ongoing customer relationships help to create opportunities
for the development of additional business through referrals, although there can
be no assurance that increases in revenue will be realized.

      The Company realized a 46% increase in digital imaging product sale
revenue in 2000 as compared with 1999, attributable to a substantially larger
base of customers with installed digital imaging systems in 2000. Digital
imaging product sales are handled utilizing sales, administrative and technical
personnel in the Company's Ft. Lauderdale office. No customers accounted for 10%
or more of digital imaging product sales in 2000.

      Suppliers. The Company purchases digital imaging equipment and consumable
products from a number of vendors. The nature of some of the products is very
specialized with limited sources of supply. Consumable products are often
specialized products for specific use with certain digital imaging equipment and
available only from the same manufacturers as the equipment. The Company has not
experienced problems to date in obtaining consumable supplies. Certain digital
imaging equipment such as cameras may require a significant lead time. The
Company maintains an inventory of consumable products and equipment to minimize
the impact of any difficulties encountered in procuring the products.

      Competitors. The market for digital imaging equipment and consumable
supplies is a growing component of the overall photography industry. Competition
for digital imaging equipment comes from both product manufacturers,
photographic supply houses such as Calumet Photographic and computer hardware
and software vendors for computer workstations and software. Competition for
consumable supplies comes from both product manufacturers and supply houses. The
substantial majority of the Company's sales of this type are to customers who
have an ongoing relationship with the Company from installation of a digital
imaging system. The Company believes these relationships offer it a competitive
advantage for digital imaging product sales.

Information System Product Sales

      The percentage of total revenue derived from information system product
sales, excluding sales to related companies, for the three years ended December
31, 2000 is as follows:

                                              Year Ended December 31
      Information System Product Sales        ----------------------
      Percentage of                    1998           1999           2000
                                       ----           ----           ----

      Total Revenue                       2%             1%             2%

      Industry Overview. The market for computer hardware and software sales is
a significant component of the American and worldwide economies. Standard &
Poor's Industry Surveys for Computers: Hardware (December 14, 2000), Networking
Equipment (September 14, 2000) and Software (October 5, 2000) estimate the
worldwide market size as exceeding $530 billion annually. These surveys foresee
the dynamic growth of the Internet driving continued growth in demand for
information system products. The hardware and software market is very diverse in
the types of organizations participating, ranging from giant manufacturers
employing direct sales, to retail stores specializing in computer products, to
hardware and software being one of multiple product lines offered by other
retail or consulting businesses.

      Operations. The Company's historical operations for information system
product sales have been predominantly in support of related companies. Third
party business has been primarily obtained in connection with technology
consulting engagements carried out by the Company's solutions areas. The
Company's cruise line customers are a secondary source of information system
product sales, primarily for replacement equipment for interactive television
systems. The Company does not aggressively market product sales of this type.

      Information system product offerings include most computer-related
hardware and software available in the marketplace. The Company has historically
maintained relatively little in inventory, relying on product availability and
prompt delivery from its suppliers. This practice is expected to continue.
Hardware and software sales operations were conducted from the Company's Ft.
Lauderdale and Pittsburgh offices in 2000. From February to


                                      -26-
<PAGE>

May 2000, the Company also operated a business in Erie, Pennsylvania known as
Erie Computer Company ("Erie Computer"), subsequent to the Company's purchase of
certain assets utilized in the operation of Erie Computer. A significant portion
of Erie Computer's sales during this period were information system product
sales. The assets related to the Erie Computer operations were sold in May 2000.
During 2000, two customers accounted for 26% and 12%, respectively of
information system product sales.

      Suppliers. Most of the products sold by the Company are readily available
from a large number of sources. There are limited sources of supply for some of
the replacement interactive television equipment sold by the Company, which is
purchased under the Supplier Agreement with On Command. See Suppliers under the
Interactive Media section of this Item 1 - Business for additional information
regarding the Company's Supplier Agreement with On Command. The Company does not
anticipate problems in obtaining necessary equipment.

      Competitors. As noted above, the numbers and types of entities selling
computer related hardware and software products are numerous and diverse. Some
computer manufacturers, such as Gateway and Dell, sell equipment directly to
clients. Hardware and software products are readily available at a number of
retail outlets specializing in these types of products, such as CompUSA, but can
also be obtained from retailers as diverse as department stores, bookstores, and
office supply outlets. Additionally, there are a large number of computer
consultants that also sell hardware and software. The Company believes that
opportunities arising from technology consulting and systems integration
engagements will continue to be a prominent source of customers and this
referral source is expected to serve as a competitive advantage with those
customers.

Other Services

      The percentage of total revenue derived from other services for the three
years ended December 31, 2000 is as follows:

                                            Year Ended December 31
      Other Services                        ----------------------
      Percentage of                    1998           1999           2000
                                       ----           ----           ----

      Total Revenue                       0%             1%             2%

      Other services includes several types of revenue not included in solution
area revenue due to a lack of consistency with core solution area objectives,
but which derive from activities peripheral to solution area activity. Examples
of the types of revenue included are placement fees and Internet hosting fees.
While the Company actively discourages customers from hiring solution area
consultants, there are occasionally situations related to the Company's legacy
technology consulting services where the Company and a customer believe this to
be mutually beneficial. In these situations the Company will charge placement
fees. The Company has also occasionally hosted customer Internet web sites on
its servers for which it charges hosting fees. During 2000, Allin Digital also
sold photographic output under a short-term concessionaire arrangement. Other
services are not expected to be significant to the Company's operations.

Research and Development; Capitalized Software Development Costs

      During 2000, the Company expensed approximately $43,000 for research and
development costs. The Company did not capitalize any software development
costs. Research and development activities were associated mainly with continued
development of the Portraits Online(TM) Internet-based digital image access and
order system, including functional and graphical improvements, and continuing
application development and functionality improvements related to On Command
hardware platform utilized in interactive media systems.

      During 1999, the Company expensed approximately $56,000 for research and
development costs. The Company did not capitalize any software development
costs. Research and development activities were associated mainly with
development of the Portraits Online(TM) Internet-based digital image access and
order system, including functional and graphical improvements, and continuing
application development and functionality improvements related to On Command
hardware platform utilized in interactive media systems.

      During 1998, the Company expensed approximately $152,000 for software
development, principally for enhancement of video server technology, healthcare
related interactive application development, preliminary research regarding
end-user interactive components and continued development of the Portraits
Online(TM) image


                                      -27-
<PAGE>

retrieval and archival technology. An additional $21,000 of software development
was capitalized, primarily related to digital imaging technology.

Employees

      As of February 15, 2001, the Company employed approximately 125 people and
utilized the services of approximately 10 independent contractors. None of the
employees are covered by a collective bargaining agreement. The Company has
never experienced a strike or work stoppage and believes its relationship with
its employees to be good.

Marketing and Sales

      The Company's marketing and sales efforts are targeted toward businesses
having between $250 million and $1 billion in annual revenue. The Company's
Technology Infrastructure and E-Business solution areas target horizontal
markets, meaning potential clients in any industry. The Interactive Media
solution area currently targets three vertical markets for its services, the
cruise, healthcare and professional photography industries.

      The Company has nineteen dedicated sales and marketing personnel focusing
on securing engagements for or promotion of the Company's different solution
area services. Certain of the Company's operational executives also devote a
significant portion of their duties to sales and marketing efforts related to
the Company's solution area operations. The Company additionally has a sales
referral arrangement in place through March 31, 2001 with one party focusing on
digital imaging services.

(d) Financial Information About Geographic Areas

      Financial information about geographic areas in which the Company operates
is included in Note 21 of the Notes to the Company's Consolidated Financial
Statements included herein in Item 8 - Financial Statements and Supplementary
Data.

(e) Risk Factors

      Item 1 - Business, Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations, Item 7A - Quantitative and
Qualitative Disclosures about Market Risk and other sections of this Annual
Report on Form 10-K contain forward-looking statements that are based on current
expectations, estimates and projections about the industries in which the
Company operates, management's beliefs and assumptions made by management. Words
such as "expects," "anticipates," "intends," "plans," "believes," "estimates,"
"will" and variations of such words and similar expressions are intended to
identify such forward-looking statements. These statements constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, and are subject to the safe harbors created thereby. These
statements are based on a number of assumptions that could ultimately prove
inaccurate and, therefore, there can be no assurance that they will prove to be
accurate. Factors that could affect performance include those listed below,
which are representative of factors which could affect the outcome of the
forward-looking statements. In addition, such statements could be affected by
general industry and market conditions and growth rates, and general domestic
and international economic conditions. The Company undertakes no obligation to
update publicly any forward-looking statements, whether as a result of new
information, future events or otherwise.

      Nasdaq Stock Market Requirements. 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, including net tangible assets of
$4,000,000, a public float of $5,000,000 (that is, the market value of the
Company's common stock held by non-affiliates of the Company) and a minimum bid
price of the common stock of $1.00. The Company's net tangible assets were
$4,055,000 as of December 31, 2000. There can be no assurance given that the
Company will meet the net tangible assets requirement as of March 31, 2001. The
Company currently believes it is in compliance with the public float
requirement. However, Nasdaq is currently reviewing the Company's inclusion of
common shares beneficially owned by certain entities holding greater than ten
percent of the Company's outstanding common stock in its calculation of public
float. Nasdaq may disagree with the Company's calculation and find the Company
to be out of compliance with the public float requirement. There can be no
assurance the Company will be able to meet the National Market listing criteria
on an ongoing basis. If the Company is unable to continue meeting the
requirements for listing on the Nasdaq Stock Market's National Market, the
Company will


                                      -28-
<PAGE>

likely seek to have the common stock listed on the Nasdaq Stock Market's
SmallCap Market, although Nasdaq could, in its discretion, decline to designate
the common stock as a SmallCap security.

      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.

      Limited Operating History Under New Marketing Strategies and Solution Area
Structure. The Company fundamentally changed the marketing strategies for its
technology consulting operations in early 1999 to emphasize a customer-oriented
marketing approach and the delivery of services oriented around solution areas
meeting customer needs for technology-based solutions. Additionally, in early
2001 the Company reorganized its solution area structure, consolidating the
Microsoft-focused solutions-oriented operations, previously falling under
Knowledge Management and Business Operations Solution Areas, with the operations
of the E-Business Solution Area. The Company is seeking to develop additional
solutions-oriented business for all of its solution areas. While the Company
obtained revenue growth in 2000 from certain of its solution areas, there can be
no assurance that the Company will be successful at growing solutions-oriented
revenue in any of its solution areas in the future or that any growth obtained
will offset or exceed the expected declines in legacy technology consulting
revenue. There can also be no assurance that any growth achieved for
solutions-oriented projects will result in the desired improvements to gross
profit. During the third quarter of 2000, the Company has also implemented
changes to the Interactive Media Solutions Area's marketing strategy for digital
imaging systems integration services. Interactive Media intends to more closely
focus on high value-added integration projects including Portraits Online(TM)
technology. Management believes the strategic shift allows the prospect of
improved margin on digital imaging services, although there can be no assurance
that such improved margin will be realized. Because the Company has only a
limited history of operations with the current solution area structure and
marketing strategies, there can be no assurance that the Company will succeed
under these strategies, or that it will obtain financial returns sufficient to
justify its investment in the markets in which it participates.

      Decline in Legacy Technology Consulting Services. The Company has
experienced a substantial decline in demand for legacy technology consulting
services related to mainframe systems and specialized Hogan IBA software
products for the banking industry. Revenue and gross profit derived from these
services have declined steadily during 1999 and 2000 and are expected to
continue to do so in 2001. The decline is attributable to both industry trends
and the Company's marketing focus on solutions-oriented services. Legacy
technology consulting services were formerly a significant source of cash flow
to the Company. There can be no assurance that the Company will be successful in
developing a sufficient level of solutions-oriented consulting services to
offset the declines in revenue and gross profit from legacy technology
consulting services.

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

      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


                                      -29-
<PAGE>

consulting. The Company is evaluating further geographic expansion of operations
through acquisition or investment. There can be no assurance, however, that the
Company will be successful in identifying or acquiring other businesses, or that
any business that may be acquired will result in the desired improvements to
financial results. There can also be no assurance that the Company would be able
to successfully integrate any business acquired with the other businesses of the
Company. The Company 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, technical and operational personnel for the management
of consulting and systems integration operations, development of new markets and
timely installation of its systems. The loss of one or more of these individuals
could have an adverse effect on the Company's business and results of
operations. The Company depends on its continued ability to attract and retain
highly skilled and qualified personnel. There can be no assurance that the
Company will be successful in attracting and retaining such personnel.

      Competitive Market Conditions. The technology consulting industry is very
fragmented with a large number of participants due to growth of the overall
market for services and low capital barriers to entry. There are also large
national or multinational firms competing in this market. Rapid rates of change
in the development and usage of computer hardware, software, internet
applications and networking capabilities will require continuing education and
training of the Company's technical consultants and a sustained effort to
monitor developments in the technology industry to maintain services that
provide value to the Company's customers. The Company's competitors may have
resources to develop training and industry monitoring programs that are superior
to the Company's. There can also be no assurance that the Company will be able
to compete effectively with current or future competitors or that the
competitive pressures faced by the Company will not have a material adverse
effect on the Company's business, financial condition and results of operations.
The market for interactive media and digital imaging systems integration
services is new and rapidly evolving. The types of interactive television
systems and applications offered by the Company are significant capital
expenditures for potential customers and do not have proven markets. Some of the
Company's current and potential competitors have longer operating histories and
significantly greater financial, technical, marketing and other resources than
the Company and, therefore, may be able to respond more quickly to new or
changing opportunities, technologies and customer requirements.

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

      Recent Net Losses and Accumulated Deficit. The Company sustained
substantial net losses during the years from 1996 through 2000. As of December
31, 2000, the Company had an accumulated deficit of $33,381,000. The Company
anticipates that it will continue to incur net losses at least through a portion
of 2001, and there can be no assurance that it will be able to achieve revenue
growth or improvements to profitability on an ongoing basis in the future.

      Liquidity Risk. The Company's cash resources and cash flow generated from
operations have been adequate to meet its needs to date, but there can be no
assurance that a prolonged downturn in operations or business setbacks to the
Company's operating entities will not result in working capital shortages which
may adversely impact the Company's operations. The liquidity risk has been
mitigated somewhat by the Company obtaining a line of credit facility for its
short term working capital needs. The Company's line of credit facility expires
September 30, 2001. Failure of the Company to renew its existing credit facility
beyond September 30, 2001 or replace it with another facility with similar terms
may adversely impact the Company's operations in the future.

      Risks Inherent in Development of New Markets. The Company's strategy
includes attempting to develop an ongoing business base for its interactive
media systems integration and consulting services in the healthcare industry.
This strategy presents risks inherent in assessing the value of development
opportunities, in committing resources in an unproven market and in integrating
and managing new technologies and applications. Within this new market, the
Company will encounter competition from a variety of sources. There can be no
assurance that the


                                      -30-
<PAGE>

Company will be successful at establishing an ongoing base of revenue in this
new market, or that any contracts obtained will generate improvements to the
Company's profitability or cash flow.

      Risks Inherent in Development of New Products. The Company recently
developed software interfaces and modifications for end-user operating
components from On Command to be utilized in interactive system installations,
which the Company believes result in fundamental improvements to the
functionality of the end-user system components. The Company also intends to
conduct research and development activities in other areas to improve its
products and systems or to extend their availability to additional types of
communication networks. There can be no assurance, however, that such projects
will result in improved functionality of the Company's interactive 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.

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

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

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

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


                                      -31-
<PAGE>

Item 2 - Properties

      The Company's principal executive offices are located at 381 Mansfield
Avenue, Suite 400, Pittsburgh, Pennsylvania 15220 in leased office space. The
Pittsburgh office houses the Company's executive management, technical,
recruiting and financial personnel. Technology Infrastructure and E-Business
Solution Area management, sales, technical and administrative personnel
associated with the Company's Eastern United States operations, including legacy
technology consulting services, also utilize the Pittsburgh office.

      The Company's Technology Infrastructure and E-Business Solution Areas also
utilize leased office space in San Jose and Walnut Creek, California. These
offices serve as a base of operations or an available worksite for solution area
management, sales, technical or administrative personnel associated with Western
United States solution area operations. The Walnut Creek office was newly
established in January 2000.

      The Interactive Media Solution Area utilizes leased office space in Ft.
Lauderdale, Florida as the primary base of operations for its consulting and
systems integration operations. Solution area management, sales, technical and
administrative personnel associated with Interactive Media solution area
operations utilize the Ft. Lauderdale office. The Ft. Lauderdale office is
comprised of mixed-use space and includes professional office space, work areas
for configuration of equipment utilized on systems integration projects and
storage areas for inventory. The Company expects to lease additional office
space at its Ft. Lauderdale location in 2001 to accommodate expected growth in
Interactive Media operations.

      The Ft. Lauderdale office also houses the management and administrative
functions associated with several of the Company's ancillary services, including
interactive television transaction-based operations and digital imaging and
information product sales.

      As of December 31, 2000, all of the Company's leased offices were fully
utilized. All offices, except the Ft. Lauderdale office, were suitable and
adequate to meet the organization's needs. The Ft. Lauderdale office is
currently over-utilized. The significant backlog of Interactive Media business
secured in early 2001 will likely result in the continuing addition of
personnel. Management is negotiating to add space in 2001 at the same location
presently occupied in Ft. Lauderdale, which should alleviate the current
problems. Management does not anticipate difficulty in securing additional space
sufficient to meet the Company's anticipated needs at its present location or
elsewhere in the Ft. Lauderdale area.

Item 3 - Legal Proceedings

      On June 14, 2000, Allin Consulting-California filed a Complaint for Breach
of Contract against Exodus Communications, Inc. ("Exodus") in the Superior Court
of California, County of Santa Clara. The complaint sought damages due to
Exodus' recruitment and hiring of three of Allin Consulting-California's
technology consultants in violation of the non-solicitation terms of the
respective agreements for services between Allin Consulting-California and
Exodus. In March 2001, Allin Consulting-California and Exodus reached a
settlement of the matter, pursuant to which a request for dismissal of the
Complaint for Breach of Contract will be filed. Allin Consulting-California
expects to receive settlement proceeds in April 2001. The settlement will be
reflected in the Company's results of operations upon receipt of proceeds.

      The Company's proceeding in the Court of Common Pleas of Allegheny County,
Pennsylvania, against Mark Gerow ("Gerow"), a former employee of Allin
Consulting-California, was settled in January 2001 and the Company's proceeding
was dismissed. The settlement resolved the amount of contingent payment to be
made to Gerow under a Stock Purchase Agreement pursuant to which the Company
acquired all of the stock of MEGAbase Corporation ("MEGAbase") in November 1998.
Gerow was the sole shareholder of MEGAbase. MEGAbase was merged into Allin
Consulting-California subsequent to acquisition. On January 26, 2001 the Company
made a cash payment of $60,000 and issued 14,225 shares of its common stock to
Gerow. The closing Nasdaq market price of the Company's common stock on the date
of issuance was $1.406 per share.

      The Company from time to time is involved in other litigation incidental
to the conduct of its business. There are no pending legal proceedings to which
the Company or any of its subsidiaries is a party, or to which any of their
respective properties is subject, for which any material adverse judgement is
considered probable.


                                      -32-
<PAGE>

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

      (a)   A Special Meeting of the Stockholders of the Company was held on
            Friday, December 29, 2000.

      (b)   Not applicable.

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

            Proposal 1:       To approve the issuance of shares of the Company's
                              Series G Convertible Redeemable Preferred Stock.

            Proposal 2:       To approve the issuance of warrants to purchase
                              shares of the Company's common stock to the
                              purchasers of the Company's Series G Convertible
                              Redeemable Preferred Stock.

            Results were as follows:

<TABLE>
<CAPTION>
                           Votes For     Votes Against     Votes Abstaining     Shares Not Voted
            <S>            <C>           <C>               <C>                  <C>
            Proposal 1     3,930,235           448,287                1,300            2,573,292
            Proposal 2     3,930,035           448,487                1,300            2,573,292

</TABLE>

                  There were a total of 6,953,114 shares of the Company's Common
                  Stock eligible to vote at the Special Meeting. There were no
                  broker non-votes.

      (d)   Not applicable.


                                      -33-
<PAGE>

Part II

Item 5 - Market for Registrant's Common Equity and Related Shareholder Matters

      Allin Corporation's common stock began trading on the Nasdaq National
Market tier of The Nasdaq Stock Market in November 1996 under the symbol "ALLN".
During 2000, the high and low closing prices per share of the common stock as
reported by Nasdaq were $5.125 and $1.250, respectively. On March 15, 2001,
there were approximately 91 record holders of the common stock. Record holders
do not include owners whose shares are held only in street name by a broker or
other nominee.

      Quarterly high and low closing prices per share of the common stock as
reported by Nasdaq during 1999 and 2000 were as follows:

High and Low Closing Prices Per Share of Common      Quarterly     Quarterly
Stock as Reported by Nasdaq                          High Price    Low Price

First Quarter 1999                                        3.875        2.500
Second Quarter 1999                                       3.250        2.438
Third Quarter 1999                                        5.000        3.000
Fourth Quarter 1999                                       5.250        4.250

First Quarter 2000                                        5.125        3.438
Second Quarter 2000                                       3.438        2.188
Third Quarter 2000                                        2.500        1.750
Fourth Quarter 2000                                       2.313        1.250

      There have been no dividends declared on the common stock since the
inception of the Company. The Company has no intention to declare dividends on
its common stock in the near future. A Loan and Security Agreement between the
Company and S&T Bank, dated as of October 1, 1998, and amended as of October 1,
1999, prohibits the Company from declaring or paying dividends on any shares of
its capital stock, except for current dividends payable in the ordinary course
of business on the Company's Series D Convertible Redeemable Preferred Stock and
Series F Convertible Redeemable Preferred Stock. The annual renewal of the S&T
Loan Agreement for the year ended September 30, 2001 extended the covenant
concerning dividends to the Company's Series G Convertible Redeemable Preferred
Stock, if issued upon approval by the holders of a majority of the Company's
common shares. Such approval and issuance of the Series G preferred stock
occurred in December 2000. The Loan and Security Agreement expires September 30,
2001. Each of the Certificates of Designation governing the Company's Series C,
D, F and G preferred stock prohibits the Company from declaring or paying
dividends or any other distribution on the common stock or any other class of
stock ranking junior as to dividends and upon liquidation unless all dividends
on the senior series of preferred stock for the dividend payment date
immediately prior to or concurrent with the dividend or distribution as to the
junior securities are paid or are declared and funds are set aside for payment.

      On January 26, 2001, the Company issued 14,225 shares of its common stock
to Mark Gerow as part of a settlement of payment due under a Stock Purchase
Agreement pursuant to which the Company acquired all of the stock of MEGAbase.
As no public offering was involved, the issuance of these shares of common stock
was exempt from registration under Section 4(2) of the Securities Act of 1933,
as amended.

      On December 29, 2000, following common stockholder approval at a special
meeting of stockholders, the Company issued 150 shares of its Series G
Convertible Redeemable Preferred Stock. The Series G preferred stock was sold to
certain of the Company's executive officers, directors and existing holders of
common stock. The Series G preferred stock has a liquidation value of $10,000
per share. Unless redeemed or converted to common stock sooner, Series G
preferred earns cumulative quarterly dividends at the rate of eight percent of
the liquidation value thereof per annum until December 29, 2005. Thereafter, the
dividend rate will increase to 12% of the liquidation value until the earlier of
the date of any redemption or the date of conversion into common stock.
Dividends will be payable quarterly in arrears on the first day of each calendar
quarter.

      There is no mandatory redemption date for the Series G preferred stock,
although the Company may redeem shares of Series G preferred stock after
December 29, 2005. The redemption price for each share of Series


                                      -34-
<PAGE>

G preferred stock will be the liquidation value of such share, plus an amount
that would result in an aggregate 25% compounded annual return on such
liquidation value to the date of redemption after giving effect to all dividends
paid on such share through the date of redemption. There are no sinking fund
provisions applicable to the Series G preferred stock.

      Series G preferred stock is convertible into common stock at any time
prior to redemption by the Company, if any. The conversion prices will be as
follows:

 .     Until and including December 29, 2001, each share of Series G preferred
      stock may be converted into the number of shares of common stock
      determined by dividing 10,000 by the lesser of $1.16348 (85% of the
      average closing price of the Common Stock as reported by Nasdaq over the
      last five trading days prior to December 29, 2000) or 85% of the average
      closing price of the common stock as reported by Nasdaq over the last five
      trading days prior to the date of the conversion.

 .     After December 29, 2001, each share of Series G Preferred Stock held by
      each holder may be converted into the number of shares of common stock
      determined by dividing 10,000 by the lesser of $1.16348 (85% of the
      average closing price of the common stock as reported by Nasdaq over the
      last five trading days prior to December 29, 2000) or 85% of the average
      closing price of the common stock as reported by Nasdaq over the last five
      trading days prior to December 29, 2001.

In any event, the minimum conversion price used as a denominator in the
foregoing calculations will be $0.35. Holders of the Series G preferred stock
who exercise the conversion right will have the right to receive any accrued and
unpaid dividends through the date of conversion

      In the event that the number of shares of outstanding common stock is
changed by any stock dividend, stock split or combination of shares at any time
shares of Series G preferred stock are outstanding, the number of shares of
common stock that may be acquired upon conversion will be proportionately
adjusted. The conversion prices for the Series G preferred stock will be
adjusted on a weighted average basis in the event of a dilutive issuance
involving any sale of equity stock or stock equivalents of the Company at a
price below the greater of the conversion price of the Series G preferred stock
then in effect or 85% of the market value of the common stock, except for the
issuance of common stock as a result of the exercise of options issued at or
above fair market value at date of grant, the conversion of any preferred stock
outstanding as of September 29, 2000 or the Series G preferred stock, the
exercise of warrants outstanding as of September 29, 2000 or the warrants issued
December 29, 2000, the acquisition by the Company of another business or the
assets of another business or a firm commitment underwritten public offering of
the common stock resulting in net proceeds to the Company of not less than
$10,000,000.

      On December 29, 2000, Series G preferred shareholders also received
warrants to purchase an aggregate of 857,138 shares of common stock at $1.75 per
share. Issuance of common stock upon exercise of the warrants was approved on
that day by the holders of a majority of the Company's common shares.

      On December 29, 2000, the Company received proceeds, net of offering
costs, of approximately $1,434,000 from the sale of the Series G preferred stock
and associated warrants. All of the proceeds were utilized in January 2001 to
reduce the outstanding balance on the Company's line of credit with S&T Bank.

      As no public offering was involved, the issuance of the Series G preferred
stock and the related warrants to purchase shares of common stock was exempt
from registration under Section 4(2) of the Securities Act of 1933, as amended.


                                      -35-
<PAGE>

Item 6 - Selected Financial Data

                        ALLIN CORPORATION & SUBSIDIARIES

                             SELECTED FINANCIAL DATA
                (Dollars in thousands, except for per share data)

      The selected financial data for each of the periods ended December 31,
1996, 1997, 1998, 1999 and 2000 presented below have been derived from the
audited consolidated financial statements of the Company. The selected financial
data should be read in conjunction with the Consolidated Financial Statements
and Supplementary data of the Company (Item 8), and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" (Item 7), included
elsewhere in this Form 10-K and in the Company's Form 10-K reports for the
periods ended December 31, 1999 and 2000.

      During the periods presented, the Company's financial position and results
of operations have been materially impacted by acquisitions of businesses and
the Company's initial public stock offering in November 1996. Acquired
businesses include Allin Consulting-California and Allin Network in November
1996, Allin Consulting-Pennsylvania in August 1998 and MEGAbase (subsequently
merged into Allin Consulting-California) in November 1998. Results of operations
for acquired entities are included only for time periods subsequent to the
acquisitions and accordingly affect the comparability of information among the
periods presented.

      The Company's September 1998 sale of SportsWave, Inc. represents disposal
of a segment of the Company's business and results of operations for this
company have been reclassified to discontinued operations for all applicable
periods.

      Allin Interactive elected to be treated as an S Corporation through July
22, 1996 and, as a result, the taxable loss has been reflected on the federal
and state tax returns of the shareholders rather than the corporate returns
through that date.

      The selected financial data for the period ended December 31, 1996
includes the financial position and results of operations of Allin Corporation,
Allin Consulting-California, Allin Interactive, Allin Digital, Allin Network and
Allin Holdings for the portion of 1996 for which the company had operations or
that was subsequent to acquisition. The selected financial data for the period
ended December 31, 1997 reflects the financial position and results of
operations of these six companies for the full year of 1997. The selected
financial data for the period ended December 31, 1998 reflect the financial
position and results of operations of the previously noted six companies for the
full year of 1998 and Allin Consulting-Pennsylvania for the portion of 1998
subsequent to acquisition. Operations for MEGAbase subsequent to acquisition are
reflected with Allin Consulting-California. The selected financial data for the
periods ended December 31, 1999 and 2000 reflect the financial position and
results of operations of Allin Corporation, Allin Consulting-California, Allin
Consulting-Pennsylvania, Allin Interactive, Allin Digital, Allin Network and
Allin Holdings for the full years of 1999 and 2000.


                                      -36-
<PAGE>

<TABLE>
<CAPTION>
                                                                          Period Ended December 31,
                                                                 -----------------------------------------
                                                   1996              1997           1998           1999           2000
                                               -----------       -----------    -----------    -----------    -----------
<S>                                              <C>               <C>            <C>            <C>            <C>
Statement of Operations Data:
  Revenue ..................................        $1,110            $9,596        $15,291        $24,977        $24,089
  Cost of sales ............................           645             5,988          8,781         15,558         15,073
                                               -----------       -----------    -----------    -----------    -----------
  Gross profit .............................           465             3,608          6,510          9,419          9,016
  Depreciation & amortization ..............         1,339             3,887          3,414          2,508          2,138
  (Gain) loss on impairment or disposal
      of assets ............................            (1)            1,227          3,165             87            (85)
  Other selling, general & administrative ..         6,491             9,403          7,358          9,246          9,784
                                               -----------       -----------    -----------    -----------    -----------
  Loss from operations .....................        (7,364)          (10,909)        (7,427)        (2,422)        (2,821)
  Interest expense (income), net ...........           800              (413)            (7)           173            212
                                               -----------       -----------    -----------    -----------    -----------
  Loss before provision for income taxes ...        (8,164)          (10,496)        (7,420)        (2,595)        (3,033)
  Provision for (benefit from) income taxes             22                45             --             10            (79)
                                               -----------       -----------    -----------    -----------    -----------
  Loss before equity loss ..................        (8,186)          (10,541)        (7,420)        (2,605)        (2,954)
  Equity in loss of non-consolidated
      corporation ..........................            --                --             28             72             --
                                               -----------       -----------    -----------    -----------    -----------
  Loss from continuing operations ..........        (8,186)          (10,541)        (7,448)        (2,677)        (2,954)
  (Gain) loss from discontinued operations .           161               162         (1,657)            (1)            --
                                               -----------       -----------    -----------    -----------    -----------
  Net loss .................................        (8,347)          (10,703)        (5,791)        (2,676)        (2,954)
  Accretion and dividends on preferred stock           106               232            779            699            637
                                               -----------       -----------    -----------    -----------    -----------
  Net loss attributable to common shareholders     $(8,453)         $(10,935)       $(6,570)       $(3,375)       $(3,591)
                                               ===========       ===========    ===========    ===========    ===========
  Net loss per common share ................        $(2.98)           $(2.12)        $(1.20)        $(0.56)        $(0.56)
                                               ===========       ===========    ===========    ===========    ===========
  Weighted average number of common
      shares outstanding ...................     2,834,565         5,157,399      5,466,979      5,972,001      6,371,827
                                               ===========       ===========    ===========    ===========    ===========

<CAPTION>
                                                                             As of December 31,
                                                                             ------------------
                                                   1996              1997           1998           1999           2000
                                               -----------       -----------    -----------    -----------    -----------
<S>                                                <C>                <C>            <C>            <C>            <C>
Balance Sheet Data:
  Working capital ..........................       $14,051            $6,748         $2,513         $2,228         $1,898
  Total assets .............................        32,677            21,653         26,312         24,026         24,282
  Total liabilities ........................         3,875             3,644          8,071          6,047          8,295
  Preferred stock ..........................         2,480             2,500          4,652          7,578          6,667
  Stockholders' equity .....................        26,322(1)         15,509         13,589         17,979         15,987
</TABLE>

(1)   Includes a charge of $661,000 related to the induced conversion of various
      loan balances due stockholders of the Company into 244,066 shares of the
      Company's common stock.


                                      -37-
<PAGE>

Item 7 - Management's Discussion and Analysis of Financial Condition and Results
         of Operations

      In the following Management's Discussion and Analysis of Financial
Condition and Results of Operations and elsewhere in this annual report on Form
10-K, 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 ability to continue meeting Nasdaq Stock Market requirements,
public market and trading issues, the Company's limited operating history under
new marketing strategies and a new solution area structure, the decline in
demand for legacy technology consulting services, risks associated with the
management of growth and geographic expansion, dependence on key personnel,
competitive market conditions, liquidity, uncertainty as to the Company's future
profitability; the Company's history of net losses and accumulated deficit, the
risks inherent in development of new markets and products; competition in the
Company's existing and potential future lines of business; rapidly changing
technology and fluctuations in operating results, as well as other risks and
uncertainties. See Item 1 under the caption "Risk Factors".

Overview of Organization, Products & Markets

      Allin Corporation (the "Company") is a solutions-oriented information
technology consulting company that teams with businesses to help them transform
the promise of the internet into practical business realities through three
interrelated solution areas: Technology Infrastructure, E-Business and
Interactive Media. The Company offers Microsoft-focused technology consulting,
application development and systems integration services specializing in Windows
2000-based and Exchange 2000-based software. The Company maintains a
customer-oriented focus in its marketing strategy and operations. The Company is
intent on building long-term customer relationships by providing value in the
form of solutions that address specific customer information technology needs.

      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 December 31, 2000, the
organizational legal structure consists of Allin Corporation, five wholly owned
operating subsidiaries and one wholly owned non-operating subsidiary. The
operating subsidiaries are Allin Corporation of California ("Allin
Consulting-California"), Allin Consulting of Pennsylvania, Inc. ("Allin
Consulting-Pennsylvania"), Allin Interactive Corporation ("Allin Interactive"),
Allin Digital Imaging Corp. ("Allin Digital Imaging") and Allin Network
Products, Inc. ("Allin Network"). Allin Holdings Corporation ("Allin Holdings")
is a non-operating subsidiary that provides treasury management services to the
Company. Allin Consulting-California and Allin Network are California
corporations, Allin Consulting-Pennsylvania is a Pennsylvania corporation and
Allin Interactive, Allin Digital and Allin Holdings are Delaware corporations.
Unless the context otherwise requires, all references herein to the "Company"
mean Allin Corporation and its subsidiaries. The Company utilizes the
trade-names Allin Consulting, Allin Interactive and Allin Digital Imaging in its
operations. The Company is headquartered in Pittsburgh, Pennsylvania and
operates additional offices in San Jose and Walnut Creek, California and Ft.
Lauderdale, Florida. The Company sold a subsidiary, SportsWave, Inc.
("SportsWave") in September 1998.

      The financial information for the period ended December 31, 1998 reflects
the results of continuing operations of the Company, Allin
Consulting-California, Allin Interactive, Allin Digital, Allin Network and Allin
Holdings for the full year of 1998 and the results of continuing operations for
Allin Consulting-Pennsylvania subsequent to acquisition. Allin
Consulting-California's results of operations include the former MEGAbase
business subsequent to its acquisition. The financial information for the
periods ending December 31, 1999 and 2000 reflect the results of operations of
the Company, Allin Consulting-California, Allin Consulting-Pennsylvania, Allin
Interactive, Allin Digital, Allin Network and Allin Holdings for the full years
of 1999 and 2000. Results of SportsWave's operations prior to its sale and the
gain realized on the sale of SportsWave in 1998 are reflected as results of
discontinued operations

      The Company's solution area-based organizational structure is designed to
complement the customer-oriented focus of the Company's marketing strategy. The
solution area structure is defined more by a customer's use of the services
rather than technological disciplines. The Company is intent on building
long-term customer relationships by providing value in the form of solutions
that address specific customer information technology needs. The Company
believes the customer-based focus of its solution area organizational structure
and marketing strategy promote the effective delivery of customer-oriented
technology solutions and will foster the growth of long-term customer
relationships with ongoing service opportunities. A brief description of the
Company's solution areas follows:


                                      -38-
<PAGE>

 .     The Technology Infrastructure Solution Area focuses on customers' network
      and application architecture, messaging and collaboration systems and
      security issues. Technology Infrastructure designs and implements
      enterprise-quality systems that maximize network availability and
      efficiency, and enable customers to reduce costs and protect vital
      resources. Technology Infrastructure solutions provide the underlying
      platforms and operating systems necessary to take advantage of the latest
      technology capabilities. Services include design, configuration,
      implementation, evaluation of customer operating systems and database
      platforms, messaging systems, information system security solutions such
      as firewalls and proxy servers and application services such as message
      queing and transaction servers. Technology Infrastructure targets
      horizontal markets, meaning businesses across a broad spectrum of
      industries.

 .     The E-Business Solution Area provides solutions that enable organizations
      to evaluate and optimize business processes and extend corporate messages,
      products, services and processes to customers, partners and suppliers.
      E-Business delivers portal and business intelligence solutions that
      automate and streamline information creation, storage, sharing and
      retrieval. E-Business solutions enable customers to increase productivity
      by improving the flow and accessibility of information, thereby
      eliminating inefficiencies and reducing costs. Solutions emphasize
      Internet- and intranet-capabilities including company portals,
      extranet-based value chains and electronic commerce sites, data
      warehousing, work flow, and interfaces with or custom development for
      business operation transaction systems. E-Business also targets horizontal
      markets.

 .     The Interactive Media Solution Area focuses on the Company's expertise in
      digital media applications including interactive television and digital
      imaging solutions. Interactive Media enables customers to convert manual
      and analog processes into interactive digital solutions. Interactive Media
      delivers business-to-business and business-to-consumer E-commerce
      platforms that enable customers to improve service and increase
      productivity and revenue. Interactive television operations are currently
      focused on two vertical markets, the cruise line segment of the travel and
      leisure market and the healthcare market. Digital imaging solutions are
      focused on the professional photography market. Interactive Media performs
      services on both a consulting and systems integration basis.

      The Company has established operating relationships with some of the
leading suppliers of information technology products to complement its solution
area services. Foremost among these is the operating relationship with Microsoft
Corporation ("Microsoft"). Both of the Company's Allin Consulting subsidiaries
and Allin Interactive are certified as Microsoft Solutions Provider Partners.
The Company intends to continue its specialization in Microsoft-based technology
products.

      Beginning in 2001 the Company has changed its solution area structure to
reflect changes in technology, customers' maturing integration of electronic
business capabilities with ongoing business operations and the Company's desire
to simplify its delivery message. Accordingly, the Company's E-Business Solution
Area now reflects the combined consulting activities consistent with the
Company's Microsoft-based technology focus that would have been reflected as
Business Operations, Knowledge Management and Electronic Business Solution Areas
under the previous solution area structure. The Company also performs technology
consulting services for certain legacy technologies, including IBM proprietary
mainframe systems and Hogan IBA software applications, which are specialized
products for the banking industry. The management of legacy technology
consulting services was performed by the Business Operations Solutions Area
under the previous solution area structure, but is not part of the activities
falling under the E-Business Solution Area in the current solution area
structure due to the Company's management's desire for E-Business to concentrate
on projects more closely consistent with the Company's Microsoft-based
technology focus. Consequently, legacy technology consulting services are shown
separately under the new solution area structure. This presentation represents a
change from the segments previously reported as Solution Area Services. To
enhance comparability of the information with reporting of results of the
Company's future operations, information for the years ended December 31, 1998,
1999 and 2000 has been restated to conform to the new solution area structure.

      Management believes the economic downturn experienced in early 2001 has,
on at least a short-term basis, negatively impacted the demand for technology
consulting services. Management believes that certain trends, previously
discussed in Item 1, Business under the caption "Industry Overview - Technology
Consulting Services", including expected growth in business-to-business
Internet-based commerce, advances in portal and business intelligence technology
products and a continuing shortage of skilled information technology
professionals, will continue to increase long-term demand for technology
consulting services in the ways indicated. Other factors, such as the economic
downturn, may cause short-term variations in the level of demand.

      The Company also provides certain ancillary services and product sales,
which are those revenue producing activities that, unlike the solution area
services previously described, are not viewed as key to, or completely aligned


                                      -39-
<PAGE>

with, the Company's overall strategic objectives and marketing plans. These
include transaction-based interactive television system operation, digital
imaging and information system product sales and other services.

Results of Operations

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

Revenue

      The Company's total revenue for the year ended December 31, 2000 was
$24,089,000, a decrease from total revenue of $24,977,000 for the year ended
December 31, 1999. The decrease of $888,000, or 4%, is the result of several
offsetting factors. Revenue from the Company's Technology Infrastructure,
E-Business and Interactive Media Solution Areas, which are most closely aligned
with the Company's strategic objective of providing Microsoft-focused technology
solutions, increased by $4,427,000, or 42%, for the year ended December 31, 2000
as compared to the year ended December 31, 1999. However, these gains in revenue
were more than offset by decreases in revenue of $4,845,000, or 42%, for the
Company's legacy technology consulting services and $1,178,000, or 73%, for
interactive television transactional revenue and management fees.

      The Company's solution area revenue, after elimination of intercompany
sales, was $21,716,000 for the year ended December 31, 2000, including
$3,817,000 for Technology Infrastructure, $2,166,000 for E-Business, $9,041,000
for Interactive Media and $6,692,000 for legacy technology consulting services.
Comparable solution area revenue for the year ended December 31, 1999 was
$22,134,000 in total, including $2,911,000 for Technology Infrastructure,
$2,340,000 for E-Business, $5,346,000 for Interactive Media and $11,537,000 for
legacy technology consulting services.

      Technology Infrastructure revenue increased $906,000, or 31%, in the year
ended December 31, 2000 as compared to the year ended December 31, 1999. The
Company's management believes several factors have contributed to the Technology
Infrastructure revenue growth. Internet-based business-to-business commerce is
expected to accelerate rapidly in the early years of the 2000's. The way the
Internet is transforming interaction among businesses and their customers and
suppliers is prompting businesses to evaluate and upgrade their technology
infrastructure to be able to take advantage of Internet-driven opportunities.
Advancing portal and business intelligence technology products also require more
robust infrastructure. Another factor that management believes has contributed
to the growth in Technology Infrastructure revenue in 2000 is the introduction
of Microsoft's Windows 2000 operating platform. Management believes these
general trends in technology are creating conditions favorable to continuing
long-term growth in demand for Technology Infrastructure services. There can be
no assurance, however, that revenue will be realized at the same or higher
levels in future periods, or that any revenue increase realized would result in
the desired improvements to the Company's financial condition or results of
operations.

      The E-Business Solution Area recorded a revenue decrease of $174,000, or
7%, for the year ended December 31, 2000 as compared with the prior year. As was
discussed in the Industry Overview - Technology Consulting Services section in
Item 1 Business, of this Report on Form 10-K, the Internet is viewed by industry
analysts as driving a significant level of technological and business
innovation, with Internet-related business activity expected to grow
significantly over the early years of the 2000's. Technological trends support
increasing demand for complex solutions based on advanced portal and business
intelligence products. Although a revenue increase was not realized for this
solution area in 2000, management believes that the compelling market forces
still represent an opportunity for long-term growth in E-Business services. The
Company plans to continue significant marketing efforts to attempt to generate
additional sales for the E-Business Solution Area in 2001. There can be no
assurance, however, that the Company will realize revenue equal to or greater
than current levels for its E-Business Solution Area in the future or that any
increases realized will result in the desired improvements to the Company's
financial condition or results of operations.

      Interactive Media Solution Area revenue totaled $9,041,000 for the year
ended December 31, 2000, including $1,283,000 for interactive media consulting,
$5,914,000 for interactive media systems integration and $1,844,000 for digital
imaging systems integration. Comparable Interactive Media revenue for the year
ended December 31, 1999 was $5,346,000 in total, including $758,000 for
interactive media consulting, $3,068,000 for interactive media systems
integration, and $1,520,000 for digital imaging systems integration. The
increase in Interactive Media Solution Area revenue from 1999 to 2000 was 69%.


                                      -40-
<PAGE>

      Interactive Media consulting revenue increased $525,000, or 69%, for the
year ended December 31, 2000 as compared with the prior year. The increase in
revenue in 2000 as compared to 1999 was attributable to applications development
for an increased number of ship-based interactive television systems, an
increased level of applications design and development for healthcare industry
customers and maintenance and trouble-shooting services for a larger number of
ship-based interactive television systems. The Company's management believes
there is potential for continued growth of interactive media consulting in the
markets targeted by the Interactive Media Solution Area. The Company expects
that a contract entered in February 2001 for applications development for
interactive television systems to be installed on Carnival ships will likely
result in an increased level of consulting services in 2001. There can be no
assurance, however, that the Company's Interactive Media Solution Area will
continue to realize consulting revenue equal to or greater than was realized in
2000 or that any increase realized will result in the desired improvement to the
Company's financial condition or results of operations.

      Revenue for Interactive Media systems integration services increased by
$2,846,000, or 93%, in the year ended December 31, 2000 as compared to the year
ended December 31, 1999. In 2000, installation of interactive television systems
were completed aboard two ships and partially completed on two others. In 1999,
one ship-based interactive television system was installed. Systems integration
services provided to customers in the healthcare industry also substantially
increased in 2000 as compared to 1999. Interactive Media systems integration
revenue recognized in both years included portions of sales revenue associated
with four interactive systems originally installed on Celebrity ships under the
owner-operator model utilized by the Company from 1995 to 1997. Systems
integration revenue was recognized on the Celebrity ship system sales over the
minimum life of an associated maintenance agreement, through March 17, 2000.
Revenue related to the Celebrity ship system sales was higher in absolute
dollars as well as a significantly higher proportion of overall systems
integration revenue in 1999. In February 2001, the Company entered an agreement
with Carnival for installation of interactive television systems on six Carnival
vessels in 2001 and 2002 and also received orders for systems for an additional
Celebrity ship and an additional Royal Caribbean ship. Management accordingly
expects Interactive Media systems integration revenue to be substantially higher
in 2001 than in preceding years. There can be no assurance, however, that
projects expected to occur in 2001 will not be delayed or that revenue will be
earned at the same or higher levels in 2002 or beyond. There can also be no
assurance that systems integration projects to be carried out will result in the
desired improvements to the Company's financial condition or results of
operations.

      Digital imaging systems integration revenue increased by $324,000, or 21%,
in the year ended December 31, 2000 as compared to the year ended December 31,
1999. The increase in revenue resulted from an increase in the number of digital
imaging systems installed in 2000 as compared to 1999. The Company's management
believes trade publication advertising and trade show presentations are creating
brand awareness for Allin Digital in the portrait photography industry. The
Company revised its marketing strategy for digital imaging systems integration
services during the third quarter of 2000 to more closely focus on high
value-added projects including business-to-business and business-to-consumer
E-commerce solutions.

      Revenue from legacy technology consulting services declined $4,845,000, or
42%, for the year ended December 31, 2000 as compared to the year ended December
31, 1999. The Company's legacy technology consulting services experienced the
strongest Year 2000 impact of any part of the Company's solutions area
operations. Management believes that many of the Company's customers have moved
significant focus in their organizations from mainframe to client/server
systems. The Company also placed significantly greater marketing emphasis on the
Microsoft-based solutions-oriented services offered by the Technology
Infrastructure, E-Business and Interactive Media Solution Areas in 1999 and
2000. Management expects a continued decline in legacy technology consulting
revenue in 2001.

      The Company recognized revenue for ancillary services & product sales of
$2,373,000 during the year ended December 31, 2000, including $436,000 for
interactive television transactional revenue, $1,096,000 for digital imaging
product sales, $422,000 for information system product sales and $419,000 for
other services. Ancillary services & product sales revenue of $2,843,000 was
recognized during the year ended December 31, 1999, including $1,614,000 for
interactive television transactional revenue & management fees, $752,000 for
digital imaging product sales, $308,000 for information system product sales and
$169,000 for other services.

      Interactive television transactional revenue & management fees decreased
by $1,178,000, or 73%, in the year ended December 31, 2000 as compared to the
year ended December 31, 1999. The Company operated interactive television
systems on two ships in 2000 as compared to eight ships for all or a portion of
1999, when the Company ceased operating systems on six ships. No management fees
were earned for system operation in 2000 while this had been a revenue stream in
1999. In February 2001, the Company sold the two owned interactive


                                      -41-
<PAGE>

television systems still in operation to Carnival. Transactional revenue will be
discontinued as a revenue source to the Company after transfer of systems
operation to Carnival, expected no later than April 2001.

      Digital imaging product sales increased by $344,000, or 46%, in 2000 as
compared to 1999. The Company derives this revenue stream from the sale of
consumable products and equipment utilized in the digital photography process.
The substantial majority of sales have been to customers for which the Company
had previously installed a digital imaging system. The Company supports these
product sales to foster customer satisfaction and ongoing relationships. The
increase in revenue in 2000 resulted from a substantially larger base of
customers with installed systems than had been present in 1999.

      Information system product sale revenue increased by $114,000 in 2000 as
compared to 1999. The Company's operation of Erie Computer following its
acquisition in February 2000 through the date of its sale in May 2000
contributed to the increase in this type of revenue. Erie Computer's revenue
base included a significant component of information system product sales. The
Company also realized a higher incidence of sales of replacement interactive
television system equipment to cruise line customers.

      Revenue from other services increased by $250,000 in 2000 as compared to
1999. The increase is primarily attributable to Allin Digital's sale of
photographic output under a concessionaire arrangement in 2000. No similar
activity was undertaken in 1999.

Cost of Sales and Gross Profit

      The Company recognized cost of sales of $15,073,000 during the year ended
December 31, 2000 as compared to $15,558,000 during the year ended December 31,
1999. The decrease in cost of sales of $485,000 is due to the same offsetting
factors which resulted in the year-to-year changes in revenue discussed
previously. Cost of sales associated with the Technology Infrastructure,
E-Business and Interactive Media Solution Areas increased by $2,499,000 while
cost of sales associated with legacy technology consulting services decreased by
$3,455,000. Gross profit of $9,016,000 was recognized for 2000 as compared to
$9,419,000 for 1999, a decrease of $403,000, or 4%. Again, the aggregate
decrease in gross profit in 2000 as compared to 1999 is attributable to the
effects of the significant revenue changes discussed previously. The Company
realized an increase in Technology Infrastructure, E-Business and Interactive
Media Solution Area gross profit of $1,928,000, or 42%, but this was more than
offset by decreases in legacy technology consulting gross profit of $1,390,000
and gross profit from interactive television transactional revenue and
management fees of $1,049,000. Solution area gross profit as a percentage of
revenue grew from 35% in 1999 to 38% in 2000, despite significant growth in
Interactive Media systems integration services, which typically carry lower
margins on the equipment-associated portions of the projects. Management
believes the improvement in gross profit percentage for the solution area
services demonstrates the Company's success in 2000 in developing higher-margin
solutions-oriented business.

      The Company's solution areas recorded a total of $13,426,000 for cost of
sales during the year ended December 31, 2000, including $1,557,000 for
Technology Infrastructure, $1,187,000 for E-Business, $5,805,000 for Interactive
Media and $4,877,000 for legacy technology consulting services. Comparable cost
of sales for the year ended December 31, 1999 was $14,382,000 in total,
including $1,450,000 for Technology Infrastructure, $1,424,000 for E-Business,
$3,176,000 for Interactive Media and $8,332,000 for legacy technology consulting
services. Increases or decreases in cost of sales are also attributable to the
factors that resulted in changes in revenue for these services. Gross profit for
the Company's solution areas for the year ended December 31, 2000 was
$8,290,000, including $2,260,000 for Technology Infrastructure, $979,000 for
E-Business, $3,236,000 for Interactive Media and $1,815,000 for legacy
technology consulting services. Comparable gross profit for the year ended
December 31, 1999 was $7,752,000 in total, including $1,461,000 for Technology
Infrastructure, $916,000 for E-Business, $2,170,000 for Interactive Media and
$3,205,000 for legacy technology consulting services. The substantial increase
in the solutions-oriented services provided by Technology Infrastructure and
Interactive Media in 2000 is primarily responsible for the increase in gross
profit.

      Technology Infrastructure gross profit increased $799,000 in 2000 as
compared to 1999 while revenue increased by $906,000. The Company was able to
realize a 55% increase in gross profit in 2000 from a 31% increase in revenue.
The increase in gross profit was realized through growth in high margin
solutions-oriented projects. The Company made substantial progress in increasing
average Technology Infrastructure billing rates in 2000, which outpaced the rate
of compensation increase for the solution area's technical staff. Technology
Infrastructure gross profit as a percentage of revenue increased from 50% in
1999 to 59% in 2000.


                                      -42-
<PAGE>

      E-Business cost of sales decreased $237,000 in 2000 as compared to 1999
while revenue decreased by $174,000, resulting in a gross profit increase of
$63,000. The Company was able to realize a 7% increase in gross profit in 2000
from a 7% decrease in revenue. As was discussed in the Industry
Overview-Technology Consulting Services in Item 1, Business, the recent growth
and future prospects for electronic commerce are moving demand for the type of
consulting services provided by the E-Business Solution Area from enabling basic
Web presence and simple transactional capability toward integration of
electronic commerce with core business operating systems and heightened
communication and knowledge sharing requirements inside and outside of
organizations. Management believes that the increase in gross profit for
E-Business reflects the growing complexity of E-Business projects. Due to this
trend, E-Business was also able to make substantial progress in increasing
average billing rates in 2000 which outpaced the rate of compensation increase
for the solution area's technical staff. E-Business gross profit as a percentage
of revenue increased from 39% in 1999 to 45% in 2000.

      Cost of sales for the Interactive Media Solution Area was $5,805,000 in
total for the year ended December 31, 2000, including $409,000 for interactive
media consulting, $3,934,000 for interactive media systems integration and
$1,462,000 for digital imaging systems integration. Interactive Media cost of
sales for the year ended December 31, 1999 was $3,176,000 in total, including
$362,000 for interactive media consulting, $1,605,000 for interactive media
systems integration and $1,209,000 for digital imaging systems integration.
Interactive Media Solution Area gross profit was $3,236,000 for the year ended
December 31, 2000, including $874,000 for interactive media consulting,
$1,980,000 for interactive media systems integration and $382,000 for digital
imaging systems integration. Interactive Media gross profit was $2,170,000 for
the year ended December 31, 1999, including $396,000 for interactive media
consulting, $1,463,000 for interactive media systems integration and $311,000
for digital imaging systems integration. The increases in interactive media
consulting and systems integration cost of sales and gross profit primarily
resulted from applications development and installation services associated with
two complete and two partially complete ship-based interactive television
systems in 2000 as compared to one system in 1999 and a substantially higher
level of development and integration services for healthcare-industry customers
in 2000 as compared to 1999. The increase in gross profit on digital imaging
systems integration was driven by an increase in the number of systems installed
in 2000 as compared to 1999, which the Company's management attributes to
increased brand awareness for Allin Digital in the portrait photography
industry. Interactive Media gross profit as a percentage of revenue declined
from 41% in 1999 to 36% in 2000. The Company attributes the percentage decline
to the significant increase in Interactive Media systems integration realized,
which typically carries a lower margin potential due to the inclusion of an
equipment component. Another factor was that gross profit realized on the sale
of four Celebrity ship-based systems was a significantly higher proportion of
overall systems integration gross profit in 1999 than in 2000. The Celebrity
system sales had an unusually high gross profit percentage due the system
equipment having been depreciated for significant time periods prior to sale.

      Cost of sales for the Company's legacy technology consulting services was
$4,877,000 for the year ended December 31, 2000 as compared to $8,332,000 for
the year ended December 31, 1999. Gross profit realized on legacy technology
consulting services declined from $3,205,000 in 1999 to $1,815,000 in 2000. The
declines in legacy technology consulting cost of sales and gross profit are
consistent with the period-to-period decline in revenue. Management attributes
the declines to both industry trends away from mainframe computer systems and
the Company's marketing focus over the last two years on developing
higher-margin solutions-oriented business.

      Cost of sales for the Company's ancillary services and product sales was
$1,647,000 for the year ended December 31, 2000, including $139,000 for
pay-per-view movies associated with interactive television transactional
revenue, $939,000 for digital imaging product sales, $316,000 for information
system product sales and $253,000 for other services. Cost of sales for
ancillary services and product sales was $1,176,000 for the year ended December
31, 1999, including $268,000 for pay-per-view movies, $635,000 for digital
imaging product sales, $260,000 for information system product sales and $13,000
for other services. Gross profit on ancillary services and product sales was
$726,000 for 2000, including $297,000 for interactive television transactional
revenue, $157,000 for digital imaging product sales, $106,000 for information
system product sales and $166,000 for other services. Gross profit for ancillary
services and product sales was $1,667,000 for 1999, including $1,346,000 for
interactive television transactional revenue and management fees, $117,000 for
digital imaging product sales, $48,000 for information system product sales and
$156,000 for other services. The decline in gross profit of $1,049,000 on
interactive television transactional revenue and management fees was
attributable to both the reduction in the number of operating ship systems and
the discontinuation of management fees for system operation as a revenue source.
The growth of gross profit on digital imaging and information system product
sales of $98,000 in 2000 as compared to 1999 reflects the growth in sales due to
a larger base of installed digital photography systems and increasing incidence
of sales of replacement interactive television system equipment to cruise line
customers.


                                      -43-
<PAGE>

Selling, General & Administrative Expenses

      The Company recorded $11,837,000 in selling, general & administrative
expenses during the year ended December 31, 2000 as compared to $11,841,000
during the year ended December 31, 1999, a decrease of $4,000. Some of the
underlying components of selling, general & administrative expenses changed in
2000 as compared to 1999. The Company experienced decreases in certain expenses
in 2000 as compared to 1999, including depreciation, amortization and severance
costs. These decreases were offset by the Company's addition of sales, marketing
and delivery resources to facilitate the Company's move toward a
solutions-oriented project focus.

      During the year ended December 31, 2000, severance accruals of
approximately $94,000 were recorded as a result of the termination of services
of three managerial and sales personnel associated with the Company's legacy
technology consulting services. During the year ended December 31, 1999, a
severance accrual of approximately $226,000 was recorded due to the Company's
termination of the employment contract for its then President. An additional
severance accrual of $81,000 was also recorded in 1999 and related to the
involuntary termination of a solution-area employee.

      During the year ended December 31, 1999, the Company recorded a write-down
of approximately $101,000 related to leasehold improvements, furniture and
equipment from Allin Consulting-Pennsylvania's former office in Pittsburgh.
Allin Consulting-Pennsylvania's Pittsburgh staff moved to the Company's
corporate headquarters office in 1999. The assets written down were disposed of
or were not utilized subsequent to the move. The Company also recorded an
expense of approximately $120,000 during this period for lease termination costs
for the office space formerly occupied by Allin Consulting-Pennsylvania. There
was no comparable expense during 2000.

      There were also several unusual items impacting selling, general &
administrative expenses in the year ended December 31, 2000. The Company
incurred expenses of approximately $111,000 in connection with an abandoned
acquisition candidate. A loss of approximately $53,000 was recorded on the sale
of assets related to the operations of Erie Computer. Partially offsetting these
losses and overall selling, general & administrative expenses was a gain of
approximately $137,000 related to Allin Digital's sale of stock held in
PhotoWave, Inc., a non-consolidated corporation.

      Depreciation and amortization were $2,138,000 for the year ended December
31, 2000 as compared to $2,508,000 for the year ended December 31, 1999. The
decline is primarily due to the inclusion of depreciation expense during 1999
for four shipboard interactive television systems sold to Celebrity in August
and September 1999.

      Research and development expense included in selling, general &
administrative expenses was $43,000 in 2000 as compared to $56,000 in 1999. The
Interactive Media Solution Area's research and development activity during 2000
included continued graphical and functional improvements for the Portraits
Online(TM) Internet-based E-Commerce platform targeted for professional
photographers and applications development and functionality improvements
associated with On Command's equipment platform, which is utilized by the
Company for interactive televisions systems. Research and development activities
in 1999 focused on similar areas.

Net Loss

      The Company's net loss for the year ended December 30, 2000 was $2,954,000
as compared to $2,676,000 for the year ended December 31, 1999. The increase in
net loss of $278,000 resulted from the decrease in gross profit from the
Company's legacy technology consulting and interactive television
transaction-based services, which exceeded the increase in gross profit realized
on solutions-oriented consulting and integration activities.

Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

      The September 1998 sale of 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 and the gain recorded on
disposal for the year ended December 31, 1998 and adjustments to the gain on
disposal recognized during the year ended December 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.


                                      -44-
<PAGE>

Revenue

      The Company's total revenue for the year ended December 31, 1999 was
$24,977,000, an increase from total revenue of $15,291,000 for the year ended
December 31, 1998. The increase of $9,686,000, or 63%, is attributable to a
$10,453,000, or 89%, increase in revenue for the Company's solution area
operations. The most significant factor in the increase is the inclusion of
revenue from Allin Consulting-Pennsylvania in the full 1999 period, whereas only
five months of revenue from Allin Consulting-Pennsylvania were included in the
1998 period. Another contributing factor to the overall revenue increase is the
substantial revenue growth realized for Interactive Media solutions.

      The Company's solution areas recognized revenue, after elimination of
intercompany sales, of $22,134,000 during the year ended December 31, 1999,
including $2,911,000 for Technology Infrastructure, $2,340,000 for E- Business,
$5,346,000 for Interactive Media and $11,537,000 for legacy technology
consulting services. Comparable solution area revenue for the year ended
December 31, 1998 was $11,681,000 in total, including $3,971,000 from Technology
Infrastructure, $2,007,000 from E-Business, $1,196,000 from Interactive Media
and $4,507,000 from legacy technology consulting services.

      Technology Infrastructure revenue decreased $1,060,000, or 27%, in the
year ended December 31, 1999 as compared to the year ended December 31, 1998.
The decline is attributable to the reorientation of Allin
Consulting-California's solutions-oriented consulting mix from primarily
Technology Infrastructure in 1998 to a broader mix in 1999, including a stronger
emphasis on developing E-Business opportunities. The Year 2000 problem also
negatively impacted Technology Infrastructure operations due to customers
postponing new technology initiatives in an attempt to keep their information
systems operating on a more simple basis for the rollover to the year 2000.

      The E-Business Solution Area recorded a revenue increase of $333,000, or
17%, for the year ended December 31, 1999 as compared with the prior year. The
Company's management believes that the improvement resulted from the impact of
the Internet driving additional consulting opportunities as customers sought to
develop electronic commerce capabilities. The E-Business Solution Area also
increased its emphasis on key knowledge services including collaboration,
content and document management, business intelligence, search and delivery and
workflow in 1999, which the Company believes contributed to the growth in
revenue.

      Interactive Media Solution Area revenue totaled $5,346,000 for the year
ended December 31, 1999, including $758,000 for interactive media consulting,
$3,068,000 for interactive media systems integration and $1,520,000 for digital
imaging systems integration. Comparable Interactive Media revenue for the year
ended December 31, 1998 was $1,196,000 in total, including $22,000 for
interactive media consulting, $327,000 for interactive media systems
integration, and $847,000 for digital imaging systems integration. The increase
in revenue from 1998 to 1999 was 347%.

      The Interactive Media Solution Area began offering consulting services in
late 1998. The Company's management believed the growth of interactive media
technology in the markets targeted by the Interactive Media Solution Area and
the Company's extensive experience with the technology created an opportunity
for expansion of Interactive Media services. The Company was able to take
advantage of this opportunity in 1999 and realized a $736,000 increase in
consulting revenue. The majority of 1999 consulting revenue related to
application development for the new interactive television system installed on
the Royal Caribbean ship Voyager of the Seas.

      Revenue for interactive media systems integration services increased by
$2,741,000, or 838%, in the year ended December 31, 1999 as compared to the year
ended December 31, 1998. The most significant sources of revenue during 1999
were the interactive television system installed on the Voyager of the Seas and
the sale of four shipboard interactive television systems to Celebrity. The
Celebrity ship systems had been installed from 1995 to 1997 on an owner-operator
model followed by the Company at that time. Operation of the systems and the
ongoing transactional revenue was transferred to Celebrity upon the sales.
Revenue from the Celebrity system sales was recognized over the minimum period
of a related maintenance obligation for the systems, which ended March 17, 2000.
No comparably sized projects were undertaken in 1998.

      Digital imaging systems integration revenue increased by $673,000, or 79%,
in the year ended December 31, 1999 as compared to the year ended December 31,
1998. Digital imaging systems integration services were initiated by the Company
in 1998 following a strategic shift from the prior retail sales model for
digital images. Systems integration services were performed for only nine months
in 1998. The Interactive Media Solution Area


                                      -45-
<PAGE>

also broadened its marketing and sales efforts for digital imaging systems
integration services in 1999. The increased marketing scope and full year of
activity in 1999 resulted in the substantial revenue increase.

      The substantial increase in legacy technology consulting revenue of
$7,030,000, or 156%, in the year ended December 31, 1999 as compared to the year
ended December 31, 1998 is attributable to the acquisition of Allin
Consulting-Pennsylvania in August 1998. At the time of acquisition, Allin
Consulting-Pennsylvania had substantial consulting practices oriented toward
legacy technologies, including specialized Hogan IBA banking industry software
and IBM-based mainframe technology. Revenue from Allin Consulting-Pennsylvania
was realized for twelve months in 1999 as compared with five months in 1998.
Although legacy technology consulting revenue experienced a substantial increase
year-to-year, declines were experienced from quarter-to-quarter throughout 1999
due to the impact of the Year 2000 computer problem. The Company's legacy
technology consulting services experienced the most negative impact from
customers' postponement of new technology initiatives or development projects in
order to be conducting a more simple scope of operations at the Year 2000
rollover and from a general business trend away from mainframe systems and
toward client/server-based systems.

      The Company recognized revenue for ancillary services & product sales of
$2,843,000 during the year ended December 31, 1999, including $1,614,000 for
interactive television transactional revenue & management fees, $752,000 for
digital imaging product sales, $308,000 for information system product sales and
$169,000 for other services. Ancillary services & product sales revenue of
$3,610,000 was recognized during the year ended December 31, 1998, including
$3,023,000 for interactive television transactional revenue & management fees,
$251,000 for digital imaging product sales, $306,000 for information system
product sales and $30,000 for other services.

      Interactive television transactional revenue & management fees decreased
by $1,409,000, or 47%, in the year ended December 31, 1999 as compared to the
year ended December 31, 1998. The revenue decrease is attributable to the
Company's transition from an owner-operator model for interactive television
systems to a systems integration and consulting services model. The Company
began 1998 operating interactive television systems on eleven ships and ended
the year continuing to operate eight of the systems. Management fees for system
operation were earned on all of these systems throughout 1998. During 1999, the
Company ceased operating systems on six ships, thereby losing transactional
revenue and management fees. The Company sold four of the interactive systems to
Celebrity in August and September of 1999. Management fees for the Celebrity
ship systems were also earned at reduced rates for the portion of 1999 prior to
transfer, which also contributed to the decline in revenue.

      Digital imaging product sales increased by $501,000, or 200%, in 1999 as
compared to 1998. The substantial majority of sales have been to customers for
which the Company had previously installed a digital imaging system. The Company
supports these product sales to foster customer satisfaction and ongoing
relationships. The increase in revenue in 1999 resulted from a substantially
larger base of customers with installed systems than had been present in 1998.

      Information system product sale revenue increased by $2,000 in 1999 as
compared to 1998. These product sales arose during 1998 and 1999 in connection
with technology consulting engagements where the clients desired the Company to
procure computer hardware or software that had been recommended as part of a
technology solution. The Company did not aggressively market this product line
in 1998 and 1999, but maintained it as a customer service.

      Revenue from other services increased by $139,000 in 1999 as compared to
1998. The increase in revenue between the periods is primarily due to increased
placement fee activity due to the inclusion of Allin Consulting-Pennsylvania for
the full year of 1999.

Cost of Sales and Gross Profit

      The Company recognized cost of sales of $15,558,000 during the year ended
December 31, 1999 as compared to $8,781,000 during the year ended December 31,
1998. The increase in cost of sales of $6,777,000 resulted primarily from a
$6,442,000 increase in cost of sales for the Company's solution area services,
which was attributable to substantial revenue increase for Interactive Media
services and legacy technology consulting services. A significant factor in both
the increases in revenue and cost of sales is the inclusion of Allin
Consulting-Pennsylvania's operations for all of the 1999 period, but only five
months of the 1998 period. Gross profit of $9,419,000 was recognized for 1999 as
compared to $6,510,000 for 1998, an increase of $2,909,000, or 45%.


                                      -46-
<PAGE>

Again, the increase in gross profit is attributable to the growth in solution
area services partly due to the inclusion of Allin Consulting-Pennsylvania's
operations in the entire 1999 period, but only five months in the 1998 period.
The percentage increase in gross profit from 1998 to 1999 was lower than that of
revenue. The Company experienced significant growth in its Interactive Media
Solution Area and legacy technology consulting revenue in 1999. The majority of
legacy technology consulting services were delivered under the customer-managed
method, which typically is at lower margin than solutions-oriented services
delivered on an Allin-managed or co-managed basis. The majority of Interactive
Media revenue in 1999 came from systems integration projects, which typically
include a significant equipment component and therefore carry a lower margin
than consulting services. These changes in the mix of the Company's solution
area services between 1998 and 1999 resulted in a decrease in gross profit as a
percentage of revenue.

      The Company's solution areas recorded a total of $14,382,000 for cost of
sales during the year ended December 31, 1999, including $1,450,000 for
Technology Infrastructure, $1,424,000 for E-Business, $3,176,000 for Interactive
Media and $8,332,000 for legacy technology consulting services. Comparable cost
of sales for the year ended December 31, 1998 was $7,940,000 in total, including
$2,383,000 for Technology Infrastructure, $1,247,000 for E-Business, $1,032,000
for Interactive Media and $3,278,000 for legacy technology consulting services.
Increases or decreases in cost of sales are also attributable to the factors
that resulted in changes in revenue for these services, including the
acquisition of Allin Consulting-Pennsylvania, the increased level of systems
integration activity for cruise lines and increased marketing emphasis on
developing and growing solutions-oriented services. Gross profit for the
Company's solution areas for the year ended December 31, 1999 was $7,752,000,
including $1,461,000 for Technology Infrastructure, $916,000 for E-Business,
$2,170,000 for Interactive Media and $3,205,000 for legacy technology consulting
services. Comparable gross profit for the year ended December 31, 1998 was
$3,741,000 in total, including $1,588,000 for Technology Infrastructure,
$760,000 for E-Business, $164,000 for Interactive Media and $1,229,000 for
legacy technology consulting services. The substantial increases in legacy
technology consulting and Interactive Media revenue is principally responsible
for the increase in gross profit from 1998 to 1999.

      Technology Infrastructure gross profit decreased $127,000 in 1999 as
compared to 1998 while revenue decreased by $1,060,000. Despite a 27% decline in
revenue, the Company only experienced an 8% decline in gross profit. Technology
Infrastructure gross profit as a percentage of revenue was 50% in 1999 as
compared to 40% in 1998. The increase in gross profit percentage was realized
through growth in high margin solutions-oriented projects for Allin
Consulting-Pennsylvania and due to a change in the compensation model for Allin
Consulting-California's operations toward a salary-basis, which had the effect
of increasing the Company's gross profit.

      The E-Business Solution Area realized gross profit of $916,000 in 1999 as
compared to $760,000 in 1998. The increase in gross profit closely corresponds
to the increase realized in E-Business revenue, as discussed previously. The
gross profit percentage of revenue also increased slightly from 1998 to 1999,
increasing from 38% to 39%.

      Cost of sales for the Interactive Media Solution Area was $3,176,000 in
total for the year ended December 31, 1999, including $362,000 for interactive
media consulting, $1,605,000 for interactive media systems integration and
$1,209,000 for digital imaging systems integration. Interactive Media cost of
sales for the year ended December 31, 1998 was $1,032,000 in total, including
$11,000 for interactive media consulting, $311,000 for interactive media systems
integration and $710,000 for digital imaging systems integration. Interactive
Media Solution Area gross profit was $2,170,000 for the year ended December 31,
1999, including $396,000 for interactive media consulting, $1,463,000 for
interactive media systems integration and $311,000 for digital imaging systems
integration. Interactive Media gross profit was $164,000 for the year ended
December 31, 1998, including $11,000 for interactive media consulting, $16,000
for interactive media systems integration and $137,000 for digital imaging
systems integration. The increases in cost of sales and gross profit primarily
resulted from the substantial increases in consulting and systems integration
activity related to development and installation of the interactive television
system aboard the Voyager of the Seas and the sale of four Celebrity ship
interactive systems. The increase in gross profit on digital imaging systems
integration was driven by both significant revenue growth and an improvement in
the gross profit as a percent of revenue from 16% in 1998 to 20% in 1999. The
Interactive Media Solution Area as a whole realized gross profit of 41% of
revenue in 1999 as compared to 14% in 1998.

      An increase in gross profit of $1,976,000, or 161%, was realized from
legacy technology consulting services in 1999 as compared to 1998. As was noted
in the discussion of revenue, the increase is primarily attributable to the
inclusion of Allin Consulting-Pennsylvania's operations for twelve months in
1999 as compared to five months in 1998. Gross profit realized from legacy
technology consulting followed a similar pattern as


                                      -47-
<PAGE>

revenue throughout 1999, with quarter-to-quarter decreases. The Company
attributes the declines to lessened demand for mainframe-oriented technology
services and the Company's specialized bank consulting services due to
customers' postponement of technology projects pending the impact of the Year
2000 rollover and a general migration from mainframe systems in favor of
client/server systems.

      Cost of sales for the Company's ancillary services and product sales was
$1,176,000 for the year ended December 31, 1999, including $268,000 for
pay-per-view movies associated with interactive television transactional
revenue, $635,000 for digital imaging product sales, $260,000 for information
system product sales and $13,000 for other services. Cost of sales for ancillary
services and product sales was $841,000 for the year ended December 31, 1998,
including $312,000 for pay-per-view movies, $233,000 for digital imaging product
sales, $264,000 for information system product sales and $32,000 for other
services. Gross profit on ancillary services and product sales was $1,667,000
for 1999, including $1,346,000 for interactive television transactional revenue
and management fees, $117,000 for digital imaging product sales, $48,000 for
information system product sales and $156,000 for other services. Gross profit
for ancillary services and product sales was $2,769,000 for 1998, including
$2,711,000 for interactive television transactional revenue and management fees,
$18,000 for digital imaging product sales, $42,000 for information system
product sales and a gross loss of $2,000 for other services. The decline in
gross profit of $1,365,000 on interactive television transactional revenue and
management fees was attributable to both the reduction in the number of
operating ship systems and reductions in the amounts of management fees for the
Celebrity ship systems prior to transfer of operations. The growth of gross
profit on digital imaging product sales of $99,000 in 1999 as compared to 1998
reflects both growth in sales and improvement in the profit margin on sales.

Selling, General & Administrative Expenses

      The Company recorded $11,841,000 in selling, general & administrative
expenses during the year ended December 31, 1999 as compared to $13,937,000
during the year ended December 31, 1998, a decrease of $2,096,000. The decrease
results from the inclusion of significant losses of $2,997,000 for write-down of
interactive television equipment due to impairment of asset value or termination
of ship operations in the 1998 period. The impairment loss had been recorded to
write-down to salvage value equipment associated with five interactive
television systems which had been discontinued or not completed, as well as
three systems where management viewed continued long-term operation to be in
jeopardy. Excluding these write-downs, the increase in expenses is primarily
attributable to the acquisition of Allin Consulting-Pennsylvania, resulting in
inclusion of selling, general & administrative costs related to those operations
in the full 1999 period, but only five months of the 1998 period. The increase
is also attributable to the 1999 addition of management, technical and sales
personnel to the Company's solution areas to facilitate the move toward a
solutions-oriented project focus.

      During the year ended December 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 year ended December 31, 1999, a
severance accrual of approximately $226,000 was recorded due to the Company's
termination of the employment contract for its then President. An additional
severance accrual of $81,000 was also recorded in 1999 related to the
involuntary termination of a solution area employee.

      During the year ended December 31, 1999, the Company recorded a write-down
of approximately $101,000 related to leasehold improvements, furniture and
equipment from Allin Consulting-Pennsylvania's former office in Pittsburgh.
Allin Consulting-Pennsylvania's Pittsburgh staff moved to the Company's
corporate headquarters office in 1999. The assets written down were disposed of
or were not utilized subsequent to the move. The Company also recorded an
expense of approximately $120,000 during this period for lease termination costs
for the office space formerly occupied by Allin Consulting-Pennsylvania. There
was no comparable expense during 1998.

      During the year ended December 31, 1998, the Company recorded a write-down
of approximately $163,000 for the net unamortized value of a trade-name due to
the change in corporate name of Allin Consulting-California. No comparable loss
was recorded in 1999.

      Depreciation and amortization were $2,508,000 for the year ended December
31, 1999 as compared to $3,414,000 for the year ended December 31, 1998. The
decline is due to August 1998 write-downs in capitalized


                                      -48-
<PAGE>

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 $56,000 in 1999 as compared to $152,000 in 1998. The
Interactive Media Solution Area's research and development activity during 1999
included functional and graphical improvements to the Portraits Online(TM)
studio E-commerce platform and development activities associated with On
Command's equipment platform, which was newly utilized by the Company for
interactive systems in 1999.

Loss from Continuing Operations

      The Company's loss from continuing operations decreased by $4,771,000 from
$7,448,000 for the year ended December 31, 1998 to $2,677,000 for the year ended
December 31, 1999. The decrease results from the $2,909,000 increase in gross
profit between periods due to growth in the Company's solution area services and
the $2,096,000 decrease in selling, general & administrative expenses due to the
inclusion of impairment losses in 1998, partially offset by a $180,000 change
from a net interest income to net interest expense position.

Discontinued Operations

      The Company recorded a gain on the sale of SportsWave of $1,437,000 during
the year ended December 31, 1998. The Company also recorded income from the
operation of its discontinued sports marketing business of $220,000 during the
first nine months of 1998. During 1999, the Company recognized a $1,000
adjustment to the gain on the disposal of SportsWave. The adjustment resulted
from the net effect of reversal of an over-accrual of estimated transaction
costs and recording of a local tax liability related to the pre-disposal period.

Net Loss

      The Company's net loss for the year ended December 30, 1999 was $2,676,000
as compared to $5,791,000 for the year ended December 31, 1998. The decrease in
net loss resulted from the increase in gross profit from the Company's solution
area services and the decrease in selling, general & administrative expenses.
These improvements were partially offset by a shift from a net interest income
to a net interest expense position from 1998 to 1999. A significant gain on the
disposal of SportsWave was also recognized in 1998.

Liquidity and Capital Resources

      At December 31, 2000 the Company had cash and liquid cash equivalents of
$2,330,000 available to meet its working capital and operational needs. The net
change in cash from December 31, 1999 was an increase of $442,000. The net cash
increase during the year ended December 31, 2000 resulted primarily from the
issuance of preferred stock and warrants and increased borrowings on the
Company's line of credit, the majority of which were offset by cash used by the
Company's operations and capital expenditures.

      The Company recognized a net loss for the year ended December 31, 2000 of
$2,954,000. The Company recorded non-cash expenses of $2,301,000 for
depreciation, amortization of software development costs and other intangible
assets and cost of fixed assets sold, net of an $85,000 gain on sale of assets,
resulting in a net cash use of $653,000 related to the income statement. Working
capital adjustments resulted in a net cash use of $1,278,000. Among the working
capital adjustments resulting in cash used were an increase in costs and
estimated gross margins associated with Interactive Media systems integration
projects recognized on a percentage of completion basis in excess of billings of
$1,374,000, decreases in deferred revenue and accrued liabilities of $949,000
and $189,000, respectively, and increases in accounts receivable and inventory
of $596,000 and $250,000, respectively. These were partially offset by an
increase in accounts payable of $2,118,000 and a decrease in prepaid expenses of
$155,000. The net result of the income statement activity and working capital
adjustments was a net cash use of $1,931,000 related to operating activities.

      The net cash provided from financing activities of $2,631,000 during the
year ended December 31, 2000 resulted from net borrowings on the Company's line
of credit of $1,505,000 and proceeds, net of expenses, from the Company's
issuance of Series G Convertible Redeemable Preferred Stock and related warrants
of $1,434,000 offset by payments for preferred stock dividends and capital lease
obligations of $308,000. The net cash used of $258,000


                                      -49-
<PAGE>

for investing activities during the year ended December 31, 2000 was for capital
expenditures, net of proceeds from the sale of assets.

      The Company's common stock is listed on The Nasdaq Stock Market's
("Nasdaq") National Market (the "National Market"). Nasdaq requires that several
criteria be met on an ongoing basis for continued designation of the Company's
common stock as a National Market security, including maintenance of tangible
net assets of at least $4,000,000, a public float of $5,000,000 (that is, the
market value of the Company's common stock held by non-affiliates of the
Company), and a minimum bid price of the common stock of $1.00. As of December
31, 2000, the Company had tangible net assets of approximately $4,055,000. The
Company has had difficulty maintaining the Nasdaq tangible net asset requirement
from time to time for two reasons. First, the Company is a services business and
as such does not maintain large amounts of fixed assets. Also, significant
portions of the assets of the services businesses that the Company has acquired
have been allocated to goodwill, an intangible asset that does not count toward
the tangible net asset calculation. The second reason is that the Company has
been in transition to a solutions-oriented consulting model and continues to
sustain net losses, which reduce the Company's net tangible asset base. There
can be no assurance the Company will be in compliance with the tangible net
assets requirement as of March 31, 2001 or thereafter. The Company currently
believes it is in compliance with the public float requirement. However, Nasdaq
is currently reviewing the Company's inclusion of common shares beneficially
owned by certain entities holding greater than ten percent of the Company's
outstanding common stock in its calculation of public float. Nasdaq may disagree
with the Company's calculation and find the Company in violation of the public
float requirement. The Company believes that it is currently in compliance with
all other National Market criteria. There can be no assurance the Company will
be able to meet the National Market listing criteria on an ongoing basis. Losing
the designation as a National Market security would likely reduce the liquidity
of the common stock and could limit the Company's ability to raise equity
capital. If the Company is unable to continue meeting the requirements for
listing on the Nasdaq Stock Market's National Market, the Company will likely
seek to have the common stock listed on the Nasdaq Stock Market's SmallCap
Market (the "SmallCap Market"), although Nasdaq could, in its discretion,
decline to designate the common stock as a SmallCap Market security. Criteria
for continued listing as a SmallCap Market security include issuer tangible net
assets of at least $2,000,000, a public float requirement of $1,000,000 and a
minimum bid price of the common stock of $1.00.

      On October 1, 1998, the Company and S&T Bank, a Pennsylvania banking
association, entered into a Loan and Security Agreement (the "S&T Loan
Agreement"), under which S&T Bank agreed to extend the Company a revolving
credit loan. The S&T Loan Agreement has subsequently been renewed in 1999 and
2000. The expiration date of the S&T Loan Agreement is September 30, 2001. The
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
December 31, 2000, maximum borrowing availability under the S&T Loan Agreement
was approximately $2,906,000. The outstanding balance as of December 31, 2000
was $2,155,000. As of March 16, 2001, maximum borrowing availability under the
S&T Loan Agreement was approximately $2,847,000. The outstanding balance as of
March 19, 2001 was $1,430,000.

      Borrowings may be made under the S&T Loan Agreement for general working
capital purposes. Loans made under the S&T Loan Agreement bear interest at the
bank's prime interest rate plus one percent. During 2000, the applicable
interest rate ranged from 9.50% to 10.50%, which was in effect at December 31,
2000. The interest rate increases or decreases from time to time as S&T Bank's
prime rate changes. Interest payments on any outstanding loan balances are due
monthly on the first day of the month. The Company recorded approximately
$102,000 in interest expense related to this revolving credit loan for the year
ended December 31, 2000. The principal will be due at maturity, although any
outstanding principal balances may be repaid in whole or part at any time
without penalty.

      The S&T Loan Agreement includes provisions granting S&T Bank a security
interest in certain assets of the Company including its accounts receivable,
equipment, lease rights for real property, and inventory of the Company and its
subsidiaries. The Company and its subsidiaries, except for Allin
Consulting-California and Allin 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


                                      -50-
<PAGE>

Company's Current Report on Form 8-K filed on October 9, 1998 and the Second
Amendment to Note and Loan and Security Agreement filed as Exhibit 4.1 to the
Company's Report on Form 10-Q for the quarterly period ended September 30, 1999.
The annual renewal of the S&T Loan Agreement for the year ended September 30,
2001 extended the covenant concerning dividends to the Company's Series G
Convertible Redeemable Preferred Stock, if issued upon approval by the holders
of a majority of the Company's common shares. Such approval and issuance of the
Series G preferred stock occurred in December 2000. The covenant concerning
dividends and purchases of stock prohibits the Company from declaring or paying
cash dividends or redeeming, purchasing or otherwise acquiring outstanding
shares of any class of the Company's stock, except for dividends payable in the
ordinary course of business on the Company's Series D, F and G preferred
shares,. The covenants also include a cash flow to interest ratio of not less
than 1.0 to 1.0. Cash flow is defined as operating income before depreciation,
amortization and interest. The cash flow coverage ratio is measured for each of
the Company's fiscal quarters. S&T Bank waived the cash flow covenant
requirement for the final three fiscal quarters of 2000, which covenant the
Company would not have otherwise met. S&T Bank has also extended the waiver for
the fiscal quarter ended March 31, 2001. The Company was in compliance with all
other covenants as of December 31, 2000 and is also currently in compliance with
all other covenants. The S&T Loan Agreement also includes reporting requirements
regarding annual and monthly financial reports, accounts receivable and payable
statements, weekly borrowing base certificates and audit reports.

      On December 29, 2000, following common stockholder approval at a special
meeting of stockholders, the Company issued 150 shares of its Series G
Convertible Redeemable Preferred Stock. Proceeds from the sale of Series G
preferred stock and related warrants to purchase shares of common stock, net of
expenses, of approximately $1,434,000 were utilized by the Company in January
2001 to repay a portion of the principal amount outstanding under the S&T Loan
Agreement. The Series G preferred stock has a liquidation value of $10,000 per
share. Unless redeemed or converted to common stock sooner, Series G preferred
earns cumulative quarterly dividends at the rate of eight percent of the
liquidation value thereof per annum until December 29, 2005. Thereafter, the
dividend rate will increase to 12% of the liquidation value until the earlier of
the date of any redemption or the date of conversion into common stock.
Dividends will be payable quarterly in arrears on the first day of each calendar
quarter. Accrued but unpaid dividends on the Series G preferred stock were
approximately $1,000 as of December 31, 2000 and approximately $26,000 as of
March 16, 2001. There is no mandatory redemption date for the Series G preferred
stock, although the Company may redeem shares of Series G preferred stock after
December 29, 2005. The redemption price for each share of Series G preferred
stock will be the liquidation value of such share, plus an amount that would
result in an aggregate 25% compounded annual return on such liquidation value to
the date of redemption after giving effect to all dividends paid on such share
through the date of redemption. There are no sinking fund provisions applicable
to the Series G preferred stock.

      Series G preferred stock is convertible into common stock at any time
prior to redemption by the Company, if any. The conversion prices will be as
follows:

 .     Until and including December 29, 2001, each share of Series G preferred
      stock may be converted into the number of shares of common stock
      determined by dividing 10,000 by the lesser of $1.16348 (85% of the
      average closing price of the Common Stock as reported by Nasdaq over the
      last five trading days prior to December 29, 2000) or 85% of the average
      closing price of the common stock as reported by Nasdaq over the last five
      trading days prior to the date of the conversion.

 .     After December 29, 2001, each share of Series G Preferred Stock held by
      each holder may be converted into the number of shares of common stock
      determined by dividing 10,000 by the lesser of $1.16348 (85% of the
      average closing price of the common stock as reported by Nasdaq over the
      last five trading days prior to December 29, 2000) or 85% of the average
      closing price of the common stock as reported by Nasdaq over the last five
      trading days prior to December 29, 2001.

In any event, the minimum conversion price used as a denominator in the
foregoing calculations will be $0.35. Holders of the Series G preferred stock
who exercise the conversion right will have the right to receive any accrued and
unpaid dividends through the date of conversion. Any shares of Series G
preferred stock which are not converted to common stock will remain outstanding
until converted or until redeemed.

      In the event that the number of shares of outstanding common stock is
changed by any stock dividend, stock split or combination of shares at any time
shares of Series G preferred stock are outstanding, the number of shares of
common stock that may be acquired upon conversion will be proportionately
adjusted. The conversion prices for the Series G preferred stock will be
adjusted on a weighted average basis in the event of a dilutive


                                      -51-
<PAGE>

issuance involving any sale of equity stock or stock equivalents of the Company
at a price below the greater of the conversion price of the Series G preferred
stock then in effect or 85% of the market value of the common stock, except for
the issuance of common stock as a result of the exercise of options issued at or
above fair market value at date of grant, the conversion of any preferred stock
outstanding as of September 29, 2000 or the Series G preferred stock, the
exercise of warrants outstanding as of September 29, 2000 or the warrants issued
December 29, 2000, the acquisition by the Company of another business or the
assets of another business or a firm commitment underwritten public offering of
the common stock resulting in net proceeds to the Company of not less than
$10,000,000.

      In connection with the Company's December 29, 2000 sale of Series G
Convertible Redeemable Preferred Stock, the purchasers of Series G shares also
received warrants to purchase an aggregate of 857,138 shares of common stock
which have an exercise price of $1.75 per share. The exercise price may be paid
in cash or by delivery of a like value, including accrued but unpaid dividends,
of Series C Redeemable Preferred Stock or Series D Convertible Redeemable
Preferred Stock.

      As of December 31, 2000, the Company had outstanding $2,500,000 in
liquidation preference of Series C Redeemable Preferred Stock. There is no
mandatory redemption date for the Series C preferred stock. There are no sinking
fund provisions applicable to the Series C preferred stock. .Accrued but unpaid
dividends on the Series C preferred stock were approximately $1,037,000 as of
December 31, 2000 and approximately $1,095,000 as of March 16, 2001. Series C
preferred stock earns dividends at the rate of 8% of the liquidation value
thereof per annum, compounded quarterly, until June 30, 2006, when the Company
will be obligated to pay accrued dividends, subject to legally available funds.
Any accrued dividends on the Series C preferred stock not paid by this date will
compound thereafter at a rate of 12% of the liquidation value thereof per annum.
After June 30, 2006, dividends on the Series C preferred stock will accrue and
compound at a rate of 12% per annum and will be payable quarterly, subject to
legally available funds. The Company's current credit agreement with S&T Bank
prohibits payment of dividends on Series C preferred stock during the term of
the agreement.

      As of December 31, 2000, the Company had outstanding 2,750 shares of the
Company's Series D Convertible Redeemable Preferred Stock having a liquidation
preference of $1,000 per share. There is no mandatory redemption date for the
Series D preferred stock. There are no sinking fund provisions applicable to the
Series D preferred stock.. Series D preferred stock is convertible into the
Company's common stock until August 13, 2003. Each share of Series D preferred
stock is convertible into 276 shares of common stock, the number of shares
determined by dividing 1,000 by $3.6125, which is 85% of the $4.25 per share
price on the last trading day prior to the date of closing of the acquisition of
Allin Consulting-Pennsylvania. Series D preferred stock earns dividends at the
rate of 6% of the liquidation value thereof per annum, compounded quarterly if
unpaid. Dividends on Series D preferred stock are payable quarterly in arrears
as of the last day of October, January, April and July, subject to legally
available funds. Accrued but unpaid dividends on Series D preferred stock were
approximately $28,000 as of December 31, 2000 and approximately $20,000 as of
March 16, 2001.

      As of December 31, 2000, the Company had outstanding 1,000 shares of the
Company's Series F Convertible Redeemable Preferred Stock having a liquidation
preference of $1,000 per share. There is no mandatory redemption date for the
Series F preferred stock and no sinking fund provisions applicable to the Series
F preferred stock. Series F preferred stock is convertible to the Company's
common stock until the earlier of May 31, 2004 or the Company's redemption of
the Series F preferred shares. Until and including May 31, 2004, Series F
preferred stock will be convertible into 508,647 shares of the Company's common
stock, the number of shares obtained by dividing 1,000 per preferred share by
$1.966, 85% of the closing price of the common stock as reported by Nasdaq on
the last trading date prior to the first anniversary of the date of issuance of
the Series F preferred stock. Series F preferred stock earns dividends at the
rate of 7% of the liquidation value thereof per annum. Dividends are payable
quarterly on the 15th of the first month of each calendar quarter subject to
legally available funds. Dividends accrued for seven months during 1999 of
approximately $41,000 are not required to be paid prior to redemption, if any.
Unpaid dividends compound quarterly. Accrued but unpaid dividends on Series F
preferred stock were approximately $59,000 as of December 31, 2000 and
approximately $55,000 as of March 16, 2000.

      The order of liquidation preference of the Company's outstanding preferred
stock, from senior to junior, is Series F, Series G, Series D and Series C. The
S&T Loan Agreement prohibits the Company from declaring or paying dividends on
any shares of its capital stock, except for current dividends payable in the
ordinary course of business on the Company's Series D, F and G preferred stock.
Each of the Certificates of Designation governing the Series C, D, F and G
preferred stock prohibits the Company from declaring or paying dividends or any
other distribution on the common stock or any other class of stock ranking
junior as to dividends and upon liquidation


                                      -52-
<PAGE>

unless all dividends on the senior series of preferred stock for the dividend
payment date immediately prior to or concurrent with the dividend or
distribution as to the junior securities are paid or are declared and funds are
set aside for payment. In the event that the number of shares of outstanding
common stock is changed by any stock dividend, stock split or combination of
shares at any time shares of Series D, F or G preferred stock are outstanding,
the number of shares of common stock that may be acquired upon conversion will
be proportionately adjusted.

      In connection with the Company's original sale of Series B Redeemable
Preferred Stock in August 1998, which was subsequently exchanged for Series D
preferred stock, the purchasers of Series B shares also received warrants to
purchase an aggregate of 647,059 shares of common stock which have an exercise
price of $4.25 per share, the price of the common stock as of the last trading
day prior to the closing for the acquisition of Allin Consulting-Pennsylvania.
The exercise price may be paid in cash or by delivery of a like value, including
accrued but unpaid dividends, of Series C Redeemable Preferred Stock.

      The Company has an outstanding amended note payable to Les D. Kent related
to the November 1996 acquisition of Allin Consulting-California. After the May
1999 conversion of a portion of the note principal to the Company's Series F
preferred stock, the outstanding principal balance of the note is $1,000,000.
The principal balance of the note is due April 15, 2005. The note provides for
interest at the rate of 7% per annum from the acquisition date of November 6,
1996. In accordance with the terms of the note, accrued interest as of May 31,
1999 of approximately $390,000 was paid on April 1, 2000. Quarterly interest
payments began April 14, 2000. Accrued but unpaid interest was approximately
$76,000 as of December 31, 2000 and approximately $73,000 as of March 16, 2001.

      On August 13, 2000, all of the then outstanding 1,926 shares of the
Company's Series E Convertible Redeemable Preferred Stock, having a liquidation
preference of $1,000 per share, and approximately $14,000 of accrued but unpaid
dividends thereon, automatically converted into 942,141 shares of the Company's
common stock. The number of shares of common stock issued was based upon the
conversion terms of the Certificate of Designation governing the Series E
preferred stock. The rate of conversion was approximately $2.06 per share of
common stock.

      The agreement for the 1998 purchase of MEGAbase provided for contingent
payments to be determined on the basis of Allin Consulting-California's 1999
Development Practice Gross Margin (as defined in the stock purchase agreement
for the acquisition). The Company and the former MEGAbase sole shareholder,
however, were unable to agree upon the calculation of Allin
Consulting-California's Development Practice Gross Margin for 1999 and the
Company initiated litigation to resolve the matter. In January 2001, the Company
and the former MEGAbase sole shareholder reached a settlement concerning
contingent payments. On January 26, 2001 the Company made a cash payment of
$60,000 and issued 14,225 shares of its common stock to the former MEGAbase sole
shareholder. The Nasdaq market price of the Company's common stock on the date
of issuance was $1.406 per share. The additional purchase consideration of
$80,000 is being recorded in January 2001 as additional cost of the acquired
enterprise, which will result in additional goodwill being recorded on Allin
Consulting-California. The additional goodwill will be amortized over the
estimated remaining life of goodwill associated with the MEGAbase acquisition,
approximately 4.8 years.

      The Company incurred approximately $43,000 in research and development
expense for the year ended December 31, 2000. The Interactive Media Solution
Area's research and development activity included ongoing development of
functional and graphical improvements to the Portraits Online(TM) Internet-based
E-Commerce platform and development activities associated with On Command's
equipment platform, which is utilized by the Company for interactive media
systems integration projects. A forecast for the year 2001 indicates expected
research and development expenditures related to these Interactive Media
research and development projects to be approximately $50,000. Management
intends to evaluate any development projects on an ongoing basis and may reduce
or eliminate projects if alternate technologies or products become available or
if changing business conditions so warrant.

      Capital expenditures during the year ended December 31, 2000 were
approximately $444,000 and included furniture and leasehold improvements related
to the opening of the Company's Walnut Creek, California office, the purchase of
enterprise resource planning software and computer hardware, software and
communications equipment for the Company's periodic upgrading of technology. A
forecast for the year 2001 indicates expected capital expenditures of
approximately $200,000, primarily for computer hardware, software and
communications equipment for the Company's periodic upgrading of technology.
Business conditions and management's plans may


                                      -53-
<PAGE>

change during 2001, so there can be no assurance that the Company's actual
amount of capital expenditures will not exceed the planned amount.

      The Company believes that available funds and cash flows expected to be
generated by current operations will be sufficient to meet its anticipated cash
needs for working capital and capital expenditures for its existing operations
for at least the next twelve months. As discussed above, the S&T Loan Agreement
expires September 30, 2001. The Company believes it will be able to refinance
its existing credit facility or obtain another credit facility on similar terms
upon the expiration of the current credit facility. If currently available funds
and cash generated by operations were insufficient to satisfy the Company's
ongoing cash requirements, or if the Company identified an attractive
acquisition candidate, the Company would be required to consider other financing
alternatives, such as selling additional equity or debt securities, obtaining
long or short-term credit facilities, or selling other operating assets,
although no assurance can be given that the Company could obtain such financing
on terms favorable to the Company or at all. Any sale of additional common or
convertible equity or convertible debt securities would result in additional
dilution to the Company's shareholders.

Effect of Recently Issued Accounting Standards

      In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS No. 133"). The Statement establishes
accounting and reporting standards requiring reporting of all derivative
instruments, including certain derivative instruments embedded in other
contracts, in the balance sheet as either an asset or liability measured at its
fair value. SFAS No. 133 requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. The FASB has approved Statement No. 137, Accounting for Derivative
Instruments and Hedging Activities--Deferral of the effective date of FASB
Statement No. 133, which amends SFAS No. 133 to be effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000 (that is January 1,
2001 for companies with calendar years). The Company adopted this standard
on January 1, 2001. The Company does not have any derivative instruments or
hedging activities, therefore SFAS No. 133 has no current impact on the
Company's financial condition or results of operations.

      In December 1999, the Securities and Exchange Commission ("SEC") released
Staff Accounting Bulletin No. 101, Revenue Recognition ("SAB No. 101"), to
provide guidance on the recognition, presentation and disclosure of revenue in
financial statements. SAB No. 101 explains the SEC's general framework for
revenue recognition. SAB No. 101 does not change existing literature on revenue
recognition, but rather clarifies the SEC's position on preexisting literature.
SAB No. 101 was adopted by the Company for the year ended December 31, 2000.
Adoption did not have a significant impact on financial position or results of
operations.

      In September 2000, Emerging Issues Task Force ("EITF") Issue 00-10
Accounting for Shipping and Handling Fees and Costs ("EITF No. 00-10"), was
released to address the income statement classification for shipping and
handling fees and costs by companies that record revenue based on the gross
amount billed to customers. EITF No. 00-10 provides consensus that amounts
billed to a customer in a sale transaction related to shipping and handling
represent revenue earned for the goods provided and should be classified as
revenue. EITF No. 00-10 provides that the classification of shipping and
handling costs is an accounting policy decision that should be disclosed in
accordance with Accounting Principles Board Opinion No. 22 Disclosure of
Accounting Policies. EITF No. 00-10 was adopted by the Company for the year
ended December 31, 2000. The Company's historical treatment of revenue and cost
of sales for shipping and handling fees is consistent with EITF No. 00-10.



                                      -54-
<PAGE>

Item 7A - Quantitative and Qualitative Disclosure about Market Risk

      Market Risk. During the normal course of business, the Company is exposed
to several types of market risk which include, but are not limited to, interest
rate risk, foreign currency exchange rate risk, collectability of accounts
receivable, and liquidity risk. The Company manages these risks by assessing
their possible impacts on a regular basis. The Company does not anticipate any
material losses in any of these market risk areas. The Company currently does
not invest excess funds in derivative financial instruments or other market rate
sensitive instruments for any purpose. The Company does not purchase goods
subject to commodity price risk.

      Foreign Currency Exchange Rate Risk. 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.
Contracts covering any of the Company's foreign or at sea operations are
denominated in United States dollars. The Company believes that costs associated
with any projects or services conducted outside the United States are also
predominantly in United States dollars. Therefore, the Company does not believe
it is subject to material foreign exchange currency risk.

      Interest Rate Risk. In the ordinary course of business, the Company is
exposed to risks that increases in interest rates may adversely affect funding
costs associated with $2,155,000 of variable rate debt maturing September 30,
2001. The following table presents approximate principal cash flows and related
weighted average interest rates by expected maturity date for the Company's
variable and fixed rate debt.

<TABLE>
<CAPTION>
                                             Interest Rate Sensitivity
                                              Expected Maturity Date
                                                           2005 and                    Fair
                           2001      2002   2003   2004   Thereafter      Total       Value
<S>                     <C>            <C>    <C>    <C>  <C>          <C>          <C>
Current Debt:
Variable Rate Debt      $2,155,000     --     --     --           --   $2,155,000   $1,985,000
Average Interest Rate           --     --     --     --           --       10.50%

Long Term Debt:
Fixed Rate Debt                 --     --     --     --   $1,000,000   $1,000,000     $748,000
Average Interest Rate           --     --     --     --        7.00%        7.00%
</TABLE>

      Current debt relates to the outstanding balance, as of December 31, 2000,
due to S&T Bank under a revolving credit loan. The maturity of the revolving
credit loan is September 30, 2001 and the table above assumes repayment of the
outstanding balance prior to or at maturity. The revolving credit loan bears
interest at S&T Bank's prime interest rate plus 1%. The Company believes S&T
Bank's prime interest rate will likely follow variations in short-term interest
rates set by the United States Federal Reserve Bank. During 2000, the applicable
interest rate has varied from a low of 9.50% to a high of 10.50%, which was the
applicable rate as of December 31, 2000. Increases in the applicable interest
rate for the revolving credit loan during 2000 resulted in the Company incurring
approximately $10,000 of additional interest expense than would have resulted if
the interest rate had remained unchanged from the rate in effect on January 1,
2000. The average interest rate included in the above table assumes the rate in
effect at December 31, 2000 remains unchanged through maturity. Assuming the
principal balance outstanding at December 31, 2000 remains outstanding until
maturity, a 10% increase or decrease in the applicable interest rate would
result in an increase or decrease of approximately $17,000 in interest expense
over the remaining term of the revolving credit facility. Fair value represents
the present value of debt principal repayment at maturity discounted at the
applicable interest rates. Management does not believe interest rate risks for
its variable rate debt are material under its current interest rate assumptions
and scheduled maturity of the revolving credit facility.

      Fixed rate debt includes a note payable related to the acquisition of
Allin Consulting-California with an outstanding principal balance of $1,000,000
as of December 31, 2000. The note payable to the former shareholder of Allin
Consulting-California bears interest at a fixed rate of 7%. Note principal is
due April 15, 2005. See Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations under Liquidity and Capital
Resources for additional information regarding the Company's outstanding debt
instruments.

      Accounts Receivable/Accounts Payable. Accounts receivable and accounts
payable carrying amounts approximate the fair values of the accounts receivable
and accounts payable balances, respectively, at December 31, 2000.


                                      -55-
<PAGE>

Item 8 - Financial Statements and Supplementary Data

ALLIN CORPORATION & SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

            (Dollars in thousands)

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

ASSETS

Current assets:
  Cash and cash equivalents                              $  1,888     $  2,330
  Accounts receivable, net of allowance for
    doubtful accounts of $274 and $116                      4,134        4,730
  Unbilled receivable                                          --           42
  Note receivable                                              --           14
  Inventory                                                   741          991
  Prepaid expenses                                            429          274
  Assets held for sale                                         19           90
  Costs and estimated gross margins
    in excess of billings                                      --          722
                                                         --------     --------
    Total current assets                                    7,211        9,193

  Property and equipment, at cost:
  Leasehold improvements                                      473          465
  Furniture and equipment                                   2,684        3,089
  On-board equipment                                          951          951
                                                         --------     --------
                                                            4,108        4,505
  Less--accumulated depreciation                           (2,607)      (3,394)
                                                         --------     --------
                                                            1,501        1,111

  Notes receivable from employees                              17            3
  Software development costs, net of accumulated
    amortization of $887 and $907                              26            6
  Goodwill, net of accumulated amortization of
    $1,775 and $2,829                                      12,986       11,932
  Intangible and other assets, net of accumulated
    amortization of $416 and $664                           2,285        2,037
                                                         --------     --------

Total assets                                             $ 24,026     $ 24,282
                                                         ========     ========

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


                                      -56-
<PAGE>

ALLIN CORPORATION & SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

            (Dollars in thousands, except per share data)

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

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Current portion of notes payable                       $      2     $      2
  Bank lines of credit                                        650        2,155
  Accounts payable                                            665        2,783
  Accrued liabilities:
    Compensation and payroll taxes                            615          426
    Dividends on preferred stock                              865        1,124
    Other                                                     756          757
  Billings in excess of costs and
    estimated gross margins                                   415           --
  Deferred revenue                                            996           47
  Income taxes payable                                         --            1
                                                         --------     --------
    Total current liabilities                               4,964        7,295

Non-current portion of notes payable                        1,002        1,000
Deferred income taxes                                          81           --
Commitments and contingencies

Shareholder's equity:
  Preferred stock, par value $.01 per
    share, authorized 100,000 shares:
    Series C redeemable preferred stock,
      designated, issued and outstanding
      25,000 shares                                         2,500        2,500
    Series D convertible redeemable
      preferred stock, designated, issued
      and outstanding 2,750 shares                          2,152        2,152
    Series E convertible redeemable
      preferred stock, designated 2,000 shares,
      issued and outstanding 1,926 and -0- shares           1,926           --
    Series F convertible redeemable preferred
      stock, designated, issued and outstanding
      1,000 shares                                          1,000        1,000
    Series G convertible redeemable preferred
      stock, designated, issued and outstanding
      -0- and 150 shares                                       --        1,015
  Common stock, par value $.01 per share -
    authorized 20,000,000 shares, issued
    5,995,830 and 6,953,114 shares                             60           70
  Additional paid-in-capital                               40,198       41,642
  Warrants                                                    598        1,017
  Treasury stock at cost, 8,167 common shares                 (27)         (27)
  Retained deficit                                        (30,428)     (33,382)
                                                         --------     --------
Total shareholders' equity                                 17,979       15,987
                                                         --------     --------

Total liabilities and shareholders' equity               $ 24,026     $ 24,282
                                                         ========     ========

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


                                      -57-
<PAGE>

ALLIN CORPORATION & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

            (Dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                                              Year           Year           Year
                                                             Ended          Ended          Ended
                                                          December 31,   December 31,   December 31,
                                                              1998           1999           2000
                                                          -----------    -----------    -----------
<S>                                                       <C>            <C>            <C>
Revenue:
         Solution area consulting services                $     6,000    $     6,009    $     7,266
         Solution area integration services                     1,174          4,588          7,758
         Legacy technology consulting services                  4,507         11,537          6,692
         Ancillary services                                     3,053          1,783            855
         Ancillary product sales                                  557          1,060          1,518
                                                          -----------    -----------    -----------

           Total revenue                                       15,291         24,977         24,089

Cost of sales                                                   8,781         15,558         15,073
                                                          -----------    -----------    -----------

Gross profit                                                    6,510          9,419          9,016

Selling, general & administrative                              13,937         11,841         11,837
                                                          -----------    -----------    -----------

Loss from operations                                           (7,427)        (2,422)        (2,821)

Interest (income) expense, net                                     (7)           173            212
                                                          -----------    -----------    -----------

Loss before provision for income taxes                         (7,420)        (2,595)        (3,033)

Provision for (benefit from) income taxes                          --             10            (79)
                                                          -----------    -----------    -----------

Loss before equity loss                                        (7,420)        (2,605)        (2,954)

Equity in loss of non-consolidated corporation                     28             72             --
                                                          -----------    -----------    -----------

Loss from continuing operations                                (7,448)        (2,677)        (2,954)

Income of disposed segment,
         net of income tax                                        220             --             --
Gain on disposal of segment                                     1,437              1             --
                                                          -----------    -----------    -----------

Gain from discontinued operations                               1,657              1             --
                                                          -----------    -----------    -----------

Net loss                                                       (5,791)        (2,676)        (2,954)

Accretion and dividends on preferred stock                        779            699            637
                                                          -----------    -----------    -----------

Net loss attributable to common shareholders              $    (6,570)   $    (3,375)   $    (3,591)
                                                          ===========    ===========    ===========

Loss per common share from continuing
         operations - basic and diluted                   $     (1.50)   $     (0.56)   $     (0.56)
                                                          -----------    -----------    -----------

Income per common share from
         discontinued operations - basic and diluted      $      0.30    $      0.00    $      0.00
                                                          -----------    -----------    -----------

Net loss per common share - basic and diluted             $     (1.20)   $     (0.56)   $     (0.56)
                                                          -----------    -----------    -----------

Weighted average number of shares outstanding
         - basic and diluted                                5,466,979      5,972,001      6,371,827
                                                          -----------    -----------    -----------
</TABLE>

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


                                      -58-
<PAGE>

ALLIN CORPORATION & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

            (Dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                                          Series C                 Series D                  Series E
                                                         Redeemable        Convertible  Redeemable   Convertible   Redeemable
                                                      Preferred  Stock      Preferred      Stock      Preferred       Stock
                                                      -----------------    -----------------------   ------------------------
                                                      Shares    Balance      Shares       Balance      Shares        Balance
                                                      -------   -------    ---------      --------   ---------       --------
<S>                                                    <C>      <C>        <C>            <C>        <C>             <C>
Balance, December 31, 1997                                 --   $    --           --      $    --           --       $    --

  Issuance of common stock in acquisition                  --        --           --           --           --            --
  Issuance of warrants                                     --        --           --           --           --            --
  Amortization of deferred compensation                    --        --           --           --           --            --
  Beneficial conversion feature of Series B
         redeemable preferred stock                        --        --           --           --           --            --
  Accretion of Series B redeemable
         preferred stock                                   --        --           --           --           --            --
  Accrual of dividends on Series A convertible,
         redeemable preferred stock and
         Series B redeemable preferred stock               --        --           --           --           --            --
  Option issuance to non-employees                         --        --           --           --           --            --
  Net loss                                                 --        --           --           --           --            --
                                                      -------   -------      -------      -------      -------       -------

Balance, December 31, 1998                                 --   $    --           --      $    --           --       $    --

  Forfeiture of restricted common stock                    --        --           --           --           --            --
  Amortization of deferred compensation                    --        --           --           --           --            --
  Issuance of Series C redeemable preferred
    stock in exchange for Series A
    convertible, redeemable preferred stock            25,000     2,500           --           --           --            --
  Issuance of Series D convertible redeemable
    preferred stock in exchange for Series B
    redeemable preferred stock                             --        --        2,750        2,152           --            --
  Issuance of Series E convertible redeemable
    preferred stock in exchange for
    promissory note                                        --        --           --           --        1,926         1,926
  Issuance of Series F convertible redeemable
    preferred stock in exchange for
    promissory note                                        --        --           --           --           --            --
  Beneficial conversion feature of Series F
    convertible redeemable preferred stock                 --        --           --           --           --            --
  Accretion of Series F convertible redeemable
    preferred stock                                        --        --           --           --           --            --
  Accrual of dividends on preferred stock                  --        --           --           --           --            --
  Option issuance to non-employees                         --        --           --           --           --            --
  Net loss                                                 --        --           --           --           --            --
                                                      -------   -------      -------      -------      -------       -------

Balance, December 31, 1999                             25,000   $ 2,500        2,750      $ 2,152        1,926       $ 1,926

  Issuance of common stock in acquisition of assets        --        --           --           --           --            --
  Conversion of Series E convertible, redeemable
    preferred stock and accrued dividends
    to common stock                                        --        --           --           --       (1,926)       (1,926)
  Issuance of Series G convertible redeemable
    preferred stock                                        --        --           --           --           --            --
  Beneficial conversion feature of Series G
    convertible redeemable preferred stock                 --        --           --           --           --            --
  Accretion of Series G convertible redeemable
    preferred stock                                        --        --           --           --           --            --
  Issuance of warrants                                     --        --           --           --           --            --
  Accrual of dividends on preferred stock                  --        --           --           --           --            --
  Net loss                                                 --        --           --           --           --            --
                                                      -------   -------      -------      -------      -------       -------

Balance, December 31, 2000                             25,000   $ 2,500        2,750      $ 2,152           --       $    --
                                                      =======   =======      =======      =======      =======       =======


<CAPTION>
                                                            Series F                  Series G
                                                    Convertible  Redeemable   Convertible  Redeemable
                                                     Preferred      Stock      Preferred      Stock           Common  Stock
                                                    -----------------------   -----------------------   -----------------------
                                                      Shares       Balance      Shares       Balance      Shares       Par Value
                                                      -------      -------      -------      -------    ---------       -------
<S>                                                   <C>          <C>          <C>          <C>        <C>            <C>
Balance, December 31, 1997                                 --      $    --           --      $    --    5,182,267       $    52

  Issuance of common stock in acquisition                  --           --           --           --      811,763             8
  Issuance of warrants                                     --           --           --           --           --            --
  Amortization of deferred compensation                    --           --           --           --           --            --
  Beneficial conversion feature of Series B
    redeemable preferred stock                             --           --           --           --           --            --
  Accretion of Series B redeemable
    preferred stock                                        --           --           --           --           --            --
  Accrual of dividends on Series A convertible,
    redeemable preferred stock and
    Series B redeemable preferred stock                    --           --           --           --           --            --
  Option issuance to non-employees                         --           --           --           --           --            --
  Net loss                                                 --           --           --           --           --            --
                                                      -------      -------      -------      -------    ---------       -------

Balance, December 31, 1998                                 --      $    --           --      $    --    5,994,030       $    60

  Forfeiture of restricted common stock                    --           --           --           --       (6,367)           --
  Amortization of deferred compensation                    --           --           --           --           --            --
  Issuance of Series C redeemable preferred
    stock in exchange for Series A
    convertible, redeemable preferred stock                --           --           --           --           --            --
  Issuance of Series D convertible redeemable
    preferred stock in exchange for Series B
    redeemable preferred stock                             --           --           --           --           --            --
  Issuance of Series E convertible redeemable
    preferred stock in exchange for
    promissory note                                        --           --           --           --           --            --
  Issuance of Series F convertible redeemable
    preferred stock in exchange for
    promissory note                                     1,000        1,000           --           --           --            --
  Beneficial conversion feature of Series F
    convertible redeemable preferred stock                 --           --           --           --           --            --
  Accretion of Series F convertible redeemable
    preferred stock                                        --           --           --           --           --            --
  Accrual of dividends on preferred stock                  --           --           --           --           --            --
  Option issuance to non-employees                         --           --           --           --           --
  Net loss                                                 --           --           --           --           --            --
                                                      -------      -------      -------      -------    ---------       -------

Balance, December 31, 1999                              1,000      $ 1,000           --      $    --    5,987,663       $    60

  Issuance of common stock in acquisition of assets        --           --           --           --       23,310            --
  Conversion of Series E convertible, redeemable
         preferred stock and accrued dividends
         to common stock                                   --           --           --           --      942,141            10
  Issuance of Series G convertible redeemable
         preferred stock                                   --           --          150        1,015           --            --
  Beneficial conversion feature of Series G
         convertible redeemable preferred stock            --           --           --           --           --            --
  Accretion of Series G convertible redeemable
         preferred stock                                   --           --           --           --           --            --
  Issuance of warrants                                     --           --           --           --           --            --
  Accrual of dividends on preferred stock                  --           --           --           --           --            --
  Net loss                                                 --           --           --           --           --            --
                                                      -------      -------      -------      -------    ---------       -------

Balance, December 31, 2000                              1,000      $ 1,000          150      $ 1,015    6,953,114       $    70
                                                      =======      =======      =======      =======    =========       =======
</TABLE>
                                    -59-
<PAGE>

<TABLE>
<CAPTION>
                                                    Additional                             Treasury    Stock
                                                     Paid-In                   Deferred    -------------------
                                                     Capital     Warrants    Compensation   Shares      Cost
                                                    ---------    --------    -----------   --------   --------
<S>                                                 <C>          <C>         <C>           <C>        <C>
Balance, December 31, 1997                           $ 37,652    $     --      $   (228)      1,800   $     (6)

  Issuance of common stock in acquisition               3,424          --            --          --         --
  Issuance of warrants                                     --         598            --          --         --
  Amortization of deferred compensation                    --          --           124          --         --
  Beneficial conversion feature of Series B
    redeemable preferred stock                            485          --            --          --         --
  Accretion of Series B redeemable
    preferred stock                                      (485)         --            --          --         --
  Accrual of dividends on Series A convertible,
    redeemable preferred stock and
    Series B redeemable preferred stock                  (294)         --            --          --         --
  Option issuance to non-employees                         11          --            --          --         --
  Net loss                                                 --          --            --          --         --
                                                     --------    --------      --------    --------   --------

Balance, December 31, 1998                           $ 40,793    $    598      $   (104)      1,800   $     (6)

  Forfeiture of restricted common stock                   (75)         --            96       6,367        (21)
  Amortization of deferred compensation                    --          --             8          --         --
  Issuance of Series C redeemable preferred
    stock in exchange for Series A
    convertible, redeemable preferred stock                --          --            --          --         --
  Issuance of Series D convertible redeemable
    preferred stock in exchange for Series B
    redeemable preferred stock                             --          --            --          --         --
  Issuance of Series E convertible redeemable
    preferred stock in exchange for
    promissory note                                        --          --            --          --         --
  Issuance of Series F convertible redeemable
    preferred stock in exchange for
    promissory note                                        --          --            --          --         --
  Beneficial conversion feature of Series F
    convertible redeemable preferred stock                176          --            --          --         --
  Accretion of Series F convertible redeemable
    preferred stock                                      (176)         --            --          --         --
  Accrual of dividends on preferred stock                (523)         --            --          --         --
  Option issuance to non-employees                          3          --            --          --         --
  Net loss                                                 --          --            --          --         --
                                                     --------    --------      --------    --------   --------

Balance, December 31, 1999                           $ 40,198    $    598      $     --       8,167   $    (27)

  Issuance of common stock in acquisition of assets        93          --            --          --         --
  Conversion of Series E convertible, redeemable
    preferred stock and accrued dividends
    to common stock                                     1,930          --            --          --         --
  Issuance of Series G convertible redeemable
    preferred stock                                        --          --            --          --         --
  Beneficial conversion feature of Series G
    convertible redeemable preferred stock                 58          --            --          --         --
  Accretion of Series G convertible redeemable
    preferred stock                                       (58)         --            --          --         --
  Issuance of warrants                                     --         419            --          --         --
  Accrual of dividends on preferred stock                (579)         --            --          --         --
  Net loss                                                 --          --            --          --         --
                                                     --------    --------      --------    --------   --------

Balance, December 31, 2000                           $ 41,642    $  1,017      $     --       8,167   $    (27)
                                                     ========    ========      ========    ========   ========

<CAPTION>
                                                                 Total
                                                    Retained  Shareholders'
                                                    Deficit      Equity
                                                    --------  -------------
<S>                                                 <C>         <C>
Balance, December 31, 1997                          $(21,961)   $ 15,509

  Issuance of common stock in acquisition                 --       3,432
  Issuance of warrants                                    --         598
  Amortization of deferred compensation                   --         124
  Beneficial conversion feature of Series B
    redeemable preferred stock                            --         485
  Accretion of Series B redeemable
    preferred stock                                       --        (485)
  Accrual of dividends on Series A convertible,
    redeemable preferred stock and
    Series B redeemable preferred stock                   --        (294)
  Option issuance to non-employees                        --          11
  Net loss                                            (5,791)     (5,791)
                                                    --------    --------

Balance, December 31, 1998                          $(27,752)   $ 13,589

  Forfeiture of restricted common stock                   --          --
  Amortization of deferred compensation                   --           8
  Issuance of Series C redeemable preferred
    stock in exchange for Series A
    convertible, redeemable preferred stock               --       2,500
  Issuance of Series D convertible redeemable
    preferred stock in exchange for Series B
    redeemable preferred stock                            --       2,152
  Issuance of Series E convertible redeemable
    preferred stock in exchange for
    promissory note                                       --       1,926
  Issuance of Series F convertible redeemable
    preferred stock in exchange for
    promissory note                                       --       1,000
  Beneficial conversion feature of Series F
    convertible redeemable preferred stock                --         176
  Accretion of Series F convertible redeemable
    preferred stock                                       --        (176)
  Accrual of dividends on preferred stock                 --        (523)
  Option issuance to non-employees                        --           3
  Net loss                                            (2,676)     (2,676)
                                                    --------    --------

Balance, December 31, 1999                          $(30,428)   $ 17,979

  Issuance of common stock in acquisition of assets       --          93
  Conversion of Series E convertible, redeemable
    preferred stock and accrued dividends
    to common stock                                       --          14
  Issuance of Series G convertible redeemable
    preferred stock                                       --       1,015
  Beneficial conversion feature of Series G
    convertible redeemable preferred stock                --          58
  Accretion of Series G convertible redeemable
    preferred stock                                       --         (58)
  Issuance of warrants                                    --         419
  Accrual of dividends on preferred stock                 --        (579)
  Net loss                                            (2,954)     (2,954)
                                                    --------    --------

Balance, December 31, 2000                          $(33,382)   $ 15,987
                                                    ========    ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
                                    -60-
<PAGE>

ALLIN CORPORATION & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

            (Dollars in thousands)

<TABLE>
<CAPTION>
                                                             Year         Year         Year
                                                            Ended        Ended        Ended
                                                         December 31, December 31, December 31,
                                                             1998         1999         2000
                                                           -------      -------      -------
<S>                                                        <C>          <C>          <C>
Cash flows from operating activities:
  Net loss                                                 $(5,791)     $(2,676)     $(2,954)
  Adjustments to reconcile net loss to net
   cash flows from operating activities:
     Depreciation and amortization                           3,414        2,510        2,138
     Amortization of deferred compensation                     124            8           --
     Cost of fixed assets sold                                  --          391          248
     (Gain) loss from disposal of assets                       400           87          (85)
     Loss from impairment of assets                          2,765           --           --
     Equity in loss of non-consolidated corporation             28           72           --
     Gain on disposal of segment                            (1,462)          --           --
  Changes in certain assets and liabilities:
     Accounts receivable                                       633       (1,366)        (596)
     Unbilled receivable                                        --           --          (42)
     Inventory                                                (301)        (295)        (250)
     Prepaid expenses                                          (35)        (112)         155
     Software development costs                                (20)          --           --
     Assets held for Resale                                    (15)          (4)         (71)
     Other assets                                             (308)          18           --
     Accounts payable                                         (235)          91        2,118
     Accrued liabilities                                      (353)         203         (189)
     Costs in excess of billings                                --          658       (1,374)
     Income taxes payable                                       --         (112)         (80)
     Deferred revenue                                          (14)         920         (949)
                                                           -------      -------      -------
  Net cash flows (used for) provided by
          operating activities                              (1,170)         393       (1,931)
                                                           -------      -------      -------

Cash flows from investing activities:
  Proceeds from sale of assets                                   9           36          186
  Capital expenditures                                        (372)        (374)        (444)
  Change in assets and liabilities of disposed segment         (90)          --           --
  Proceeds from disposal of subsidiary                       2,345          463           --
  Acquisition of subsidiaries                               (2,250)          --           --
                                                           -------      -------      -------
     Net cash flows (used for) provided by
          investing activities                                (358)         125         (258)
                                                           -------      -------      -------

Cash flows from financing activities:
  Issuance of preferred stock and warrants                   2,750           --        1,434
  Payment of dividends on preferred stock                      (37)        (204)        (306)
  Proceeds from (repayment of) line of credit                1,483         (856)       1,505
  Debt acquisition costs                                       (54)          (3)          --
  Retirement of subsidiary debt                               (700)          --           --
  Payments on notes payable                                 (6,206)         (77)          (2)
                                                           -------      -------      -------
     Net cash flows (used for) provided by
            financing activities                            (2,764)      (1,140)       2,631
                                                           -------      -------      -------

Net change in cash and cash equivalents                     (4,292)        (622)         442
Cash and cash equivalents, beginning of period               6,802        2,510        1,888
                                                           -------      -------      -------
Cash and cash equivalents, end of period                   $ 2,510      $ 1,888      $ 2,330
                                                           =======      =======      =======
</TABLE>

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


                                      -61-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Nature of Operations

      Allin Corporation ("the Company"), a Delaware corporation, functions as a
holding company and wholly owns the subsidiaries noted below.

      Allin Corporation of California ("Allin Consulting-California"), a
California corporation, generates revenue from fees for technology consulting
services that develop and deploy Microsoft-based technology solutions.
Operations are oriented around solution areas meeting customer technology
infrastructure and electronic business needs. Allin Consulting-California's
services have been provided at various locations within the United States and
internationally, mostly located near its operational headquarters in northern
California. On November 20, 1998, the Company acquired MEGAbase, Inc.
("MEGAbase"), a California corporation specializing in software development
services, and subsequently merged it into Allin Consulting-California.

      On August 13, 1998, the Company acquired all of the outstanding stock of
Allin Consulting of Pennsylvania, Inc. ("Allin Consulting-Pennsylvania"), a
Pennsylvania corporation. Allin Consulting-Pennsylvania's primary operational
focus is on generation of fee-based revenue from services that develop and
deploy Microsoft-based technology solutions. Microsoft-based services are
oriented around Technology Infrastructure and electronic business solution
areas. Additionally, Allin Consulting-Pennsylvania provides services related to
specialized legacy technologies, including mainframe and banking industry
operations systems. Allin Consulting-Pennsylvania's Microsoft-based and legacy
mainframe services are provided mostly near its operational headquarters in
Pennsylvania. The specialized banking industry services are provided at various
locations nationally.

      Allin Interactive Corporation ("Allin Interactive"), a Delaware
corporation, provides interactive media applications development, systems
integration and consulting services. Allin Interactive has also historically
operated interactive television systems installed on cruise ships and derived
revenue from passengers through pay-per-view and gaming interactive services.
Operation of the last two of these systems is expected to cease no later than
April 2001. Allin Interactive provides systems integration and consulting
services from its Ft. Lauderdale, Florida headquarters and at various domestic
and international locations. Transactional revenue from cruise ship systems was
derived at sea and at various domestic and international ports of call on ships
where Allin Interactive's system had been installed. Allin Interactive also
derives revenue from the sale of products related to interactive television
technology.

      Allin Digital Imaging Corp. ("Allin Digital"), a Delaware corporation,
provides systems integration services for digital imaging systems, technical
support and the sale of ancillary digital imaging products. Allin Digital's
services have been provided at various locations throughout the United States.

      Allin Network Products, Inc. ("Allin Network"), a California corporation,
generates revenue from sales of information system products. Allin Network's
operations have to date been concentrated in northern California and near
Pittsburgh, Pennsylvania.

      Allin Holdings Corporation ("Allin Holdings"), a Delaware corporation,
provides treasury management services to the Company and its subsidiaries.

      All of the outstanding stock of SportsWave, Inc. ("SportsWave"), a
Pennsylvania corporation, was sold by the Company on September 30, 1998. The
results of operations for SportsWave for the year ended December 31, 1998 and
the gain recognized on the disposal 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. See
Note 8.

      The Company is subject to a number of risks, including, among others,
public stock market requirements and trading issues, a limited operating history
under new marketing strategies, uncertainty as to future profitability; a
history of net losses, accumulated deficit, liquidity, expiration of its line of
credit in September 2001, competitive market conditions; management of growth
and geographic expansion; dependence on key personnel; rapidly changing
technology; risks inherent in developing new products and markets; and
fluctuation in operating results.


                                      -62-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

2. Summary of Significant Accounting Policies

      The following is a summary of the significant accounting policies
affecting the Company's consolidated financial statements.

Principles of Consolidation

      The consolidated financial statements include the accounts of the Company
and its wholly-owned 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.

      The Consolidated Balance Sheets as of December 31, 1999 and 2000 include
the financial position of the Company, Allin Consulting-California, Allin
Consulting-Pennsylvania, Allin Interactive, Allin Digital, Allin Network and
Allin Holdings as of those dates.

      The Consolidated Statement of Operations for the period ended December 31,
1998 includes the results of continuing operations of the Company, Allin
Consulting-California, Allin Interactive, Allin Digital, Allin Network and Allin
Holdings for the full year and the results of continuing operations for Allin
Consulting-Pennsylvania subsequent to its acquisition. The Consolidated
Statements of Operations for the periods ended December 31, 1999 and 2000
include the results of continuing operations for all of the above companies.

Disposal of Segment

      On September 30, 1998, the Company sold all of the issued and outstanding
capital stock of SportsWave. The sale of SportsWave represents disposal of a
segment since SportsWave comprised the entirety of the Company's sports
marketing business. Accordingly, the results of SportsWave's operations
presented in the Company's Consolidated Statement of Operations for the period
ended December 31, 1998 have been reclassified to income of disposed segment,
net of tax, which is presented after loss from continuing operations. The gain
recorded on disposal of SportsWave is also presented after loss from continuing
operations. See Note 8-Sale of SportsWave.

Use of Estimates in the Preparation of Financial Statements

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

Cash and Cash Equivalents

      The Company considers all certificates of deposit with a maturity of three
months or less and money market funds to be cash equivalents.

Market Risk Sensitive Instruments

      The Company currently has not invested in derivative financial instruments
or other market rate sensitive instruments.


                                      -63-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Revenue and Cost of Sales Recognition

      Allin Consulting-California and Allin Consulting-Pennsylvania charge
consulting fees for their Technology Infrastructure and E-Business Solution Area
services. Allin Consulting-Pennsylvania also charges consulting fees for its
legacy technology services. The majority of engagements are billed on an hourly
basis, with revenue and related cost of sales recognized as services are
performed. Engagements are also performed on a fixed-price basis, with revenue
and cost of sales recognized based on percentage of completion or proportional
performance. Revenue from Technology Infrastructure and E-Business Solution Area
services is included in "Solution area consulting services" on the accompanying
Consolidated Statements of Operations.

      Allin Interactive's recognition method for revenue and cost of sales for
systems integration services is based on the size and expected duration of the
project and if significant software modification is required. For systems
integration projects in excess of $250,000 of revenue and expected to be of
greater than 90 days duration, the Company recognizes revenue and cost of sales
based on percentage of completion (if significant software modification is
required) or proportional performance. Allin Interactive utilizes the proportion
of labor incurred to expected total project labor as a quantitative factor in
determining the percentage of completion or proportional performance recognized
for projects when the proportion of total project costs incurred to expected
total project costs is not representative of actual project completion status.
For all other systems integration projects, revenue and cost of sales are
recognized upon completion of the project. For consulting engagements performed
on a fixed-price basis, revenue and related cost of sales are recognized on a
percentage of completion basis. Time-based consulting revenue and cost of sales
are recognized as services are performed. Interactive television transactional
revenue and any associated cost of sales are recognized as the services are
performed. Allin Interactive recognizes revenue and associated cost from the
sale of products at the time the products are shipped. On the accompanying
Consolidated Statements of Operations, systems integration revenue is included
in "Solution area integration services", consulting revenue is included in
"Solution area consulting services", interactive television transactional
revenue is included in "Ancillary services" and product sales are included in
"Ancillary product sales."

      Allin Digital recognizes revenue and cost of sales for systems integration
and related consulting services upon completion of the respective projects.
Revenue and associated cost 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. On the accompanying Consolidated
Statements of Operations, systems integration and related consulting and
technology support revenue is included in "Solution area integration services"
and product sales are included in "Ancillary product sales."

      Allin Network recognizes revenue and associated cost from the sale of
products at the time the products are shipped. Revenue from product sales is
included in "Ancillary product sales" on the accompanying Consolidated
Statements of Operations.

      Allin Interactive, Allin Digital and Allin Network recognize amounts
billed to customers for shipping charges as revenue at the time products are
shipped. Associated shipping costs are recorded as cost of sales.

      One significant customer accounted for approximately 11% and 12%,
respectively, of the Company's 2000 and 1998 revenue. Another significant
customer accounted for approximately 10% of the Company's 1999 revenue.

Accounts Receivable and Unbilled Receivables

      The Company's subsidiaries record accounts receivable based upon billing
for services and products. Unbilled receivables are recorded when services have
been provided prior to the end of the period and invoicing has not occurred.
Allowances on accounts receivable are recorded when circumstances indicate
collection is doubtful for particular accounts receivable or as a general
reserve for all accounts receivable. Accounts receivable are written off if
reasonable collection efforts prove unsuccessful.

      As of December 31, 2000, one significant customer comprised 27% of the
Company's accounts receivable. As of December 31, 1999, two significant
customers comprised 20% and 14%, respectively, of the Company's accounts
receivable.


                                      -64-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Inventory

      Inventory, consisting principally of digital photography equipment and
software and computer hardware, software and communications equipment, is stated
at the lower of cost or market. The Company utilizes an average cost method.

Property and Equipment

      Property and equipment are recorded at cost. The Company provides for
depreciation using the straight-line method over the estimated useful lives of
the assets. In the year of acquisition, the Company takes a full year of
depreciation if the asset was purchased in the first six months of the year, and
half a year of depreciation if the asset was purchased in the last six months of
the year. The estimated useful lives of property and equipment range from three
to five years. Expenditures for ordinary maintenance and repairs, which do not
extend the lives of the applicable assets, are charged to expense as incurred,
while renewals and improvements that materially extend the lives of the
applicable assets are capitalized and depreciated. Depreciation expense is
included in Selling, general, and administrative expenses on the Consolidated
Statements of Operations. Depreciation expense for the periods ended December
31, 1998, 1999 and 2000 was approximately $1,495,000, $1,149,000, and $815,000,
respectively.

Assets Held for Sale

      Assets held for sale as of December 31, 2000 consisted of equipment
purchased for digital photography systems that is expected to be sold to
customers during the next fiscal year.

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.

Intangible Assets

      As of December 31, 2000, intangible assets include values assigned in
recording the acquisitions of Allin Consulting-California, Allin
Consulting-Pennsylvania and MEGAbase under Accounting Principals Board Opinion
No. 16, "Accounting for Business Combinations" (APB No. 16). Portions of the
purchase price for Allin Consulting-California were attributed to an employment
agreement, assembled work force, customer list and goodwill, with useful lives
of two, seven, five and seven years, respectively. The employment agreement was
fully amortized as of December 31, 1998. Portions of the purchase price for
Allin Consulting-Pennsylvania have been attributed to assembled work force,
customer list and goodwill, with useful lives of five, fourteen and thirty
years, respectively. A portion of the purchase price for MEGAbase has been
attributed to goodwill, with a useful life of seven years.

      The respective agreements for the acquisitions of Allin
Consulting-California and MEGAbase included provisions for contingent payments
based on the achievement of certain financial results, as defined in the
agreements, in periods subsequent to the acquisitions. In November 1998, a
promissory note was recorded for additional purchase consideration related to
the acquisition of Allin Consulting-California. In January 2001, additional
purchase consideration consisting of cash and shares of the Company's common
stock was recorded related to the acquisition of MEGAbase. Additional purchase
consideration is recorded as goodwill and is being amortized over the remaining
useful lives of goodwill recorded at the time of the acquisitions. See Notes 7
and 20.

      As of December 31, 1997, intangible assets related to the purchase of
Allin Consulting-California also included a value assigned for a trade-name with
a useful life of forty years. The unamortized value of the trade-name was
written off in 1998 due to a change in name of Allin Consulting-California.


                                      -65-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      Certain expenditures related to the organization and start-up of the
Company and certain of its subsidiaries have been capitalized. Organizational
and start-up costs have been completely amortized as of December 31, 1999.

      Material intangible asset balances were recorded based on appraised values
and are being amortized on a straight-line basis over their respective estimated
economic useful lives.

Impairment of Long-Lived Assets

      The Company follows the guidelines set forth in Statement of Financial
Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of" (SFAS No. 121). In the event that
facts and circumstances indicate that the carrying value of an asset may not be
recoverable, fair value, or if not readily available, estimated future
undiscounted cash flows associated with the asset, would be compared to the
asset's carrying value to determine if a write-down to market value or
discounted cash flow is required. See Note 9.

Costs and Estimated Gross Margins in Excess of Billings and Billings in Excess
of Costs and Estimated Gross Margins

      Costs and estimated gross margins in excess of billings and billings in
excess of costs and estimated gross margins relate to Allin Interactive projects
for which revenue and cost of sales are being recognized on a percentage of
completion or proportional performance basis or over the minimum period of
associated maintenance obligations for interactive television systems. Costs and
estimated gross margins in excess of billings consists of costs and estimated
gross margins associated with these projects recognized on a percentage of
completion or proportional performance basis, net of amounts billed but not yet
recognized as revenue. Billings in excess of costs and estimated gross margins
consists of amounts billed for projects recognized on a percentage of completion
or proportional performance basis but not yet recognized as revenue, net of
costs and estimated gross margins associated with these projects and with
interactive system sales recognized over the minimum period of associated
maintenance obligations which have not yet been recognized as cost of sales. See
Note 17.

Deferred Revenue

      Deferred revenue is recorded for amounts billed or received for which
services will be performed in future periods or relate to sales of interactive
television systems for which revenue is being recognized pro rata over the
minimum life of associated system maintenance obligations. Such amounts are
recognized as revenue when services are performed or over the remaining life of
the maintenance obligations. As of December 31, 1999 and 2000, respectively,
deferred revenue represented amounts expected to be recognized as revenue within
one year of the applicable date. See Note 17.

Advertising and Promotions

      Expenditures for advertising and promotions were approximately $118,000,
$194,000, and $211,000, respectively, for the years ended December 31, 1998,
1999, and 2000. Expenditures for advertising and promotions are expensed as
incurred.

Income Taxes

      The Company records current and deferred provisions for federal and state
income tax and deferred tax assets and liabilities, as appropriate, in
accordance with the requirements of Financial Accounting Standards Board
Statement No. 109, "Accounting for Income Taxes" (SFAS No. 109). Valuation
allowances will reduce deferred tax assets recorded if there is material
uncertainty as to the ultimate realization of the deferred tax benefits.


                                      -66-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Financial Instruments

      In May 1999, a portion of a note associated with the acquisition of Allin
Consulting-California was exchanged for a like amount of the Company's Series F
Convertible Redeemable Preferred Stock. See Note 3. The remaining principal
balance of the note payable is recorded at the face value of the instrument. The
Company accrues interest at fixed rates and makes quarterly interest payments.

      All other financial instruments are classified as current and will be
utilized within the next operating cycle.

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". See Note 6.

Recently Issued Accounting Standards

      In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS No. 133"). The Statement establishes
accounting and reporting standards requiring reporting of all derivative
instruments, including certain derivative instruments embedded in other
contracts, in the balance sheet as either an asset or liability measured at its
fair value. SFAS No. 133 requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. The FASB has approved Statement No. 137, Accounting for Derivative
Instruments and Hedging Activities--Deferral of the effective date of FASB
Statement No. 133, which amends SFAS No. 133 to be effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000 (that is January 1,
2001 for companies with calendar years). The Company adopted this standard on
January 1, 2001. The Company does not have any derivative instruments or hedging
activities, therefore SFAS No. 133 has no current impact on the Company's
financial condition or results of operations.

      In December 1999, the Securities and Exchange Commission ("SEC") released
Staff Accounting Bulletin No. 101, Revenue Recognition ("SAB No. 101"), to
provide guidance on the recognition, presentation and disclosure of revenue in
financial statements. SAB No. 101 explains the SEC's general framework for
revenue recognition. SAB No. 101 does not change existing literature on revenue
recognition, but rather clarifies the SEC's position on preexisting literature.
SAB No. 101 was adopted by the Company for the year ended December 31, 2000.
Adoption did not have a significant impact on financial position or results of
operations.

      In September 2000, Emerging Issues Task Force ("EITF") Issue 00-10
Accounting for Shipping and Handling Fees and Costs ("EITF No. 00-10"), was
released to address the income statement classification for shipping and
handling fees and costs by companies that record revenue based on the gross
amount billed to customers. EITF No. 00-10 provides consensus that amounts
billed to a customer in a sale transaction related toshipping and handling
represent revenue earned for the goods provided and should be classified as
revenue. EITF No. 00-10 provides that the classification of shipping and
handling costs is an accounting policy decision that should be disclosed in
accordance with Accounting Principles Board Opinion No. 22 Disclosure of
Accounting Policies. EITF No. 00-10 was adopted by the Company for the year
ended December 31, 2000. The Company's historical treatment of revenue and cost
of sales for shipping and handling fees is consistent with EITF No. 00-10.



                                      -67-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

expected to be in July 2001. The proposed statement is expected to materially
impact the Company's results of operations due to the expected discontinuation
of amortization of goodwill. Amortization expense related to goodwill during the
year ended December 31, 2000 was approximately $1,054,000.

Supplemental Disclosure of Cash Flow Information

      Cash payments for income taxes were approximately $85,000, $255,000, and
$7,000 during the years ended December 31, 1998, 1999, and 2000, respectively.
Cash payments for interest were approximately $81,000, $153,000, and $557,000
during the years ended December 31, 1998, 1999, and 2000, respectively.

      Dividends of approximately $258,000, $347,000 and $314,000 were accrued
but unpaid during the years ended December 31, 1998, 1999 and 2000,
respectively, on outstanding shares of the Company's preferred stock. Cash
payments of dividends were approximately $37,000, $204,000 and $306,000 during
the years ended December 31, 1998, 1999 and 2000, respectively.

      The non-cash investing and financing activities for the year ended
December 31, 1998 are as follows:

Issuance of common stock in connection with acquisitions            $ 3,450,000
Grant of non-employee options                                            11,000

      The non-cash investing and financing activities for the year ended
December 31, 1999 are as follows:

Issuance of Series C redeemable preferred stock                     $ 2,500,000
Issuance of Series D convertible redeemable preferred stock         $ 2,152,000
Issuance of Series E convertible redeemable preferred stock         $ 1,926,000
Issuance of Series F convertible redeemable preferred stock         $ 1,000,000
Cancellation of Series A convertible redeemable preferred stock     $(2,500,000)
Cancellation of Series B redeemable preferred stock                 $(2,152,000)
Cancellation of promissory note                                     $(1,926,000)
Cancellation of portion of promissory note                          $(1,000,000)
Grant of non-employee options                                             3,000

      The non-cash investing and financing activities for the year ended
December 31, 2000 are as follows:

Issuance of common stock for acquisition of assets                  $    93,000
Issuance of common stock for conversion of Series E convertible
  redeemable preferred stock and accrued dividends                  $ 1,940,000
Conversion of Series E convertible redeemable preferred stock       $(1,926,000)
Conversion of dividends accrued on preferred stock                  $   (14,000)

3. Preferred Stock

      The Company has the authority to issue 100,000 shares of preferred stock
with a par value of $.01 per share. Of the authorized shares, 40,000 have been
designated as Series A Convertible Redeemable Preferred Stock, 5,000 as Series B
Redeemable Preferred Stock, 25,000 as Series C Redeemable Preferred Stock, 2,750
as Series D Convertible Redeemable Preferred Stock, 2,000 as Series E
Convertible Redeemable Preferred Stock, 1,000 as Series F Convertible Redeemable
Preferred Stock and 150 as Series G Convertible Redeemable Preferred Stock. On
August 13, 2000 all of the 1,926 outstanding shares of the Company's Series E
preferred stock converted to shares of the Company's common stock. On May 31,
1999, all of the Company's outstanding Series A and B preferred stock were
exchanged for like numbers of shares of the Company's Series C and D preferred
stock, respectively. The Company will not issue any additional shares of Series
A, B or E preferred stock. The order of liquidation preference of the series of
the Company's outstanding preferred stock, from senior to junior, is Series F,
Series G, Series D and Series C.


                                      -68-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      A Loan and Security Agreement between the Company and S&T Bank, dated as
of October 1, 1998, and amended as of October 1, 1999, prohibits the Company
from declaring or paying dividends on any shares of its capital stock, except
for current dividends payable in the ordinary course of business on the
Company's Series D and F preferred stock. The annual renewal of the S&T Loan
Agreement for the year ended September 30, 2001 authorized the payment of
current dividends on the Company's Series G preferred stock, if issued upon
approval by the holders of a majority of the Company's common shares. Such
approval was obtained and the Series G preferred stock was issued on December
29, 2000. The Loan and Security Agreement expires September 30, 2001, however,
the Company expects to renew the agreement. Each of the Certificates of
Designation governing the Series C, D, F and G preferred stock prohibits the
Company from declaring or paying dividends or any other distribution on the
common stock or any other class of stock ranking junior as to dividends and upon
liquidation unless all dividends on the senior series of preferred stock for the
dividend payment date immediately prior to or concurrent with the dividend or
distribution as to the junior securities are paid or are declared and funds are
set aside for payment.

Series C Redeemable Preferred Stock

      As of December 31, 2000, 25,000 shares of the Company's Series C
Convertible Preferred Stock, having a liquidation preference of $100 per share,
were outstanding. There is no mandatory redemption date for the Series C
preferred stock. Series C preferred stock accrues dividends at the rate of 8% of
the liquidation value thereof per annum, compounded quarterly, until June 30,
2006, when the Company will be obligated to pay accrued dividends, subject to
legally available funds. Any accrued dividends on the Series C preferred stock
not paid by this date will compound thereafter at a rate of 12% of the
liquidation value thereof per annum. After June 30, 2006, dividends on the
Series C preferred stock will accrue and compound at a rate of 12% of the
liquidation value thereof per annum and will be payable quarterly, subject to
legally available funds. Series C preferred shares are not convertible into
common shares. There are no sinking fund provisions applicable to the Series C
preferred stock.

      Dividends on Series C preferred shares of $148,000 and $270,000 were
accrued during the fiscal years ended December 31, 1999 and 2000, respectively.
Dividends on Series A preferred shares of $230,000 and $101,000 were accrued
during the fiscal years ended December 31, 1998 and 1999, respectively, prior to
the exchange of Series A for Series C preferred shares. Accrued dividends on
Series A preferred shares as of May 31, 1999 were assumed under the issuance of
Series C preferred stock in exchange for the Series A shares. Accrued but unpaid
dividends on Series C preferred stock were approximately $767,000 and $1,037,000
as of December 31, 1999 and 2000, respectively. No dividends have been paid to
date on Series C preferred shares. The Company's current credit agreement with
S&T Bank prohibits payment of dividends on Series C preferred stock during the
term of the agreement.

Series D Convertible Redeemable Preferred Stock

      As of December 31, 2000, 2,750 shares of the Company's Series D
Convertible Redeemable Preferred Stock, having a liquidation preference of
$1,000 per share, were outstanding. There is no mandatory redemption date for
the Series D preferred stock. There are no sinking fund provisions applicable to
the Series D preferred stock. In the event that the number of shares of
outstanding common stock is changed by any stock dividend, stock split or
combination of shares at any time shares of Series D preferred stock are
outstanding, the number of shares of common stock that may be acquired upon
conversion will be proportionately adjusted. Series D preferred stock earns
dividends at the rate of 6% of the liquidation value thereof per annum, payable
and compounded quarterly. Dividends are payable on the final day of each
January, April, July and October.

      In August 1998, the Company allocated the proceeds of $2,750,000 from the
issuance of Series B preferred stock and accompanying warrants to purchase
common stock between the relative fair values of the preferred stock and
warrants. The Series B preferred stock was recorded at approximately $2,152,000,
which value was carried forward to the Series D preferred stock upon the May
1999 exchange of preferred shares.


                                      -69-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      Until August 13, 2003, each share of Series D preferred stock is
convertible into 276 shares of common stock, determined by dividing 1,000 by
$3.6125, which is 85% of the $4.25 per share price on the last trading day prior
to the date of closing of the acquisition of Allin Consulting-Pennsylvania.

      Shareholder approval of the convertibility feature of the Series B
preferred shares resulted in the issuance of preferred stock with a
non-detachable conversion feature that was "in the money" at the date of
approval. Therefore, a beneficial conversion feature was recognized by
allocating a portion of the proceeds equal to the intrinsic value of that
feature to additional paid-in-capital during 1998, the fiscal year in which the
conversion feature was approved. The value of the beneficial conversion feature,
approximately $485,000, was calculated by determining the number of common
shares that would be issued assuming conversion at the market price at the date
of shareholder approval and the number to be issued at the conversion price and
multiplying the difference in number of common shares by the market price.

      The beneficial conversion feature was treated as an immediate dividend to
the Series B preferred shareholders since the Series B preferred shareholders
had rights for immediate conversion upon common shareholder approval.
Consequently, the value of the beneficial conversion feature represented a
dividend that would accrete immediately upon approval. Since the Company had an
accumulated deficit as of the approval date, the accretion was netted against
additional paid-in-capital rather than accumulated deficit, resulting in no net
change to shareholders' equity. The beneficial conversion feature resulted in
additional accretion of preferred stock in determining net loss available to
common shareholders during 1998, which resulted in lower earnings per share. The
beneficial conversion feature will not otherwise impact the earnings per share
calculations during periods in which the Company has net losses as the effect
would be anti-dilutive.

      Dividends on Series B preferred shares of $65,000 and $68,000 were
recorded during the fiscal years ended December 31, 1998 and 1999, respectively.
Dividends on Series D preferred shares of $97,000 and $165,000 were accrued
during the fiscal years ended December 31, 1999 and 2000, respectively. Accrued
but unpaid dividends on Series D preferred stock were approximately $28,000 as
of December 31, 1999 and 2000.

Series E Convertible Redeemable Preferred Stock

      On August 13, 2000, all of the 1,926 outstanding shares of the Company's
Series E Convertible Redeemable Preferred Stock, having a liquidation value of
$1,000 per share, along with approximately $14,000 of accrued but unpaid
dividends automatically converted to 942,141 shares of the Company's common
stock. The rate of conversion was $2.06 per common share.

      Series E preferred stock earned dividends at the rate of 6% of the
liquidation value thereof per annum, payable quarterly, subject to legally
available funds. Dividends on Series E preferred shares of $69,000 and $72,000
were recorded during the fiscal years ended December 31, 1999 and 2000,
respectively. As of December 31, 1999, approximately $30,000 of dividends had
been accrued but unpaid for Series E preferred stock.

Series F Convertible Redeemable Preferred Stock

      On May 31, 1999, the holder of a promissory note issued by the Company in
connection with the acquisition of Allin Consulting-California with an
outstanding principal balance of $2,000,000 agreed to a reduction in the
principal amount of the promissory note by $1,000,000 in exchange for 1,000
shares of the Company's Series F Convertible Redeemable Preferred Stock having a
liquidation preference of $1,000 per share. There is no mandatory redemption
date for the Series F preferred stock. Series F preferred stock is redeemable
solely at the option of the Company. There are no sinking fund provisions
applicable to the Series G preferred stock. In the event that the number of
shares of outstanding common stock is changed by any stock dividend, stock split
or combination of shares at any time shares of Series G preferred stock are
outstanding, the number of shares of common stock that may be acquired upon
conversion will be proportionately adjusted.


                                      -70-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      Series F preferred stock earns dividends at the rate of 7% of the
liquidation value thereof per annum. Dividends accrued each calendar quarter are
payable on the 15th day of the succeeding month, subject to legally available
funds. Unpaid dividends compound quarterly at 7% interest. Dividend payments
began April 15, 2000. Dividends accrued for seven months during 1999 are not
required to be paid prior to redemption, if any. Dividends on Series F preferred
shares of approximately $41,000 and $70,000 were accrued during the fiscal years
ended December 31, 1999 and 2000, respectively. Accrued but unpaid dividends on
Series F preferred stock were approximately $41,000 and $59,000, respectively,
as of December 31, 1999 and 2000.

      Series F preferred stock is convertible to the Company's common stock
until the earlier of May 31, 2004 or the Company's redemption of the Series F
preferred shares, if any. Until and including May 31, 2004, Series F preferred
stock will be convertible into 508,647 shares of the Company's common stock, the
number of shares obtained by dividing 1,000 per preferred share by $1.966, 85%
of the closing price of the common stock as reported by Nasdaq on the last
trading date prior to the first anniversary of the date of issuance of the
Series F preferred stock.

      Inclusion of the convertibility feature in the Series F preferred stock
for which a portion of the note was exchanged resulted in the issuance of
preferred stock with a non-detachable conversion feature that was "in the money"
at the date of issuance. Therefore, a beneficial conversion feature was
recognized by allocating a portion of the proceeds equal to the intrinsic value
of that feature to additional paid-in-capital during May 1999, when the Series F
preferred stock was issued. The value of the beneficial conversion feature,
approximately $176,000, was calculated by determining the number of common
shares that would be issued assuming conversion at the market price at the date
of issuance and the number to be issued at the conversion price and multiplying
the difference in number of common shares by the market price. The beneficial
conversion feature was treated as an immediate dividend to the Series F
preferred shareholder since the Series F preferred shareholder had rights for
immediate conversion. Consequently, the value of the beneficial conversion
feature represented a dividend that would accrete immediately upon approval.
Since the Company had an accumulated deficit as of the issuance date, the
accretion was netted against additional paid-in-capital rather than accumulated
deficit, resulting in no net change to shareholders' equity.

      The beneficial conversion feature results in additional accretion of
preferred stock in determining net loss available to common shareholders during
1999, which resulted in lower earnings per share. The beneficial conversion
feature will not otherwise impact the earnings per share calculations during
periods in which the Company has net losses as the effect would be
anti-dilutive.

Series G Convertible Redeemable Preferred Stock

      On December 29, 2000, following approval by the holders of a majority of
the Company's common shares at a special meeting of shareholders, the Company
issued 150 shares of its Series G Convertible Redeemable Preferred Stock. The
Series G preferred stock has a liquidation value of $10,000 per share. There is
no mandatory redemption date for the Series G preferred stock, although the
Company may redeem shares of Series G preferred stock after December 29, 2005.
The redemption price for each share of Series G preferred stock will be the
liquidation value of such share, plus an amount that would result in an
aggregate 25% compounded annual return on such liquidation value to the date of
redemption after giving effect to all dividends paid on such share through the
date of redemption. There are no sinking fund provisions applicable to the
Series G preferred stock. Unless redeemed or converted to common stock sooner,
Series G preferred earns cumulative quarterly dividends at the rate of eight
percent of the liquidation value thereof per annum until December 29, 2005.
Thereafter, the dividend rate will increase to 12% of the liquidation value
until the earlier of the date of redemption, if any, or the date of conversion
into common stock. Dividends will be payable quarterly in arrears on the first
day of each calendar quarter.


                                      -71-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      Series G preferred stock is convertible into common stock at any time
prior to redemption by the Company, if any. The conversion prices will be as
follows:

      o     Until and including December 29, 2001, each share of Series G
            preferred stock may be converted into the number of shares of common
            stock determined by dividing 10,000 by the lesser of $1.16348 (85%
            of the average closing price of the Common Stock as reported by
            Nasdaq over the last five trading days prior to December 29, 2000)
            or 85% of the average closing price of the common stock as reported
            by Nasdaq over the last five trading days prior to the date of the
            conversion.

      o     After December 29, 2001, each share of Series G Preferred Stock held
            by each holder may be converted into the number of shares of common
            stock determined by dividing 10,000 by the lesser of $1.16348 (85%
            of the average closing price of the common stock as reported by
            Nasdaq over the last five trading days prior to December 29, 2000)
            or 85% of the average closing price of the common stock as reported
            by Nasdaq over the last five trading days prior to December 29,2001.

In any event, the minimum conversion price used as a denominator in the
foregoing calculations will be $0.35. Holders of the Series G preferred stock
who exercise the conversion right will have the right to receive any accrued and
unpaid dividends through the date of conversion. Any shares of Series G
preferred stock which are not converted to common stock will remain outstanding
until converted or until redeemed.

      In the event that the number of shares of outstanding common stock is
changed by any stock dividend, stock split or combination of shares at any time
shares of Series G preferred stock are outstanding, the number of shares of
common stock that may be acquired upon conversion will be proportionately
adjusted. The conversion prices for the Series G preferred stock will be
adjusted on a weighted average basis in the event of a dilutive issuance
involving any sale of equity stock or stock equivalents of the Company at a
price below the greater of the conversion price of the Series G preferred stock
then in effect or 85% of the market value of the common stock, except for the
issuance of common stock as a result of the exercise of options issued at or
above fair market value at date of grant, the conversion of any preferred stock
outstanding as of September 29, 2000 or the Series G preferred stock, the
exercise of warrants outstanding as of September 29, 2000 or the warrants issued
December 29, 2000, the acquisition by the Company of another business or the
assets of another business or a firm commitment underwritten public offering of
the common stock resulting in net proceeds to the Company of not less than
$10,000,000.

      Inclusion of the convertibility feature in the Series G preferred stock
resulted in the issuance of preferred stock with a non-detachable conversion
feature that was "in the money" at the date of issuance. Therefore, a beneficial
conversion feature was recognized by allocating a portion of the proceeds equal
to the intrinsic value of that feature to additional paid-in-capital during
December 2000, when the Series G preferred stock was issued. The value of the
beneficial conversion feature, approximately $58,000, was calculated by
determining the number of common shares that would be issued assuming conversion
at the market price at the date of issuance and the number to be issued at the
conversion price as of the date of issuance, net of expenses, and multiplying
the difference in the number of common shares by the market price. The
beneficial conversion feature was treated as an immediate dividend to the Series
G preferred shareholders since the Series G preferred shareholders had rights
for immediate conversion. Consequently, the value of the beneficial conversion
feature represented a dividend that would accrete immediately upon approval.
Since the Company had an accumulated deficit as of the issuance date, the
accretion was netted against additional paid-in-capital rather than accumulated
deficit, resulting in no net change to shareholders' equity.

      The beneficial conversion feature results in additional accretion of
preferred stock in determining net loss available to common shareholders during
2000, which resulted in lower earnings per share. The beneficial conversion
feature will not otherwise impact the earnings per share calculations during
periods in which the Company has net losses as the effect would be
anti-dilutive.


                                      -72-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

4. Warrants for Common Stock

      On December 29, 2000, Series G preferred shareholders also received
warrants to purchase an aggregate of 857,138 shares of common stock at $1.75 per
share. Issuance of common stock upon exercise of the warrants was approved on
that day by the holders of a majority of the Company's common shares. The
Company allocated the proceeds of $1,500,000 from the issuance of Series G
preferred stock and warrants between the relative fair values of the preferred
stock and warrants. The value allocated to warrants, approximately $419,000, is
reflected as a component of shareholders' equity. The warrants will not impact
earnings per share during periods in which the Company has net losses
attributable to common shareholders since the effect would be anti-dilutive.

      On December 31, 1998, Series B preferred shareholders also received
warrants to purchase an aggregate of 647,059 shares of common stock at $4.25 per
share. Issuance of common stock upon exercise of the warrants was approved on
that day by the holders of a majority of the Company's common shares. The
Company allocated the proceeds of $2,750,000 from the issuance of Series B
preferred stock and warrants between the relative fair values of the preferred
stock and warrants. The value allocated to warrants, approximately $598,000 is
reflected as a component of shareholders' equity. The warrants will not impact
earnings per share during periods in which the Company has net losses
attributable to common shareholders since the effect would be anti-dilutive.

5. Stock Based Compensation and Restricted Stock Award

      On October 25, 1996, the Company adopted the "1996 Stock Plan" ("the 1996
Plan") for executive management, non-employee directors, employees and
consultants of the Company and its subsidiaries. The 1996 Plan provided for the
issuance of up to 266,000 shares of common stock to be awarded as stock options,
stock appreciation rights, restricted shares and restricted units. During 1998,
the Company's Board of Directors approved the reissuance of forfeited stock
options under the 1996 Plan. As of December 31, 2000, 46,199 shares remained
available for future grants under the 1996 Plan.

      Stock options awarded under the 1996 Plan are exercisable based on prices
established at the grant dates and vest at 20% of the award per year for five
years on the anniversaries of the grant date, except for 58,000 options which
vested on grant date, 14,760 options awarded to former SportsWave employees
which vested upon sale of that company, 15,000 options which will vest on the
earlier to occur of May 15, 2001 or the date of a change in control of the
Company, as defined in a certain employment agreement and 15,000 options which
will vest on the date of a change in control of the Company, as defined in
certain employment agreements, if earlier than the normal vesting schedule. The
right to purchase shares expires seven years from the date of grant or earlier
if an option holder ceases to be employed by or ceases to provide consulting
services to the Company or a subsidiary for any reason, except for 72,760 of the
shares noted above, which do not include an early expiration provision.

      The Company granted 26,668 restricted shares under the 1996 Plan to
employees of Allin Consulting-California on November 6, 1996. Allin
Consulting-California recorded deferred compensation for the restricted shares
based on market value of the shares at date of grant and recorded amortization
over three years on a straight-line basis. The Company recognized approximately
$124,000 and $8,000 of compensation expense related to the restricted stock
during the periods ended December 31, 1998 and 1999, respectively. During 1997
and 1999, 1,800 and 6,367, respectively, of the restricted shares were forfeited
and reverted to treasury stock. Forfeitures were due to termination of the
employees' association with Allin Consulting-California. There were no
forfeitures in 1998. The restricted shares vested three years after grant date.
On November 6, 1999, the original restriction lapsed on the remaining 18,501
shares which were held by individuals who had remained employees or consultants
of the Company throughout the three-year period.

      On May 8, 1997, the Company's common shareholders approved the Company's
"1997 Stock Plan" ("the 1997 Plan") which reserved an aggregate of 300,000
shares of the Company's Common Stock to be awarded as stock options, stock
appreciation rights, restricted shares and restricted units to officers and
other employees of the Company and its subsidiaries and to consultants and
advisors (including non-employee directors) of the Company and its subsidiaries.
During 1998, the Company's Board of Directors approved the reissuance of
forfeited stock options under the 1997 Plan. As of December 31, 2000, 44,250
shares remained available for future grants under


                                      -73-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

the 1997 Plan. The Company recognized approximately $11,000 and $3,000,
respectively, of expense during the years ended December 31, 1998 and 1999 for
options awarded to non-employees under the 1997 Plan. Options awarded under the
1997 Stock Plan are exercisable based on prices established at the grant dates
and vest at 20% of the award per year for five years on the anniversaries of the
grant date except for 18,750 options which vested on grant date, 11,650 options
awarded to former SportsWave employees which vested upon sale of that company,
100,000 options which will vest on the earlier to occur of May 15, 2001 or the
date of a change in control of the Company, as defined in a certain employment
agreement, and 33,000 options which will vest on the date of a change in control
of the Company, as defined in certain employment agreements, if earlier than the
normal vesting schedule. For grants made to date, the right to purchase shares
expires seven years from the date of grant or earlier if an option holder ceases
to be employed by or ceases to provide consulting services to the Company or a
subsidiary for any reason, except for 30,400 of the shares noted above, which do
not include an early expiration provision.

      On December 31, 1998, the Company's stockholders approved the Company's
"1998 Stock Plan" ("the 1998 Plan") which reserved an aggregate of 375,000
shares of the Company's Common Stock to be awarded as stock options, stock
appreciation rights, restricted shares and restricted units to officers and
other employees of the Company and its subsidiaries and to consultants and
advisors (including non-employee directors) of the Company and its subsidiaries.
Forfeited stock options under the 1998 Stock Plan may be reissued. As of
December 31, 2000, 99,340 shares remained available for future grants under the
1998 Plan.

      Options awarded under the 1998 Plan to date are exercisable based on
prices established at the grant dates and vest at 20% of the award per year for
five years on the anniversaries of the grant date except for 60,000 options
which will vest on the earlier to occur of May 15, 2001 or the date of a change
in control of the Company, as defined in a certain employment agreement and for
100,000 options which will vest on the date of a change in control of the
Company, as defined in certain employment agreements, if earlier than the normal
vesting schedule. Rights to purchase shares for awards made to date under the
1998 Plan expire seven years from the date of grant or earlier if an option
holder ceases to be employed by or ceases to provide consulting services to the
Company or a subsidiary for any reason.

      On May 11, 2000, the Company's stockholders approved the Company's "2000
Stock Plan" ("the 2000 Plan") which reserved an aggregate of 295,000 shares of
the Company's Common Stock to be awarded as stock options, stock appreciation
rights, restricted shares and restricted units to officers and other employees
of the Company and its subsidiaries and to consultants and advisors (including
non-employee directors) of the Company and its subsidiaries. Forfeited stock
options under the 2000 Stock Plan may not be reissued. As of December 31, 2000,
162,250 shares remained available for future grants under the 2000 Plan.

      Options awarded under the 2000 Plan to date are exercisable based on
prices established at the grant dates and vest at 20% of the award per year for
five years on the anniversaries of the grant date except for 20,000 options
which vested on grant date, 20,000 options which will vest on the first
anniversary of grant date and 10,000 options which will vest on the earlier to
occur of May 15, 2001 or the date of a change in control of the Company, as
defined in a certain employment agreement. Rights to purchase shares for awards
made to date under the 2000 Plan expire seven years from the date of grant or
earlier if an option holder ceases to be employed by or ceases to provide
consulting services to the Company or a subsidiary for any reason, except for
20,000 of the shares noted above, which do not include an early expiration
provision.


                                      -74-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Summary of Stock Option Activity from 1998 through 2000:

<TABLE>
<CAPTION>
                            1996 Plan              1997 Plan              1998 Plan              2000 Plan
                            ---------              ---------              ---------              ---------
                                  Weighted-              Weighted-              Weighted-              Weighted-
                        Number     Average      Number    Average     Number     Average     Number     Average
                         of       Exercise       of      Exercise      of       Exercise      of       Exercise
                       Options     Price       Options    Price      Options     Price      Options     Price
<S>                    <C>         <C>        <C>         <C>        <C>         <C>        <C>         <C>
December 31, 1997
Outstanding            171,650     $15.58      69,550     $ 6.25          --         --          --         --
Exercisable             51,130     $15.39      10,000     $ 4.50          --         --          --         --

1998
Granted                132,500     $ 4.49     229,200     $ 4.42          --         --          --         --
Forfeitures             70,750     $16.33       7,750     $ 5.74          --         --          --         --
Exercised                   --         --          --         --          --         --          --         --
Expired                     --         --          --         --          --         --          --         --
                       -----------------------------------------------------------------------------------------
December 31, 1998
Outstanding            233,400     $ 9.06     291,000     $ 4.82          --         --          --         --
Exercisable             74,030     $13.58      38,040     $ 5.56          --         --          --         --

1999
Granted                 42,000     $ 4.75       1,250     $ 2.66     340,398     $ 3.25          --         --
Forfeitures            100,600     $ 4.80       3,040     $ 5.29      36,640     $ 3.25          --         --
Exercised                   --         --          --         --          --         --          --         --
Expired                     --         --          --         --          --         --          --         --
                       -----------------------------------------------------------------------------------------
December 31, 1999
Outstanding            174,800     $ 7.54     289,210     $ 4.81     303,758     $ 3.25          --         --
Exercisable            114,060     $11.56      69,900     $ 5.21          --         --          --         --

2000
Granted                 74,000     $ 3.97      10,000     $ 4.50      51,867     $ 4.14     132,750     $ 1.98
Forfeitures             47,500     $ 8.37      43,460     $ 4.95      79,965     $ 3.35          --         --
Exercised                   --         --          --         --          --         --          --         --
Expired                     --         --          --         --          --         --          --         --
                       -----------------------------------------------------------------------------------------
December 31, 2000
Outstanding            201,300     $ 8.58     255,750     $ 4.77     275,660     $ 3.39     132,750     $ 1.98
Exercisable            116,530     $11.10      86,230     $ 5.10      35,048     $ 3.25      20,000     $ 1.97
</TABLE>


                                      -75-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions for grants under the 1996, 1997, 1998 and 2000 Plans.

                           1996 Plan   1997 Plan   1998 Plan   2000 Plan
                           ---------   ---------   ---------   ---------
Risk free interest rate         5.3%        5.2%        5.2%        6.0%
Expected dividend yield         0.0%        0.0%        0.0%        0.0%
Expected life of options      7 yrs.      7 yrs.      7 yrs.      7 yrs.
Expected volatility rate         69%         69%         69%         69%

<TABLE>
<CAPTION>
                                              1996 Plan   1997 Plan   1998 Plan   2000 Plan
                                              ---------   ---------   ---------   ---------
<S>                                             <C>          <C>         <C>         <C>
Options originally issued at market:
Exercisable at December 31, 2000                116,530      86,230      35,048      20,000
Weighted average fair value of options
granted during 1998                               $2.20       $2.48          --          --
Weighted average fair value of options
granted during 1999                               $3.06       $1.68       $2.06          --
Weighted average fair value of options
granted during 2000                               $2.78       $3.16       $2.91       $1.41
</TABLE>

Summary of Information for Stock Options Outstanding or Exercisable at December
31, 2000:

<TABLE>
<CAPTION>
                                 1996 Plan                1997 Plan                1998 Plan                2000 Plan
                                 ---------                ---------                ---------                ---------
                                        Weighted-                Weighted-                Weighted-                Weighted-
                             Number      Average      Number      Average      Number      Average      Number      Average
                              of        Exercise       of        Exercise       of        Exercise       of        Exercise
                            Options      Price       Options      Price       Options      Price       Options      Price
<S>                         <C>           <C>        <C>           <C>        <C>           <C>        <C>           <C>
Information for options
outstanding at
December 31, 2000:
Exercise Price:
Less than $2.00               5,000       $1.47           --          --           --          --       88,750       $1.92
From $2.00 to $2.99           9,000       $2.11        1,250       $2.66           --          --       44,000       $2.11
From $3.00 to $3.99           5,000       $3.25        2,000       $3.25      234,600       $3.25           --          --
From $4.00 to $4.99         101,000       $4.51      223,500       $4.44       41,060       $4.18           --          --
From $5.00 to $7.50              --          --       29,000       $7.50           --          --           --          --
From $15.00 to $16.25        81,300      $15.08           --          --           --          --           --          --
                            ------------------------------------------------------------------------------------------------
                            201,300       $8.58      255,750       $4.77      275,660       $3.39      132,750       $1.98
</TABLE>


                                      -76-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Summary of Information for Stock Options Outstanding or Exercisable at December
31, 2000 (cont.):

<TABLE>
<CAPTION>
                                 1996 Plan                1997 Plan                1998 Plan                2000 Plan
                                 ---------                ---------                ---------                ---------
                                        Weighted-                Weighted-                Weighted-                Weighted-
                             Number      Average      Number      Average      Number      Average      Number      Average
                              of        Exercise       of        Exercise       of        Exercise       of        Exercise
                            Options      Price       Options      Price       Options      Price       Options      Price
<S>                         <C>           <C>        <C>           <C>        <C>           <C>        <C>           <C>
Information for options
exercisable at
December 31, 2000:
Exercise Price:
Less than $2.00                  --          --           --          --          --           --      10,000        $1.94
From $2.00 to $2.99              --          --        1,250       $2.66          --           --      10,000        $2.00
From $3.00 to $3.99           2,000       $3.25          800       $3.25      35,048        $3.25          --           --
From $4.00 to $4.99          41,600       $4.52       63,780       $4.40          --           --          --           --
From $5.00 to $7.50              --          --       20,400       $7.50          --           --          --           --
From $15.00 to $16.25        72,930      $15.07           --          --          --           --          --           --
                            ------------------------------------------------------------------------------------------------
                            116,530      $11.10       86,230       $5.10      35,048        $3.25      20,000        $1.97
</TABLE>

<TABLE>
<CAPTION>
                                 1996 Plan                  1997 Plan                  1998 Plan                  2000 Plan
                                 ---------                  ---------                  ---------                  ---------
                                        Weighted-                  Weighted-                  Weighted-                  Weighted-
                             Number      Average        Number      Average        Number      Average        Number      Average
                              of        Contract-        of        Contract-        of        Contract-        of        Contract-
                            Options     ual Life       Options     ual Life       Options     ual Life       Options     ual Life
<S>                         <C>         <C>            <C>         <C>            <C>         <C>            <C>         <C>
Information for options
outstanding at
December 31, 2000:
Exercise Price:
Less than $2.00               5,000     7.0 years           --            --           --            --       88,750     6.7 years
From $2.00 to $2.99           9,000     6.8 years        1,250     5.7 years           --            --       44,000     6.6 years
From $3.00 to $3.99           5,000     6.1 years        2,000     4.8 years      234,600     5.2 years           --            --
From $4.00 to $4.99         101,000     5.7 years      223,500     4.3 years       41,060     6.0 years           --            --
From $5.00 to $7.50              --                     29,000     3.8 years           --            --           --            --
From $15.00 to $16.25        81,300     2.8 years           --            --           --            --           --            --
                            ------------------------------------------------------------------------------------------------------
                            201,300     4.6 years      255,750     4.3 years      275,660     5.3 years      132,750     6.7 years
</TABLE>

      Financial Accounting Standards Board Statement No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123") establishes a "fair value based
method" of financial accounting and related reporting standards for stock-based
employee compensation plans. SFAS No. 123 provides for adoption in the income
statement or through footnote disclosure. The Company has elected to account for
stock-based compensation plans under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25"), as permitted by SFAS
No. 123. Had compensation costs for the Company's Plans been determined
consistent with SFAS No. 123, pro forma net loss and EPS would have been as
follows:

          Year ended December 31              1998       1999       2000
                                              ----       ----       ----

Pro forma net loss (dollars in thousands)   $(6,369)   $(3,034)   $(3,495)
Pro forma loss per share                     $(1.31)    $(0.63)    $(0.65)

       See Note 20 for information regarding options awarded subsequent to
                               December 31, 2000.


                                      -77-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

6. Earnings Per Share

      Earnings per share ("EPS") of common stock have been computed in
accordance with Financial Accounting Standards Board Statement No. 128,
"Earnings Per Share" ("SFAS No. 128"). The shares used in calculating basic and
diluted EPS include the weighted average of the outstanding common shares of the
Company, excluding 24,868, 17,176 and -0- shares of outstanding restricted stock
for 1998, 1999 and 2000, respectively. Prior to the expiration of their
convertibility period, if any, the restricted stock, outstanding stock options,
warrants and convertible 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 as their effect would be anti-dilutive. The
additional shares that would have been included in the diluted EPS calculation
related to the restricted stock, stock options and warrants, if their effect was
not anti-dilutive, were 702,451, 717,749 and 293,411 for the years ended
December 31, 1998, 1999 and 2000, respectively. The number of outstanding
options to purchase common shares for which the option exercise prices exceeded
the average market price of the common shares aggregated 517,400, 460,760, and
718,710 for the years ended December 31, 1998, 1999 and 2000.

      The following schedule summarizes the calculation of basic and diluted
earnings per share under SFAS No. 128:

<TABLE>
<CAPTION>
Calculation of Basic and Diluted Net Loss per Common
                       Share                                     Year Ended December 31
    Dollars in thousands, except per share data             1998           1999           2000
<S>                                                     <C>            <C>            <C>
Net loss                                                $    (5,791)   $    (2,676)   $    (2,954)
Accretion and dividends on preferred stock                      779            699            637
                                                        -----------    -----------    -----------
Net loss applicable to common shareholders              $    (6,570)   $    (3,375)   $    (3,591)

Basic and diluted net loss per common share             $     (1.20)   $     (0.56)   $     (0.56)
                                                        -----------    -----------    -----------

Shares used in calculating basic and diluted net loss
per common share                                          5,466,979      5,972,001      6,371,827
                                                        -----------    -----------    -----------
</TABLE>

7. Acquisitions

      The Company follows the guidelines of Emerging Issues Task Force Issue
95-8: "Accounting for Contingent Consideration Paid to the Shareholders of an
Acquired Company in a Purchase Business Combination" in determining the
accounting treatment for any contingent consideration related to acquisitions.

Erie Computer Company

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

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


                                      -78-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      Purchase consideration was the Company's issuance of 23,310 shares of its
common stock to Patterson-Erie, based on a rate of $4.29 per share as specified
in the acquisition agreement. There were no terms for contingent consideration
associated with the agreement. The Company recorded the stock issuance based on
the market price on the date of closing of the acquisition. The asset
acquisition was effective for accounting purposes as of February 1, 2000. The
acquisition price was allocated among the purchased assets, including the
capital assets utilized in Erie Computer's operations, inventory, customer lists
and assembled workforce. Original estimated remaining economic lives for
customer list and assembled workforce were eight and three years, respectively.

      On May 19, 2000, Allin Network sold the acquired assets to Engage IT, Inc.
("Engage IT"). The Company recorded a loss on disposal of the assets sold to
Engage IT of approximately $53,000. Engage IT assumed the Erie Computer
workforce and occupancy of the building utilized for the Erie Computer
operations through lease termination. The Company terminated the lease as of
June 30, 2000. Consideration received from Engage IT consisted of a cash payment
of $10,000 and a note receivable for $30,000 payable over six months and
accruing interest at 9% per annum. The note receivable was reduced by the
portion of customer prepaid service contract fees applicable to the period
subsequent to May 19, 2000. Engage IT is in default on the final three note
payments due from September to November 2000. As of December 31, 2000, the
outstanding balance of the note receivable was approximately $14,000. As of
December 31, 2000, Engage IT was also indebted to Allin Network for
approximately $8,000 due to its deposit of Erie Computer customer receipts
related to accounts receivable retained by Allin Network at the time of the
asset sale.

Allin Consulting-Pennsylvania

      On August 13, 1998, the Company acquired all of the issued and outstanding
stock of Allin Consulting-Pennsylvania. The acquisition price of approximately
$14.4 million included a cash payment of approximately $2.4 million, issuance of
805,195 shares of the Company's common stock, based on a rate of $4.406 per
share as specified in the acquisition agreement, secured promissory notes in the
principal amounts of $6.2 and $2.0 million, and post-closing payment by or on
behalf of Allin Consulting-Pennsylvania of an approximate $200,000 tax
liability. The Company recorded the stock issuance based on the market price on
the date of closing of the acquisition. Allin Consulting-Pennsylvania had two
outstanding notes due to a bank in the aggregate amount of approximately
$627,000 as of the Company's acquisition, which the Company repaid in full on
the date of the acquisition. The agreement for the acquisition of Allin
Consulting-Pennsylvania provided for contingent payments of up to $1.6 million
based upon the achievement of a certain 1998 earnings target, as defined in the
purchase agreement. The target was not met so no contingent payments were made
to the selling shareholders. The acquisition was effective for accounting
purposes as of August 1, 1998. Five months of Allin Consulting-Pennsylvania's
results of operations are included in the Company's Consolidated Statement of
Operations for 1998.

      The acquisition of Allin Consulting-Pennsylvania has been accounted for
using the purchase method. The acquisition price has been allocated among the
net assets of the acquired entity, assembled workforce, customer base, and
goodwill. Estimated remaining economic lives for assembled workforce, customer
base and goodwill are five, fourteen and thirty years, respectively. The net
assets of the acquired entity included cash, accounts receivable, prepaid
expenses, furniture, equipment and leasehold improvements, accounts and notes
payable and accrued expenses.

      The secured promissory note for $6.2 million bore interest at 5% per annum
payable at maturity. The full amount of principal and accrued interest on this
note was paid in October 1998 utilizing proceeds from the sale of SportsWave
(See Note 8), funds borrowed under a credit agreement with S&T Bank (see Note
13), and operating funds of the Company. During March and April of 1999,
approximately $74,000 of the secured promissory note for $2.0 million was offset
by Allin Consulting-Pennsylvania's payment of taxes due related to
pre-acquisition operating periods. On May 31, 1999, the balance of the
promissory note was exchanged for 1,926 shares of the Company's Series E
Convertible Redeemable Preferred Stock having a liquidation preference of $1,000
per share. See Note 3.


                                      -79-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      Pro forma results of operations for the acquisition of Allin
Consulting-Pennsylvania are based on the historical financial statements of the
Company and Allin Consulting-Pennsylvania, adjusted to give effect to the
acquisition of Allin Consulting-Pennsylvania. The pro forma results of
operations assume that the acquisition of Allin Consulting-Pennsylvania occurred
as of January 1, 1998. Pro forma information is as follows:

                                                                 Year Ended
(Dollars in thousands, except per share data)                   December 31,
                                                                    1998
                                                                ------------

      Revenue                                                     $23,567
      Loss from continuing operations                              (7,792)
      Net loss                                                     (6,134)
      Net loss attributable to common shareholders                 (7,014)
      Net loss per common share - basic and diluted               $ (1.18)

      The pro forma information presented above reflects the assumed effects of
certain pro forma adjustments, including assumed additional amortization expense
on intangible assets recorded in connection with the acquisition, assumed
adjustments to interest income for foregone investment income on cash balances
assumed to have been utilized in connection with the acquisition, assumed
adjustments to interest expense for notes payable related to the acquisitions,
credit line financing, and assumed repayment of Allin Consulting-Pennsylvania
debt balances. The pro forma information also assumes adjustment for dividends
on Series B Redeemable Preferred Stock as if the preferred stock had been issued
as of January 1, 1998. The pro forma financial information does not purport to
present what the Company's results of operations would have been if the
acquisition of Allin Consulting-Pennsylvania had occurred on the assumed date,
as specified above, or to project the Company's financial condition or results
of operations for any future period.

MEGAbase

      On November 20, 1998, the Company acquired all of the issued and
outstanding stock of MEGAbase. The MEGAbase operations were merged into Allin
Consulting-California following acquisition. Closing payment terms included a
cash payment of $12,000 and the issuance of 6,568 shares of the Company's common
stock, based on a rate of $4.263 per share as specified in the acquisition
agreement. MEGAbase had outstanding notes due to a bank and two individuals in
the aggregate amount of approximately $73,000 as of the Company's acquisition,
which the Company repaid in full on the date of the acquisition. The acquisition
of MEGAbase has been accounted for using the purchase method. The acquisition
price has been allocated among the net assets of the acquired entity and
goodwill. During 1999, the Company reviewed the acquired MEGAbase operations and
has revised its estimated economic life for goodwill to seven years.

      The agreement for purchase of MEGAbase provided for contingent payments to
be determined on the basis of Allin Consulting-California's 1999 Development
Practice Gross Margin (as defined in the stock purchase agreement for the
acquisition). The former MEGAbase sole shareholder was entitled to receive an
aggregate contingent payment equal to $1.00 for each dollar by which Allin
Consulting-California's Development Practice Gross Margin exceeded $500,000,
subject to a maximum contingent payment of $800,000. The Company and the former
MEGAbase sole shareholder were unable to agree upon the calculation of Allin
Consulting-California's Development Practice Gross Margin for 1999. The Company
initiated litigation to resolve this matter. In January 2001, the Company and
the former MEGAbase sole shareholder reached a settlement concerning contingent
payments. On January 26, 2001 the Company made a cash payment of $60,000 and
issued 14,225 shares of its common stock to the former MEGAbase sole
shareholder. The Nasdaq market price of the Company's common stock on the date
of issuance was $1.406 per share. The additional purchase consideration is being
recorded in January 2001 as additional cost of the acquired enterprise, which
will result in additional goodwill being recorded on Allin
Consulting-California. The additional goodwill will be amortized over the
estimated remaining life of goodwill associated with the MEGAbase acquisition.
See Note 20.


                                      -80-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Allin Consulting-California

      Kent Consulting Group, Inc. was acquired under an agreement closed
coincident with the Company's initial public offering on November 6, 1996 and
was merged into a wholly owned subsidiary of the Company, which was the
surviving entity. The surviving entity subsequently carried forth the business
operations of the acquired entity and in 1998, changed its name to Allin
Corporation of California ("Allin Consulting-California"). In this note, the
term Allin Consulting-California refers to both the acquired and surviving legal
entities, as is appropriate for the context. In November 1998, the Company and
the former sole shareholder of Allin Consulting-California, reached agreement on
an amendment to modify the terms of a promissory note for contingent payments
related to the acquisition of Allin Consulting-California which fixed the amount
of the payment due at $2,000,000. The contingent payments to be made under the
amended promissory note were recorded as additional cost of the acquired
enterprise. The Company recorded a liability for these payments in November
1998. The fixing of the contingent payment amount and the recording of interest
payable for the period from acquisition to amendment resulted in additional
goodwill being recorded by Allin Consulting-California, which is being amortized
over the then remaining estimated life for goodwill of five years.

      On May 31, 1999, the holder of the promissory note agreed to a reduction
in the principal amount of the promissory note by $1,000,000 in exchange for
1,000 shares of the Company's Series F Convertible Redeemable Preferred Stock.
See Note 3 for additional information concerning the exchange. The remaining
note principal balance of $1,000,000 is due April 15, 2005. The note provides
for interest at the rate of 7% per annum from the acquisition date of November
6, 1996. Accrued interest as of May 31, 1999 was paid on April 1, 2000.
Quarterly interest payments began on April 14, 2000. Interest accrued each
calendar quarter is due for payment on the 15th of the succeeding month, subject
to any prohibition under any agreement between the Company and a lender.

8. Sale of SportsWave

      On September 30, 1998, the Company sold all of the issued and outstanding
capital stock of SportsWave to Lighthouse Holdings, Inc. ("Lighthouse"). The
SportsWave Stock Purchase Agreement provided for the payment by Lighthouse to
the Company of $3,443,512, subject to a final unearned revenue adjustment. The
sale proceeds are based on a purchase price of $3,500,000, less an estimated
unearned revenue adjustment of $56,488 related to certain sports marketing
programs completed subsequent to the sale of SportsWave. Sale proceeds included
$2,943,512 in cash upon closing of the sale and a promissory note in the
principal amount of $500,000 which bore interest at the rate of 8.5% per annum.

      The Company and Lighthouse subsequently agreed to a reduction in the
amount of the promissory note of $37,000, primarily to reflect the final
unearned revenue adjustment. Payment of the adjusted principal amount of the
promissory note and accrued interest was received from Lighthouse in January
1999.

      The sale of SportsWave represents disposal of a segment since SportsWave
comprised the entirety of the Company's sports marketing business. Accordingly,
the results of operations for SportsWave for the period ended December 31, 1998
have been reclassified to equity basis interest in income or loss of disposed
segment, which is presented after net loss from continuing operations.

      The Company recognized a gain on disposal of SportsWave of approximately
$1,437,000 in the period ended December 31, 1998. The Company recognized an
additional gain of $1,000 in the period ended December 31, 1999 resulting from
adjustment of an accrual for costs associated with the sale of SportsWave. The
gains are also presented after net loss from continuing operations.


                                      -81-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

9. Impairment of Long-Lived Assets

      Allin Interactive maintained an inventory of equipment removed from three
Royal Caribbean Cruise Line ("Royal Caribbean") ship interactive television
systems which had ceased operations during the second quarter of 1998, equipment
from the Cunard Line Ltd. ("Cunard") ship Queen Elizabeth 2 system which had
terminated operations in December 1997 and a system for the Norwegian Cruise
Line ("NCL") ship Norway which had not been completed. The interactive
television system equipment had been previously installed on the ships when
Allin Interactive had followed an owner-operator model for its interactive
television system operations. From the time the equipment became available for
reuse, Allin Interactive had sought alternative productive use of the equipment,
which included substantive discussions with several cruise lines concerning
installation of systems. During August 1998, the last of these substantive
discussions was terminated by Carnival Cruise Lines ("Carnival") at the time it
was announced that Carnival had contracted with a competitor for installation of
an interactive television system aboard a Carnival ship. Discussions with
Carnival at the time of these events also caused Allin Interactive's management
to regard continued long-term operation of the interactive systems aboard two
Carnival vessels to be in jeopardy. Under the terms of the Company's agreement
with Carnival, discontinuation of management fees and/or termination of services
could be made upon thirty days' notice. During August 1998, Allin Interactive
also was informed by NCL that it wished to discontinue payment of management
fees for the system aboard the Norwegian Dream subsequent to December 31, 1998,
in accordance with the terms of its agreement.

      The Company determined that the events described represented facts and
circumstances indicating that the carrying value of the assets might not be
recoverable because of the lack of short-term prospect of reuse for the
equipment maintained as inventory and because of a substantive prospect of
termination of operations or lack of adequate cash flow due to the
discontinuation of management fees for the operating systems. The Company
determined estimated salvage values for all of the equipment and estimated
undiscounted cash flows for the operating systems and determined that the assets
were impaired. The Company recorded a loss of $2,765,000 during August 1998 to
write-down the assets to estimated fair values.

      Operation of the Norwegian Dream system was terminated and the equipment
removed in April 1999. Allin Interactive received a reduced interim management
fee from January to April 1999. Carnival discontinued payment of management fees
related to the interactive systems aboard two Carnival ships after August 1999,
but has not terminated interactive television service on these ships.

10. Software Development Costs

      Software development costs of approximately $21,000 were capitalized
during the year ended December 31, 1998, relating to the Company's digital
imaging technology. No costs have been capitalized subsequently. Amortization
expense related to these and previously capitalized costs was approximately
$196,000, $10,000, and $19,000 during the years ended December 31, 1998, 1999,
and 2000, respectively.

      Research and development expense was approximately $152,000, $56,000, and
$43,000 for the years ended December 31, 1998, 1999, and 2000, respectively.


                                      -82-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

11. Intangible and Other Assets

      Intangible and other assets consist of the following:

<TABLE>
<CAPTION>
                              (Dollars in thousands)                              December 31,
                                                                                ---------------
                                                                                 1999     2000
                                                                                ------   ------
<S>                                                                             <C>      <C>
      Assembled work force of acquired entities, net of accumulated
      amortization of $113 and $177 (amortized over five and seven years)          232      168
      Customer lists of acquired entities, net of accumulated amortization of
      $301 and $485 (amortized over five and fourteen years)                     2,049    1,865
      Other assets, net of accumulated amortization of $2                            4        4
                                                                                ------   ------

                                                                                $2,285   $2,037
                                                                                ======   ======
</TABLE>

12. Equity in Non-Consolidated Corporation

      Allin Digital had an ownership interest of approximately 5.7% in
PhotoWave, Inc. ("PhotoWave") as of December 31, 1999. The initial investment
was made in March 1998 through the contribution of certain assets previously
used in its digital photography business and the rights to the name PhotoWave.
An initial value of $100,000 was recorded for the investment, based on Allin
Digital's initial stock ownership percentage in comparison to the initial cash
capitalization of PhotoWave for the remaining equity. The book value of the
assets contributed approximated the value placed on the investment.

      The Company recognized losses of $28,000 and $72,000, respectively, during
the periods ended December 31, 1998 and 1999 for its equity basis interest in
the results of operations of PhotoWave, which are presented as equity losses in
the Company's Consolidated Statements of Operations. Equity-basis losses reduced
the carrying value of the Company's investment to $-0- as of December 31, 1999.

      On June 14, 2000, Allin Digital sold all of its 20 shares of common stock
of PhotoWave. Allin Digital recorded a gain of approximately $137,000 on the
sale of the PhotoWave stock.

13. Line of Credit and Notes Payable:

      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 has 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
trade accounts receivable aged sixty days or less from the date of invoice.
Accounts receivable qualifying for inclusion in the borrowing base will be net
of any prepayments, progress payments, deposits or retention and must not be
subject to any prior assignment, claim, lien, or security interest. The S&T Loan
Agreement had an original term of one year, but has been renewed for two
successive one-year periods. The expiration date of the S&T Loan Agreement is
September 30, 2001. As of December 31, 2000, maximum borrowing availability was
approximately $2,906,000.

      Borrowings are permitted under the S&T Loan Agreement for general working
capital purposes, and were also originally permitted 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. The Company has from time to time
borrowed and subsequently repaid amounts under the revolving credit loan. As of
December 31, 1999 and 2000, the balances outstanding on the line of credit were
$650,000 and $2,155,000, respectively.


                                      -83-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      Loans made under the S&T Loan Agreement bear interest at the bank's prime
interest rate plus one percent. Since the initial borrowing under the credit
facility on October 2, 1998, the applicable interest rate has varied from a low
of 8.75% to a high of 10.50%, which was the applicable rate as of December 31,
2000. Interest payments due on any outstanding loan balances are to be made
monthly on the first day of the month. Interest expense of approximately
$24,000, $73,000 and $102,000, respectively, related to the line of credit
borrowings was recorded during the periods ended December 31, 1998, 1999 and
2000. The principal will be due at maturity, although any outstanding principal
balances may be repaid in whole or part at any time without penalty.

      The S&T Loan Agreement includes various covenants relating to matters
affecting the Company including cash flow to interest ratio, insurance coverage,
financial accounting practices, audit rights, prohibited transactions, dividends
and stock purchases. The amendment renewing the line of credit as of October 1,
1999 changed the measurement period for the cash flow coverage covenant. The
cash flow coverage ratio is measured for each of the Company's fiscal quarters
beginning October 1, 1999. Previously, the ratio had been computed monthly based
on the most recent six months' results. S&T Bank waived the cash flow coverage
covenant during the initial term of the loan for periods during which the
Company was not in compliance. S&T Bank also waived the cash flow coverage
covenant during the loan renewal periods for the second, third and fourth
quarters of 2000. The Company would not have otherwise met the cash flow
covenant requirements for those quarterly periods. As of December 31, 2000, the
Company is in compliance with all other covenants under the amended S&T Loan
Agreement.

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

      On May 31, 1999, the outstanding principal balance of $1,926,000 of a
promissory note related to the acquisition of Allin Consulting-Pennsylvania was
exchanged for 1,926 shares of the Company's Series E Convertible Redeemable
Preferred Stock. The note bore interest at a rate of 6% per annum. Approximately
$50,000 of interest expense was recorded in the period ended December 31, 1999
related to this note. All interest due under the note has been paid as of
December 31, 1999. See Notes 3 and 7.

      Non-current portion of notes payable on the Consolidated Balance Sheet as
of December 31, 1999 and 2000, respectively, included a note payable of
$1,000,000 related to the acquisition of Allin Consulting-California. The note
bears interest at a rate of 7% per annum. Accrued interest as of May 31, 1999
was paid on April 1, 2000. Quarterly interest payments began April 14, 2000.
Approximately $99,000 and $128,000, respectively, of interest expense was
recorded in the periods ended December 31, 1999 and 2000 related to this note.
See Notes 3 and 7.

      Allin Consulting-Pennsylvania acquired certain office equipment under a
capital lease. As of December 31, 1999, current and non-current principal
obligations under the lease were approximately $2,000 each. As of December 31,
2000, current principal obligations under the lease were approximately $2,000.
Principal payments due under the capital lease are reflected as current and
non-current portions of notes payable on the Consolidated Balance Sheets. The
lease matures in October 2001.


                                      -84-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

14. 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 restructuring charge of approximately $24,000 was recorded in July 2000
to establish a liability for severance costs associated with the termination of
services of a sales and managerial executive associated with the legacy
technology consulting services provided by the Company. Associated expenses are
reflected in Selling, general & administrative expenses on the Consolidated
Statement of Operations during this period. As of December 31, 2000, all of the
amount accrued under the July 2000 charge had been paid.

      Restructuring charges of approximately $70,000 were recorded in February
2000 to establish a liability for severance costs associated with the
termination of services of two managerial personnel associated with the legacy
technology consulting services provided by the Company. Associated expenses are
reflected in Selling, general & administrative expenses on the Consolidated
Statement of Operations during this period. As of December 31, 2000, all of the
amount accrued under the February 2000 charges had been paid.

      An accrual of approximately $81,000 was recorded as of December 3, 1999 to
establish a liability for severance costs associated with an involuntary
employee termination. Associated expenses were recorded in Selling, general &
administrative expenses on the Consolidated Statement of Operations during this
period. The involuntary termination involved an individual responsible for
management of one of Allin Consulting-California's technology consulting
solution areas. As of December 31, 1999 and 2000, none and all, respectively, of
the amount accrued had been paid. The accrued balance is included in accrued
compensation and payroll taxes on the Consolidated Balance Sheet as of December
31, 1999.

      A restructuring charge of approximately $208,000 was recorded as of
January 12, 1999 to establish a liability for severance costs associated with
the termination of services of the Company's president. During the quarterly
period ended December 31, 1999, additional expense of approximately $18,000 was
recorded to adjust the restructuring charge previously recorded. Associated
expenses are reflected in Selling, general & administrative expenses on the
Consolidated Statements of Operations during these periods. As of December 31,
1999, approximately $201,000 of the amount accrued under the January 12, 1999
charge had been paid. The remaining balance, approximately $25,000, is included
in accrued compensation and payroll taxes on the Consolidated Balance Sheet as
of December 31, 1999. Severance payments under this plan were completed by
February 2000.

      A restructuring 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 ceased
employment with the Company. As of December 31, 1998, approximately $463,000 of
the amount accrued under the February 4, 1998 charge had been paid. The
remaining balance, approximately $28,000, was included in accrued compensation
and payroll taxes on the Consolidated Balance Sheet as of December 31, 1998. As
of December 31, 1999, all of the amount accrued under the February 4, 1998
reorganization charge had been paid.


                                      -85-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

15. Lease Commitments

      The Company leases office space and equipment under operating leases that
expire at various times through 2004. Minimum future annual rental commitments
for all non-cancelable operating leases as of December 31, 2000 are as follows:

      Minimum Future Lease Payments

      2001                                                      $  539,000
      2002                                                         244,000
      2003                                                         203,000
      2004                                                          16,000
      2005                                                           5,000
                                                                ----------

      Total                                                     $1,007,000
                                                                ==========

16. Royalty Agreement

      Allin Interactive's contracts with certain cruise lines for operation of
interactive television systems provided for specified royalty payments based
upon adjusted gross revenue, as defined in the respective agreements. Royalty
expenses of approximately $55,000, $42,000, and $16,000 are included with
Selling, general and administrative expenses in the accompanying Consolidated
Statements of Operations for the years ended December 31, 1998, 1999, and 2000,
respectively.

17. Sale of Celebrity Ship Interactive Television Systems

      During August 1999, Allin Interactive entered an agreement with Celebrity
Cruises, Inc. ("Celebrity") providing for Celebrity's purchase for approximately
$2,400,000 of the four interactive television systems previously owned by Allin
Interactive and operated on Celebrity ships. Sale proceeds were received by
Allin Interactive subsequent to satisfactory joint inspections of the systems by
Allin Interactive and Celebrity. Two ship system sales were completed in each of
August and September 1999.

      Allin Interactive and Celebrity also entered related agreements providing
for operation and maintenance of the interactive systems to be sold. Upon
satisfactory joint inspection of, and Celebrity's payment for, each interactive
system, operational responsibility for that system shifted from Allin
Interactive to Celebrity. Transactional revenue from pay-per-view movies, video
gaming and management fees was terminated for Allin Interactive after the
transfer of operational responsibility for each ship to Celebrity. Celebrity
also assumed responsibility for operational staffing for each interactive system
upon transfer of operational responsibility. The agreements between Allin
Interactive and Celebrity also provided for transfer of operational
responsibility for the interactive television system aboard the M.V. Mercury,
which had previously been owned by Celebrity, but which had been operated by
Allin Interactive on financial terms identical to the other systems operated on
Celebrity vessels. Operational responsibility for the M.V. Mercury system
transferred in September 1999 upon Celebrity's notice that it was prepared to
assume operations. Allin Interactive lost transactional revenue and management
fees subsequent to the transfer of operational responsibility for the M.V.
Mercury system.

      Under the August 1999 maintenance agreement between Allin Interactive and
Celebrity, Allin Interactive was to provide ongoing technical support for the
five interactive television systems on Celebrity ships for a minimum period of
six months following completion of all system sales and transfers of operational
responsibility. The minimum maintenance period ended March 17, 2000. Revenue for
the four interactive television system sales was recognized over the minimum
period of the maintenance agreement concurrent with Allin Interactive's ongoing
technical maintenance obligation. The net book values of the four owned systems
were recognized as cost of sales over the minimum period of the maintenance
obligation.


                                      -86-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      Allin Interactive earned fixed monthly maintenance fees under the August
1999 maintenance agreement through October 2000. Beginning in November 2000,
technical support services are being provided in accordance with purchase orders
provided by the customers. The purchase orders provide for hourly fees subject
to a minimum quarterly fee for each ship.

18. Income Taxes

      The Company accounts for income taxes in accordance with the provisions of
SFAS No. 109. The components of the deferred tax assets and liabilities, as of
December 31, 1999 and 2000, are as follows:

       Assets (liabilities)                           December 31,  December 31,
                                                          1999          2000
                                                      ------------  ------------
      (Dollars in thousands)
Net operating loss carryforward                         $ 7,095       $ 6,265
Deferred revenue                                            217           217
Intangible asset differences                                717         1,881
Restricted stock grant                                       --           161
Fixed assets                                                447           371
Research and development                                   (247)         (247)
Miscellaneous reserves                                      401          (167)

Valuation allowance                                      (8,630)       (8,481)
                                                        ---------------------

Net deferred income taxes from operations               $    --       $    --
                                                        =====================

      The deferred income taxes liability balance of $81,000 as of December 31,
1999 relates to a tax liability of Allin Consulting-Pennsylvania from
pre-acquisition operations that was assumed by the Company as a component of the
purchase price. The Company was able to utilize tax losses generated from its
operations to offset this tax liability without a cash payment. Consequently,
the Company reversed the accrued liability resulting in the recording of a
benefit from income taxes of $81,000 in the year ended December 31, 2000.

      As of December 31, 2000, the Company had available for federal and state
income tax purposes, net operating loss carryforwards of approximately
$21,416,000 and $13,935,000, respectively, which are scheduled to expire at
various times from 2004 through 2020.

      The realization of the above tax benefits depends on the Company's ability
to generate future taxable income. The Company has established valuation
allowances as of December 31, 1999 and 2000 to offset the deferred tax benefits
related to the net operating loss carryforwards.

      Currently payable state income taxes of certain subsidiaries of
approximately $3,000, along with the benefit resulting from reversal of a
deferred tax liability noted above, resulted in the recognition of a net benefit
from income taxes of approximately $79,000 for the year ended December 31, 2000.
The fiscal 1999 income tax provision of approximately $10,000 consists of
currently payable state income taxes of certain subsidiaries. No income tax
provision was recorded in fiscal 1998.


                                      -87-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

19. Related Party Transactions:

Shareholder Notes Payable

      The acquisition of Allin Consulting-Pennsylvania in August 1998 included
two promissory notes issued by the Company in the amounts of $6,200,000 and
$2,000,000, respectively, to a former shareholder of Allin
Consulting-Pennsylvania who is currently a shareholder and director of the
Company. The secured promissory note for $6,200,000 bore interest at 5% per
annum and was paid in full in October 1998. The second secured promissory note
bore interest at 6% per annum. During March and April 1999, the note was offset
by approximately $74,000 for Allin Consulting-Pennsylvania's payment of tax
liabilities related to the pre-acquisition period. On May 31, 1999, the
outstanding balance of this note, approximately $1,926,000, was exchanged for
1,926 shares of the Company's Series E Convertible Redeemable Preferred Stock.
The Series E preferred stock subsequently converted into 942,141 shares of the
Company's common stock on August 13, 2000. The Company recorded interest expense
of approximately $89,000 and $50,000, respectively, and made interest payments
of approximately $59,000 and $80,000, respectively, during the periods ended
December 31, 1998 and 1999 related to these notes. See Notes 3, 7 and 13 for
additional information concerning these notes, the exchange for preferred stock
and dividends earned on Series E preferred stock.

      In November 1998, the Company and the former sole shareholder of Allin
Consulting-California, who is currently a shareholder and formerly the President
of the Company, reached agreement on an amendment to modify the terms of a
promissory note for contingent payments related to the acquisition of Allin
Consulting-California. Under the amendment, the amount of the payment was fixed
at $2,000,000. The amended note provides for interest at the rate of 7% per
annum from the acquisition date of November 6, 1996. During 1998, the Company
recorded $280,000 as additional purchase consideration for the interest due from
acquisition to amendment of the note. Approximately $21,000 of interest expense
was also accrued related to this note in 1998. On May 31, 1999, the former sole
shareholder of Allin Consulting-California agreed to a reduction in note
principal balance of $1,000,000 in exchange for 1,000 shares of the Company's
Series F Convertible Redeemable Preferred Stock. The amended note originally
provided for principal payments of $500,000 on April 15, 2000 and October 15,
2000. However, the Company had the sole option to defer payment of principal
until April 15, 2005, which it did. Accrued interest as of May 31, 1999 of
approximately $390,000 was paid in April 2000. Payment of interest accrued in
the preceding calendar quarter also began in April 2000. Quarterly interest
payments of approximately $63,000 were made in 2000. Approximately $99,000 and
$128,000 of interest expense was accrued in 1999 and 2000, respectively, related
to this note. See Notes 3, 7 and 13 for additional information concerning this
note and the exchange for preferred stock.

Notes Receivable from Employees

      At December 31, 1999 and 2000, the Company had two and one, respectively,
notes due from employees. Outstanding balances on these notes were approximately
$17,000 and $3,000 at December 31, 1999 and 2000, respectively. Both notes bear
interest at fixed rates of 7%.

Services and Products Sold to Related Parties

      During 1998, Allin Consulting-California provided computer network
consulting services to three entities in which certain shareholders, directors
and an officer of the Company own or owned interests. Fees charged were
approximately $22,000. During 1999, computer network consulting services of
approximately $4,000 were provided to one of these entities. No services were
provided to related parties by Allin Consulting-California in 2000.

      During 1999, Allin Consulting-Pennsylvania provided computer network
consulting services to two entities in which certain shareholders, directors and
an officer of the Company own or owned interests. Fees charged were
approximately $8,000. During 2000, computer network consulting services of
approximately $46,000 were provided to one of these entities.


                                      -88-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      During 1998 and 1999, Allin Network sold computer hardware and components
to two entities in which certain shareholders, directors and an officer of the
Company own or owned interests. Revenue from these sales was approximately
$30,000 and $1,000 in 1998 and 1999, respectively.

      During 1999, Allin Digital sold and installed a digital imaging system to
an entity in which a director of the Company has an ownership interest. Allin
Digital recorded revenue related to this sale of approximately $44,000 in 1999.
Allin Digital also recognized revenue of approximately $1,000 for technical
support for this entity in 2000.

      During the fiscal year ended December 31, 1999, Allin
Consulting-Pennsylvania performed technology consulting services for two
entities for which a director of the Company serves as an executive officer.
Fees charged these entities were approximately $27,000 and $1,000, respectively
for the fiscal year ended December 31, 1999.

      During 2000, Allin Interactive sold interactive television equipment to an
entity in which a director of the Company has an ownership interest. Revenue
from these sales was approximately $1,000.

Sale of Technical Support Contracts

      In October 2000, Allin Consulting-California sold rights to perform
technical support services under certain contracts to an entity in which a
shareholder and former President of the Company has an ownership interest. The
sale is effective for services performed subsequent to December 31, 2000. Allin
Consulting-California will receive percentages of certain revenue to be realized
by the related entity during the period from January 1, 2001 through December
31, 2005, including fifteen percent of the contractual backlog for services
remaining to be performed for contracts in place as of December 31, 2000, ten
percent of any additional revenue derived from clients with contracts in place
as of December 31, 2000, and five percent of any revenue earned from certain
former clients of Allin Consulting-California, as specified in the agreement. As
of December 31, 2000, the backlog for services remaining to be performed under
sold contracts was approximately $113,000. The agreement also provides for a
management fee to the related entity equal to 10% of the revenue earned by Allin
Consulting-California during November and December 2000 under the contracts sold
for the related entity's assistance in managing the technical support services
provided during this period. Allin Consulting-California has recorded expense of
approximately $12,000 for year ended December 31, 2000 for the management fees.

Lease Arrangements

      The Company leases office space from an entity in which certain
shareholders have an ownership interest. Rental expense under this arrangement
was approximately $295,000, $302,000 and $284,000 for the years ended December
31, 1998, 1999 and 2000, respectively. The current lease was effective as of
February 1, 1997 with a term of five years to expire on January 31, 2002. In
1997 and 1998, an agreement was reached among the Company, the lessor and a
third party for sublet of two portions of the office space, terminating any
liability of the Company for the sublet space for the remaining term of the
lease. The Company assumed responsibility for design and build-out costs
associated with the sublet agreements. In 1998, these costs approximated $52,000
and included approximately $13,000 in fees for an entity in which certain
shareholders of the Company have an interest. As of December 31, 2000, minimum
lease commitments under the lease were approximately $296,000.

      The Company provided office space on a month to month basis during 1998 to
an entity in which a former director had an interest. Rental charges were
approximately $2,000 during 1998.

      Allin Consulting-California leased office space from a shareholder and
former President of the Company. Rental expense was approximately $65,000 and
$41,000, respectively, for the years ended December 31, 1998 and 1999. No rent
expense was recorded in 2000 and Allin Consulting-California no longer occupies
the office space.


                                      -89-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Transactions related to PhotoWave

      During 1998 and 1999, Allin Digital and Allin Interactive sold digital
photography equipment and supplies and computer hardware to PhotoWave. Allin
Digital also sold digital photography equipment to PhotoWave in 2000. From March
1998 until June 2000, Allin Digital held a non-consolidated equity interest in
PhotoWave. A director of the Company has held an equity interest in PhotoWave
since March 1998. The Company's Chairman of the Board served as a director of
PhotoWave from 1998 to 2000. Another director of the Company has held an
ownership interest in PhotoWave and has served as a director of PhotoWave since
1998. Sales were approximately $101,000, $53,000 and $20,000 during the years
ended December 31, 1998, 1999 and 2000, respectively.

      Allin Digital also has a commission-based referral agreement with
PhotoWave under which PhotoWave earns commissions for referral of customers to
Allin Digital. Commissions earned by PhotoWave under this agreement were
$38,000, $39,000 and $13,000 during the years ended December 31, 1998, 1999 and
2000, respectively.

      On June 14, 2000, Allin Digital sold all of its 20 shares of common stock
of PhotoWave. The purchaser was a director of the Company, who has also been a
shareholder of PhotoWave since 1998. Proceeds received related to the sale of
PhotoWave stock were approximately $144,000. Allin Digital recorded a gain of
approximately $137,000 on the sale of the PhotoWave stock.

Services and Products Purchased from Related Parties

      Certain shareholders, a director, a former director and an officer of the
Company have an equity interest in an entity which performed services for the
Company and its subsidiaries related to visual media. Charges for these services
were approximately $13,000 for the year ended December 31, 1998.

      Another entity in which a director and former officers of the Company have
an equity interest performed commercial printing services for the Company and
its subsidiaries. Charges for these services were approximately $8,000, $3,000
and $200 for the periods ended December 31, 1998, 1999 and 2000, respectively.

      An entity in which a shareholder and former President of the Company has
an interest provides technical consulting services to the Company. Charges for
these services were approximately $15,000 and $36,000, respectively, for the
periods ended December 31, 1999 and 2000.

      Data storage services were received from an entity in which certain
shareholders of the Company have an equity interest. Charges for these services
were approximately $3,000 and $1,000 for the periods ended December 31, 1998 and
1999, respectively.

Sale of SportsWave

      In order to facilitate the sale of SportsWave in September 1998, the
Company and the former shareholders of SportsWave agreed to a settlement of any
contingent liability related to the earn-out provisions of the original stock
purchase agreement for the Company's acquisition of SportsWave in 1996. The
former shareholders of SportsWave include a former director, a director and
officer and two shareholders of the Company, who in October 1998, received
payments of $30,000, $12,000, $318,000 and $198,000, respectively, related to
this liability settlement.


                                      -90-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

20. Subsequent Events:

Settlement of Contingent Purchase Consideration for MEGAbase Acquisition

      The agreement for the 1998 purchase of MEGAbase provided for contingent
payments to be determined on the basis of Allin Consulting-California's 1999
Development Practice Gross Margin (as defined in the stock purchase agreement
for the acquisition). The Company and the former MEGAbase sole shareholder,
however, were unable to agree upon the calculation of Allin
Consulting-California's Development Practice Gross Margin for 1999 and the
Company initiated litigation to resolve the matter. In January 2001, the Company
and the former MEGAbase sole shareholder reached a settlement concerning
contingent payments. On January 26, 2001 the Company made a cash payment of
$60,000 and issued 14,225 shares of its common stock to the former MEGAbase sole
shareholder. The Nasdaq market price of the Company's common stock on the date
of issuance was $1.406 per share. The additional purchase consideration of
$80,000 is being recorded in January 2001 as additional cost of the acquired
enterprise, which will result in additional goodwill being recorded on Allin
Consulting-California. The additional goodwill will be amortized over the
estimated remaining life of goodwill associated with the MEGAbase acquisition,
approximately 4.8 years.

Issuance of Options for Common Stock

      During the first quarter of 2001, the Company awarded options to purchase
37,000, 40,000, 97,500 and 75,000 common shares, respectively, under the 1996,
1997, 1998 and 2000 Plans.

Contracts with Carnival Corporation

      In February 2001, Allin Interactive and Carnival Corporation entered
several related contracts. Allin Interactive will design and develop an
interactive television system and interactive television applications for
Carnival Corporation. Allin Interactive will install the interactive television
system and applications developed for Carnival Corporation on six Carnival
Cruise Lines ships. Allin Interactive will also have the opportunity to deliver
ship-based interactive television solutions to other Carnival Corporation
affiliates, although no system orders have been committed to date with the other
Carnival Corporation affiliates. Allin Interactive anticipates a majority of the
interactive television system design and development services and system
installations currently awarded under the contracts with Carnival Corporation
will be performed in 2001, with the remainder being performed in 2002.

21. Industry Segment Information

      The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" as of December 31, 1998. SFAS No. 131
introduced a new model for segment reporting called the "management approach".
The management approach is based on the way the chief operating decision maker
organizes segments within a company for making decisions and assessing
performance.

Basis for Determining Segments

      Segments to be reported will fall under two groups, Solution Area Services
and Ancillary Services & Product Sales. The Company's operations and
management's evaluations are primarily oriented around solution areas meeting
customer needs for Microsoft-based technology services. Solution area services
comprise the substantial majority of the Company's current activities and are
most closely associated with its strategic focus. Grouping the solution area
services in segment reporting emphasizes their commonality of purpose in meeting
the core marketing strategy of the Company. Beginning in 2001, however, the
Company has changed its solution area structure to reflect changes in
technology, customers' maturing integration of electronic business capabilities
with ongoing business operations and the Company's desire to simplify its
marketing message. Accordingly, the Company's E-Business Solution Area now
reflects the combined consulting activities consistent with the Company's
Microsoft-based technology focus that would have been reflected as Business
Operations, Knowledge Management and Electronic Business Solution Areas under
the previous solution area structure. The Company also


                                      -91-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

performs technology consulting services for certain legacy technologies,
including IBM proprietary mainframe systems and Hogan IBA software applications,
which are specialized products for the banking industry. The management of
legacy technology consulting services was performed by the Business Operations
Solutions Area under the previous solution area structure, but is not part of
the activities falling under the E-Business Solution Area in the current
solution area structure due to the Company's management's desire for E-Business
to concentrate on projects more closely consistent with the Company's
Microsoft-based technology focus. Consequently, legacy technology consulting
services are shown separately under the new solution area structure. This
presentation represents a change from the segments previously reported as
Solution Area Services. To enhance comparability of the segment information with
reporting of results of the Company's future operations, information as of
December 31, 1998, 1999 and 2000 and for the years then ended has been restated
to conform to the new solution area structure.

      In connection with its solutions-oriented services, clients will request
that the Company also provide technology-related products necessary for
implementation or ongoing use of technology solutions recommended and
implemented by the solution areas. To ensure client satisfaction, the Company
maintains an ancillary capability to provide sales of information system and
digital imaging products, equipment and supplies. The Company also continues to
operate two interactive television systems as a result of a discontinued
operating model. The segment group Ancillary Services & Product Sales will
include these activities which are ancillary to or outside of the Company's
current strategic focus.

      The reportable segments reflect aggregated solution area activity across
the Company's subsidiaries due to the similarity in nature of services,
production processes, types of customers and distribution methods for each
solution area. Segments grouped as Solution Area Services include Technology
Infrastructure Consulting, E-Business Consulting, three segments related to the
Interactive Media Solution Area (Interactive Media Consulting, Interactive Media
Systems Integration and Digital Imaging Systems Integration), and Legacy
Technology Consulting. Solution area services are provided by Allin
Consulting-California, Allin Consulting-Pennsylvania, Allin Interactive and
Allin Digital.

      Segments grouped as Ancillary Services & Product Sales include Interactive
Television Transactional Revenue & Management Fees, Digital Photography Product
Sales, Information System Product Sales and Other Services. Ancillary services
are provided by all of the Company's operating subsidiaries. Ancillary product
sales are provided by Allin Interactive, Allin Digital and Allin Network.

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 Operations and Consolidated Balance Sheets. There are no
differences in measurement method.


                                      -92-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Revenue

      Information on revenue derived from external customers is as follows:

(Dollars in thousands)                           Revenue from External Customers
Periods ended December 31                          1998        1999        2000
                                                 -------     -------     -------

Solution Area Services:
  Technology Infrastructure Consulting           $ 3,971     $ 2,911     $ 3,817
  E-Business Consulting                            2,007       2,340       2,166
  Interactive Media:
    Interactive Media Consulting                      22         758       1,283
    Interactive Media Systems Integration            327       3,068       5,914
    Digital Imaging Systems Integration              847       1,520       1,844
  Legacy Technology Consulting                     4,507      11,537       6,692
                                                 -------------------------------
Total Solution Area Services                     $11,681     $22,134     $21,716

Ancillary Services & Product Sales:
  Interactive Television Transactional
    Revenue & Management Fees                    $ 3,023     $ 1,614     $   436
  Digital Imaging Product Sales                      251         752       1,096
  Information System Product Sales                   306         308         422
  Other Services                                      30         169         419
                                                 -------------------------------
Total Ancillary Services & Product Sales         $ 3,610     $ 2,843     $ 2,373

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

Consolidated Revenue from External Customers     $15,291     $24,977     $24,089
                                                 ===============================

      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 services performed
for related entities into further segments, as it does with revenue from
external customers. Information on revenue derived from services for related
entities in other segments is as follows:

(Dollars in thousands)                             Revenue from Related Entities
Periods ended December 31                           1998        1999       2000
                                                   -----------------------------

Solution Area Services                             $  806      $  264     $  247
Ancillary Services & Product Sales                    406         275        159
                                                   -----------------------------

Total Revenue from Related Entities
  in Other Segments                                $1,212      $  539     $  406
                                                   =============================


                                      -93-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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
Periods ended December 31                                1998          1999         2000
                                                       ----------------------------------
<S>                                                    <C>           <C>          <C>
Solution Area Services:
  Technology Infrastructure Consulting                 $ 1,588       $ 1,461      $ 2,260
  E-Business Consulting                                    760           916          979
  Interactive Media:
    Interactive Media Consulting                            11           396          874
    Interactive Media Systems Integration                   16         1,463        1,980
    Digital Imaging Systems Integration                    137           311          382
  Legacy Technology Consulting                           1,229         3,205        1,815
                                                       ----------------------------------
Total Solution Area Services                           $ 3,741       $ 7,752      $ 8,290

Ancillary Services & Product Sales:
  Interactive Television Transactional
    Revenue & Management Fees                          $ 2,711       $ 1,346      $   297
  Digital Imaging Product Sales                             18           117          157
  Information System Product Sales                          42            48          106
  Other Services                                            (2)          156          166
                                                       ----------------------------------
Total Ancillary Services & Product Sales               $ 2,769       $ 1,667      $   726
                                                       ----------------------------------
Consolidated Gross Profit from External Customers      $ 6,510       $ 9,419      $ 9,016
                                                       ==================================
</TABLE>


                                      -94-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Assets

      Information on total assets attributable to segments is as follows:

(Dollars in thousands)                                    Total Assets
As of December 31                                1998         1999         2000
                                               ---------------------------------

Solution Area Services:
  Technology Infrastructure Consulting         $ 7,837      $ 4,967      $ 6,574
  E-Business Consulting                          3,964        1,808        1,618
  Interactive Media:
    Interactive Media Consulting                    27           89          486
    Interactive Media Systems Integration          397        1,893        3,275
    Digital Imaging Systems Integration            464          819          814
  Legacy Technology Consulting                   8,892       11,498        8,447
                                               ---------------------------------
Total Solution Area Services                   $21,581      $21,074      $21,214

Ancillary Services & Product Sales:
  Interactive Television Transactional
    Revenue & Management Fees                  $ 2,124      $   539      $   262
  Digital Imaging Product Sales                    138          415          540
  Information System Product Sales                  57           19           83
  Other Services                                    59           --          135
                                               ---------------------------------
Total Ancillary Services & Product Sales       $ 2,378      $   973      $ 1,020

Corporate & Other                                2,353        1,979        2,048
                                               ---------------------------------

Consolidated Total Assets                      $26,312      $24,026      $24,282
                                               =================================


                                      -95-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      Information on net property and equipment attributable to segments is as
follows:

(Dollars in thousands)                            Property & Equipment (net)
As of December 31                                1998         1999         2000
                                               ---------------------------------

Solution Area Services:
  Technology Infrastructure Consulting         $   273      $   155      $   140
  E-Business Consulting                            140           37           40
  Interactive Media:
    Interactive Media Consulting                    11           48           36
    Interactive Media Systems Integration          169          194          155
    Digital Imaging Systems Integration            135           93           59
  Legacy Technology Consulting                     311          274          162
                                               ---------------------------------
Total Solution Area Services                   $ 1,039      $   801      $   592

Ancillary Services & Product Sales:
 Interactive Television Transactional
   Revenue & Management Fees                   $ 1,410      $   171      $    97
 Digital Imaging Product Sales                      40           28           20
 Information System Product Sales                    3            2            3
 Other Services                                     --           --           --
                                               ---------------------------------
Total Ancillary Services & Product Sales       $ 1,453      $   201      $   120

Corporate & Other                                  592          499          399
                                               ---------------------------------

Consolidated Property & Equipment (net)        $ 3,084      $ 1,501      $ 1,111
                                               =================================


                                      -96-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      Information on property and equipment additions attributable to segments
is as follows:

(Dollars in thousands)                          Property & Equipment Additions
As of December 31                                1998         1999         2000
                                               ---------------------------------

Solution Area Services:
  Technology Infrastructure Consulting         $    --      $    18      $    74
  E-Business                                        88           12           45
  Interactive Media:
    Interactive Media Consulting                    --           30           17
    Interactive Media Systems Integration            8          121           79
    Digital Imaging Systems Integration              3           28            9
  Legacy Technology Consulting                     202           18           --
                                               ---------------------------------
Total Solution Area Services                   $   301      $   227      $   224

Ancillary Services & Product Sales:
  Interactive Television Transactional
    Revenue & Management Fees                  $     3      $    --      $    --
  Digital Imaging Product Sales                     --            3            6
  Information System Product Sales                   3           --           --
  Other Services                                    --           --           --
                                               ---------------------------------
Total Ancillary Services & Product Sales       $     6      $     3      $     6

Corporate & Other                                   65          144          214
                                               ---------------------------------

Consolidated Property & Equipment Additions    $   372      $   374      $   444
                                               =================================

Geographic Information

      Domestic revenue is attributed to geographic areas based on the location
of services performed or the location from which products are shipped to
customers. International revenue is attributable to the location where
technology consulting or interactive media systems integration services are
performed for all services performed on land or in port for extended periods.
For interactive media systems integration, transactional revenue and management
fees generated on sailing ships, revenue is attributed to domestic and
international ports and at sea based on the proportion of time of the ships'
itineraries spent in the various locations and at sea. Information on
consolidated revenue attribution to geographic areas is as follows:


                                      -97-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(Dollars in thousands)                          Revenue from External Customers
Period ended December 31                         1998         1999         2000
                                               ---------------------------------

Domestic Revenue:
  Northeastern United States                   $ 3,626      $ 7,335      $ 5,816
  Midwestern United States                       1,639        3,395        2,480
  Southern United States                           897        3,909        6,983
  Western United States                          6,389        8,307        7,101
                                               ---------------------------------
Total Domestic Revenue                         $12,551      $22,946      $22,380

International & At Sea Revenue:
  Caribbean Islands                            $   440      $   214      $    47
  Mexico                                           134           70           16
  Bermuda                                          141           64           --
  Germany                                           --            1          112
  France                                            --            2          628
  Finland                                           --          700          562
  Other International                              131           54            8
  At Sea                                         1,894          926          336
                                               ---------------------------------
Total International & At Sea Revenue           $ 2,740      $ 2,031      $ 1,709

                                               ---------------------------------
Consolidated Revenue from External Customers   $15,291      $24,977      $24,089
                                               =================================

      Long-lived assets are attributed based on physical locations of the
property and equipment. Property and equipment is located primarily where the
Company maintains offices for its operations, including Pittsburgh,
Pennsylvania, San Jose and Walnut Creek, California and Ft. Lauderdale, Florida.
Shipboard interactive television system equipment owned by the Company is
reflected as "At Sea" equipment. The Company does not maintain any foreign
offices or facilities and will maintain any of its property and equipment at
foreign locations only for the duration of a consulting engagement or systems
integration project.

(Dollars in thousands)                            Property & Equipment (net)
As of December 31                                1998         1999         2000
                                               ---------------------------------

Domestic Locations:
  California                                   $   575      $   471      $   337
  Florida                                          375          272          215
  Ohio                                              18           --           --
  Pennsylvania                                     926          672          544
                                               ---------------------------------
Total Domestic Locations                       $ 1,894      $ 1,415      $ 1,096

At Sea                                         $ 1,190      $    86      $    15
                                               ---------------------------------

Consolidated Property & Equipment (net)        $ 3,084      $ 1,501      $ 1,111
                                               =================================


                                      -98-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Information about Major Customers

             Revenue (Dollars in   % Consolidated
                 thousands)            Revenue           Segments Included
                 ----------            -------           -----------------

Period Ended December 31, 1998

                    1,834                12%        Interactive Television:
                                                    Systems Integration &
                                                    Consulting, Transactional
                                                    Revenue & Management Fees

Period Ended December 31, 1999

                    2,568                10%        Legacy Technology Consulting

Period Ended December 31, 2000

                    2,768                11%        Interactive Television:
                                                    Systems Integration &
                                                    Consulting, Information
                                                    System Product Sales


                                      -99-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

22. Unaudited Quarterly Financial Information

      The data for the quarterly periods ended March 31, June 30 and September
30, 1999 and 2000, respectively, reflects the data presented in the Company's
filings on Form 10-Q for those periods. Comparable data is presented for the
three-month periods ended December 31, 1999 and 2000.

<TABLE>
<CAPTION>
      Dollars in thousands except                          Three Months Ended
            per share data                    ------------------------------------------------
                                                                1999
                                              ------------------------------------------------
                                              March 31   June 30     September 30  December 31
                                              ------------------------------------------------
<S>                                           <C>        <C>           <C>           <C>
Revenue                                       $ 6,133    $ 6,628       $ 6,118       $ 6,098
Gross Profit                                    2,311      2,202         2,313         2,593
Loss from operations                             (762)      (909)         (458)         (293)
Loss from continuing operations                  (856)    (1,013)         (523)         (285)
(Gain) loss from discontinued operations           (5)         3            --             1

Net loss                                      $  (851)   $(1,016)      $  (523)      $  (286)
                                              ================================================
Net loss applicable to common shares          $  (951)   $(1,310)      $  (675)      $  (439)
                                              ================================================

Net loss per common share from continuing
operations                                    $ (0.16)   $ (0.22)      $ (0.11)      $ (0.07)
                                              ================================================
Net loss per common share from discontinued
operations                                    $  0.00    $  0.00       $  0.00       $  0.00
                                              ================================================
Net loss per common share - basic and
diluted                                       $ (0.16)   $ (0.22)      $ (0.11)      $ (0.07)
                                              ================================================

<CAPTION>
      Dollars in thousands except                          Three Months Ended
            per share data                    ------------------------------------------------
                                                                  2000
                                              ------------------------------------------------
                                              March 31   June 30     September 30  December 31
                                              ------------------------------------------------
<S>                                           <C>        <C>           <C>           <C>
Revenue                                       $ 7,087    $ 5,560       $ 4,773       $ 6,668
Gross Profit                                    2,989      1,810         1,828         2,388
Income (loss) from operations                      84     (1,016)       (1,173)         (716)

Net income (loss)                             $    19    $(1,059)      $(1,220)      $  (694)
                                              ================================================
Net loss applicable to common shares          $  (134)   $(1,213)      $(1,362)      $  (882)
                                              ================================================

Net loss per common share - basic
and diluted                                   $ (0.02)   $ (0.20)      $ (0.21)      $ (0.13)
                                              ================================================
</TABLE>


                                     -100-
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of Allin Corporation:

We have audited the accompanying consolidated balance sheets of Allin
Corporation (a Delaware corporation) and subsidiaries as of December 31, 2000
and 1999, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Allin Corporation and
subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.


                                                          /s/ARTHUR ANDERSEN LLP

Pittsburgh, Pennsylvania
February 26, 2001


                                     -101-
<PAGE>

Item 9 - Changes in and Disagreements With Accountants on Accounting and
         Financial Disclosure

      None.

Part III

Item 10 - Directors and Executive Officers of the Registrant

      The following table sets forth certain information concerning each of the
directors and executive officers of the Company. Ages are given as of March 16,
2001.

Name                               Age            Position with the Company
----                               ---    --------------------------------------
Richard W. Talarico.........       45     Chairman of the Board and Chief
                                          Executive Officer
Timothy P. O'Shea .........        37     President
Dean C. Praskach ..........        43     Chief Financial Officer, Treasurer
                                          and Secretary
Brian K. Blair(2)...........       38     Director
Anthony L. Bucci(1).........       52     Director
William C. Kavan(1).........       50     Director
James S. Kelly, Jr.(2)......       50     Director
Anthony C. Vickers..........       51     Director

(1)   Member of Compensation Committee.

(2)   Member of Audit Committee.

      Richard W. Talarico became Chairman of the Board and Chief Executive
Officer of the Company in July 1996. He has also served as a director of Allin
Interactive since October 1994 and as Chairman of the Board and Chief Executive
Officer of Allin Interactive since June 1996. Mr. Talarico has served Allin
Interactive in various other capacities, including Vice President of Finance
from October 1994 to October 1995, President from October 1995 to June 1996 and
Chief Financial Officer, Secretary and Treasurer from October 1994 to June 1996.
Mr. Talarico has served as an officer and director of the Company's other
subsidiaries since their inception or acquisition by the Company. Since 1991,
Mr. Talarico has been a partner in The Hawthorne Group ("THG"), where he has
been involved in numerous business ventures and has served in various financial
and operating capacities. THG is a private investment and management company
which invests through affiliates primarily in media and communications
companies. Mr. Talarico also serves as a director of Wexford Health Sources,
Inc., Longford Health Sources, Inc. and Galway Technologies, Inc., which are
providers of health and rehabilitation-related services.

      Timothy P. O'Shea became President of the Company in January 1999. Mr.
O'Shea has also served as President of Allin Network and Allin Holdings since
January 1999 and Vice President of the Company's other subsidiaries since
January 1999. Prior to joining the Company, Mr. O'Shea was employed by Actium, a
Modis solutions company providing technology consulting services, from 1991 to
1998. Mr. O'Shea served Actium in various capacities, including Team Director
from 1991 to 1992, Regional Manager from 1993 to 1996, and Vice President,
Regional Development from 1997 to 1998. Mr. O'Shea was involved in all aspects
of new regional development including the development of regional best practices
and standard regional reporting. Mr. O'Shea was instrumental in developing the
technology consulting practices of four regional offices including establishing
key business partners, developing comprehensive business plans, developing and
mentoring of regional teams, transitioning of previous business practices to the
Actium advanced technology business model and promoting sales growth.

      Dean C. Praskach has held the positions of Chief Financial Officer of the
Company since May 1999, Secretary of the Company since March 1998 and Treasurer
and Vice President-Finance of the Company since July 1997. Mr. Praskach is the
Company's principal financial and accounting officer. Mr. Praskach also served
the Company as Director of Financial Planning from November 1996 to July 1997.
Mr. Praskach served both the Company and THG in a consulting capacity from
February 1995 until joining the Company. From September 1989 through July 1994,
he was employed at First Westinghouse Capital Corporation in various positions,
where he was involved in equity and mezzanine financing of leveraged
acquisitions. Mr. Praskach has held the positions of Vice


                                     -102-
<PAGE>

President-Finance and Treasurer of all of the Company's subsidiaries since July
1997 or upon acquisition, if later, and was named Secretary of all of the
Company's subsidiaries in March 1998 or upon acquisition, if later.

      Brian K. Blair became a director of the Company in July 1996. Mr. Blair
also served as Chief Operating Officer and Secretary of the Company from July
1996 until his resignation from these positions in February 1998. Mr. Blair has
served as a director of Allin Interactive since October 1994 and as a director
of the Company's other subsidiaries since their inception or acquisition by the
Company. Mr. Blair also served as Vice President of Administration and
Operations of Allin Interactive from October 1994 until June 1996 and as its
President from June 1996 until February 1998. Mr. Blair served as President of
Blair Haven Entertainment, Inc, doing business as Commercial Downlink, a
provider of cable and closed circuit television services, from 1989 to 1998. Mr.
Blair currently serves as President of Digital Media Corp., a video production
and satellite communications company. In 1999, Mr. Blair co-founded Novair Media
Corp., a niche market television media company, and serves as its Chief
Executive Officer. Mr. Blair also currently is a director of Digital Media
Corp., Novair Media Corp. and Com-Tek Printing and Graphics, Inc., a commercial
printing company.

      Anthony L. Bucci became a director of the Company in August 1998. Mr.
Bucci is Chairman and Chief Executive Officer of MARC USA, Pennsylvania's
largest full-service marketing communications company. Mr. Bucci has served MARC
USA in various capacities since 1970, including as President from September 1988
to February 1997, as Chief Executive Officer since March 1992 and as Chairman
since February 1997. Mr. Bucci has supervised advertising and marketing for a
range of clients, including specialty retailing, financial services, automotive,
fashion, fast food, home centers, general merchandise and amusement parks.

      William C. Kavan became a director of the Company in July 1996 and has
served as a director of Allin Interactive since October 1994. Mr. Kavan has also
served as a director of certain of the Company's other subsidiaries since their
inception or acquisition by the Company. From 1980 to 2000, Mr. Kavan served as
president of Berkely-Arm, Inc. ("Berkely"), the largest provider of
revenue-generating passenger insurance programs for the cruise industry. Berkely
serves 25 cruise line clients, including Carnival, Costa, Cunard, Epirotiki,
NCL, P&O, Princess, Radisson and RCCL. Mr. Kavan currently serves as a director
of thirteen privately held businesses in diverse industries including
restaurants, cleaning, digital photography, consumer products and insurance.

      James S. Kelly, Jr. became a director of the Company in August 1998. Mr.
Kelly founded KCS Computer Services, Inc. ("KCS"), now Allin
Consulting-Pennsylvania, in 1985 and served as its President and Chief Executive
Officer prior to its acquisition by the Company in August 1998. Following the
acquisition of KCS, the Company appointed Mr. Kelly as a director of the
Company. Mr. Kelly was responsible for setting strategic direction for KCS,
oversight of all KCS operations and direction of its finance and administration
function. Mr. Kelly has been involved in the information technology field for
over 25 years.

      Anthony C. Vickers became a Director of the Company in November 1999. Mr.
Vickers founded IT Services Development ("ITSD") in 1998 and has served as
principal of ITSD since its inception. ITSD is a management consulting firm that
assists clients with projects ranging from strategic planning to acquisitions
and customer satisfaction surveys. From 1996 to 1998, Mr. Vickers served as
Chairman of the Information Technology Services Division of the Information
Technology Association of America ("ITAA"), a technology industry association.
Mr. Vickers currently serves as a director of ITAA. Mr. Vickers has also been a
member of the Advisory Board of Technology Empowerment, Inc., an emerging
off-shore developer of E-business solutions, since September 2000. Mr. Vickers
founded Computer People, a public information technology services organization,
in 1972 and served as its chief executive officer and president until November
1995 and as a director until March 1998. Mr. Vickers served as a director of PC
Tutor Corporation, which provided computer training services to small and
medium-sized businesses from 1998 to 2000. Mr. Vickers also served as a director
of Computer Technology Associates, a provider of information technology services
and E-government solutions to the federal and state governments, from January to
October 2000, and as a member of the advisory board of Greenbrier & Russel,
which specializes in E-business enabling, since August 1999.

      There are no family relationships among the directors and executive
officers. All directors hold office until the next annual meeting of
stockholders and until their successors have been elected and qualified.
Officers serve at the discretion of the Board of Directors.


                                     -103-
<PAGE>

Section 16(a) Beneficial Ownership Reporting Compliance
-------------------------------------------------------

    Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers and any person who owns more than
ten percent of the Company's Common Stock to file with the Securities and
Exchange Commission (the "SEC") initial reports of ownership and reports of
changes in ownership of the Company's Common Stock and other equity securities.
Such persons are required by SEC regulations to furnish the Company with copies
of all Section 16(a) forms they file.

     To the Company's knowledge, based solely on the review of the copies of
such reports and written representations that no other reports were required
during or with respect to the year ended December 31, 2000, all such Section
16(a) filing requirements were met.









                                     -104-
<PAGE>

Item 11 - Executive Compensation

Summary Compensation Table

      The following table sets forth information concerning 1998, 1999 and 2000
compensation of the Chief Executive Officer and the other executive officers of
the Company (collectively the "Named Executives"). Information with respect to
1998 compensation is not given for Mr. O'Shea as he did not join the Company and
begin service as an executive officer of the Company until 1999.

                                                       Long Term Compensation
                                            Annual     ----------------------
                                        Compensation   Securities Underlying
                                        ------------         Options (#)
   Name and Principal Position   Year    Salary ($)    ----------------------
   ---------------------------   ----    ----------

Richard W. Talarico              2000     $ 175,000           25,000
   Chief Executive Officer       1999     $ 175,000           60,000
                                 1998     $ 164,583          100,000

Timothy P. O'Shea                2000     $ 150,000           25,000
   President                     1999     $ 140,385           60,000

Dean C. Praskach                 2000     $ 140,625            6,250
   Chief Financial Officer,      1999     $ 127,500           28,750
   Treasurer and Secretary       1998     $ 102,917           23,500

Employment Agreements

      During 1998, the Company entered into an employment agreement with Mr.
Talarico, the term of which commenced May 15, 1998 and will continue through May
15, 2001. The annual salary as set forth in the employment agreement is
$175,000, subject to annual merit increases. In the event that the Company
achieves certain performance criteria, the annual base salary was to be
increased to $225,000. The Company met the performance criteria, but Mr.
Talarico has to date declined any change in annual base salary.

      The employment agreement contains restrictive covenants prohibiting Mr.
Talarico from competing with the Company or soliciting the Company's employees
or customers for another business during the term of the agreement and for a
period of two years after termination or the end of the employment term.

      The employment agreement provides for option grants to purchase 100,000
shares of the Company's common stock upon signing of the agreement and option
grants to purchase an additional 100,000 shares of the Company's common stock on
each of January 1, 1999 and January 1, 2000, if shares are then available under
the Company's Stock Plans. In June 1998, Mr. Talarico was granted options to
purchase 100,000 shares of the Company's common stock in accordance with the
terms of the employment agreement. The exercise price of $4.50 per share was
based on market price at date of grant. In March 1999 and in January 2000, Mr.
Talarico was granted options to purchase 60,000 and 15,000, respectively, shares
of the Company's common stock. The exercise prices of $3.25 per share for the
March 1999 grant and $4.50 per share for the January 2000 grant were based on
market prices at the dates of grant. The Company's management determined that
awards in excess of 60,000 shares in March 1999 and 15,000 shares in January
2000 would not allow an adequate number of available shares for planned option
awards to the Company's senior managers and other employees. In August 2000 and
January 2001, Mr. Talarico was also granted options to purchase 10,000 and
75,000 shares, respectively, of the Company's common stock. The exercise prices
of $1.91 per share for the August 2000 grant and $1.25 per share for the January
2001 grant were based on market prices at the dates of grant.

      Options to acquire shares of common stock granted to Mr. Talarico pursuant
to the agreement under the Company's stock plans will vest on the earlier to
occur of May 15, 2001 or, if earlier, on the date of termination of
Mr. Talarico's employment without cause or a change in control of the Company,
defined as a sale of all or substantially all of the Company's assets, a merger
in which the Company is not the surviving corporation or when a person or group,
other than the

                                     -105-
<PAGE>

stockholders of the Company as of June 1, 1998, owns 50% or more of the
outstanding common stock. The employment agreement also provides that Mr.
Talarico will be entitled to receive following termination of employment by the
Company without cause or contemporaneously with or within ninety days prior to
the occurrence of a change in control of the Company, semi-monthly severance
payments equal to the semi-monthly base salary payment which he was receiving
immediately prior to such termination until the later of the later of the first
anniversary of the termination or May 15, 2001.

      The Company and Mr. Talarico are currently negotiating the terms of a new
employment agreement to replace the agreement currently in effect.

      In February 2001, the Company entered into a new employment agreement with
Mr. O'Shea, the term of which commenced as of January 1, 2001 and will continue
through December 31, 2001. Mr. O'Shea's annual salary for the term of the
agreement is $170,000. Mr. O'Shea is also eligible to receive a discretionary
bonus for the annual period ending December 31, 2001 based on performance
parameters and objectives established by the Company's Chief Executive Officer
in consultation with the Board of Directors and Mr. O'Shea. The award of any
bonus for the 2001 fiscal period will be at the sole discretion of the Board of
Directors.

      The employment agreement contains restrictive covenants prohibiting Mr.
O'Shea from competing with the Company during the term of the agreement or
soliciting the Company's employees or customers for another business during the
term of the agreement and for a period of one year after termination or the end
of the employment term.

      The employment agreement also provides that Mr. O'Shea will be eligible to
participate in the Company's various stock plans, subject to approval of the
Board of Directors. The employment agreement with Mr. O'Shea does not, however,
specify any minimum number of options to be awarded during the term of the
agreement. Options granted to date to Mr. O'Shea will vest, except as noted
below, at a rate of 20% of each award on each of the first five anniversary
dates of any award. Pursuant to the employment agreement, options to acquire
shares of common stock granted to Mr. O'Shea under the Company's stock plans
prior to February 13, 2001 will, if not already vested, vest on the date of a
change in control of the Company, defined as a sale of all or substantially all
of the Company's assets, a merger in which the Company is not the surviving
corporation or when a person or group, other than the stockholders of the
Company as of January 1, 2001, owns or controls 40% or more of the outstanding
common stock.

      In January 2000, August 2000 and January 2001, Mr. O'Shea was granted
options to purchase 15,000, 10,000 and 40,000 shares, respectively, of the
Company's common stock. The exercise prices of $4.50 per share for the January
2000 grant, $1.91 per share for the August 2000 grant and $1.25 per share for
the January 2001 grant were based on market prices at the dates of grant.
Options to purchase a total of 125,000 shares of the Company's common stock have
been granted to Mr. O'Shea prior to February 13, 2001, including the January
2000, August 2000 and January 2001 grants, and will vest, if not already vested,
in accordance with the terms previously described.

      In the event of termination of employment by the Company in conjunction
with or within one year after to the occurrence of a change in control of the
Company, Mr. O'Shea will be entitled to receive semi-monthly severance payments
equal to the semi-monthly base salary payment which he was receiving immediately
prior to such termination until the first anniversary of the termination. In
this event, Mr. O'Shea will also have the right to convert each of his vested
options to purchase the Company's stock granted prior to February 13, 2001 into
the right to receive cash in an amount equal to the difference between the fair
market value of the stock on the date the right is exercised and the exercise
price of the option from which the right was converted. The rights may be
exercised at any time prior to the final expiration date of Mr. O'Shea's
options, notwithstanding the expiration of the options based on Mr. O'Sheas's
termination prior to such expiration date. In addition, Mr. O'Shea's options
granted prior to February 13, 2001 will automatically convert into such rights
immediately prior to the day such options would otherwise terminate based on
termination of Mr. O'Shea's employment in connection with a change of control of
the Company.

      In June 2000, the Company entered into an employment agreement with Mr.
Praskach, the term of which commenced June 23, 2000 and will continue through
June 23, 2005. The Company and Mr. Praskach amended the employment agreement on
February 13, 2001. Mr. Praskach's current annual salary is $145,000. The
employment agreement permits annual merit increases to salary. Mr. Praskach is
also eligible to receive a discretionary bonus for any annual period subject to
approval by the Board of Directors.


                                     -106-
<PAGE>

      The employment agreement contains restrictive covenants prohibiting Mr.
Praskach from competing with the Company or soliciting the Company's employees
or customers for another business during the term of the agreement and for a
period of eighteen months after termination or the end of the employment term.

      Mr. Praskach is eligible to receive stock options as may be awarded from
time to time and under terms similar to options awarded to other employees under
the Company's stock plans. The employment agreement with Mr. Praskach does not,
however, specify any minimum number of options to be awarded during the term of
the agreement. Mr. Praskach was granted options to purchase 6,250 and 30,000
shares of the Company's common stock in February 2000 and January 2001,
respectively. The exercise prices were based on market prices at the dates of
grant and were $4.00, and $1.25 per share, respectively. Options granted to date
to Mr. Praskach will vest, except as noted below, at a rate of 20% of each award
on each of the first five anniversary dates of any award. Pursuant to the
amendment to the employment agreement, options to acquire shares of common stock
granted to Mr. Praskach under the Company's Stock Plans prior to February 13,
2001 will, if not already vested, vest on the date of a change in control of the
Company, defined as a sale of all or substantially all of the Company's assets,
a merger in which the Company is not the surviving corporation or when a person
or group, other than the stockholders of the Company as of January 1, 2001, owns
or controls 40% or more of the outstanding common stock.

      The employment agreement also provides that Mr. Praskach will be entitled
to receive for up to one year following termination of employment by the Company
without cause, semi-monthly severance payments equal to the semi-monthly base
salary payment which he was receiving immediately prior to such termination
until the earlier of the first anniversary of the termination or the date on
which Mr. Praskach obtains other full-time employment. In the event of
termination of employment, whether voluntary or involuntary, in conjunction with
or within one year after the occurrence of a change in control of the Company,
Mr. Praskach will also be entitled to receive a bonus equal to his annual base
salary at the time of termination and will have the right to convert each of his
vested options to purchase the Company's stock granted prior to February 13,
2001 into the right to receive cash in an amount equal to the difference between
the fair market value of the stock on the date the right is exercised and the
exercise price of the option from which the right was converted. The rights may
be exercised at any time prior to the final expiration date of Mr. Praskach's
options, notwithstanding the expiration of the options based on Mr. Praskach's
termination prior to such expiration date. In addition, Mr. Praskach's options
granted prior to February 13, 2001 will automatically convert into such rights
immediately prior to the day such options would otherwise terminate based on
termination of Mr. Praskach's employment in connection with a change of control
of the Company.

Stock Plans

      In October 1996, the Board of Directors adopted the 1996 Stock Plan, and
in April 1997 the Board of Directors adopted the 1997 Stock Plan which was
approved by the Company's stockholders in May 1997. The Board of Directors
subsequently approved reissuance of forfeited option grants and restricted
shares under the 1996 and 1997 Plans. In September 1998, the Board of Directors
adopted the 1998 Stock Plan, which was approved by the Company's stockholders in
December 1998. The Board of Directors subsequently approved reissuance of
forfeited shares under the 1998 Plan. In February 2000, the Board of Directors
adopted the 2000 Stock Plan, which was approved by the Company's stockholders in
May 2000. All of the plans provide for awards of stock options, stock
appreciation rights, restricted shares and restricted units to officers and
other employees of the Company and its subsidiaries and to consultants and
advisors (including non-employee directors) of the Company and its subsidiaries.
The plans are administered by the Board of Directors which has broad discretion
to determine the individuals entitled to participate in the plans and to
prescribe conditions (such as the completion of a period of employment with the
Company following an award). The Compensation Committee is responsible for
making recommendations to the Board of Directors concerning executive
compensation, including the award of stock options.

      The number of shares that may be awarded under the Company's 1996, 1997,
1998 and 2000 stock plans are 266,000, 300,000, 375,000 and 295,000,
respectively. At December 31, 2000, 46,199, 44,250, 99,340 and 162,250 shares
remained available for future grants under the 1996, 1997, 1998 and 2000 Plans,
respectively.


                                     -107-
<PAGE>

Option Grants in Last Fiscal Year

      The following table provides information concerning stock options granted
to the Named Executives during 2000.

                                        Individual Grants       Grant Date Value
                                        -----------------       ----------------

                                     % of
                                     Total
                                    Options
                      Number of    Granted to   Exercise
                      Securities   Employees       or
                      Underlying      in          Base   Expira-   Grant Date
       Name            Options      Fiscal       Price    tion       Present
                       Granted       Year        ($/sh)   Date     Value $ (1)
     -------           --------      ----        -----   ------      -------

Richard W. Talarico    15,000(2)     6.7%        $4.50   1/3/07      $41,700
                       10,000(2)     4.5%        $1.91   8/8/07      $14,100

Timothy P. O'Shea      15,000(3)     6.7%        $4.50   1/3/07      $43,650
                       10,000(3)     4.5%        $1.91   8/8/07      $14,100

Dean C. Praskach        6,250(4)     2.8%        $4.00   2/16/07     $18,188

(1)   The fair value of each option is estimated on the date of grant using the
      Black-Scholes option pricing model with the following assumptions for 2000
      grants to Named Executives.

Risk-free interest rate:
    Options granted to Richard W. Talarico (15,000)       5.3%
    Options granted to Richard W. Talarico (10,000)       6.0%
    Options granted to Timothy P. O'Shea (15,000)         5.2%
    Options granted to Timothy P. O'Shea (10,000)         6.0%
    Options granted to Dean C. Praskach                   5.2%
Expected dividend yield                                   0.0%
Expected life of options                                7 yrs.
Expected volatility rate                                 69.0%

No adjustments were made for non-transferability or risk of forfeiture.

(2)   Under the terms of the Company's current employment agreement with Mr.
      Talarico, these options to acquire shares of common stock granted to Mr.
      Talarico will vest on the earlier to occur of May 15, 2001 or on the date
      of termination of Mr. Talarico's employment without cause or a change in
      control of the Company, defined as a sale of all or substantially all of
      the Company's assets, a merger in which the Company is not the surviving
      corporation or when a person or group, other than the stockholders of the
      Company as of June 1, 1998, owns 50% or more of the outstanding common
      stock.

(3)   Under the terms of the Company's current employment agreement with Mr.
      O'Shea, these options granted to Mr. O'Shea will vest at a rate of 20% on
      each of the first five anniversary dates of the award, or earlier if not
      already vested, on the date of a change in control of the Company, defined
      as a sale of all or substantially all of the Company's assets, a merger in
      which the Company is not the surviving corporation or when a person or
      group, other than the stockholders of the Company as of January 1, 2001,
      owns or controls 40% or more of the outstanding common stock. For more
      information about the terms of the options held by Mr. O'Shea, see the
      discussion under "Employment Agreements" above.

(4)   Under the terms of the Company's current employment agreement with Mr.
      Praskach, these options granted to Mr. Praskach will vest at a rate of 20%
      on each of the first five anniversary dates of the award, or earlier if
      not already vested, on the date of a change in control of the Company,
      defined as a sale of all or substantially all of the Company's assets, a
      merger in which the Company is not the surviving corporation or when a
      person or group, other than the stockholders of the Company as of January
      1, 2001, owns or controls 40% or more of the outstanding common stock. For
      more information about the terms of the options held by Mr. Praskach, see
      the discussion under "Employment Agreements" above.


                                     -108-
<PAGE>

Fiscal Year End Option Values

      The following table provides information concerning stock options held by
the Named Executives at December 31, 2000. No options were exercised in 2000.

<TABLE>
<CAPTION>
                    Number of Securities Underlying      Value of Unexercised In-the-
                    Unexercised Options at Fiscal        Money Options at Fiscal Year
                              Year End                           End (1)
                    -------------------------------      ----------------------------

        Name          Exercisable   Unexercisable        Exercisable   Unexercisable
        ----          -----------   -------------        -----------   -------------
<S>                        <C>            <C>                     <C>             <C>
Richard W. Talarico        16,800         189,200                 --              --
Timothy P. O'Shea          12,000          73,000                 --              --
Dean C. Praskach           24,850          48,150                 --              --
</TABLE>

      (1)   Based on the December 31, 2000 closing price per share of common
            stock of $1.25, as reported by the Nasdaq Stock Market, and the
            various option exercise prices per share, none of the options were
            in-the-money at December 31, 2000.

Long-Term Incentive and Defined Benefit Plans

      The Company does not have any long-term incentive or defined benefit
plans.

Compensation of Directors

      The non-employee directors of the Company had been entitled to receive, at
the conclusion of each year of service, an automatic grant of an immediately
exercisable option to acquire 5,000 shares of common stock at an exercise price
per share equal to the closing price of the common stock as reported by the
Nasdaq Stock Market for the date on which the options are granted. Coincident
with the approval of the Company's 2000 Stock Plan in May 2000, the Company's
practice has changed such that at the commencement of each year of service, each
non-employee director will be entitled to receive an option to acquire 5,000
shares of common stock at an exercise price equal to the closing price of the
common stock on the date of the grant. The option grant will vest on the first
anniversary of the date of the grant if the individual is serving as a director
on that date. For the first year following this change in the Company's
practice, non-employee directors received, in conjunction with the anniversary
of their service as a director, an immediately exercisable option grant related
to the completed year of service and an option grant vesting in one year related
to the commencement of the new year of service as a director.

      On February 10, 2000, Mr. Blair received an immediately exercisable grant
to acquire 5,000 shares of common stock at the exercise price of $4.03 per
share. On September 1, 2000, Messrs. Bucci and Kelly each received immediately
exercisable grants to acquire 5,000 shares of common stock and grants to acquire
5,000 shares of common stock vesting one year from date of grant at the exercise
price of $2.00 per share. On November 10, 2000, Messrs. Kavan and Vickers each
received immediately exercisable grants to acquire 5,000 shares of common stock
and grants to acquire 5,000 shares of common stock vesting one year from date of
grant at the exercise price of $1.94 per share.

      Non-employee directors of the Company receive $2,500 for each Board of
Directors meeting attended and $500 for each separate committee meeting attended
on a date on which no full board meeting is held. Directors of the Company who
are also employees do not receive additional compensation for attendance at
Board and committee meetings, except that all directors are reimbursed for
out-of-pocket expenses in connection with attendance at Board and committee
meetings.


                                     -109-
<PAGE>

Compensation Committee Interlocks and Insider Participation

      The Compensation Committee consists of William C. Kavan and Anthony L.
Bucci.

      In March 1998, Allin Digital contributed certain assets, including rights
to the name PhotoWave, formerly used in its operations in the retail digital
photography market for a minority, non-controlling equity interest in a new
corporation, PhotoWave, Inc. ("PhotoWave"), which thereafter began operations in
this market. The value placed on the Company's initial equity interest,
$100,000, approximated the value of the assets contributed. Mr. Kavan is a
shareholder and director of PhotoWave. Richard W. Talarico, Chairman and Chief
Executive Officer of the Company and a director and executive officer of each of
the Company's subsidiaries, served as a director of PhotoWave from 1998 to 2000.
Mr. Henry Posner, Jr., a beneficial owner of greater than five percent of the
Company's outstanding common stock, was also a shareholder of PhotoWave during a
portion of 2000. In June 2000, Allin Digital sold all of the common shares it
held in PhotoWave to Mr. Kavan. Proceeds received from the sale of the PhotoWave
stock were approximately $144,000. Allin Digital recorded a gain of
approximately $137,000 on the sale of the PhotoWave stock.

      During the fiscal year ended December 31, 2000, Allin Digital sold
approximately $20,000 of digital photography equipment and supplies to
PhotoWave. The Company believes its sales are on terms substantially similar to
those offered non-affiliated parties. Allin Digital and PhotoWave are also
parties to a commission-based referral agreement under which PhotoWave earns
commissions for referral of customers to Allin Digital. Commissions are based on
a percentage of gross revenue. During the fiscal year ended December 31, 2000,
PhotoWave earned approximately $13,000 in commissions under this agreement.

      On December 29, 2000, Messrs. Posner, Kavan and Talarico, Thomas D.
Wright, who during a portion of 2000 beneficially owned greater than five
percent of the Company's common stock, and Dean C.Praskach, an executive officer
of the Company, purchased 113, 10, 10, 10 and 2 shares, respectively, of the
Company's Series G Convertible Redeemable Preferred Stock at a purchase price of
$10,000 per Series G preferred share. In conjunction with the purchase of the
Series G shares, Messrs. Posner, Kavan, Talarico, Wright and Praskach also
received warrants to purchase 645,710, 57,142, 57,142, 57,142 and 11,428 shares,
respectively, of the Company's common stock at $1.75 per common share. See Item
7 - Management's Discussion of Financial Condition and Results of Operations -
Liquidity and Capital Resources and Note 3 - Preferred Stock and Note 4 -
Warrants for Common Stock included herein under Notes to Consolidated Financial
Statements in Item 8 - Financial Statements and Supplementary Data for
additional information concerning the Series G preferred stock and related
warrants. If the Company does issue any shares of common stock upon conversion
of the Series G preferred stock or upon exercise of the warrants, the holders of
such shares, including Messrs. Posner, Kavan, Talarico, Wright and Praskach will
have certain rights to require the Company to register the shares for resale
under the Securities Act of 1933, as amended (the "Securities Act"). See
Item 12 -Security Ownership of Certain Beneficial Owners and Management.

            Each of Messrs. Posner, Kavan Talarico and Wright own shares of
Series D preferred stock and related warrants. Messrs. Posner, Kavan Talarico
and Wright own 1,500, 750, 300 and 200 shares of Series D preferred stock,
respectively. If the Company does issue any shares of common stock upon
conversion of the Series D preferred stock or upon exercise of the warrants, the
holders of such shares, including Messrs. Posner, Kavan, Talarico and Wright
will have certain rights to require the Company to register the shares for
resale under the Securities Act. See Item 12 - Security Ownership of Certain
Beneficial Owners and Management.

      Certain stockholders of the Company, including Messrs. Posner, Talarico,
Kavan, Wright and Brian K. Blair, a director and former officer of the Company,
have certain rights under a registration rights agreement to require the
Company, subject to certain limitations, to register under the Securities Act,
certain of their shares of currently outstanding common stock for public
offering and sale.


                                     -110-
<PAGE>

Item 12 - Security Ownership of Certain Beneficial Owners and Management

(a) Security Ownership of Certain Beneficial Owners

      The following table presents certain information as of March 20, 2001 as
to the beneficial ownership of the common stock of the Company by each person or
entity who is known to the Company to beneficially own more than five percent of
the outstanding common stock. Except as indicated, the persons named have sole
voting and investment power with respect to all shares shown as being
beneficially owned by them. The percentages in the table are rounded to the
nearest tenth of a percent.

                                         Amount and Nature of       Percent of
Name and Address of Stockholder          Beneficial Ownership (1)   Class (1)
-------------------------------          ------------------------   ----------

Henry Posner, Jr. (2)                         3,644,191                39.0%
381 Mansfield Avenue, Suite 500
Pittsburgh, PA  15220

James S. Kelly, Jr. (3)                       1,617,816                23.2%
2406 Oak Hurst Court
Murrysville, PA  15668

Emanuel J. Friedman (4)                       1,269,258                18.2%
1001 19th Street North
Arlington, VA  22209

Friedman, Billings, Ramsey Group, Inc.
and Orkney Holdings, Inc. (5)                 1,174,258                16.9%
1001 19th Street North
Arlington, VA  22209

Les D. Kent (6)                                721,980                  9.7%
867 El Pintado Road
Danville, CA  94526

Richard W. Talarico (7)                        673,073                  8.9%
381 Mansfield Avenue, Suite 400
Pittsburgh, PA  15220

William C. Kavan (8)                           637,975                  8.5%
117 Brixton Road
Garden City, NY 11530

Dimensional Fund Advisors (9)                  408,400                  5.7%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA  90401

(1)   The number of shares and the percent of the class in the table and these
      notes to the table have been calculated in accordance with Rule 13d-3
      under the Securities Exchange Act of 1934, as amended (the "Exchange
      Act"), and assume, on a stockholder by stockholder basis, that each
      stockholder has converted all securities owned by such stockholder that
      are convertible into common stock at the option of the holder currently or
      within 60 days of March 20, 2001, and that no other stockholder so
      converts. Each share of Series D Convertible Redeemable Preferred Stock
      may currently be converted into 276 shares of common stock. Each share of
      Series F Convertible Redeemable Preferred Stock may currently be converted
      into 508 shares of common stock. Each share of Series G Convertible
      Redeemable Preferred Stock may currently be converted into the number of
      shares of common stock determined by dividing 10,000 by the lesser of
      $1.16348 (85% of the


                                     -111-
<PAGE>

      average closing price of the common stock as reported by Nasdaq over the
      last five trading days prior to December 29, 2000) or 85% of the average
      closing price of the common stock as reported by Nasdaq over the last five
      trading days prior to the date of the conversion, subject to a minimum
      conversion price of $0.35 per common share. Since 85% of the average
      closing price of the common stock for the five trading days preceding
      March 20, 2001 was $1.3413, conversion is assumed at a rate of $1.16348
      per common share. Warrants issued in August 1998 and December 2000 may be
      exercised to purchase common stock at $4.25 and $1.75 per common share,
      respectively. Information is provided in the footnotes below for each
      holder as to the number of shares included in the table for conversion of
      securities.

(2)   Includes 1,157,087 shares of common stock held by Mr. Posner and 102,000
      shares held in various trusts and a family foundation of which Mr. Posner
      and his wife are trustees and with respect to which shares Mr. Posner
      shares voting and investment power. Does not include 1,000 shares owned by
      Mr. Posner's wife and 2,000 shares held by trusts of which Mr. Posner's
      wife is a trustee. Includes 998,655 shares of common stock which may be
      acquired by exercise of warrants. Mr. Posner owns 1,500 shares of Series D
      Convertible Redeemable Preferred Stock. The number of shares indicated
      includes 415,225 shares of common stock for conversion of the Series D
      preferred stock. Mr. Posner owns 113 shares of Series G Convertible
      Redeemable Preferred Stock. The table includes 971,224 shares of common
      stock for conversion of the Series G preferred stock. The Series G
      preferred stock is convertible into at least 971,224, but no more than
      3,228,571 shares of common stock. Assuming that the Series G preferred
      stock became exercisable for the maximum 3,228,571 shares of common stock,
      Mr. Posner would be deemed to beneficially own an aggregate of 50.8% of
      the common stock.

(3)   Includes 1,607,816 shares of common stock held by Mr. Kelly and 10,000
      shares of common stock which may be acquired by exercise of options.

(4)   As reported on Schedule 13G/A filed with the Securities and Exchange
      Commission (the "SEC") on February 15, 2001, Mr. Friedman has sole voting
      and dispositive power with respect to 95,000 of these shares. Mr. Friedman
      may be deemed to indirectly beneficially own and share voting and
      dispositive power with respect to 1,174,258 shares directly owned by
      Friedman, Billings, Ramsey Group, Inc. ("FBRG") by virtue of his control
      position as Chairman and Chief Executive Officer of FBRG. Mr. Friedman
      disclaims beneficial ownership of such shares. The number of shares
      assumes that there has been no change in the number of shares beneficially
      owned from the number of shares reported as being beneficially owned in
      the Schedule 13G/A.

(5)   As reported on Schedule 13G/A filed with the SEC on February 15, 2001,
      Friedman, Billings, Ramsey Group, Inc. has sole voting and dispositive
      power with respect to the shares indicated. Each of Eric F. Billings,
      Emanuel J. Friedman, W. Russell Ramsey and Orkney Holdings, Inc., a
      wholly-owned subsidiary of FBRG, share voting and dispositive power with
      respect to the shares. The number of shares assumes that there has been no
      change in the number of shares beneficially owned from the number of
      shares reported as being beneficially owned in the Schedule 13G/A.

(6)   Includes 213,333 shares of common stock held by Mr. Kent. Mr. Kent also
      owns 1,000 shares of Series F Convertible Redeemable Preferred Stock. The
      number of shares indicated includes 508,647 shares of common stock for the
      conversion of the Series F preferred stock.

(7)   Includes 95,347 shares of common stock held by Mr. Talarico. Includes
      281,000 shares of common stock which may be acquired by exercise of
      options within sixty days of March 20, 2001. Includes 127,732 shares of
      common stock which may be acquired by exercise of warrants. Mr. Talarico
      owns 300 shares of Series D preferred stock. The table includes 83,045
      shares of common stock for conversion of the Series D preferred stock. Mr.
      Talarico owns 10 shares of Series G preferred stock. The table includes
      85,949 shares of common stock for conversion of the Series G preferred
      stock. The Series G preferred stock is convertible into at least 85,949,
      but no more than 285,714 shares of common stock. Assuming that the Series
      G preferred stock became exercisable for the maximum 285,714 shares of
      common stock, Mr. Talarico would be deemed to beneficially own an
      aggregate of 11.3% of the common stock.

(8)   Includes 90,800 shares of common stock held by Mr. Kavan. Includes 20,000
      shares of common stock which may be acquired by exercise of options and
      233,614 shares of common stock which may be acquired by exercise of
      warrants. Mr. Kavan owns 750 shares of Series D preferred stock. The table
      includes 207,612 shares of common stock for conversion of the Series D
      preferred stock. Mr. Kavan owns 10 shares of Series


                                     -112-
<PAGE>

      G preferred stock. The table includes 85,949 shares of common stock for
      conversion of the Series G preferred stock. The Series G preferred stock
      is convertible into at least 85,949, but no more than 285,714 shares of
      common stock. Assuming that the Series G preferred stock became
      exercisable for the maximum 285,714 shares of common stock, Mr. Kavan
      would be deemed to beneficially own an aggregate of 10.9% of the common
      stock.

(9)   As reported on Schedule 13G filed with the SEC on February 2, 2001,
      Dimensional Fund Advisors Inc., an investment advisor registered under
      Section 203 of the Investment Advisors Act of 1940, has sole voting and
      investment power over the shares indicated, but Dimensional Fund Advisors
      Inc. disclaims beneficial ownership of the shares. The number of shares
      assumes that there has been no change in the number of shares beneficially
      owned from the number of shares reported as being beneficially owned in
      the Schedule 13G.

      Thomas D. Wright may be deemed to beneficially own 269,694 shares or 3.7%
of the Company's common stock, calculated as discussed in footnote (1) to the
foregoing table. This includes 24,181 shares of common stock held by Mr. Wright,
but does not include 174,000 shares held by Mr. Wright's spouse, 5,000 shares in
her own name, and 169,000 shares as trustee for various trusts. This also
includes 104,201 shares of common stock which may be acquired by exercise of
warrants. Mr. Wright owns 200 shares of Series D preferred stock. The number of
shares includes 55,363 shares of common stock for conversion of the Series D
preferred stock. Mr. Wright owns 10 shares of Series G preferred stock. The
number of shares includes 85,949 shares of common stock for conversion of the
Series G preferred stock. The Series G preferred stock is convertible into at
least 85,949, but no more than 285,714 shares of common stock. Assuming that the
Series G preferred stock became exercisable for the maximum 285,714 shares of
common stock, Mr. Wright would be deemed to beneficially own an aggregate of
6.3% of the common stock. Mr. Wright's address is 381 Mansfield Ave., Suite 500,
Pittsburgh, PA 15220.


                                     -113-
<PAGE>

(b) Security Ownership of Management

      The following table presents certain information as of March 20, 2001 as
to the beneficial ownership of the common stock of the Company by (i) each
director and Named Executive and (ii) all directors and executive officers as a
group. Except as indicated, the persons named have sole voting and investment
power with respect to all shares shown as being beneficially owned by them. The
percentages in the table are rounded to the nearest tenth of a percent.

                                          Amount and Nature
                                            of Beneficial     Percent of
                Name of Stockholder         Ownership (1)     Class (1)
                -------------------       -----------------   ----------

      Richard W. Talarico (2)                  673,073            8.9%
      381 Mansfield Avenue, Suite 400
      Pittsburgh, PA  15220

      Timothy P. O'Shea                         27,000             *
      381 Mansfield Avenue, Suite 400
      Pittsburgh, PA  15220

      Dean C. Praskach (3)                      55,969            0.8%
      381 Mansfield Avenue, Suite 400
      Pittsburgh, PA  15220

      Brian K. Blair                           154,570            2.2%
      2498 Monterey Court
      Weston, FL  33327

      Anthony L. Bucci                          13,500             *
      4 Station Square
      Suite 500
      Pittsburgh, PA  15219

      William C. Kavan (4)                     637,975            8.5%
      117 Brixton Road
      Garden City, NY  11530

      James S. Kelly, Jr.                    1,617,816           23.2%
      2406 Oak Hurst Court
      Murrysville, PA  15668

      Anthony C. Vickers                         5,000             *
      1212 Via Zumaya
      Palos Verdes Estates, CA  90274

      All directors and executive
     officers, as a group (8 persons)        3,184,903           38.8%

*     Less than one percent

(1)   The number of shares and the percent of the class in the table and these
      notes to the table have been calculated in accordance with Rule 13d-3
      under the Exchange Act, and assume, on a stockholder by stockholder basis,
      that each stockholder has converted all securities owned by such
      stockholder that are convertible into common stock at the option of the
      holder currently or within 60 days of March 20, 2001, and that no other
      stockholder so converts. The numbers and percentages of shares owned
      assume that options that are currently exercisable or exercisable within
      sixty days of March 20, 2001 had been exercised as follows: Mr. Talarico -
      281,000 shares; Mr. O'Shea - 27,000 shares; Mr. Praskach - 27,350 shares,
      Mr. Kavan - 20,000 shares; Messrs. Blair, Bucci and Kelly - 10,000 shares
      each; Mr. Vickers - 5,000 shares, and all directors and executive


                                     -114-
<PAGE>

      officers as a group - 390,350 shares. The number of shares of the
      Company's outstanding common stock held by directors and executive
      officers is as follows: Mr. Talarico - 95,347 shares, Mr. Blair - 144,570
      shares, Mr. Bucci - 3,500 shares, Mr. Kavan - 90,800 shares and Mr. Kelly
      - 1,607,816 shares. Each share of Series D Convertible Redeemable
      Preferred Stock may currently be converted into 276 shares of the
      Company's common stock. Each share of Series G Convertible Redeemable
      Preferred Stock may currently be converted into the number of shares of
      common stock determined by dividing 10,000 by the lesser of $1.16348 (85%
      of the average closing price of the Common Stock as reported by Nasdaq
      over the last five trading days prior to December 29, 2000) or 85% of the
      average closing price of the common stock as reported by Nasdaq over the
      last five trading days prior to the date of the conversion, subject to a
      minimum conversion price of $0.35 per common share. Since 85% of the
      average closing price of the common stock for the five trading days
      preceding March 20, 2001 was $1.3413, conversion is assumed at a rate of
      $1.16348 per common share. Warrants issued in August 1998 and December
      2000 may be exercised to purchase common stock at $4.25 and $1.75 per
      common share, respectively. Information is provided in the footnotes below
      for each holder as to the number of shares included in the table for
      conversion of securities other than options for which information is given
      above in this footnote.

(2)   Includes 127,732 shares of common stock which may be acquired by exercise
      of warrants. Mr. Talarico owns 300 shares of Series D preferred stock,
      representing 10.9% of the Series D preferred stock outstanding. The table
      includes 83,045 shares of common stock for conversion of the Series D
      preferred stock. Mr. Talarico owns 10 shares of Series G preferred stock,
      representing 6.7% of the Series G preferred stock outstanding. The table
      includes 85,949 shares of common stock for conversion of the Series G
      preferred stock. The Series G preferred stock is convertible into at least
      85,949, but no more than 285,714 shares of common stock. Assuming that the
      Series G preferred stock became exercisable for the maximum 285,714 shares
      of common stock, Mr. Talarico would be deemed to beneficially own an
      aggregate of 11.3% of the common stock. Mr. Talarico also owns 588 shares
      of the Company's Series C Redeemable Preferred Stock, representing 2.4% of
      the Series C preferred stock outstanding.

(3)   Includes 11,429 shares of common stock which may be acquired by exercise
      of warrants. Mr. Praskach owns 2 shares of Series G preferred stock,
      representing 1.3% of the Series G preferred stock outstanding. The table
      includes 17,190 shares of common stock for conversion of the Series G
      preferred stock. The Series G preferred stock is convertible into at least
      17,190, but no more than 57,142 shares of common stock. Assuming that the
      Series G preferred stock became exercisable for the maximum 57,142 shares
      of common stock, Mr. Praskach would be deemed to beneficially own an
      aggregate of 1.4% of the common stock.

(4)   Includes 233,614 shares of common stock which may be acquired by exercise
      of warrants. Mr. Kavan owns 750 shares of Series D preferred stock,
      representing 27.3% of the Series D preferred stock outstanding. The table
      includes 207,612 shares of common stock that may be acquired upon
      conversion of the Series D preferred stock. Mr. Kavan owns 10 shares of
      Series G preferred stock, representing 6.7% of the Series G preferred
      stock outstanding. The table includes 85,949 shares of common stock for
      conversion of the Series G preferred stock. The Series G preferred stock
      is convertible into at least 85,949, but no more than 285,714 shares of
      common stock. Assuming that the Series G preferred stock became
      exercisable for the maximum 285,714 shares of common stock, Mr. Kavan
      would be deemed to beneficially own an aggregate of 10.9% of the common
      stock. Mr. Kavan also owns 10,000 shares of the Company's Series C
      preferred stock, representing 40.0% of the Series C preferred stock
      outstanding.


                                     -115-
<PAGE>

Item 13 - Certain Relationships and Related Transactions

Conversion of Series E Convertible Redeemable Preferred Stock

      On August 13, 2000, all of the 1,926 outstanding shares of the Company's
Series E Convertible Redeemable Preferred Stock, along with approximately
$14,000 of accrued but unpaid dividends, automatically converted into 942,141
shares of the Company's common stock. The rate of conversion was $2.06 per
common share. All of the Series E preferred stock then outstanding was held by
James S. Kelly, Jr., the former majority shareholder of Allin
Consulting-Pennsylvania. Mr. Kelly is a holder of greater than five percent of
the Company's outstanding common stock and a director of the Company. The
acquisition of Allin Consulting-Pennsylvania in August 1998 had included a
promissory note issued by the Company in the amount of $2,000,000 to Mr. Kelly.
Approximately $74,000 of the promissory note principal balance was offset in
1999 by the Company's payment of certain tax liabilities of Allin
Consulting-Pennsylvania related to pre-acquisition periods. On May 31, 1999, Mr.
Kelly exchanged the promissory note for 1,926 shares of the Company's Series E
Convertible Redeemable Preferred Stock. The Series E preferred stock accrued
dividends at the rate of 6% of the liquidation value thereof per annum, which
were payable quarterly prior to conversion. Dividends of approximately $88,000
were paid in 2000. See Item 7- Management's Discussion of Financial Condition
and Results of Operations - Liquidity and Capital Resources for additional
information regarding the conversion of the Series E preferred stock.

Arrangements Involving the Former Sole Stockholder of Allin
Consulting-California

      Les D. Kent, a holder of greater than five percent of the Company's
outstanding common stock and a former President of the Company, holds all of the
1,000 outstanding shares of the Company's Series F Convertible Redeemable
Preferred Stock with a liquidation value of $1,000 per share. The Series F
preferred stock was issued on May 31, 1999, in exchange for a reduction in the
principal balance of a promissory note related to the acquisition of Allin
Consulting-California of $1,000,000. Mr. Kent was the sole stockholder of Allin
Consulting-California prior to the acquisition. The Series F Preferred Stock
accrues dividends at the rate of 7% of the liquidation value thereof per annum.
Quarterly dividend payments began in April 2000. Dividends of approximately
$53,000 were paid in 2000.

      The Company also has an outstanding principal balance of $1,000,000 due to
Mr. Kent on a promissory note related to the Company's acquisition of Allin
Consulting-California. The promissory note provides for interest at the rate of
7% per annum. The principal balance of the promissory note is due April 15,
2005. Interest due under the note from November 1996, when Allin
Consulting-California was acquired, through May 1999 of approximately $390,000
was paid to Mr. Kent in April 2000. The Company also began quarterly interest
payments in April 2000. Quarterly interest payments during 2000 were
approximately $63,000.

      See Item 7- Management's Discussion of Financial Condition and Results of
Operations - Liquidity and Capital Resources for additional information
regarding the Company's Series F preferred stock and the promissory note.

      In October 2000, Allin Consulting-California sold rights to perform
technical support services under certain contracts to Progent Corporation
("Progent"). Mr. Kent has an ownership interest in Progent. The sale is
effective for services performed subsequent to December 31, 2000. Allin
Consulting-California will receive percentages of certain revenue to be realized
by Progent during the period from January 1, 2001 through December 31, 2005,
including fifteen percent of the contractual backlog for services remaining to
be performed for contracts in place as of December 31, 2000, ten percent of any
additional revenue derived from clients with contracts in place as of December
31, 2000, and five percent of any revenue earned from certain former clients of
Allin Consulting-California, as specified in the agreement. As of December 31,
2000, the backlog for services remaining to be performed under the assigned
contracts was approximately $113,000. The agreement also provides for a
management fee to Progent equal to 10% of the revenue earned by Allin
Consulting-California during November and December 2000 under the assigned
contracts for Progent's assistance in managing the technical support services
provided during this period. Allin Consulting-California has recorded expense of
approximately $12,000 in respect of the fiscal year ended December 31, 2000 for
the management fees. The Company believes this sale was on terms as favorable to
the Company as could have been obtained from an unrelated party.

      During 2000, Allin Consulting-California also engaged Progent to provide
technical consulting services in connection with certain customer projects. In
respect of the fiscal year ended year ended December 31, 2000, Allin


                                     -116-
<PAGE>

Consulting-California recorded approximately $36,000 in fees related to
Progent's services. The Company believes Progent's fees are on terms
substantially similar to those that could be obtained from unrelated parties.

      In connection with the Company's termination of Les D. Kent as the
Company's President in January 1999, the Company was obligated to make aggregate
severance payments to Mr. Kent in the amount of approximately $217,000. During
2000, the Company paid approximately $23,000 of the amounts due Mr. Kent,
completing discharge of the severance obligation.

Lease

      Effective February 1, 1997, the Company entered into a five-year lease for
office space with Executive Office Associates ("EOA"). The aggregate rental
payment under this lease was approximately $284,000 during the fiscal year ended
December 31, 2000. Henry Posner, Jr. and two of Mr. Posner's sons and his spouse
each own an indirect equity interest in EOA. Mr. Posner is a beneficial holder
of greater than five percent of the Company's outstanding common stock. As of
December 31, 2000, minimum lease commitments were approximately $296,000 for the
period from January 1, 2001 to January 31, 2002. The Company believes that
rental payments under the long-term lease were on terms as favorable to the
Company as could have been obtained from an unrelated party.

Services Provided to Related Parties

      During the fiscal year ended December 31, 2000, Allin
Consulting-Pennsylvania provided computer network consulting services to The
Hawthorne Group, Inc. ("Hawthorne"). Richard W. Talarico, a director, executive
officer and beneficial owner of greater than five percent of the Company's
common stock, is an officer of and has an ownership interest in Hawthorne. Mr.
Posner and two of Mr. Posner's sons are shareholders of Hawthorne. Fees charged
Hawthorne were approximately $46,000 for the fiscal year ended December 31,
2000. The Company believes its fees are on terms substantially similar to those
offered unrelated parties.


                                     -117-
<PAGE>

Part IV

Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)   1. Financial Statements - See Part II, Item 8 hereof on page 56.

      2.    Financial Statement Schedule and Auditor's Report

            Schedule I - Condensed financial information of registrant

                  This schedule is not applicable.

            Schedule II - Valuation and qualifying accounts

                  See Schedule II on page Sch. II-A.

            The auditors' report of Arthur Andersen LLP with respect to the
            Financial Statement Schedule is located at page Sch. II-B.

      3.    Exhibits

            Exhibit
            Number            Description of Exhibit (1)

            3(i)(a)     Certificate of Incorporation of the Registrant, as
                        amended (incorporated by reference to Exhibit 3(i)(a) to
                        Allin Communications Corporation's Registration
                        Statement No. 333-10447 on Form S-1)

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

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

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

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

            3(i)(f)     Certificate of Voting Powers, Designations, Preferences
                        and Relative, Participating, Optional or Other Rights,
                        and the Qualifications, Limitations or Restrictions
                        Thereof, of the Series G Convertible Redeemable
                        Preferred Stock of Allin Corporation (incorporated by
                        reference to Exhibit 4.1 to Allin Corporation's Report
                        on Form 8-K filed on January 4, 2001)


                                     -118-
<PAGE>

            Exhibit
            Number            Description of Exhibit (1)

            3(ii)(a)    Amended and Restated By-laws of the Registrant
                        (incorporated by reference to Exhibit 3(ii) to Allin
                        Communications Corporation's Registration Statement No.
                        333-10447 on Form S-1)

            3(ii)(b)    Amendment to By-laws of the Registrant (incorporated by
                        reference to Exhibit 3(ii) to Allin Communications
                        Corporation's Report on Form 10-Q for the period ended
                        June 30, 1998)

            3(ii)(c)    Amendment to By-laws of the Registrant

            4.1         Form of Warrant for purchasers of Series B Redeemable
                        Preferred Stock (incorporated by reference to Exhibit
                        4.2 to Allin Communications Corporation's Report on Form
                        8-K as of August 13, 1998)

            4.2         Loan and Security Agreement dated as of October 1, 1998
                        by and between Allin Communications Corporation and S&T
                        Bank, a Pennsylvania banking association (incorporated
                        by reference to Exhibit 4 to Allin Communications
                        Corporation's Report on Form 8-K as of September 30,
                        1998)

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

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

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

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

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

            4.8         Second Amendment to Note and Loan and Security Agreement
                        by and between Allin Corporation and S&T Bank, a
                        Pennsylvania banking association (incorporated by
                        reference to Exhibit 4.1 to Allin Corporation's Report
                        on Form 10-Q for the period ended September 30, 1999)

            4.9         Certificate of Voting Powers, Designations, Preferences
                        and Relative, Participating, Optional or Other Rights,
                        and the Qualifications, Limitations or Restrictions
                        Thereof, of the Series G Convertible Redeemable
                        Preferred Stock of Allin Corporation (incorporated by
                        reference to Exhibit 4.1 to Allin Corporation's Report
                        on Form 8-K filed on January 4, 2001)

            4.10        Form of Warrant for purchasers of Series G Convertible
                        Redeemable Preferred Stock of Allin Corporation
                        (incorporated by reference to Exhibit 4.2 to Allin
                        Corporation's Report on Form 8-K filed on January 4,
                        2001)


                                     -119-
<PAGE>

            Exhibit
            Number            Description of Exhibit (1)

            10.1        Registration Rights Agreement dated July 23, 1996 by and
                        among the Registrant and certain of its stockholders
                        (incorporated by reference to Exhibit 10.4 to Allin
                        Communications Corporation's Registration Statement No.
                        333-10447 on Form S-1)

            10.2*       1996 Stock Plan of the Registrant (incorporated by
                        reference to Exhibit 10.8 to Allin Communications
                        Corporation's Registration Statement No. 333-10447 on
                        Form S-1)

            10.3*       1997 Stock Plan of the Registrant (incorporated by
                        reference to Annex A to Allin Communications
                        Corporation's Proxy Statement for the Annual Meeting of
                        Stockholders held on May 8, 1997)

            10.4*       1998 Stock Plan of the Registrant (incorporated by
                        reference to Annex A to Allin Communications
                        Corporation's Proxy Statement for the Special Meeting of
                        Stockholders held on December 31, 1998)

            10.5*       Employment Agreement dated June 15, 1998 by and between
                        the Registrant and Richard W. Talarico (incorporated by
                        reference to Exhibit 10 to Allin Communications
                        Corporation's Report on Form 10-Q for the period ended
                        June 30, 1998)

            10.6        Registration Rights Agreement dated August 13, 1998
                        among the Registrant and certain stockholders of the
                        Registrant (incorporated by reference to Exhibit 10.1 to
                        Allin Communications Corporation's Report on Form 8-K as
                        of August 13, 1998)

            10.7        Stock Purchase Agreement dated August 13, 1998 among the
                        Registrant, KCS Computer Services, Inc. and the
                        stockholders of KCS Computer Services, Inc.
                        (incorporated by reference to Exhibit 2.1 to Allin
                        Communications Corporation's Report on Form 8-K as of
                        August 13, 1998)

            10.8        Amendment to Agreement and Plan of Merger dated as of
                        November 6, 1998 by and between the Registrant, Kent
                        Consulting Group, Inc. and Les Kent (incorporated by
                        reference to Exhibit 2.3 to Allin Communications
                        Corporation's Report on Form 10-Q for the period ended
                        September 30, 1998)

            10.9*       2000 Stock Plan of the Registrant (incorporated by
                        reference to Exhibit 10.13 to Allin Corporation's Report
                        on Form 10-K for the period ended December 31, 1999)

            10.10*      Employment Agreement dated June 23, 2000 by and between
                        the Registrant and Dean C. Praskach (incorporated by
                        reference to Allin Corporation's Report on Form 10-Q for
                        the period ended June 30, 2000)

            10.11       Registration Rights Agreement dated December 29, 2000 by
                        and among Allin Corporation and the holders of the
                        Series G Convertible Redeemable Preferred Stock of Allin
                        Corporation (incorporated by reference to Exhibit 10.1
                        to Allin Corporation's Report on Form 8-K filed on
                        January 4, 2001)

            10.12*      Employment Agreement dated February 13, 2001 by and
                        between the Registrant and Timothy P. O'Shea

            10.13*      Amendment to Employment Agreement dated February 13,
                        2001 by and between the Registrant and Dean C. Praskach

            10.14       Master Agreement dated February 20, 2001 by and between
                        Allin Interactive Corporation and Carnival Corporation
                        (subject to request for confidential treatment)


                                     -120-
<PAGE>

            Exhibit
            Number            Description of Exhibit (1)

            10.15       Interactive Television System Agreement dated February
                        20, 2001 by and between Allin Interactive Corporation
                        and Carnival Cruise Lines (subject to request for
                        confidential treatment)

            11          Computation of Earnings Per Share

            21          Subsidiaries of the Registrant.

----------

* Management contract or management compensatory plan or arrangement.

(1) In the case of incorporation by reference to documents filed by the
Registrant under the Exchange Act, the Registrant's file number under the
Exchange Act is 0-21395.

      4.    Reports on Form 8-K

            On January 4, 2001, Allin Corporation filed with the Securities and
            Exchange Commission a Current Report on Form 8-K (date of earliest
            event reported - December 29, 2000) to report information concerning
            the Series G Convertible Redeemable Preferred Stock issued on
            December 29, 2000.


                                     -121-
<PAGE>

Signatures

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Allin Corporation has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

March 30, 2001

                           ALLIN CORPORATION

                           By:
                               /s/ Richard W. Talarico
                               -------------------------------------------------

                               Richard W. Talarico
                               Chairman of the Board and Chief Executive Officer

      Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Allin
Corporation and in the capacities and on the dates indicated:

       Signature                       Title                          Date
       ---------                       -----                          ----

                           Chairman of the Board and Chief
                           Executive Officer (Principal
/s/  Richard W. Talarico   Executive Officer)                    March 30, 2001
------------------------
Richard W. Talarico


                           Chief Financial Officer (Principal
/s/ Dean  C. Praskach      Financial and Accounting Officer)     March 30, 2001
------------------------
Dean C. Praskach


/s/ Brian K. Blair         Director                              March 30, 2001
------------------------
Brian K. Blair


/s/ Anthony L. Bucci       Director                              March 30, 2001
------------------------
Anthony L. Bucci


/s/ William C. Kavan       Director                              March 30, 2001
------------------------
William C. Kavan


/s/ James S. Kelly, Jr.    Director                              March 30, 2001
------------------------
James S. Kelly, Jr.


/s/ Anthony C. Vickers     Director                              March 30, 2001
------------------------
Anthony C. Vickers

                                     -122-
<PAGE>

                                                                     Schedule II

                                ALLIN CORPORATION

                        VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                               Balance at       Additions
                                              Beginning of     Charged to        Other                     Balance at End
             (Dollars in thousands)              Period          Expense       Additions     Deductions      of Period
             ----------------------              ------          -------       ---------     ----------      ---------
<S>                                                 <C>            <C>            <C>            <C>               <C>
Valuation allowance on deferred tax asset            6,184          1,720             --             --             7,904
Allowance for doubtful accounts receivable              84            102            130             --               316
Severance accrual for employee terminations            126            506             --            604                28
                                              ---------------------------------------------------------------------------
Year ended December 31, 1998                        $6,394         $2,328         $  130         $  604            $8,248

Valuation allowance on deferred tax asset            7,904            726             --             --             8,630
Allowance for doubtful accounts receivable             316             58             --            100               274
Severance accrual for employee terminations             28            307             --            229               106
                                              ---------------------------------------------------------------------------
Year ended December 31, 1999                        $8,248         $1,091         $   --         $  329            $9,010

Valuation allowance on deferred tax asset            8,630             --             --            149            $8,481
Allowance for doubtful accounts receivable             274            100             --            258               116
Severance accrual for employee terminations            106             94             --            200                --
                                              ---------------------------------------------------------------------------
Year ended December 31, 2000                        $9,010         $  194         $   --         $  607            $8,597
                                              ===========================================================================
</TABLE>

                                                                   Schedule II-A


                                     -123-
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of Allin Corporation:

We have audited, in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements included in this Form 10-K,
and have issued our report thereon dated February 26, 2001. Our audit was made
for the purpose of forming an opinion on the basic consolidated financial
statements taken as a whole. The schedule listed in the index in Item 14 (a) 2
of this Form 10-K is the responsibility of the Company's management and is
presented for the purpose of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic consolidated financial statements and, in our opinion,
fairly states in all material respects the financial data required to be set
forth in relation to the basic consolidated financial statements taken as a
whole.


                                                         /s/ ARTHUR ANDERSEN LLP

Pittsburgh, Pennsylvania,
February 26, 2001

                                                                   Schedule II-B

                                     -124-
<PAGE>

                                  Exhibit Index
                                  -------------

            Exhibit
            Number            Description of Exhibit (1)

            3(i)(a)     Certificate of Incorporation of the Registrant, as
                        amended (incorporated by reference to Exhibit 3(i)(a) to
                        Allin Communications Corporation's Registration
                        Statement No. 333-10447 on Form S-1)

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

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

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

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

            3(i)(f)     Certificate of Voting Powers, Designations, Preferences
                        and Relative, Participating, Optional or Other Rights,
                        and the Qualifications, Limitations or Restrictions
                        Thereof, of the Series G Convertible Redeemable
                        Preferred Stock of Allin Corporation (incorporated by
                        reference to Exhibit 4.1 to Allin Corporation's Report
                        on Form 8-K filed on January 4, 2001)

            3(ii)(a)    Amended and Restated By-laws of the Registrant
                        (incorporated by reference to Exhibit 3(ii) to Allin
                        Communications Corporation's Registration Statement No.
                        333-10447 on Form S-1)

            3(ii)(b)    Amendment to By-laws of the Registrant (incorporated by
                        reference to Exhibit 3(ii) to Allin Communications
                        Corporation's Report on Form 10-Q for the period ended
                        June 30, 1998)

            3(ii)(c)    Amendment to By-laws of the Registrant

            4.1         Form of Warrant for purchasers of Series B Redeemable
                        Preferred Stock (incorporated by reference to Exhibit
                        4.2 to Allin Communications Corporation's Report on Form
                        8-K as of August 13, 1998)

            4.2         Loan and Security Agreement dated as of October 1, 1998
                        by and between Allin Communications Corporation and S&T
                        Bank, a Pennsylvania banking association (incorporated
                        by reference to Exhibit 4 to Allin Communications
                        Corporation's Report on Form 8-K as of September 30,
                        1998)

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

                              Exhibit Index (cont.)

            Exhibit
            Number            Description of Exhibit (1)

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

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

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

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

            4.8         Second Amendment to Note and Loan and Security Agreement
                        by and between Allin Corporation and S&T Bank, a
                        Pennsylvania banking association (incorporated by
                        reference to Exhibit 4.1 to Allin Corporation's Report
                        on Form 10-Q for the period ended September 30, 1999)

            4.9         Certificate of Voting Powers, Designations, Preferences
                        and Relative, Participating, Optional or Other Rights,
                        and the Qualifications, Limitations or Restrictions
                        Thereof, of the Series G Convertible Redeemable
                        Preferred Stock of Allin Corporation (incorporated by
                        reference to Exhibit 4.1 to Allin Corporation's Report
                        on Form 8-K filed on January 4, 2001)

            4.10        Form of Warrant for purchasers of Series G Convertible
                        Redeemable Preferred Stock of Allin Corporation
                        (incorporated by reference to Exhibit 4.2 to Allin
                        Corporation's Report on Form 8-K filed on January 4,
                        2001)

            10.1        Registration Rights Agreement dated July 23, 1996 by and
                        among the Registrant and certain of its stockholders
                        (incorporated by reference to Exhibit 10.4 to Allin
                        Communications Corporation's Registration Statement No.
                        333-10447 on Form S-1)

            10.2*       1996 Stock Plan of the Registrant (incorporated by
                        reference to Exhibit 10.8 to Allin Communications
                        Corporation's Registration Statement No. 333-10447 on
                        Form S-1)

            10.3*       1997 Stock Plan of the Registrant (incorporated by
                        reference to Annex A to Allin Communications
                        Corporation's Proxy Statement for the Annual Meeting of
                        Stockholders held on May 8, 1997)

            10.4*       1998 Stock Plan of the Registrant (incorporated by
                        reference to Annex A to Allin Communications
                        Corporation's Proxy Statement for the Special Meeting of
                        Stockholders held on December 31, 1998)

            10.5*       Employment Agreement dated June 15, 1998 by and between
                        the Registrant and Richard W. Talarico (incorporated by
                        reference to Exhibit 10 to Allin Communications
                        Corporation's Report on Form 10-Q for the period ended
                        June 30, 1998)
<PAGE>

                              Exhibit Index (cont.)

            Exhibit
            Number            Description of Exhibit (1)

            10.6        Registration Rights Agreement dated August 13, 1998
                        among the Registrant and certain stockholders of the
                        Registrant (incorporated by reference to Exhibit 10.1 to
                        Allin Communications Corporation's Report on Form 8-K as
                        of August 13, 1998)

            10.7        Stock Purchase Agreement dated August 13, 1998 among the
                        Registrant, KCS Computer Services, Inc. and the
                        stockholders of KCS Computer Services, Inc.
                        (incorporated by reference to Exhibit 2.1 to Allin
                        Communications Corporation's Report on Form 8-K as of
                        August 13, 1998)

            10.8        Amendment to Agreement and Plan of Merger dated as of
                        November 6, 1998 by and between the Registrant, Kent
                        Consulting Group, Inc. and Les Kent (incorporated by
                        reference to Exhibit 2.3 to Allin Communications
                        Corporation's Report on Form 10-Q for the period ended
                        September 30, 1998)

            10.9*       2000 Stock Plan of the Registrant (incorporated by
                        reference to Exhibit 10.13 to Allin Corporation's Report
                        on Form 10-K for the period ended December 31, 1999)

            10.10*      Employment Agreement dated June 23, 2000 by and between
                        the Registrant and Dean C. Praskach (incorporated by
                        reference to Allin Corporation's Report on Form 10-Q for
                        the period ended June 30, 2000)

            10.11       Registration Rights Agreement dated December 29, 2000 by
                        and among Allin Corporation and the holders of the
                        Series G Convertible Redeemable Preferred Stock of Allin
                        Corporation (incorporated by reference to Exhibit 10.1
                        to Allin Corporation's Report on Form 8-K filed on
                        January 4, 2001)

            10.12*      Employment Agreement dated February 13, 2001 by and
                        between the Registrant and Timothy P. O'Shea

            10.13*      Amendment to Employment Agreement dated February 13,
                        2001 by and between the Registrant and Dean C. Praskach

            10.14       Master Agreement dated February 20, 2001 by and between
                        Allin Interactive Corporation and Carnival Corporation
                        (subject to request for confidential treatment)

            10.15       Interactive Television System Agreement dated February
                        20, 2001 by and between Allin Interactive Corporation
                        and Carnival Cruise Lines (subject to request for
                        confidential treatment)

            11          Computation of Earnings Per Share

            21          Subsidiaries of the Registrant.

----------

*     Management contract or management compensatory plan or arrangement.

(1)   In the case of incorporation by reference to documents filed by the
      Registrant under the Exchange Act, the Registrant's file number under the
      Exchange Act is 0-21395.


                                        3