<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, 1999

                                       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.  ( )

     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
20, 2000 as reported on the Nasdaq National Market tier of the Nasdaq Stock
Market, was approximately $9,100,000.  Shares of Common Stock held by each
officer and director and by each person who owns 5% or more of the outstanding
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 20, 2000, the Registrant had outstanding 6,010,973 shares of
Common Stock.

                      DOCUMENTS INCORPORATED BY REFERENCE

                                      None

<PAGE>

                               Allin Corporation
                                   Form 10-K
                               December 31, 1999

                                     Index
<TABLE>
<CAPTION>

Forward-looking Information                                                               Page        3
<S>              <C>                                                                      <C>        <C>
Part I

Item 1  -        Business                                                                 Page        4

Item 2  -        Properties                                                               Page       31

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       35

Item 7  -        Management's Discussion and Analysis of Financial Condition and Results
                 of Operations                                                            Page       37

Item 7A -        Quantitative and Qualitative Disclosures About Market Risk               Page       56

Item 8  -        Financial Statements and Supplementary Data                              Page       57

Item 9  -        Changes In and Disagreements With Accountants on Accounting
                 and Financial Disclosure                                                 Page      100


Part III

Item 10 -        Directors and Executive Officers of the Registrant                       Page      101

Item 11 -        Executive Compensation                                                   Page      104

Item 12 -        Security Ownership of Certain Beneficial Owners and Management           Page      110

Item 13 -        Certain Relationships and Related Transactions                           Page      114

Part IV

Item 14 -        Exhibits, Financial Statement Schedules and Reports on Form 8-K          Page      116

Signatures                                                                                Page      120
</TABLE>

                                                                               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," "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 "Forward-Looking
Statements," 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 five
interrelated solution areas:  Information Technology Infrastructure, Business
Operations, Knowledge Management, Electronic Business and Interactive Media.
The Company offers Microsoft-focused technology consulting, application
development and systems integration services specializing in Windows NT-based
and Windows 2000-based software. The Company maintains a customer-oriented focus
in its marketing strategy and operations.  The Company is intent on building
long-term customer relationships by providing value in the form of solutions
that address specific customer information technology needs.

     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, 1999, the
organizational legal structure consists of Allin Corporation, five wholly owned
operating subsidiaries and one wholly owned non-operating subsidiary.  The
operating subsidiaries are Allin Corporation of California ("Allin Consulting-
California"), Allin Consulting of Pennsylvania, Inc. ("Allin Consulting-
Pennsylvania"), Allin Interactive Corporation ("Allin Interactive"), Allin
Digital Imaging Corp. ("Allin Digital Imaging") and Allin Network Products, Inc.
("Allin Network").  Allin Holdings Corporation ("Allin Holdings") is a non-
operating subsidiary 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 and during 1999 operated additional
offices in San Jose and Oakland, California, Ft. Lauderdale, Florida and
Cleveland, Ohio.  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.

     In 1999, the Company completed its evolution from primarily being an owner
and operator of transactional based interactive television and digital
photography systems, as it was in 1996 and 1997, to being a provider of
technology consulting and systems integration services by implementing its
solution area-based organizational structure and customer-oriented marketing
strategy.  While the roots of the change in operational focus and strategic
changes date back to 1997, it is only in 1999 that the fully-integrated
organizational structure, marketing strategy and operating model have been put
in place.  Key to completing the evolution was the 1999 introduction of the
solution area-oriented organizational structure.  A brief description of each
solution area follows:

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

 .  The Business Operations Solution Area focuses on an organization's core
   information gathering processes including sales, finance, administration,
   logistics and manufacturing. Business Operations solutions may involve custom
   development or package implementation to improve operational efficiency or
   information flow. The Company's Business Operations solution area also
   provides consulting and development for mainframe systems and specialized
   consulting services for the banking industry.

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

                                                                               4
<PAGE>

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

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

     The implementation of the solution area organizational structure coincided
with, and is complementary to, the Company's re-focusing of its marketing
strategy in 1999.  Prior to 1999, the marketing strategy centered on the
Company's technological capabilities rather than customer needs.  The solution
area structure is defined more by a customer's use of the services rather than
technological disciplines.  It fosters a customer-oriented focus.  The Company
is intent on building long-term customer relationships by providing value in the
form of solutions that address specific customer information technology needs.
Solution area sales and operational personnel must understand a customer's
business issues to provide a customized solution to their particular needs.
Information Technology Infrastructure, Business Operations, Knowledge Management
and Electronic Business solution area services target horizontal markets,
meaning businesses across a broad spectrum of industries.  Interactive Media
targets certain vertical markets where the Company believes industry conditions
are conducive to acceptance of the Company's services, including the cruise,
healthcare, education and professional photography markets.

     The year 1999 marked the establishment of a customer-oriented focus as the
fundamental principal driving the Company's marketing strategy.  Management
anticipates further refinement of the Company's marketing and sales message
during 2000 to better communicate its mission of delivering Internet-based
business solutions.  During 2000, the Company will introduce the brand-names
iNetworking, iBusiness and iPlatforms for its solution area service lines.
Management believes that utilizing these brand-names in its marketing message
will reflect the Company's mission to deliver Internet-based business solutions
and will position the Company as an organization that is focused on the
realities of the Internet and Internet technologies.  The iNetworking, iBusiness
and iPlatforms branding of the solution area service lines will be introduced
through a redesigned web site and marketing materials in 2000.

     The Company has established operating relationships with some of the
leading suppliers of information technology products to complement its solution
area services.  Foremost among these is the operating relationship with
Microsoft Corporation ("Microsoft").  Both of the Company's Allin Consulting
subsidiaries are certified as Microsoft Solutions Provider Partners.  Allin
Consulting is also a member of Microsoft's Infrastructure and Knowledge
Management Partner Advisory Councils.  Council members are a select group of
Microsoft Solution Providers with a successful history of implementing Microsoft
information technology who work closely with Microsoft to provide guidance on
key issues that ultimately shape Microsoft's channel-based strategy for
delivering customer solutions and services.  The Company's role as a member of
these Advisory Councils has also positioned it to quickly develop solutions
expertise in new Microsoft technologies such as Windows 2000.  In March 1999,
Allin Consulting-California was among four firms nominated as finalists for
Microsoft Solutions Provider Partner of the Year in Northern California from
approximately fifty-five eligible firms.  The Partner of the Year award honors
those firms whose work and achievements have demonstrated excellence in
Microsoft-oriented consulting services.  The Company intends to continue its
specialization in Microsoft-based technology products.

     Despite significant changes to its structure and operating strategies over
the last three years, the Company has continued to maintain a rapid pace of
revenue growth.  Revenue growth was achieved in most segments of the Company in
1999.  Overall revenue for 1999 of $24,977,000 represented a 63% increase over
1998 revenue of $15,291,000, which represented a 59% increase over 1997 revenue
of $9,596,000.  Revenue growth has been realized both in businesses started by
the Company and through strategic acquisitions.  The Company's high rate of
revenue growth has been recognized within the Pittsburgh technology community.
The Company was a recipient of Pittsburgh Technology 50 awards in both 1998 and
1999.  The award recognizes the highest rates of revenue growth over the
preceding three years among technology-based businesses in the Pittsburgh
region.  Similarly, Allin Digital was recognized by the Eastman Kodak Company
for having had the highest volume sales growth in 1999 among its authorized
systems integrators.  See Item 7 - Management's Discussion and Analysis of
Financial Condition and

                                                                               5
<PAGE>

Results of Operations and Item 8 - Financial Statements and Supplementary Data
for detailed information concerning the Company's revenue growth and results of
operations.

     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.  Erie Computer's operations include
information technology consulting services, computer hardware, software and
networking equipment sales and computer hardware service.  Erie Computer is
located in Erie, Pennsylvania and had operated for twenty-three years prior to
Allin Network's acquisition of its assets.  Allin Network has retained the Erie
Computer employees and intends to continue use of the trade-name "Erie Computer
Company".  The acquisition did not meet the requirements to be considered a
significant subsidiary under Securities & Exchange Commission ("SEC")
regulations.

(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 represents a
change from the presentation in the Company's Annual Report on Form 10-K for the
year ended December 31, 1998.  The change is reflective of the Company's
continuing refinement of the 1999 implementation of a new organizational
structure oriented around solution areas meeting customer needs for information
technology infrastructure, business operations, knowledge management, electronic
business and interactive media 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 for
discussion 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 and solutions framework which are common to all
solutions areas, an industry overview for technology consulting services which
is applicable to the Information Technology Infrastructure, Business Operations,
Knowledge Management and Electronic Business solutions areas, a review of the
operations of each of these four solutions areas, discussion of delivery
methods, supply considerations and sources of competition common to the four
solution areas, and a review of Interactive Media operations including industry
overviews of the cruise, healthcare, education and professional photography
industries, the vertical markets where services are targeted, and a discussion
of delivery methods, 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 also owns and operates two interactive television systems
that originated under an owner-operator model used in interactive television
operations from 1995 to 1997.  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.

Solution Area Services

     Revenue from the Company's solution area services has increased as a
proportion of the Company's overall revenue from 1997 to 1999.  The Company's
management believes that this trend reflects the Company's evolution to becoming
predominantly a provider of 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, 1999 are as follows:

                                                                               6
<PAGE>

Solution Area Services              Year Ended December 31
                               ----------------------------------
Percentage of                  1997           1998           1999
                               ----           ----           ----

Total Revenue                   77 %           76 %           89 %

     During 1999, one significant customer, Wells Fargo Bank, accounted for 10%
of the Company's consolidated revenue.

Marketing Strategy, Operations Model and Solutions Framework

     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 has become a
prerequisite for their success.  A company's knowledge capital has become
increasingly critical in allowing it to react more quickly to customer needs,
bring products to market with greater speed and respond more completely and
competitively to changing business conditions.  The growing influence of the
Internet in the business arena is also fundamentally changing how businesses
interact with customers and suppliers.  The Company believes that the effective
delivery of customer-oriented technology solutions will foster the growth of
long-term customer relationships with ongoing service opportunities.  There can
be no assurance, however, that the Company will realize revenue at current or
increased levels in future periods as a result of its current strategy.  The
Company's current target market is emerging small and medium-sized businesses
seeking to achieve a competitive advantage through technology.  The Company
believes that businesses with annual revenue ranging from $250 million to $1
billion afford the Company the best opportunities to offer solutions creating
value for the customers and to foster the development of long-term business
relationships.  Management believes customers of this size are more likely to
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 now firmly established
throughout the Company.  This will enable the major marketing initiative of 2000
to be a wider communication of the Company's message to businesses in the
Company's target market.  To promote this communication and build awareness
among targeted businesses, the Company will introduce the brand-names
iNetworking, iBusiness and iPlatforms for its solution area service lines during
2000. Management believes that utilizing these brand-names in its marketing
message will reflect the Company's mission to deliver Internet-based business
solutions and will position the Company as an organization that is focused on
the realities of the Internet and Internet technologies.  The iNetworking,
iBusiness and iPlatforms branding of the solution area service lines will be
introduced through a redesigned web site and marketing materials in 2000.

     The Company's operations model, with Information Technology Infrastructure,
Business Operations, Knowledge Management, Electronic 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 are authorized as Microsoft Solutions Provider Partners.  As noted
previously, 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 Knowledge Management 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 will enable it to quickly develop
solutions capabilities for new Microsoft product offerings such as Windows 2000.
Management also believes the Allin Consulting 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,

                                                                               7
<PAGE>

infrastructure and interactive media products since Microsoft has historically
relied extensively on third parties for custom development and integration
services. No assurance can be given, however, that any growth or change in
Microsoft's product sales will result in 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.

Industry Overview - Technology Consulting Services

     The market for information technology services has experienced rapid growth
throughout the 1990's and after a short-term slowdown in 1999, this trend is
expected to continue into the future.  The J. P. Morgan Securities, Inc.
Industry Update for IT Services of October 19, 1999 sizes the information
technology services market currently at $94 billion with a 1999 annual growth
rate of 14%.  The J. P. Morgan survey cites a number of factors that lead to
expectations of accelerating growth in 2000 and beyond.  The most significant of
these is the expected rapid growth in demand for Internet-based services, which
is expected to have a profound effect on the entire information technology
consulting industry. The J. P. Morgan survey and the Standard & Poor's Industry
Survey for Computers: Commercial Services of December 16, 1999 note that
additional factors driving industry growth include increasing business reliance
on information technology as a strategic tool for addressing business issues
created by deregulation, globalization and technological innovation, mergers and
acquisitions, back-office automation, the increasing complexity of hardware and
software and difficulties and inefficiencies experienced by companies in
maintaining in-house technical services staffs due to shortages of skilled labor
in the technology area.  The information technology services market is broad,
encompassing outsourcing, integration and consulting services.  The Standard &
Poor's Industry Survey for Computers: Commercial Services of December 16, 1999
sizes the consulting segment of information technology services, where the
Company competes, at $22.8 billion in 1998 with average annual growth of 17%
expected through 2003.  The Company believes its consulting solution areas are
positioned to benefit from the industry growth trend, although there can be no
assurance given that the Company will realize growth in revenue or improvement
in results from operations due to overall industry trends.

     The market for information technology consulting services is in a period of
fundamental transition at the beginning of 2000.  The rapidly accelerating
growth of the Internet over the last half of the 1990's presages a new

                                                                               8
<PAGE>

wave of innovations that will fundamentally change the way business is conducted
both in the domestic and international marketplaces. The Standard & Poor's
Industry Survey for Computers: Commercial Services of December 16, 1999 notes
expectations for a $1 trillion Internet commerce market by 2003, an increase of
over thirty times 1998 levels, and also notes expectations for the number of
users making Internet purchases to increase from 31 million in 1998 to 183
million in 2003. Salomon Smith Barney's Technology and Telecommunications
Quarterly of February 3, 2000 notes the most dynamic growth in Internet commerce
is expected to be in the business-to-business sector, which is predicted to
generate revenue levels seven times that of the business-to-consumer sector by
2002. Friedman, Billings, Ramsey & Co.'s Industry Analysis: Technology of August
18, 1999 notes that the Internet is fundamentally transforming business
relationships and redefining business by enabling communication, collaboration
and commerce within and beyond the enterprise. The Internet is fundamentally
changing communication patterns among businesses and their customers and
suppliers.

     Internet-driven technological advances and market changes are expected to
drive a sharp increase in demand for information technology services as
companies seek to improve their electronic commerce capabilities and build
intranet and extranet communication networks.  Friedman, Billings, Ramsey &
Co.'s Industry Analysis: Technology of August 18, 1999 sees significant growth
opportunities for information technology consulting firms in helping companies
upgrade their electronic commerce capabilities.  The Friedman, Billings, Ramsey
& Co. report notes the majority of companies are in the early stages of adoption
of Internet commerce capabilities and will require the help of consultants
possessing sophisticated technical, creative and strategic skills to make the
difficult move from static to fully integrated transactional web-sites.  The
Standard & Poor's Industry Survey of December 16, 1999 cites market researcher
International Data Corp.'s expectations for the worldwide market for internet
services to grow from $7.8 billion in 1998 to $78 billion by 2003.  The dynamic
growth of the Internet has led to increasing fragmentation of the technology
services market with the development and rapid growth of new firms specializing
in Internet-based solutions services.  Friedman, Billings, Ramsey & Co.'s
Industry Analysis: Technology of August 18, 1999 sees firms of varying
backgrounds seeking a share of the Internet services market, including systems
integrators, creative agencies, strategic consulting and advisory firms, and
large hardware, software and infrastructure companies.  The J. P. Morgan
Securities, Inc. Industry Update for IT Services of October 19, 1999 notes that
effective Internet consulting will need to combine technical expertise with
superior creative talent and an appreciation for strategic issues.

     Although the market for technology consulting services remains robust, 1999
growth was relatively flat as compared with immediately preceding years and
expectations for the early years of the 2000's.  A significant factor 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.  The Year 2000 problem also accelerated movement from
older mainframe systems less likely to be Year 2000 compliant to newer
client/server network configurations.  Much of the spending on system upgrades
and Year 2000 remediation was completed by early 1999.  The J. P. Morgan
Securities, Inc. Industry Update for IT Services of October 19, 1999 attributes
a decline in 1999 information technology spending to firms freezing their Year
2000 ready infrastructures, which has had a particularly negative impact on
technology staffing operations.  The J. P. Morgan Industry Update expects a
significant increase in information technology spending in 2000 as companies
address pent-up business technological requirements.

  A labor shortage for computer programmers and system designers has contributed
to increased demand for technology services firms. The Standard & Poor's
Industry Survey for Computers: Commercial Services of December 16, 1999 cites a
40% decline in the number of computer science and mathematics graduates entering
the workforce since 1986 and indicates that the shortage is expected to worsen
in the next few years.  The Standard & Poor's survey notes approximately 20% of
the information technology positions in the United States remain open currently
due to demand outpacing supply for information technology professionals.  Demand
for technology professionals is expected to remain high.  The United States
Bureau of Labor Statistics information as of February 2000 indicates computer
scientists, computer engineers and systems analysts are 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 Industry 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 have also increased the difficulty of
maintaining diverse and

                                                                               9
<PAGE>

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.  The Gartner
Group Strategic Analysis Report of May 26, 1998 notes that Microsoft Windows
operating systems run approximately ninety percent of the world's personal
computers.  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.  The introduction of the Windows 2000 operating
system is expected to create significant activity in operating system
conversions over the next two years.  Giga Information Group's Report: Total
Economic Impact (TEI) Analysis Shows Benefits Outweigh Costs of Migrating to
Windows 2000 of October 12, 1999 notes expectations that Windows 2000 will be
the desktop and server platform of choice for a very significant portion of
corporations over the next twelve months.  The Giga Information Group report
cites the benefits of Windows 2000 as including significant increases in
operating system reliability, performance and stability which 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 introduction of Windows
2000, will lead to increased demand for the services offered by the Company's
Information 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.

  Computer services firms have historically been somewhat insulated from
economic cycle fluctuations as economic advances have promoted increased demand
throughout the economy while economic declines have resulted in increased
incidences of businesses looking to outsource technical services.  There can be
no assurance, however, that computer services firms will not be adversely
affected by future economic downturns.  The computer services industry includes
companies diverse in size and scope of activities and includes mainframe
hardware and software vendors with significant computer services operations as
well as firms primarily focused on technology related consulting.  The industry
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.

Information Technology Infrastructure

     Revenue from the Company's Information Technology Infrastructure Solution
Area has remained relatively steady over the three years 1997 to 1999, with a
slight decline of about 1% between 1998 and 1999 revenue.  There has been a
significant decline in the percentage of overall revenue, which has grown
significantly due to revenue increases in other solution areas.  The percentage
of solution area and total revenue for the three years ended December 31, 1999
is as follows:

Information Technology                 Year Ended December 31
                                  ----------------------------------
Infrastructure Percentage of      1997           1998           1999
                                  ----           ----           ----

Solution Area Revenue              43 %           36 %           19 %
Total Revenue                      33 %           27 %           17 %


     The Information Technology Infrastructure Solution Area has historically
been a mainstay of the Company's Northern California-based operations.  The
Company has developed a long-standing expertise in this area and is a member of
Microsoft's Infrastructure Partner Advisory Council.  The slight 1999 decline in
revenue is

                                                                              10
<PAGE>

attributable to the reorientation of the Company's California-based solutions-
oriented consulting mix from primarily Information Technology Infrastructure in
1998 to a broader mix in 1999. The Pennsylvania-based consulting operation is
strategically focusing its marketing efforts on growing diverse solutions-
oriented project revenue, including Information Technology Infrastructure, which
the Company's management believes will generally offer a higher gross profit
potential than the staffing services model which represented the majority of
Allin Consulting-Pennsylvania's operations at acquisition in 1998. Revenue
growth in 1999 at Allin Consulting-Pennsylvania has partially offset some of the
decline in Allin Consulting-California revenue in this area. The general
softening of demand for technology consulting services due to a lock-down of
customer information systems for the Year 2000 rollover in the second half of
1999, as noted in the Industry Overview section above, has also negatively
impacted Information Technology Infrastructure operations.

     Information 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.  Information Technology Infrastructure Solution Area
services focus on the proper selection, implementation and management of the
underlying platforms driving customers' information systems.  Services include
design, configuration, implementation, monitoring and support of customer
operating systems, management and maintenance of database platforms, messaging
systems, information system security solutions, help desk support and
application services such as message queing and transaction servers.

     The goal of the Information Technology Infrastructure Solution Area is to
develop and implement solutions solving business problems thereby bringing
tangible benefits to customers.  Information 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 Information Technology Infrastructure Solution Area services for the
client/server environment maintain a focus on Microsoft BackOffice technology
including Windows 2000, Windows NT Server, SQL Server, SNA Server, Systems
Management Server, Exchange Server and Internet Information Server.  This
solution area also creates network solutions that integrate Unix, Lotus, Oracle,
Novell and IBM mainframe systems with Windows NT-based networks.  The Company
believes that Information 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.  The Information Technology
Infrastructure Solution Area also has extensive experience in e-mail
infrastructure and migration.  Network monitoring services utilize remote access
tools and technology to assist customers with network management, problem
diagnosis, capacity analysis and network security issues.

     This solution area has developed a number of packaged solution products in
1999 which offer state of the art diagnostic technology assessments at
reasonable fixed prices as part of the Allin Solution Products program.
Information 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.


                                                                             11
<PAGE>

  .  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.

     Information Technology Infrastructure consulting was performed by both of
the Company's Allin Consulting affiliates 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 1999, one significant customer accounted for 18% of Information
Technology Infrastructure revenue.  Erie Computer's technology consulting
operations are focused on technology infrastructure services, so the operations
of Erie Computer will be an additional source of revenue for this solution area
in 2000.

Business Operations

     Revenue from the Company's Business Operations Solution Area has
constituted a very significant portion of solution area and total revenue since
the Company's acquisition of Allin Consulting-Pennsylvania in August 1998.  The
percentage of solution area and total revenue for the three years ended December
31, 1999 is as follows:

<TABLE>
<CAPTION>

Business Operations                Year Ended December 31
                                   ----------------------
Percentage of                   1997        1998        1999
                                ----        ----        ----
<S>                             <C>         <C>         <C>
Solution Area Revenue            6 %        53 %        53 %
Total Revenue                    5 %        40 %        47 %
</TABLE>

     The Business Operations Solution Area has generated the largest share of
revenue of any solution area since the acquisition of Allin Consulting-
Pennsylvania.  The operations of this company at the time of acquisition were
predominantly centered on this solution area.  While holding steady in 1998 and
1999 as a percentage of solution area revenue, the aggregate dollar value of
Business Operations revenue increased 91% from 1998 to 1999 due to the inclusion
of Allin Consulting-Pennsylvania's operations for the full year in 1999.
Despite the year-to-year increase in revenue, Business Operations suffered
setbacks, particularly in the second half of 1999 due to a softening of demand
for services in anticipation of the Year 2000 rollover.  The Business Operations
Solution Area experienced the strongest Year 2000 impact of any of the Company's
solutions areas.  Management believes that many of the Company's customers
postponed new technology initiatives or development projects so that they could
be conducting a more simple scope of operations at year end when the full impact
of any Year 2000 problems would likely be realized.  A significant portion of
Business Operations consulting is delivered through the staffing model that was
predominant in Allin Consulting-Pennsylvania's operations when it was acquired
in August 1998, including most of Allin Consulting's mainframe computer services
and specialized banking industry consulting services.  The services delivered
through the staffing model have experienced the most severe impact in the
Business Operations revenue decline.  This phenomenon was not unique to the
Company, as was discussed above in the Industry Overview section for technology
consulting services.  Management believes that market conditions will result in
increased demand for technology consulting services as previously postponed
projects and developments are undertaken in 2000.  There can be no assurance,
however, that demand for technology consulting services will increase in the
future, or that the Company's Business Operations revenue will return to or
exceed the levels experienced by the Company previously.

                                                                              12
<PAGE>

     Business Operations provides custom software development services for the
client/server environment, offering a full spectrum of services including
business requirements analysis, data modeling and design, project and technical
management, programming, documentation and support.  The Allin Consulting
entities are Microsoft certified providers of custom application development
services utilizing Access, Visual C++, Visual Basic, Visual J++, SQL Server,
Outlook, Excel and Visual Fox.  Business Operations utilizes this expertise in
the development of solutions for core customer information gathering processes.

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

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

     Business Operations consulting for client/server environments was performed
by both of the Company's Allin Consulting affiliates utilizing personnel based
in the Company's Northern California and Pittsburgh locations.  Consulting
services related to mainframe systems were based in Pittsburgh while the
specialized bank industry consulting services were managed from the Cleveland
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 1999, one
significant customer, Wells Fargo Bank, accounted for 22% of Business Operations
and 10% of the Company's consolidated revenue.

Knowledge Management

     The Company's Knowledge Management Solution Area began its initial year of
operations in 1999.  The percentage of solution area and total revenue for the
year ended December 31, 1999 is as follows:

<TABLE>
<CAPTION>

                                            Year Ended
                                            -----------
     Knowledge Management                   December 31
                                            -----------
     Percentage of                             1999
                                               ----
<S>                                         <C>

     Solution Area Revenue                      3 %
     Total Revenue                              2 %
</TABLE>

     The Company undertook the operation of the Knowledge Management Solution
Area in early 1999.  Knowledge Management solutions focus on the flow and
processing of information within an organization.  These solutions typically
include data warehousing or work flow systems requiring expertise in business
processes as well as the implementation of technology.  These solutions will
typically interface with the business operation transaction systems to access
information from the captured data for wide accessibility within customer
organizations.  Despite the short tenure of the Knowledge Management Solution
Area, the Company's expertise in this area of technology was recognized with its
addition as a member of Microsoft's Knowledge Management Partner Advisory
Council.

     Business knowledge in an organization is generated from multiple sources
including highly-structured databases, e-mail, and documents and the interaction
of a company's workforce both internally and with customers and suppliers.  The
cultivation and distribution of this knowledge is a challenge to all
organizations seeking to deliver knowledge to their workforce.  The Knowledge
Management Solution Area focuses on five knowledge services including
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

                                                                              13
<PAGE>

empower customer personnel with the business intelligence for fast and
effective decision making.  Knowledge Management designs and implements
solutions establishing collaborative systems enabling enterprise-wide users to
innovate through threaded decisions, document management and workflow.
Knowledge Management's solutions enable all functional areas of an enterprise
to monitor key business indicators such as sales orders, schedules and customer
requests through a knowledge base consisting of relational data, e-mail
messages, files and dynamic web content.

     This solution area developed a number of packaged solution products in 1999
which offer state of the art diagnostic technology assessments at reasonable
fixed prices as part of the Allin Solution Products program. Knowledge
Management offerings of this type include:

     .  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.

     Knowledge Management consulting was performed by both of the Company's
Allin Consulting affiliates 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 1999, three
significant clients accounted for greater than 10% each of Knowledge Management
revenue.  The Company believes this concentration was due to a limited number of
customers served in the first year of Knowledge Management services and expects
the concentration of revenue among a few significant customers to decrease in
the future.

Electronic Business

     Revenue from the Company's Electronic Business Solution Area has
historically represented a small portion of the Company's solution area
activity.  This solution area experienced a significant increase in activity
level late in 1999 as 73% of 1999 revenue was earned in the fourth quarter.  The
percentage of solution area and total revenue for the three years ended December
31, 1999 is as follows:

<TABLE>
<CAPTION>

Electronic Business                Year Ended December 31
                                   ----------------------
<S>                             <C>         <C>         <C>
     Percentage of              1997        1998        1999
                                ----        ----        ----

     Solution Area Revenue       0 %         1 %         1 %
     Total Revenue               0 %         1 %         1 %
</TABLE>

     Although the Electronic Business percentages of solution area and total
revenue did not change between 1998 and 1999, the Company experienced a 118%
growth in revenue in this solution area between 1998 and 1999.  As previously
noted, the 1999 revenue was highly concentrated in the fourth quarter.  As was
discussed above in the Industry Overview for technology consulting services, the
Internet is viewed by industry analysts as the next significant wave of
technological and business innovation.  Internet-related business activity is
expected to grow phenomenally over the early years of the 2000's.  Internet-
based technology consulting is also expected to share in the phenomenal growth.
The Company's management believes that the compelling market forces represent an
opportunity for growth in the Company's services that started to be realized in
the fourth quarter of 1999.  The Company is actively adding staff and marketing
resources to this solution area in early 2000 to attempt to capitalize on the
market-driven opportunity. There can be no assurance, however, that the Company
will continue to realize revenue growth related to its Electronic Business
services.

                                                                              14
<PAGE>

     The Internet involves more than just selling products through a web site.
It also includes opening up systems to partners, suppliers and customers in a
secure fashion.  The Internet also represents a vehicle to communicate a
company's message, values and information to employees.  The Electronic Business
Solution Area provides solutions implementing revenue-generating customer-
accessible E-commerce applications, business-to-business extranets and
internally-focused intranets.  Solutions are developed that address E-business
implementation issues such as cost, value, security, integration and
interoperability.  Electronic Business develops solutions based on Microsoft's
Internet Explorer which allows software systems that support many features of
traditional client/server applications while reducing development and deployment
costs.  Electronic Business utilizes the latest Microsoft web development tools,
such as Visual Studio to 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.
Electronic Business solutions include company web sites, web catalogues, web-
based customer support information, commerce enabled web storefronts, and
intranet and extranet serving of corporate databases.  Electronic 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.

     This solution area developed a number of packaged solution products in 1999
which offer state of the art diagnostic technology assessments at reasonable
fixed prices as part of the Allin Solution Products program.  Electronic
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.

     .  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.

     Electronic Business consulting was performed by both of the Company's Allin
Consulting affiliates 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 1999, five
significant clients accounted for greater than 10% each of Electronic Business
revenue.  The Company expects that if this solution area grows, the
concentration of revenue among a few significant clients will decrease.

Delivery Methods, Suppliers and Competitors

     The Information Technology Infrastructure, Business Operations, Knowledge
Management and Electronic Business Solution Areas utilize similar delivery
methods, have similar supply considerations and have some competitors in common.
Consequently, the following information about these matters apply to these
solution areas in common unless otherwise indicated.

     The four solution areas described above deliver consulting services to
customers through three methods: Managed, Co-Managed and Staffing.  With the
Managed delivery method, the solution area assumes complete control of the
consulting process.  Client personnel function as sources of information
concerning the business need for which a solution is sought.  Solution area
managers and consultants fully control solution planning, development and
implementation.  The Managed delivery method delivers solutions on a turnkey
basis.  With the Co-Managed delivery method, management of the solution is
shared between the solution area and customer personnel.  Solution area managers
and consultants and customer technical staff members work on a collaborative
basis in planning, developing and implementing solutions.  Project functions are
distributed among both solution area and customer personnel.  With the staffing
delivery method, the solution area provides technical resources with specific
technical skill sets.  The customer utilizes these resources to complement and
assist its technical staff in the execution of tasks or projects.  The customer
remains in control of the tasks or projects and actively manages the work
performed by the Company's consultants.  The Company will currently perform
services under any of these delivery methods.

                                                                              15
<PAGE>

However, the Managed and Co-Managed delivery methods are viewed as offering the
potential for higher billing rates and margins due to the Company's performance
of high level managerial tasks required with these delivery methods.  The
Company is seeking to gradually increase the proportions of overall solution
area services delivered on the Managed and Co-Managed delivery methods.

     The services performed by the Information Technology Infrastructure,
Business Operations, Knowledge Management and Electronic Business Solution Areas
are primarily labor intensive and are provided by the Company's consultants and
engineers.  The Company's Allin Consulting affiliates 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 a combination of hourly production-based and salaried.  The Company is
seeking to increase the proportion of its technical staff compensated on a
salaried basis.  The Company's management believes that this will help 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, Andersen Consulting, 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, Sybase and
Ikon are in this category.  Management believes the larger competitors are
generally oriented to very large engagements.

     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 XLConnect,
XiTech, Idea Integration, Whitman-Hart and Ciscorp.  For services delivered
utilizing the staffing model, competitors also include Ciber, A. C. Coy and
Rapidigm.  In Northern California, competitors would include firms such as
Terrace, Inacom of Oakland, and Micro Modeling. The Business Operations solution
area also faces competition for its specialized consulting services for the
banking industry from firms such as Moskowitz and Co. and Logica.

     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 1999.  The percentage of solution area and total
revenue for the three years ended December 31, 1999 is as follows:

                                                                              16
<PAGE>

<TABLE>
<CAPTION>
     Interactive Media                            Year Ended December 31
                                                  ----------------------
     Percentage of                             1997        1998        1999
                                               ----        ----        ----

<S>                                            <C>         <C>         <C>
     Solution Area Revenue:
     Interactive Media Consulting                0 %         0 %         3 %
     Interactive Media Systems Integration      50 %         3 %        14 %
     Digital Imaging Systems Integration         0 %         7 %         7 %
                                               ----        ----        ----
                                                50 %        10 %        24 %

     Total Revenue:
     Interactive Media Consulting                0 %         0 %         3 %
     Interactive Media Systems Integration      39 %         2 %        12 %
     Digital Imaging Systems Integration         0 %         6 %         6 %
                                               ----        ----        ----
                                                39 %         8 %        21 %
</TABLE>

     The Company's Interactive Media Solution Area utilizes the Company's
expertise in digital media applications to provide solutions based on streaming
of media, interactive television and digital imaging.  These solutions utilize
advanced technology and can help customers utilize the power of the Internet to
differentiate products and services.  Interactive Media delivers business-to-
business and business-to-consumer E-commerce platforms currently focused on four
vertical target markets:  the cruise industry, healthcare, education and
professional photography.  Interactive Media 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, healthcare and
education industries while Digital Imaging Systems Integration focuses on the
professional photography market.  Presented below are industry overviews of the
cruise, healthcare and education industries, a review of Interactive Media
Consulting and Systems Integration operations, an industry overview of
professional photography and a review of Digital Imaging Systems Integration
operations.

Industry Overview - Cruise Industry.

     The cruise industry is one the fastest growing segments of the worldwide
travel business.  The Orlando Sentinel edition of December 27, 1999 notes cruise
passenger levels growing from 5.4 million in 1998 to projected levels of 6
million in 1999 and 7 million in 2000, according to The Cruise Lines Industry
Association, a cruise trade group.  The Miami Herald edition of July 2, 1999
cites the cruise industry annual revenue level at $10 billion.  The cruise
industry has responded to growing demand by building new ships to increase their
capacity.  Cruise Industry News, in its October 18, 1999 edition, notes that the
North American cruise fleet will be boosted by an estimated 54 new ships in the
next five years.  The newer ships typically are significantly larger than most
of the ships in operation today and offer more passenger amenities.  The travel
industry periodical Travel Agent notes in its May 17, 1999 edition that new
ships actually drive passenger increases because they attract more attention and
bookings to cruise vacations.  The Company's management believes that the newer,
larger ships that are being developed within the cruise industry will require a
heightened level of automation to effectively service the larger number of
cruise passengers.  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.  Management's beliefs were confirmed with the selection
of the Company's Interactive Media Solution Area to install an interactive
television system aboard Royal Caribbean Cruise Lines' ("Royal Caribbean") new
ship Voyager of the Seas.  This 142,000 ton ship became the world's largest
cruise ship upon its introduction to service in November 1999.  Interactive
Media also worked jointly with Royal Caribbean to develop applications for the
Voyager of the Seas system.  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.
The Health Care Financing Administration's Office of the Actuary projects
domestic healthcare spending to grow from $1.0 trillion in 1996 to

                                                                              17
<PAGE>

$2.1 trillion in 2007, when it is expected to account for 16.6% of gross
domestic product. 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 23, 1999.  Acute care hospitals are the
largest segment in the healthcare industry.  Hospital revenue faces continued
pressure 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.  Controlling labor costs and achieving more efficient labor
utilization are expected to be key objectives for hospitals.  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.  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.

Industry Overview - Education.

     The U. S. Department of Education estimates that there are approximately
16,500 school districts and dioceses with 103,000 public and private school
buildings in the United States.  The U. S. Census Bureau Statistical Abstract of
the United States, 1999 edition, estimates primary, secondary and collegiate
enrollment at approximately 68 million students as of 2000 and projects
enrollment growth to over 70 million by 2008.  Technology in educational
settings was often viewed through the early 1990's as a peripheral subject to be
studied rather than a tool to be utilized to increase learning effectiveness in
all subjects.  The Goals 2000 Act required that states develop plans for using
technology to support systemic reform and help students achieve high standards.
In applying this legislation, the U. S. Office of Educational Technology has
mandated that state plans provide access to modern computers and learning
devices to all students, electronic connection of classrooms to one another and
to the outside world, that educational software be an integral part of the
curriculum and that teachers be ready to use and teach with technology.  The
level of technological presence in educational institutions has rapidly
increased throughout the late 1990's.  The U. S. Census Bureau, Statistical
Abstract of the United States, 1999 edition, indicates the proportion of schools
connected to computer networks increased from 5% in 1992 to 56% in 1998 and that
95% of schools are expected to have access to the Internet by 2000.  T. H. E.
Journal, an educational industry publication, notes projections for 48%
increases in educational technology spending from 1998 to 2002, when spending is
forecast to be $3.7 billion annually.  The Company believes new technology
spending will focus on wide area networks placing computer availability in the
classrooms, enhancing Internet and Intranet capabilities and providing on-demand
educational video content.  Management believes the Company's Interactive Media
Solution Area can deliver solutions adapted to an educational environment.
There can be no assurance, however, that the Company will be effective in
obtaining consulting or systems integration projects or that any projects
obtained  will result in the desired improvements to the Company's financial
condition or results of operations.

Interactive Media Consulting

     Late in 1998, the Company began to offer consulting services specializing
in interactive media design and applications.  The Company's previous 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 created an
opportunity to expand its interactive media service offerings beyond the
provision of systems integration services.  Management adopted the strategy of
pursuing consulting opportunities in the same vertical industries in which it
was pursuing systems integration business, the cruise, healthcare and education
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 reduced staffs by facilitating more efficient flow of
information and order processing and by providing a more flexible training
process.  The Company believes that an education

                                                                              18
<PAGE>

industry market is emerging for interactive media consulting solutions that can
facilitate wide area networking connections, improve Internet and Intranet
accessibility and capabilities and utilize on-demand educational video content
that is both digital and analog based.

     The majority of interactive media consulting revenue was derived from
cruise industry opportunities in 1999.  Services provided included joint
development with Royal Caribbean of system design specifications and
applications development for the interactive television system installed on the
Voyager of the Seas.  Development included electronic commerce applications such
as on-demand shore excursion access to previews and ticketing, room service
ordering and pay-per-view movies, Internet access capabilities, and ship
information dissemination capabilities.  Other consulting projects included
applications design and specifications development for a third party's hospital-
based interactive television system, interactive technology assessment and
technology plan development for public school districts and maintenance and
trouble-shooting services for ship interactive television services under a
maintenance agreement.  During the first quarter of 2000, Interactive Media
commenced applications development activity for the new Celebrity Cruises, Inc.
("Celebrity") ship Millennium, which is scheduled to sail in June 2000.

     During 1999, Interactive Media consulting operations were conducted
primarily through technical consultants and administrative personnel based in
the Company's Ft. Lauderdale, Florida office.  A portion of larger engagements
were performed at sites designated by customers.  It is anticipated that 2000
operations will be conducted in a similar manner.  During 1999, two significant
clients each accounted for greater than 10% of Interactive Media Consulting
revenue.

Interactive Media Systems Integration

     Systems integration services continued to target the three vertical
markets, the cruise, healthcare and education industries, that had been
identified in the 1998 reformulation of Interactive Media's marketing
objectives.

     The majority of historical activity for Interactive Media systems
integration services has been concentrated in the cruise industry.  Services
provided for the cruise industry remained the dominant operating activity during
1999.  Interactive Media sold and installed the first of its second generation
business-to-consumer E-commerce platforms with the interactive television system
on the Royal Caribbean ship Voyager of the Seas, which sailed on its maiden
voyage in November 1999.  The Voyager of the Seas system features an entirely
new hardware configuration utilizing state of the art equipment from On Command
Corporation ("On Command").  The On Command equipment offers substantial
functionality improvements over end-user and head end components previously used
in interactive television systems.  During 1999, sales were also recorded for
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 is being recognized on the Celebrity ship system sales
over the minimum life of an associated maintenance agreement, through March 17,
2000.

     Management believes that the newer, larger ships that are being developed
within the cruise industry, such as the Voyager of the Seas, will 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 a competitive advantage over competitors for
system sales within the cruise industry.  During the first quarter of 2000, the
Company commenced work on development and configuration for installation of an
interactive television system on the new Celebrity ship Millennium, which is
scheduled to sail in June 2000.  There can be no assurance, however, that the
Company will continue to receive orders for additional system sales 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

                                                                              19
<PAGE>

deliver these E-commerce services can both increase patient satisfaction and
labor efficiency.  During 1998, the Company installed its first healthcare-based
interactive system at a new Mayo Clinic hospital in Phoenix, Arizona.
Interactive features implemented with this system provided many of the
attributes identified as desirable for the healthcare industry.  Management
believes the Mayo Clinic project laid the foundation for healthcare-based
integration projects based on the new second generation interactive systems
featuring On Command technology.  Interactive Media is currently working on
three interactive system installations at hospitals, which are scheduled to be
completed by the second quarter of 2000.

     The Company believes that the interactive technology capabilities developed
and implemented in cruise and healthcare market projects are also well suited
for application to the field of education.  The Company's interactive services
can enable creation of centralized multimedia libraries with on-demand access,
increase accessibility of educational content and on-line testing to students
and centralize administrative content distribution.  Interactive Media is
currently working on systems integration projects for two institutions of higher
learning.  These projects were begun in 1999.

     During 1999, Interactive Media systems integration operations were
conducted primarily through technical consultants and administrative personnel
based in its Ft. Lauderdale, Florida office.  A portion of the labor associated
with the Voyager of the Seas installation was performed onsite by Interactive
Media personnel at a shipyard in Finland while the ship was being outfitted.  It
is anticipated that 2000 operations will be conducted in a similar manner.
During 1999, two significant clients each accounted for greater than 10% of
Interactive Media Systems Integration revenue.

     Research and Development.  Interactive Media development efforts in 1999
included development of new applications and software interfaces for interactive
video streaming utilizing On Command hardware components and technology.  The
Company expects that further research and development efforts in 2000 will be
focused on continuing application and software interface development for On
Command technology and development of improvements to Interactive Media
graphical presentation capabilities.

     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 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.  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 1999
systems integration projects on a timely basis.

     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
competition comes from Cruise Market and The Network Connection, which have
installed interactive television systems on ships.  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 and DGI Technologies.  The Company is
not aware of competitors in the education market with fully digital interactive
systems capable of being networked over a variety of communications systems
similar to the Company's.  The Company believes the main source of competition
currently comes from analog-based media retrieval systems provided by Dukane,
Rauland-Borg, and Dynacom.

     The Company believes that its strategy of focusing on consulting and
systems integration services and applications for other suppliers' interactive
technology provides it with a competitive advantage associated with a more
diverse product offering.  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

                                                                              20
<PAGE>

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.  Lyra, Inc., a photography industry market
researcher, in an excerpt from their June 1999 report, The Impact of Digital
Imaging on the Photo-Image Processing Industry, sees the rate of growth in
digital exposures outpacing film exposures through 2002.  Another factor driving
the industry movement toward digital is the opportunity for improved
efficiencies in order-taking practices.  Digital images can be immediately
displayed on the studio's computer, simplifying the customer order process by
avoiding the delays caused by film development.  Digital images can also be
archived on studio Internet websites simplifying the order process for
additional prints.  In its October 1999 edition, Studio Photography & Design
notes the popularity of Internet access to view images with young customers.
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 website orders.  Photography laboratories are also rapidly enhancing
their digital capabilities.  The December 1999 edition of Photo Marketing
reports results of the Photo Marketing Association's surveys of professional
photography labs, noting an increase in the percent of labs offering digital
imaging services from 31.6% in 1991 to 74.2% in 1998.  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
allowing for improved consumer product and process satisfaction, improved image
processing time and reductions in 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.

     Operations.  The Interactive Media Solution Area continued to grow its
digital imaging systems integration business in 1999, building upon the
foundation laid in 1998 when the Company initiated digital imaging systems
integration activity.  A 79% increase in revenue was realized in 1999 as
compared to 1998.  The Company received an award from the Eastman Kodak Company
for having the highest volume sales growth among authorized systems integrators
in 1999.  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 systems.  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.

     The Company introduced Portraits Online(TM), its proprietary Internet-based
portrait viewing and selling system, in August 1998.  This business-to-consumer
E-commerce solution, 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. In late 1999, the Company introduced the Portraits
Online(TM) laboratory system, a business-to-business E-commerce platform
designed for photography laboratories and their studio clients. The Portraits
Online(TM) laboratory system allows many of the benefits of a fully-integrated
Portraits Online(TM) system without as substantial a capital cost. Studios
continuing to use conventional film photography can have their film images
scanned into digital format by a Portraits Online(TM) capable photography
laboratory. The digital images can then be transmitted to the studio for

                                                                              21
<PAGE>

online sales presentations and are also archived on the studio's Portraits
Online(TM) web-site, where they are accessible for viewing and ordering.
The Company believes the Portraits Online(TM) programs offer 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) programs 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. 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.  In addition, Interactive Media uses an exclusive commission-based
referral arrangement with an individual nationally known for his expertise in
digital photography and who also operates a digital imaging education center.
With the introduction of the Portraits Online(TM) laboratory program in late
1999, an additional target market of photographic laboratories has been added.
After reaching agreement with laboratories to participate in the Portraits
Online(TM) program, internal sales and marketing personnel work jointly with lab
marketing personnel to identify potential candidates for the electronic commerce
opportunities offered by Portraits Online(TM) from among the laboratory's client
studios.

     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
10% of digital imaging systems integration revenue in 1999.

     Research and Development.  Development efforts in 1999 included continuing
functional and graphical improvements to the previously developed Portraits
Online(TM) Internet-based online image selling and archival system.  Activity
also included development of the Portraits Online(TM) product extension
enabling the offering of an Internet-based image ordering and archival program
to photographic laboratories and their studio clients who continue to use film-
based photographic methods.  The Company expects that further research and
development efforts in 2000 will be focused on improvements to the Portraits
Online(TM) systems 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.  The Company maintains an
inventory of these items 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

                                                                              22
<PAGE>

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.

     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, although growing, at
present.  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.  Hicks, with its Pro
Shots system, is a competitor in marketing Internet-based digital image access
and order systems to photographic laboratories and their clients.  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.

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 1997 to 1999.  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 represented by the Company's Ancillary
Services & Product Sales for the three years ended December 31, 1999 are as
follows:

<TABLE>
<CAPTION>

     Ancillary Services & Product Sales             Year Ended December 31
                                                    ----------------------
     Percentage of                               1997        1998        1999
                                                 ----        ----        ----

<S>                                              <C>         <C>         <C>
     Total Revenue                               23 %        24 %        11 %
</TABLE>

     During 1999, there were no customers accounting for 10% or greater of the
Company's consolidated revenue.  Two customers accounted for greater than 10% of
Ancillary Services & Product Sales.

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,
1999 is as follows:

<TABLE>
<CAPTION>

     Interactive Television
     Transactional Revenue &
     Management Fees
                                        Year Ended December 31
                                        ----------------------
     Percentage of                   1997        1998        1999
                                     ----        ----        ----

<S>                                  <C>         <C>         <C>
     Total Revenue                   20 %        20 %        6 %
</TABLE>

                                                                              23
<PAGE>

     The Company continued to derive revenue from interactive television
operations on cruise ships during 1999 for transactional interactive services
such as pay-per-view movies and video gaming, and from management fees derived
from cruise lines for operation of the systems.  Operations of this type were
provided under contracts 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 declined significantly
during 1999.  The Company began 1999 operating interactive systems on a total of
eight cruise ships, including five Celebrity ships, two Carnival Cruise Lines
("Carnival") ships and one Norwegian Cruise Lines ("NCL") ship.  Operation of
the interactive television system aboard the NCL ship Norwegian Dream ceased in
April 1999 following NCL's termination of management fees for system operation.
In August and September of 1999, operation of the five systems aboard Celebrity
ships was transferred to Celebrity in connection with the sale of four of the
systems to Celebrity.  The system aboard the Celebrity ship m.v. Mercury had
been previously sold to Celebrity but was operated by the Company on terms
identical to the other Celebrity ship systems. The Company has elected to
continue to operate the two interactive television systems aboard Carnival
ships.  The Carnival ships historically provided the highest system revenue from
pay-per-view movies and the Company's management believes it to be beneficial to
the Company to continue to operate these systems until the expiration of the
contract in February 2002 or Carnival's earlier termination upon notice.  The
Company expects interactive television transactional revenue to be realized in
2000 will be significantly reduced from previous levels.  Operation of the
systems aboard the Carnival ships continue to utilize onboard system operators
with supervision from management personnel from the Company's Ft. Lauderdale
office.  During 1999, systems were operated for only three customers and in 2000
the Company expects to operate systems for only one customer.

     Under its interactive television system contract with Carnival, the Company
shares a portion of the revenue the systems generate from the sale to passengers
of various pay services.  Revenue sharing terms provide for the Company to
receive the majority of revenue until an amount attributed to the Company's
installation costs has been recovered, after which point Carnival is entitled to
receive an increased share.  Based on revenue attribution through December 31,
1999, no significant change in revenue sharing percentages is expected during
2000.

     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 system.  Payment to the distributors is based on revenue
derived from the sale of such movies on the Company's interactive television
system 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.
Although a specific title may be available from a single source, the Company
does not anticipate that it will experience difficulty in obtaining these
products.

Digital Imaging Product Sales

     The percentage of total revenue derived from digital imaging product sales
for the three years ended December 31, 1999 is as follows:

<TABLE>
<CAPTION>

     Digital Imaging Product Sales      Year Ended December 31
                                        ----------------------
     Percentage of                   1997        1998        1999
                                     ----        ----        ----

<S>                                  <C>         <C>         <C>
     Total Revenue                   1 %         2 %         3 %
</TABLE>


     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 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 a source for ongoing equipment and consumable purchases
enhances customer satisfaction with their digital imaging systems.  The Company
also believes that ongoing

                                                                              24
<PAGE>

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 200% increase in digital imaging product sale
revenue in 1999 as compared with 1998, attributable to a substantially larger
base of customers with installed digital imaging systems in 1999.  Digital
imaging product sales are handled utilizing sales, administrative and technical
personnel in the Company's Pittsburgh and Ft. Lauderdale offices.  No customers
accounted for 10% or greater of digital imaging product sales.

     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, while growing, remains small in comparison to 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, 1999 is as follows:

<TABLE>
<CAPTION>

     Information System Product Sales       Year Ended December 31
                                            ----------------------
     Percentage of                       1997        1998        1999
                                         ----        ----        ----

<S>                                      <C>         <C>         <C>
     Total Revenue                       2 %         2 %         1 %
</TABLE>

     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 9, 1999), Networking
Equipment (August 26, 1999) and Software (September 30, 1999) estimate the
worldwide market size as exceeding $500 billion annually.  These surveys foresee
the dynamic growth of the Internet driving continued rapid growth in networking
equipment and software, and a short-term reversal of a downward trend in
hardware sales. 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 expects growth in this area in 2000 due to the February 2000 acquisition
of assets comprising the business operations of Erie Computer.  A significant
portion of Erie Computer's existing base of business comes from information
system product sales.  Erie Computer has one sales person actively dedicated to
this portion of its business and much of the sales volume is not associated with
other consulting services provided by Erie Computer.  Erie Computer has
developed purchasing capabilities and agreements with vendors providing it
access to a wide spectrum of computer related hardware, software and networking
equipment at prices more competitive than those previously obtained by the
Company.  The Company intends to utilize the expanded price competitive supplier
base presented by Erie Computer to further enhance its available products and
its opportunities for attractive pricing in 2000.

     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

                                                                              25
<PAGE>

and prompt delivery from its suppliers.  This practice is expected to continue.
Hardware and software sales operations were conducted from the Company's
Oakland, California and Pittsburgh, Pennsylvania offices in 1999.  For 2000,
the Company intends to utilize Erie Computer personnel located in Erie,
Pennsylvania to conduct this part of its business.  During 1999, three
customers accounted for 25%, 18% and 12%, respectively of information system
product sales.

     Suppliers.  The products sold by the Company are readily available from a
large number of sources.  The Company has historically purchased a substantial
portion of its products from one supplier due to pricing advantages offered
through volume purchasing.  Purchasing activity conducted by the Company will
likely change significantly due to the acquisition of Erie Computer.

     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 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, 1999 is as follows:

<TABLE>
<CAPTION>

     Other Services                     Year Ended December 31
                                        ----------------------
     Percentage of                   1997        1998        1999
                                     ----        ----        ----

     <S>                             <C>         <C>         <C>
     Total Revenue                   0 %         0 %         1 %
</TABLE>

     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 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.  Other
services are not expected to be significant to the Company's operations.

Research and Development; Capital Expenditures

     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 to be marketed to photographic laboratories and their
studio clients, ongoing functionality and graphical improvements to the
Company's Portraits Online(TM) studio system and continuing application
development and functionality improvements related to On Command hardware
components 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 retrieval and archival technology.  An additional $20,000 of
software development was capitalized, primarily related to digital imaging
technology.

     During 1997, the Company expensed approximately $212,000 for software
development, principally for enhancement of interactive television technology
and development of digital imaging technology.  An additional

                                                                              26
<PAGE>

$48,000 of software development was capitalized related to certain upgrades of
to interactive television system technology.

Employees

     As of February 29, 2000, the Company employed approximately 155 people and
utilized the services of approximately 20 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
between $250 million and $1 billion in annual revenue.  The Company's
Information Technology Infrastructure, Business Operations, Knowledge Management
and Electronic Business solution areas target horizontal markets, meaning
potential clients in any industry.  The Interactive Media solution area
currently targets four vertical markets for its services, including the cruise,
healthcare, education and professional photography industries.

     The Company has twelve dedicated sales and marketing personnel among its
subsidiaries focusing on the Company's different solution area services and one
dedicated sales person for information system product sales.  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 interactive
television, digital imaging and specialized bank industry technology consulting
operations.  The Company additionally has a sales referral arrangement in place
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)    Forward Looking Statements

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

     Integration of Acquired Entities.  The Company acquired Allin Consulting-
Pennsylvania in August 1998.  The Company acquired MEGAbase in November 1998 and
subsequently merged it into Allin Consulting-California. Allin Network acquired
certain assets utilized in the business operations of Erie Computer in February
2000.  The Company intends to continue to operate all of these businesses under
a common business strategy and to undertake joint marketing, recruiting and
training programs for all entities.  Additionally, the Company seeks to promote
an orientation toward common solution area disciplines and methodologies across
its consulting operations.  Allin Consulting-California, Allin Consulting-
Pennsylvania and Allin Network have a limited history of joint operations

                                                                              27
<PAGE>

and there can be no assurance that the entities will be able to effectively
carry out joint efforts.  Failure to do so may result in reduced revenue or
earnings for the Company.

     Limited Operating History Under New Marketing Strategies.  The Company
fundamentally changed the marketing strategies for its technology consulting
operations in early 1999 to emphasize a customer-oriented marketing approach and
the delivery of services oriented around solution areas meeting customer needs
for information technology infrastructure, business operations, knowledge
management, electronic business and interactive media solutions.  The Company is
seeking to develop additional solutions-oriented business for all of these
solution areas and seeks to reposition its operations away from the staffing-
oriented model formerly predominant in Allin Consulting-Pennsylvania.  The
majority of the Company's current Business Operations solution area revenue is
derived from services provided under the staffing model.  The Company has
experienced a decline in demand for Business Operations services during 1999,
particularly for staffing for mainframe computer systems and its specialized
banking industry services.  While the Company attributes a significant portion
of the decline to client postponement of technology projects due to the Year
2000 issue, Business Operations activity in future periods under the staffing
model is expected to decline as a result of both industry trends and the
Company's marketing focus on solutions-oriented projects.  There can be no
assurance that the Company will be successful at growing solutions-oriented
revenue in any of its solutions areas or that any growth obtained will offset or
exceed expected declines in Business Operations revenue.  There can also be no
assurance that any growth achieved for solutions-oriented projects will result
in the desired improvements to gross profit.

     The Company fundamentally changed its marketing strategies with respect to
its interactive television operations during mid-1997 and with respect to its
digital photography operations in early 1998.  Allin Interactive's current
strategy is to sell customized applications and installations of its interactive
television systems on a systems integration basis where the customer bears the
capital cost of the system and to provide consulting services related to
interactive media.  However, the transition toward systems integration and
consulting services has also resulted in a decline in transactional and
management fee revenue derived from interactive television systems owned and
operated by Allin Interactive.  A significant decline in transactional and
management fee revenue will be realized in 2000 as compared to 1999 due to the
transitioning of operational responsibility to Celebrity for five interactive
systems on their ships.  There can be no assurance that Allin Interactive will
not experience declines in revenue and gross margin during 2000 subsequent to
completion of revenue recognition from the Celebrity sale.  Because the Company
has only a limited history of operations with the current marketing strategies,
there can be no assurance that the Company will succeed under these strategies,
or that it will obtain financial returns sufficient to justify its investment in
the markets in which it participates.

     Need for Management of Growth and Geographic Expansion.   The Company's
growth strategy will require its management to conduct operations, evaluate
acquisitions and respond to changes in technology and the market. The Company
intends to evaluate continued geographic growth of its operations, particularly
in technology consulting.  The Company has substantially expanded the geographic
scope of its operations in the Northeastern United States through the
acquisition of Allin Consulting-Pennsylvania, with offices in Pittsburgh,
Pennsylvania and Cleveland, Ohio.  Furthermore, Allin Consulting-Pennsylvania's
specialized banking industry technology consulting services operate on a
national scope.  The Company is evaluating further geographic expansion of
operations through acquisition or investment.  There can be no assurance,
however, that the Company will be successful in identifying or acquiring other
businesses, or that any business that may be acquired will result in the desired
improvements to financial results.  The Company is marketing interactive
television and digital photography services nationally and intends to undertake
installations throughout the United States, if obtained.  If the Company's
management is unable to manage growth, if any, effectively, its business,
financial condition and results of operations will be materially adversely
affected.

     Dependence on Key Personnel.   The Company's success is dependent on a
number of key management, technical and operational personnel for the management
of consulting operations, development of new markets and products and timely
installation of its systems.  The Company's reorientation of marketing
strategies and operations during 1999 has also resulted in certain key
executives assuming different or additional responsibilities for the Company's
operations.  The loss of one or more of these individuals could have an adverse
effect on the Company's business and results of operations. The Company depends
on its continued ability to attract and retain highly skilled and qualified
personnel and to engage non-employee consultants. There can be no assurance that
the Company will be successful in attracting and retaining such personnel or
contracting with such non-employee consultants.


                                                                              28
<PAGE>

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

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

     Recent Net Losses and Accumulated Deficit. The Company sustained
substantial net losses during the years ended December 31, 1996, 1997, 1998 and
1999.  As of December 31, 1999, the Company had an accumulated deficit of
$30,428,000.  The Company anticipates that it will continue to incur net losses
at least through all or a portion of 2000, and there can be no assurance that it
will be able to achieve revenue growth or improvements to profitability on an
ongoing basis in the future.

     Liquidity Risk.  Since the beginning of the fourth quarter of 1998, the
Company's cash position declined significantly due primarily to the usage of
operating working capital to fund a portion of the retirement of a note payable
associated with the acquisition of Allin Consulting-Pennsylvania.  While the
Company's management believes the acquisition of Allin Consulting-Pennsylvania
has to date improved operating cash flow and expects this to continue, there can
be no assurance that a prolonged downturn in operations or business setbacks to
Allin Consulting-Pennsylvania or the Company's other operating entities will not
result in working capital shortages which may adversely impact the Company's
operations.  The cash decline has been mitigated somewhat by the Company
obtaining a line of credit facility during the same time period.

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

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

                                                                              29
<PAGE>

Company entered new markets by offering systems integration services to
healthcare and educational organizations and professional photography
businesses.  There can be no assurance that the Company will achieve ongoing
success within this market, or that any additional business obtained will
generate improvements to the Company's profitability or cash flow.

     Risks Inherent in Development of New Products.  The Company recently
developed software interfaces and modifications for end-user operating
components from On Command to be utilized in interactive system installations,
which the Company believes could result in fundamental improvements to the
functionality of the end-user system components.  The Company also intends to
conduct research and development activities in other areas to improve its
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 technology and relies on a combination of copyright and
trade secret laws and contractual restrictions to protect its technology. It is
the Company's policy to require employees, consultants and clients to execute
nondisclosure agreements upon commencement of a relationship with the Company,
and to limit access to and distribution of its software, documentation and other
proprietary information. Nonetheless, it may be possible for third parties to
misappropriate the Company's technology and proprietary information or
independently to develop similar or superior technology. There can be no
assurance that the legal protections afforded to the Company and the measures
taken by the Company will be adequate to protect its technology. Any
misappropriation of the Company's technology or proprietary information could
have a material adverse effect on the Company's business, financial condition
and results of operations.

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

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

     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.

                                                                              30
<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. Information Technology Infrastructure,
Business Operations, Knowledge Management and Electronic Business Solution Area
management, sales, technical and administrative personnel associated with the
Company's Eastern United States operations also utilize the Pittsburgh office,
as do Interactive Media management, sales and administrative personnel.

     The Company's Information Technology Infrastructure, Business Operations,
Knowledge Management and Electronic Business Solution Areas also utilize leased
office space in San Jose, Walnut Creek and Oakland, 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 Company's Cleveland, Ohio office houses management and administrative
personnel for the Business Operations Solution Area's specialized banking
industry technology consulting practice.  The Company occupies leased office
space in Cleveland.

     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.  The Ft. Lauderdale office also houses the
management and administrative functions associated with the Company's
interactive television transaction-based operations.

     The Company's digital imaging product sales are managed and carried out by
employees based in both the Pittsburgh and Ft. Lauderdale offices.  During 1999,
information system product sales were handled by personnel based in the Oakland
and Pittsburgh offices.

     The Company acquired assets utilized in the operations of Erie Computer in
February 2000.  The Company also entered a lease agreement at this time for
occupancy of the building housing the Erie Computer operations.  Erie Computer
conducts both technology consulting services, which will primarily be associated
with the Information Technology Infrastructure Solution Area, and information
system product sales.

     During 1999, the Company discontinued occupancy of leased office space in
Pittsburgh which had housed the operations of Allin Consulting-Pennsylvania
prior to, and for approximately six months after, its acquisition by the Company
in August 1998.  The Company reached settlement with the landlord over the
remaining term of the lease in 1999.  In February 1999, the Company also closed
a small office used by technology consulting personnel located in Erie,
Pennsylvania.  The Erie office had been leased on a month-to-month basis.  This
office was not associated with Erie Computer, which was subsequently acquired.

     As of December 31, 1999, all of the Company's leased offices were fully
utilized and were suitable and adequate to meet the organization's needs.  As
noted previously, during 2000, office space has been leased in Walnut Creek,
California, which is expected to be fully utilized imminently, and a building
was leased in Erie, Pennsylvania, which is fully utilized.

                                                                              31
<PAGE>

Item 3 - Legal Proceedings

     On or about November 22, 1999, the Company commenced an action in the Court
of Common Pleas of Allegheny County, Pennsylvania, against Mark Gerow ("Gerow"),
a former employee of Allin Consulting-California.  The Company is seeking
declaratory relief pertaining to certain claims made by 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.  Gerow has filed Preliminary Objections challenging
the Court's jurisdiction over him.

     The Stock Purchase Agreement for the MEGAbase acquisition included terms
providing for contingent purchase consideration based on Allin Consulting-
California's 1999 Development Practice Gross Margin, as defined in the
agreement.  The Company and Gerow have not been able to reach agreement on the
calculation of the Development Practice Gross Margin due to disagreement over
interpretation of its definition per the purchase agreement.  Gerow has not to
date filed a claim for a specific dollar amount.  The Company is seeking the
Court's assistance in determining the amount, if any, of contingent purchase
consideration to be paid.

     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

     There were no matters submitted to a vote of security holders during the
fourth quarter of 1999.

                                                                              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 1999, the high and low closing prices per share of the common stock as
reported by Nasdaq were $5 1/4 and $2 1/2, respectively.  On March 15, 2000,
there were approximately 87 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 1998 and 1999 were as follows:

<TABLE>
<CAPTION>

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

<S>                                               <C>             <C>
First Quarter 1998                                    4 7/8          3 5/8
Second Quarter 1998                                   4 3/4          3 3/4
Third Quarter 1998                                    4 5/8          3 1/4
Fourth Quarter 1998                                   4 1/4          3 1/8

First Quarter 1999                                    3 7/8          2 1/2
Second Quarter 1999                                   3 1/4          2 7/16
Third Quarter 1999                                    5              3
Fourth Quarter 1999                                   5 1/4          4 1/4
</TABLE>

     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,
Series E Convertible Redeemable Preferred Stock and Series F Convertible
Redeemable Preferred Stock.  The Loan and Security Agreement expires September
30, 2000.  Each of the Certificates of Designation governing the Series C, D, E
and F preferred stock prohibits the Company from declaring or paying dividends
or any other distribution on the common stock or any other class of stock
ranking junior as to dividends and upon liquidation unless all dividends on the
senior series of preferred stock for the dividend payment date immediately prior
to or concurrent with the dividend or distribution as to the junior securities
are paid or are declared and funds are set aside for payment.

     On February 3, 2000, the Company issued 23,310 shares of its common stock
to Patterson-Erie Corporation as consideration for the acquisition of certain
assets used in the operation of Erie Computer. As no public offering was
involved, the issuance of these shares of common stock was exempt from
registration under Section 4(2) of the Securities Act of 1933, as amended.
                                                                              34
<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,
1995, 1996, 1997, 1998 and 1999 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 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,
1997 and 1998.

     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, 1995 reflect
solely the financial position and results of operations of Allin Interactive.
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 period ended
December 31, 1999 reflects 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
year of 1999.

                                                                              35
<PAGE>

<TABLE>
<CAPTION>
                                                                         Period Ended December 31,
                                                  ------------------------------------------------------------------------
                                                      1995           1996          1997           1998           1999
                                                  -------------  ------------  -------------  -------------  -------------
<S>                                               <C>            <C>           <C>            <C>            <C>
Statement of Operations Data:
  Revenue.......................................    $       44    $    1,110     $    9,596     $   15,291     $   24,977
  Cost of sales.................................            10           645          5,988          8,781         15,558
                                                    ----------    ----------     ----------     ----------     ----------
  Gross profit..................................            34           465          3,608          6,510          9,419
  Depreciation & amortization...................           288         1,339          3,887          3,414          2,508
  (Gain) loss on impairment or disposal of
    assets......................................            --            (1)         1,227          3,165             87
  Other selling, general & administrative.......         1,545         6,491          9,403          7,358          9,246
                                                    ----------    ----------     ----------     ----------     ----------
  Loss from operations..........................        (1,799)       (7,364)       (10,909)        (7,427)        (2,422)
  Interest expense (income), net................           369           800           (413)            (7)           173
                                                    ----------    ----------     ----------     ----------     ----------
  Loss before income tax expense................        (2,168)       (8,164)       (10,496)        (7,420)        (2,595)
  Income tax expense............................            --            22             45             --             10
                                                    ----------    ----------     ----------     ----------     ----------
  Loss after income tax expense.................        (2,168)       (8,186)       (10,541)        (7,420)        (2,605)
  Minority interest.............................            --            --             --             28             72
                                                    ----------    ----------     ----------     ----------     ----------
  Loss from continuing operations...............        (2,168)       (8,186)       (10,541)        (7,448)        (2,677)
  (Gain) loss from discontinued operations......            --           161            162         (1,657)            (1)
                                                    ----------    ----------     ----------     ----------     ----------
  Net loss......................................        (2,168)       (8,347)       (10,703)        (5,791)        (2,676)
  Accretion and dividends on preferred stock....            --           106            232            779            699
                                                    ----------    ----------     ----------     ----------     ----------
  Net loss applicable to common shareholders....    $   (2,168)   $   (8,453)    $  (10,935)    $   (6,570)    $   (3,375)
                                                    ==========    ==========     ==========     ==========     ==========
  Net loss per common share.....................        $(0.90)       $(2.98)        $(2.12)        $(1.20)        $(0.56)
                                                    ==========    ==========     ==========     ==========     ==========
  Weighted average number of common                  2,400,000     2,834,565      5,157,399      5,466,979      5,972,001
   shares outstanding ..........................    ==========    ==========     ==========     ==========     ==========

</TABLE>


<TABLE>
<CAPTION>
                                                                         As of December 31,
                                               -----------------------------------------------------------------------
                                                   1995         1996              1997          1998          1999
                                               ------------  -----------      ------------  ------------  ------------
<S>                                            <C>           <C>              <C>           <C>           <C>
Balance Sheet Data:
  Working capital............................     $(1,493)      $14,051          $ 6,748       $ 2,513       $ 2,228
  Total assets...............................       2,353        32,677           21,653        26,312        24,026
  Total liabilities..........................       5,131         3,875            3,644         8,071         6,047
  Preferred stock............................          --         2,480            2,500         4,652         7,578
  Stockholders' equity.......................      (2,778)       26,322 (1)       15,509        13,589        17,979
</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.

                                                                              36
<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 limited operating history with its recent acquisitions;
uncertainty as to the Company's future profitability; the Company's history of
net losses, accumulated deficit and liquidity; the risks inherent in development
of new products and markets; competition in the Company's existing and potential
future lines of business; risks associated with the Company's management of
growth; dependence on key personnel; rapidly changing technology and a rapidly
evolving market for interactive applications; and fluctuations in operating
results, as well as other risks and uncertainties.    See Item 1 under the
caption "Forward-Looking Statements".

Overview of Organization, Products & Markets

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

     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, 1999, the
organizational legal structure consists of Allin Corporation, five wholly owned
operating subsidiaries and one wholly owned non-operating subsidiary.  The
operating subsidiaries are Allin Corporation of California ("Allin Consulting-
California"), Allin Consulting of Pennsylvania, Inc. ("Allin Consulting-
Pennsylvania"), Allin Interactive Corporation ("Allin Interactive"), Allin
Digital Imaging Corp. ("Allin Digital Imaging") and Allin Network Products, Inc.
("Allin Network").  Allin Holdings Corporation ("Allin Holdings") is a non-
operating subsidiary 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 during 1999 operated
additional offices in San Jose and Oakland, California, Ft. Lauderdale, Florida
and Cleveland, Ohio.  The Company sold a subsidiary, SportsWave, Inc.
("SportsWave") in September 1998.

     The financial information for the period ending December 31, 1997 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 1997.  The financial information for the period ended
December 31, 1998 reflects the results of continuing operations of these
companies 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 period ending
December 31, 1999 reflects 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 year of 1999.  Results of
SportsWave's operations in all periods and the gain realized on the sale of
SportsWave in 1998 are reflected as results of discontinued operations and,
accordingly, all financial information for continuing operations has been
restated for the period ending December 31, 1997.

     In 1999, the Company completed its evolution from primarily being an owner
and operator of transactional based interactive television and digital
photography systems, as it was in 1996 and 1997, to being a provider of
technology consulting and systems integration services by implementing its
solution area-based organizational structure and customer-oriented marketing
strategy.  While the roots of the change in operational focus and strategic

                                                                              37
<PAGE>

changes date back to 1997, it is only in 1999 that the fully-integrated
organizational structure, marketing strategy and operating model have been put
in place.  Key to completing the evolution was the 1999 introduction of the
solution area-oriented organizational structure.  A brief description of each
solution area is as follows:

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

     .  The Business Operations Solution Area focuses on an organization's core
        information gathering processes including sales, finance,
        administration, logistics and manufacturing. Business Operations
        solutions may involve custom development or package implementation to
        improve operational efficiency or information flow. The Company's
        Business Operations Solution Area also provides consulting and
        development for mainframe systems and specialized consulting services
        for the banking industry.

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

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

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

     Information Technology Infrastructure, Business Operations, Knowledge
Management and Electronic Business solution area services target horizontal
markets, meaning businesses across a broad spectrum of industries.  Interactive
Media targets certain vertical markets where the Company believes industry
conditions are conducive to acceptance of the Company's services, including the
cruise, healthcare, education and professional photography markets.  The Company
has established operating relationships with some of the leading suppliers of
information technology products to complement its solution area services.
Foremost among these is the operating relationship with Microsoft Corporation
("Microsoft").  Both of the Company's Allin Consulting subsidiaries are
certified as Microsoft Solutions Provider Partners.  The Company intends to
continue its specialization in Microsoft-based technology products.

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

                                                                              38
<PAGE>

Results of Operations

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.

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 $4,143,000 for Information Technology Infrastructure, $11,800,000 for
Business Operations, $559,000 for Knowledge Management, $286,000 for Electronic
Business and $5,346,000 in Interactive Media.  Comparable solution area revenue
for the year ended December 31, 1998 was $11,681,000 in total, including
$4,198,000 from Information Technology Infrastructure, $6,156,000 from Business
Operations, $131,000 from Electronic Business and $1,196,000 from Interactive
Media.

     Information Technology Infrastructure revenue decreased $55,000, or 1%, 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 Information
Technology Infrastructure in 1998 to a broader mix in 1999.  Allin Consulting-
California has shown growth in Business Operations, Knowledge Management and
Electronic Business revenue in 1999, but Information Technology Infrastructure
revenue has declined due in part to the broader service offering.  The decline
was partially offset by a revenue increase at Allin Consulting-Pennsylvania,
which is strategically focusing its marketing efforts on growing diverse
solutions-oriented project revenue, including Information Technology
Infrastructure.  The Company's management believes solutions-oriented services
will generally offer a higher gross profit potential than the staffing-services
model which represented the majority of Allin Consulting-Pennsylvania's
operations at acquisition in 1998.  There can be no assurance, however, that
Allin Consulting-Pennsylvania will continue to increase solutions-oriented
revenue in the Information Technology Infrastructure Solution Area in the
future.  The Year 2000 problem has also negatively impacted Information
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.  As was noted in the Industry
Overview - Technology Consulting Services section in Item 1 - Business of this
Form 10-K, a decline in demand for technology consulting services due to the
effect of the Year 2000 issue was widespread in the technology consulting
industry.

     The substantial increase in Business Operations revenue of $5,644,000, or
92%, 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,
whose specialized bank consulting and mainframe consulting services were
significantly oriented toward this solution area.  Revenue from Allin
Consulting-Pennsylvania was realized for twelve months in 1999 as compared with
five months in 1998.  Another factor was an increase in Allin Consulting-
California's Business Operations revenue due to a broadening of its solution
area focus.  Although Business Operations revenue experienced a substantial
increase year-to-year, significant declines were experienced from quarter-to-
quarter throughout 1999 due to the impact of the Year 2000 computer problem.  A
significant portion of Business Operations consulting is delivered through the
staffing model that was predominant in Allin Consulting-Pennsylvania's
operations when it was acquired in August 1998, including most of the Business
Operations

                                                                              39
<PAGE>

mainframe computer services and specialized banking industry consulting
services.  The Business Operations staffing-oriented services have 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 year end when the full impact of any Year 2000 problems
would be realized.  The Industry Overview - Technology Consulting Services
section in Item 1 - Business of this Form 10-K noted that the Year 2000 problem
negatively impacted demand for technology consulting services industry- wide in
1999, with the largest declines noted for technology staffing operations.
Management believes market conditions will result in increased demand during
2000 for technology consulting services as previously postponed projects and
developments are undertaken.  There can be no assurance, however, that demand
for technology consulting services will increase in the future, or that the
Company's Business Operations revenue will return to or exceed the levels
previously experienced by the Company.

     Knowledge Management's initial year of operations was 1999, with revenue of
$559,000 realized.  Management believes the performance of this solution area in
its initial year of operation confirms that a market exists for solutions based
on key knowledge services including collaboration, content and document
management, business intelligence, search and delivery and workflow.  There can
be no assurance, however, that Knowledge Management revenue will continue to be
realized at levels similar to or greater than that realized during the second
quarter of 1999, which was the quarterly period to date with the greatest
revenue recognized.

     The Electronic Business Solution Area recorded a revenue increase of
$155,000, or 118% for the year ended December 31, 1999 as compared with the
prior year.  The revenue earned in 1999 was highly concentrated in the fourth
quarter.  As was discussed in the Industry Overview - Technology Consulting
Services section in Part 1 - Business of this Report on Form 10-K, the Internet
is viewed by industry analysts as the next significant wave of technological and
business innovation, with Internet-related business activity expected to grow
significantly over the early years of the 2000's.  Internet-based technology
consulting is also expected to share in the rapid growth.  The Company's
Management believes that the compelling market forces represent an opportunity
for growth in the Company's services that started to be realized in the fourth
quarter of 1999.  The Company plans to make a significant commitment to further
development of this solution area in 2000 with additional technical and sales
resources.  There can be no assurance, however, that the Company will realize
revenue equal to or greater than current levels for its Electronic Business
solution area in the future or that any increases realized will result in the
desired improvements to the Company's financial condition or results of
operation.

     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 believes 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 capture
this opportunity in 1999 and realized a $736,000 increase in consulting revenue.
There can be no assurance, however, that the Company's Interactive Media
Solution Area will continue to realize revenue equal to or greater than was
realized in 1999.  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 Royal Caribbean ship
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 is being
recognized over the minimum period of a related maintenance obligation for the
systems, which ended March 17, 2000.  The Interactive Media solution area did
not sell any interactive systems to cruise industry clients in 1998.

                                                                              40
<PAGE>

     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.  Since the initiation of systems integration activity, the
Interactive Media Solution Area has also broadened its marketing and sales
efforts.  In 1998, projects were primarily obtained through a commission-based
referral agreement.  During 1999, an internal sales force was added and the
Company also undertook advertising and trade show presentations as part of a
marketing plan for digital imaging systems integration.  The increased marketing
scope and full year of activity in 1999 resulted in the substantial revenue
increase.

     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.  The Company sold four
interactive systems to Celebrity in August and September of 1999 and, under the
sale agreement, transferred operations for a fifth system aboard the m.v.
Mercury.  This system had been owned by Celebrity but operated by the Company on
terms identical to the other four systems aboard Celebrity ships.  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.  The Company also ceased operation of the interactive television system
aboard the NCL ship Norwegian Dream in April 1999 following NCL's termination of
management fees.  Transactional revenue and management fee revenue has been lost
for all of these systems following transfer or cessation of operations.  As of
December 31, 1999, the Company was operating only two interactive television
systems on the owner-operator model.  Both systems are on Carnival ships. The
Company believes the transactional revenue realized from these systems justifies
their continued operation.  Carnival may terminate operations at any time upon
notice.  The Company expects a substantial decline in interactive television
transactional revenue in 2000.

     Digital imaging product sales increased by $501,000, or 200%, in 1999 as
compared to 1998.  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 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 maintains it as a customer service.  The Company's
acquisition of Erie Computer in February 2000 will likely result in increases to
this type of revenue.  Erie Computer's revenue base at the time of acquisition
included a significant component of information system product sales that was
not dependent on its technology consulting operations.  There can be no
assurance, however, that revenue increases will be realized as a result of the
acquisition.

     Revenue from other services increased by $139,000 in 1999 as compared to
1998.  The primary sources of revenue in this category are placement fees and
internet hosting fees.  Neither type of revenue is pursued actively by the
Company.  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.

                                                                              41
<PAGE>

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 the substantial revenue increase from these 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%.  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 Business Operations and Interactive Media Solution Area revenue in 1999.
The majority of Business Operations services were delivered on a staffing model,
which typically is at lower margin than the solution oriented services
predominant with the other solution areas.  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 other
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 $2,202,000 for
Information Technology Infrastructure, $8,555,000 for Business Operations,
$327,000 for Knowledge Management, $122,000 for Electronic Business and
$3,176,000 for Interactive Media.  Comparable cost of sales for the year ended
December 31, 1998 was $7,940,000 in total, including $2,527,000 for Information
Technology Infrastructure, $4,307,000 for Business Operations, $74,000 for
Electronic Business and $1,032,000 for Interactive Media.  Increases or
decreases in cost of sales are also attributable to the factors that resulted in
changes in revenue for these services, including the acquisition of Allin
Consulting-Pennsylvania, the increased level of systems integration activity for
cruise lines and increased marketing emphasis on developing and growing the
Electronic Business and Knowledge Management solution areas.  Gross profit for
the Company's solution areas for the year ended December 31, 1999 was
$7,752,000, including $1,941,000 for Information Technology Infrastructure,
$3,245,000 for Business Operations, $232,000 for Knowledge Management, $164,000
for Electronic Business and $2,170,000 for Interactive Media.  Comparable gross
profit for the year ended December 31, 1998 was $3,741,000 in total, including
$1,671,000 for Information Technology Infrastructure, $1,849,000 for Business
Operations, $57,000 for Electronic Business and $164,000 for Interactive Media.
The substantial increase in consulting and systems integration revenue is
principally responsible for the increase in gross profit from 1998 to 1999.

     Information Technology Infrastructure cost of sales decreased $325,000 in
1999 as compared to 1998 while revenue decreased by $55,000.  The Company was
able to realize a 16% increase in gross profit in 1999 despite the 1% revenue
decline.  The increase in gross profit 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
which has had the effect of increasing the Company's gross profit.

     The Business Operations Solution Area experienced an increase in gross
profit of $1,396,000 in 1999 as compared to 1998, an increase of 76%.  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 Business
Operations followed a similar pattern as 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.  As was noted in the discussion of
revenue, the Company expects demand for these services to increase in 2000,
although there can be no assurance that increases in gross profit from the level
realized in late 1999 will be obtained.

     The Knowledge Management Solution Area realized gross profit of $232,000,
or 42% of revenue, during its first year of operation in 1999.  The Company's
management believes results from 1999 validate the existence of a market for
Knowledge Management services.  The Electronic Business Solution Area realized
gross profit of $164,000 in 1999 as compared to $57,000 in 1998.  The 1999 gross
margin represented 57% of revenue.  As was

                                                                              42
<PAGE>

noted in the discussion of revenue, the majority of Electronic Business
revenue, and accordingly gross profit, was realized in the fourth quarter of
1999.  The Company has added technical and sales resources to this solution
area in 2000 because of management's belief that there will be substantial
market-driven growth in the demand for Internet-based technology services in
the early years of the 2000's.  Management believes that the fourth quarter
1999 results indicate the beginning of the Electronic Business Solution Area
being a significant source of high margin growth for the Company.  There can be
no assurance, however, that the Company will be able to realize continued
growth in revenue or gross margin from its Electronic Business Solution Area
services.

     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.

     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 pay-per-view movies, $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 the 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 during 1998.  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 addition of operational and sales personnel to the Company's
solution areas to facilitate the move toward a solutions-oriented project focus
and to facilitate the development of the Electronic Business and Knowledge
Management Solution Areas.

     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

                                                                              43
<PAGE>

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.  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 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 development of the Portraits Online(TM) Internet-based E-Commerce
platform targeted for photographic laboratories, 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 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 between the periods.

                                                                              44
<PAGE>

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

Revenue

     The Company's total revenue for the year ended December 31, 1998 increased
to $15,291,000 from $9,596,000 for the year ended December 31, 1997, an increase
of 59%.  The increase in revenue of $5,695,000 is primarily attributable to the
substantial growth in the Company's solution area revenue due to the inclusion
of the operations of Allin Consulting-Pennsylvania for five months of 1998
following its acquisition.

     Total revenue for the Company's solution areas for the year ended December
31, 1998 was $11,681,000, including $4,198,000 from Information Technology
Infrastructure, $6,156,000 from Business Operations, $131,000 from Electronic
Business and $1,196,000 from Interactive Media.  Comparable revenue for the year
ended December 31, 1997 was $7,367,000 in total, including $3,182,000 from
Information Technology Infrastructure, $474,000 from Business Operations,
$15,000 from Electronic Business and $3,696,000 from Interactive Media.  The
substantial increase in total revenue of $4,314,000 resulted primarily from the
acquisition of Allin Consulting-Pennsylvania in August 1998.  Additional
contributing factors included increased sales for Allin Consulting-California's
operations between the periods and overall growth in the demand for technology
consulting services. The Company's expertise with Microsoft operating systems
and software, which continued to increase in dominance throughout this period,
contributed to the growth as demand increased for consultants capable of
developing specialized applications built around Microsoft products.  Additional
factors contributing to the increase in revenue between the periods include
increased marketing efforts to obtain third-party engagements, particularly in
the Northern California area, and the recruitment of additional consultants.

     Information Technology Infrastructure revenue grew by $1,016,000, or 32%,
in 1998 as compared to 1997.  The two key factors leading to this growth were
the acquisition of Allin Consulting-Pennsylvania and sales growth at Allin
Consulting-California.  Microsoft's Infrastructure oriented products were an
area of growth in the years 1997 and 1998.  The Company believes that its
expertise in infrastructure design and services and its relationship as a
Microsoft Solutions Provider Partner enabled the Company to benefit from this
industry trend.

     The acquisition of Allin Consulting-Pennsylvania, with its significant
Business Operations activity, was the primary reason for the $5,682,000, or
1,199%, increase in the Business Operations revenue between the periods.  At the
time of the Company's acquisition of Allin Consulting-Pennsylvania, a
substantial majority of its revenue was derived from Business Operations
activity, including its mainframe consulting and specialized bank consulting
operations.  Organic sales growth was another significant factor in the increase
in Business Operations revenue, with Allin Consulting-California more than
doubling its Business Operations revenue.

     Revenue from the Electronic Business Solution Area increased by $116,000,
or 773%, in 1998 as compared to 1997.  The Electronic Business revenue stream
was small in comparison with the other solution areas during 1997 and 1998
because the Company's product offerings in this area were only emerging during
this time.

     The Interactive Media Solution Area recorded revenue of $1,196,000 during
the year ended December 31, 1998, including $22,000 for interactive media
consulting, $327,000 for interactive media systems integration and $847,000 for
digital imaging systems integration.  Comparable revenue for the year ended
December 31, 1997 was $3,696,000, all of which was derived from interactive
media systems integration. The decline in Interactive Media revenue of
$2,500,000 from 1997 to 1998 is primarily attributable to the decrease in
revenue for interactive media systems integration services of $3,369,000,
partially offset by revenue from new activities undertaken in 1998, such as
interactive media consulting and digital imaging systems integration.  The
substantial majority of this revenue decline was attributable to changes in the
Company's business strategy.  During 1997, revenue of $1,240,000 was recognized
relating to a project for retrofit of the ship broadcast center aboard the
Cunard Cruise Lines, Ltd. ("Cunard") ship Queen Elizabeth 2.  The Company no
longer performs projects of this type.  Revenue of $1,216,000 was also recorded
in 1997 relating to the sale of significant components of several interactive
television systems installed on an owner-operator model where the Company bore
the capital commitment for the remainder of the systems.  The Company stopped
performing interactive television installations on the owner-operator model in
1997.

                                                                              45
<PAGE>

     The Company's ancillary services and product sales accounted for $3,610,000
of revenue for the year ended December 31, 1998, including $3,023,000 from
interactive television transactional revenue and management fees, $251,000 from
digital imaging product sales, $306,000 from information system product sales
and $30,000 from other services.  Comparable revenue for the year ended December
31, 1997 was $2,229,000 in total, including $1,903,000 from interactive
television transactional revenue and management fees, $113,000 from digital
imaging product sales and $213,000 from information system product sales.

     The increase in interactive television transactional revenue and management
fees in 1998 as compared to 1997 was $1,120,000, or 59%.  This increase is
primarily attributable to the inclusion of management fees as a source of
revenue during the full year of 1998, as well as an increase in video gaming
revenue.  In 1997, the Company successfully negotiated contract amendments or
agreements with various cruise lines providing for management fees for
interactive system operation, but the fees were not effective until September
1997 or later.  The various amendments and agreements allowed certain of the
cruise lines to discontinue services or management fees after specified notice
periods.  Operation of interactive television systems aboard three Royal
Caribbean ships was terminated in May and June 1998 due to discontinuation of
management fees.

     The Company's change in strategy in early 1998 for its digital imaging
operations also resulted in the Company beginning to sell digital imaging
consumable products and equipment, typically to customers for whom the Company
had installed digital imaging systems. Sales of these products generated a
$138,000 increase in revenue from the Company's retail digital photography
product sales in 1997.

     Revenue growth for information system product sales was $93,000, or 44%, in
1998 as compared to 1997.  The growth was realized because Pittsburgh-based
operations were in place for the full year in 1998 and because of the expansion
of the Company's technology consulting operations, which generated additional
opportunities for this type of sale.

Cost of Sales and Gross Profit

     The Company recorded total cost of sales of $8,781,000 for the year ended
December 31, 1998 as compared to $5,988,000 of cost of sales for the year ended
December 31, 1997.  Gross profit of $6,510,000 was realized in 1998, an 80%
increase over 1997 gross profit of $3,608,000.

     The Company's solution areas recorded cost of sales of $7,940,000 for the
year ended December 31, 1998, including $2,527,000 for Information Technology
Infrastructure, $4,307,000 for Business Operations, $74,000 for Electronic
Business and $1,032,000 for Interactive Media.  For the year ended December 31,
1997, solution area cost of sales was $5,337,000, including $1,929,000 for
Information Technology Infrastructure, $287,000 for Business Operations, $9,000
for Electronic Business and $3,112,000 for Interactive Media.  The primary
reason for the increase in cost of sales was the significant revenue growth in
the technology consulting business carried out by the solution areas due to the
Allin Consulting-Pennsylvania acquisition.  Gross profit recognized on solution
area activity was $3,741,000 for 1998, including $1,671,000 for Information
Technology Infrastructure, $1,849,000 for Business Operations, $57,000 for
Electronic Business and $164,000 for Interactive Media.  For the year ended
December 31, 1997, solution area gross profit was $2,030,000, including
$1,253,000 for Information Technology Infrastructure, $187,000 for Business
Operations, $6,000 for Electronic Business and $584,000 for Interactive Media.
The 84% increase in gross profit was realized on only a 59% increase in revenue.

     The Information Technology Infrastructure Solution Area recorded an
increase in gross profit of 33% in 1998 as compared to 1997.  The increase
resulted from both an increase in solution area activity at Allin Consulting-
California and from the acquisition of Allin Consulting-Pennsylvania.

     The acquisition of Allin Consulting-Pennsylvania, with its significant
business operations practice, was the primary reason for the 889%, increase in
Business Operations gross profit in 1998 as compared to 1997.  Allin Consulting-
California also more than doubled its Business Operations gross profit through
organic sales growth.

     Gross profit from Electronic Business consulting increased by $51,000, or
850%, in 1998 as compared to 1997.  Electronic business was small in comparison
with the other solution areas because the Company's product offerings in this
area were only emerging during this time period.

                                                                              46
<PAGE>

     The Interactive Media Solution Area's 1998 cost of sales of $1,032,000
included $11,000 for consulting services, $311,000 for interactive media systems
integration and $710,000 for digital imaging systems integration.  All of the
$3,696,000 of Interactive Media cost of sales recorded in 1997 related to
interactive media systems integration.  The gross profit of $164,000 recognized
in 1998 from Interactive Media operations included $11,000 for interactive media
consulting, $16,000 for interactive media systems integration and $137,000 for
digital imaging systems integration.  Interactive Media realized a gross profit
of $584,000 in 1997 from interactive media systems integration services.  As was
noted from the discussion of revenue previously, most of the systems integration
services performed in 1997 were related to the Company's owner-operator model
for interactive television systems, which was discontinued in 1997.  The change
in strategic model led to a decline in activity during 1998 when systems
integration services were performed only on projects where the customer was
bearing the capital commitment for the interactive system.  This decline was
partially offset by the initiation of digital imaging systems integration and
interactive media consulting services in 1998.

     The Company recorded cost of sales of $841,000 during 1998 related to
ancillary services and product sales, including $312,000 for the cost of pay-
per-view movies included in transactional revenue, $233,000 from digital imaging
product sales, $264,000 from information system product sales and $32,000
related to other services.  Comparable cost of sales for 1997 were $651,000 in
total, including $348,000 for pay-per-view movies, $105,000 for digital imaging
product sales and $198,000 for information system product sales.  Gross profit
of $2,769,000 was recorded from ancillary services and product sales for the
year ended December 31, 1998, including $2,711,000 for interactive television
transactional revenue and management fees, $18,000 from digital imaging product
sales, $42,000 from information system product sales and a gross loss of $2,000
from other services.  Comparable gross profit recorded in 1997 was $1,578,000 in
total, including $1,555,000 for interactive television transactional revenue and
management fees, $8,000 for digital imaging product sales and $15,000 for
information system product sales.

     Gross profit on interactive television transactional revenue and management
fees increased $1,156,000, or 74%, in 1998 as compared to 1997.  The Company
earned management fees for all systems it operated in the cruise industry in
1998.  Management fees were not recorded in 1997 until September or later.  The
inclusion of a full year of management fee revenue in 1998 was the primary
reason for the increase in gross profit.  Secondary reasons were increased video
gaming revenue and gross profit on pay-per-view movies.

     The Company realized an increase in gross profit of $10,000 on digital
imaging product sales due to the revenue increase generated from its sales of
consumable products and equipment related to digital imaging systems as compared
to the retail operations carried out in 1997.  An increase in gross profit of
$27,000, or 180%, was realized on information system product sales.  The
increase is attributable to both revenue increases and changes in pricing
policy.

Selling, General & Administrative Expenses

     The Company recorded $13,937,000 in selling, general & administrative
expenses during the year ended December 31, 1998 as compared with $14,517,000
during the year ended December 31, 1997, an overall decrease of $580,000, or 4%.
There are a number of unusual items impacting both periods, as described in the
following paragraphs, including asset impairment losses related to ship
interactive television system assets and capitalized software development costs
for proprietary digital imaging systems, write-downs for non-recoverable
portions of ship interactive systems, severance accruals, and note receivable
and trade-name write-offs.

     The Company retained an inventory of equipment removed from three Royal
Caribbean ship interactive television systems which had ceased operations during
the second quarter of 1998, as well as equipment from the Cunard ship Queen
Elizabeth 2 system which had terminated operations in December 1997 and a system
for the NCL ship Norway which had never been completed.  From the time this
equipment became available for reuse until August 1998, the Company sought
alternative productive use of the equipment, but was not successful.  In August
1998 the Company also became aware that NCL intended to discontinue payment of
management fees for the interactive television system aboard the Norwegian Dream
and that Carnival had contracted with a competitor for an interactive television
system, which the Company's management believed jeopardized the continued
operation of the two interactive systems aboard Carnival ships.  The Company
determined that the events described represented facts and circumstances
indicating that the carrying value of these 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

                                                                              47
<PAGE>

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 1998 to write-down the assets to estimated fair values.
There was no comparable impairment loss recorded in 1997.

     The capitalized costs of interactive television systems on ships included
costs related to the installation of equipment that were not recoverable and
cost for equipment that was not economically feasible to remove upon termination
of system operation.  During 1997, losses of approximately $522,000 and $415,000
were recorded, respectively, to write-off the non-recoverable portions of the
Queen Elizabeth 2 and Norway systems.  The Company elected not to complete the
Norway system when the strategic decision was made to move away from the owner-
operator model for interactive television operations.  During 1998, a loss of
approximately $232,000 was recorded for the non-recoverable portions of
capitalized system costs for the Royal Caribbean ships Enchantment of the Seas,
Majesty of the Seas, and Rhapsody of the Seas upon termination of system
operations.

     The Company changed the strategy for its digital imaging operations in
early 1998 to market systems integration services for digital photography
systems.  The prior strategy had been to develop a local retail and event
digital imaging business.  Allin Digital had capitalized certain software
development costs related to proprietary systems developed for its earlier
strategy.  At the time of the change in strategy, different hardware
configurations were anticipated to be utilized in digital photography system
installations for the Company's customers than were used in the proprietary
systems developed for the earlier strategy.  Adaptations to the proprietary
system were necessary for it to be effectively utilized with the new hardware
configurations.  The Company did not immediately pursue the additional
development necessary for effective utilization of the proprietary digital
photography system in connection with its systems integration services because
the Company wished to evaluate results under the new strategy prior to making
additional capital commitments.  The Company therefore believed that the change
in business strategy during the first quarter of 1998 was an event which
impaired the net realizable value of the proprietary digital photography system.
Consequently, the Company recorded a write-down of approximately $241,000, as of
December 31, 1997, for the net unamortized software development costs related to
its digital photography system.  The loss was recognized as of December 31, 1997
because it represented significant new information regarding the realizability
of assets between fiscal year-end and the release of financial statements.
There were no impairment losses related to software development costs recorded
in 1998.

     During 1997, the Company recorded accruals of approximately $329,000 to
establish liabilities for severance costs associated with plans for involuntary
employee terminations. Included in the plans were financial and marketing
executive positions, marketing and administrative staff positions, operational
management, technical staff, and sales positions associated with digital
photography operations, technical staff related to interactive television
operations and clerical support staff positions.  All of the positions included
in the plans were eliminated.  In 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
implemented in early 1998, including the Company's President, Chief Operating
Officer and an administrative assistant.  An adjustment of $15,000 was also
recorded in 1998 to reflect additional severance costs related to the 1997
plans.

     During 1997, a loan of $130,000 was made to an officer and director of the
Company, who subsequently resigned in February 1998 in conjunction with the
reorganization of the Company's operations.  Under terms of a separation
agreement, the loan was forgiven.  The loan forgiveness represented significant
information regarding the realizability of the asset as of December 31, 1997.
Accordingly, the Company recorded the write-off of the loan as of December 31,
1997.  There was no comparable impairment loss in 1998.

     During 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 1997.

     The totals reflected in selling, general and administrative expense related
to these unusual items were $3,666,000 and $1,637,000, respectively, for the
years ended December 31, 1998 and 1997.  Net of the unusual items, remaining
selling, general and administrative expenses were $10,271,000 and $12,880,000,
respectively, for the 1998 and 1997 periods.  This decline of $2,609,000, or
20%, was attributable primarily to the Company's cost reduction efforts,
including reductions in personnel, generalized marketing expenses, consulting
expenses, office rental costs, travel costs and shipboard operating expenses.

                                                                              48
<PAGE>

     Depreciation and amortization were $3,414,000 during the year ended
December 31, 1998 as compared to $3,877,000 during the year ended December 31,
1997.  Depreciation and amortization declined due to write-downs in capitalized
interactive televisions 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 $152,000 during the year ended December 31, 1998 as
compared to $212,000 during the year ended December 31, 1997.  The reduction in
expense reflects the Company's continued move during 1998 to being a provider of
consulting and systems integration services and away from proprietary
technological systems.

Loss from Continuing Operations

     The Company's loss from continuing operations decreased from $10,541,000
for the year ended December 31, 1997 to $7,448,000 for the year ended December
31, 1998.  The Company's $3,093,000, or 29%, improvement in results from
continuing operations was attributable to the aggregate $2,902,000 improvement
in gross profit realized during 1998 due to the acquisition of Allin Consulting-
Pennsylvania, sales growth within Allin Consulting-California, and the inclusion
of management fees for interactive television system operation during the full
period in 1998.  Selling, general and administrative expenses also declined
$580,000 in 1998 as compared to 1997, although this was largely offset by a
reduction in net interest income of $406,000 in 1998 as compared to 1997.

Discontinued Operations

     The Company recorded income from the operation of its discontinued sports
marketing business of $220,000 during the nine months prior to the September 30,
1998 disposition of SportsWave as compared with a loss of $162,000 during the
year ended December 31, 1997.  The Company recognized a gain of $1,437,000 on
the disposal of SportsWave, which was sold on September 30, 1998.

Net Loss

     The Company's net loss during the year ended December 31, 1998 was
$5,791,000 as compared to $10,703,000 for the year ended December 31, 1997.  The
year to year decrease in net loss of $4,912,000, or 46%, was attributable to the
improvement in gross profit as discussed under Loss from Continuing Operations
and the gain realized on the sale of SportsWave.

Liquidity and Capital Resources

     At December 31, 1999 the Company had cash and liquid cash equivalents of
$1,888,000 available to meet its working capital and operational needs.  The net
change in cash from December 31, 1998 was a decrease of $622,000.  The net cash
used during 1999 resulted from net cash used for financing purposes of
$1,140,000, primarily for repayment of balances on lines of credit, partially
offset by net cash provided from operating activities of $393,000 and net cash
provided from investing activities of $125,000.

     The Company recognized a net loss for the year ended December 31, 1999 of
$2,676,000.  Included in the net loss were non-cash expenses of $3,068,000,
including depreciation, amortization of software development costs and other
intangible assets, amortization of deferred compensation, equity in the loss
from a non-consolidated corporation, cost of fixed assets sold and losses from
write-down or sale of assets, resulting in net cash provided of $392,000 related
to the income statement.  The remaining net cash provided from operating
activities of $1,000 was caused by working capital adjustments.

     The net cash used for financing activities during 1999 resulted from a net
repayment on lines of credit of $856,000, partial repayment of a note payable
and payment of preferred stock dividends.  The net cash provided from investing
activities during 1999 was generated primarily by collection of a note
receivable of $463,000 related to the sale of SportsWave.

                                                                              49
<PAGE>

     On October 1, 1998, the Company and S&T Bank, a Pennsylvania banking
association, entered into a Loan and Security Agreement (the "S&T Loan
Agreement"), under which S&T Bank agreed to extend the Company a revolving
credit loan.  During the third quarter of 1999, the S&T Loan Agreement was
renewed for a second year, and will now expire on September 30, 2000.  The
maximum borrowing availability under the S&T Loan Agreement is the lesser of
$5,000,000 or eighty-five percent of the aggregate gross amount of eligible
trade accounts receivable aged sixty days or less from the date of invoice.
Accounts receivable qualifying for inclusion in the borrowing base are net of
any prepayments, progress payments, deposits or retention and must not be
subject to any prior assignment, claim, lien, or security interest.  As of
December 31, 1999, maximum borrowing availability under the S&T Loan Agreement
was approximately $2,612,000.  The outstanding balance as of December 31, 1999
was $650,000.

     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 1999, the applicable
interest rate ranged from 8.75% to 9.50%, which was in effect at December 31,
1999.  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
$68,000 in interest expense related to this revolving credit loan for the year
ended December 31, 1999.  The principal will be due at maturity, although any
outstanding principal balances may be repaid in whole or part at any time
without penalty.

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

     The S&T Loan Agreement includes various covenants relating to matters
affecting the Company including insurance coverage, financial accounting
practices, audit rights, prohibited transactions, dividends and stock purchases,
which are disclosed in their entirety in the text of the S&T Loan Agreement
filed as an exhibit to the Company's Current Report on Form 8-K filed on October
9, 1998 and the Second Amendment to Note and Loan and Security Agreement filed
as Exhibit 4.1 to the Company's Report on Form 10-Q for the quarterly period
ended September 30, 1999.  The covenant concerning dividends and purchases of
stock prohibits the Company from declaring or paying cash dividends or
redeeming, purchasing or otherwise acquiring outstanding shares of any class of
the Company's stock, except for dividends payable in the ordinary course of
business on the Company's Series D, E and F preferred shares or such
distributions made from time to time to compensate the Company's shareholders
for income taxes attributed to them with respect to the Company's financial
performance.  The covenants also include a cash flow to interest ratio of not
less than 1.0 to 1.0.  Cash flow is defined as operating income before
depreciation, amortization and interest.  The amendment between S&T Bank and the
Company renewing the revolving credit facility changed the measurement period
for this covenant.  The cash flow coverage ratio is now measured for each of the
Company's fiscal quarters.  The Company is in compliance with all covenants as
of December 31, 1999.  The S&T Loan Agreement also includes reporting
requirements regarding annual and monthly financial reports, accounts receivable
and payable statements, weekly borrowing base certificates and audit reports.

     During April 1999, the Company repaid a balance due on a line of credit
with Wells Fargo Bank of approximately $22,000.  This credit facility was
originally obtained by MEGAbase to finance equipment purchases.  The outstanding
balance was assumed by the Company upon acquisition of MEGAbase.  Approximately
$1,000 of interest expense was recorded for this loan during the year ended
December 31, 1999.

     As of December 31, 1999, the Company had outstanding $2,500,000 in
liquidation preference of Series C Redeemable Preferred Stock.  On May 31, 1999,
the holders of all of the 25,000 then outstanding shares of the Company's Series
A preferred stock, which had been issued in August 1996, exchanged their shares
for a like number of shares of the Company's Series C preferred stock, having a
liquidation preference of $100 per share.  There is no mandatory redemption date
for the Series C preferred stock.  Accrued but unpaid dividends on the Series C
preferred stock were approximately $767,000 as of December 31, 1999.  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

                                                                              50
<PAGE>

thereof per annum. After June 30, 2006, dividends on the Series C preferred
stock will accrue and compound at a rate of 12% per annum and will be payable
quarterly, subject to legally available funds.  The Company's current credit
agreement with S&T Bank prohibits payment of dividends on Series C preferred
stock during the term of the agreement.

     On May 31, 1999, the holders of all of the 2,750 outstanding shares of the
Company's Series B preferred stock, which had been issued in August 1998,
exchanged their shares for a like number of shares of the Company's Series D
Convertible Redeemable Preferred Stock having a liquidation preference of $1,000
per share.  All of the 2,750 shares of Series D preferred stock remained
outstanding as of December 31, 1999.  There is no mandatory redemption date for
the Series D preferred stock.  Series D preferred stock is convertible into the
Company's common stock until August 13, 2003.  Each share of Series D preferred
stock is convertible into the number of shares of common stock determined by
dividing 1,000 by $3.6125, which is 85% of the $4.25 per share price on the last
trading day prior to the date of closing of the acquisition of Allin Consulting-
Pennsylvania.  Series D preferred stock earns dividends at the rate of 6% of the
liquidation value thereof per annum, compounded quarterly.  Dividends on Series
D preferred stock are payable quarterly in arrears as of the last day of
October, January, April and July, subject to legally available funds.  Accrued
but unpaid dividends on Series D preferred stock were approximately $28,000 as
of December 31, 1999.

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

On May 31, 1999, the holder of a promissory note issued by the Company in
connection with the acquisition of Allin Consulting-California, with an
outstanding principal balance of $2,000,000 agreed to a reduction in the
principal amount of the promissory note by $1,000,000 in exchange for 1,000
shares of the Company's Series F Convertible Redeemable Preferred Stock having
a liquidation preference of $1,000 per share.  All of the 1,000 shares of
Series F preferred stock remained outstanding as of December 31, 1999.  There
is no mandatory redemption date for the Series F preferred stock.  Series F
preferred stock is convertible to the Company's Common Stock until the earlier
of May 31, 2004 or the Company's redemption of the Series F preferred shares.
Until and including May 31, 2000, Series F preferred stock is convertible into
the number of shares of the Company's common stock equal to the amount obtained
by (i) dividing 1,000 by $2.231, which is 85% of the closing price of the
common stock as reported by Nasdaq on the last trading date prior to the
issuance of Series F preferred stock or (ii) if it results in a greater number
of common shares, dividing 1,000 by the greater of (a) 85% of the closing price
of the common stock as reported by Nasdaq on the last trading date prior to
conversion or (b) $1.236, which is 47.1% of the closing price of the common
stock as reported by Nasdaq on the last trading date prior to the issuance of
Series F preferred stock.  From June 1, 2000 until May 31, 2004, Series F
preferred stock will be convertible into the number of shares of the Company's
common stock equal to the amount obtained by (i) dividing 1,000 by $2.231,
which is 85% of the closing price of the common stock as reported by Nasdaq on
the last trading date prior to the issuance of Series F preferred stock or (ii)
if it results in a greater number of common shares, dividing 1,000 by the
greater of (a) 85% of the closing price of the common stock as reported by
Nasdaq on the last trading date prior to the first anniversary of the date of
issuance of the Series F preferred stock or (b) $1.236, which is 47.1% of the
closing price of the common stock as reported by Nasdaq on the last trading
date prior to the issuance of Series F preferred stock.

                                                                              51
<PAGE>

Series F preferred stock earns dividends at the rate of 7% of the
liquidation value thereof per annum.  The dividends will accrue until April 15,
2000, when accrued dividends will be payable subject to legally available
funds.  Dividends will be payable quarterly thereafter, subject to legally
available funds.  After April 15, 2000, any unpaid dividends will compound
quarterly.  Accrued but unpaid dividends on Series F preferred stock were
approximately $41,000 as of December 31, 1999.

     The exchanges of securities described above were undertaken for purposes of
enhancing the Company's future liquidity by removing mandatory redemption
requirements, strengthening the Company's balance sheet by increasing equity,
improving the Company's results of operations by replacing interest expense with
dividends and maintaining compliance with the Nasdaq Stock Market's National
Market listing requirements.  The order of liquidation preference of the
Company's outstanding preferred stock, from senior to junior, is Series E,
Series F, Series D and Series C. The S&T Loan Agreement prohibits the Company
from declaring or paying dividends on any shares of its capital stock, except
for current dividends payable in the ordinary course of business on the
Company's Series D, E and F preferred stock. Each of the Certificates of
Designation governing the Series C, D, E and F preferred stock prohibits the
Company from declaring or paying dividends or any other distribution on the
common stock or any other class of stock ranking junior as to dividends and upon
liquidation unless all dividends on the senior series of preferred stock for the
dividend payment date immediately prior to or concurrent with the dividend or
distribution as to the junior securities are paid or are declared and funds are
set aside for payment.

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

     The Company has outstanding an amended note payable to Les D. Kent related
to the November 1996 acquisition of Allin Consulting-California.  After the May
1999 conversion of a portion of the note principal to the Company's Series F
preferred stock, as discussed previously, the outstanding principal balance of
the note is $1,000,000.  The amended note provides for two principal payments of
$500,000 each on April 15, 2000 and October 15, 2000.  The Company may, however,
defer payment of principal at its option until April 15, 2005.  The note
provides for interest at the rate of 7% per annum from the acquisition date of
November 6, 1996.  The Company has accrued interest of approximately $400,000 as
of December 31, 1999.  Accrued interest as of May 31, 1999, approximately
$359,000, is due and payable on or before April 1, 2000.  Other accrued interest
is due and payable quarterly on the note beginning April 15, 2000.  The Company
believes that the ability to defer principal payments will be beneficial to its
liquidity over the next five years.

     The agreement for the Company's November 1998 acquisition of MEGAbase
provides for contingent payments of up to $800,000, to be determined on the
basis of Allin Consulting-California's Development Practice Gross Margin (as
provided in the stock purchase agreement for the acquisition) for the period
beginning January 1, 1999 and ending December 31, 1999.  The former MEGAbase
sole shareholder, Mark Gerow ("Gerow"), is entitled to receive an aggregate
contingent payment equal to $1.00 for each dollar by which Allin Consulting-
California's Development Practice Gross Margin exceeds $500,000, subject to a
maximum contingent payment of $800,000.  Any contingent payment due may be made,
at the Company's sole option, (a) all in cash, (b) 50% in cash and 50% in the
Company's common stock based on a per share amount equal to the average of the
bid and asked prices for the five trading days preceding contingent payment, or
(c) 50% in cash and 50% in the form of a promissory note bearing interest at a
rate of 8% per annum to be due one year from the date of such note.  The
contingent payment was scheduled to be made no later than March 31, 2000, unless
the Company selects (c) above, under which 50% of the payment due was scheduled
to be made one year later.

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

     Emerging Issues Task Force Issue 95-8:  Accounting for Contingent
Consideration Paid to the Shareholders of an Acquired Company in a Purchase
Business Combination ("EITF 95-8") describes five factors that must be
considered in evaluating the proper treatment of contingent consideration,
including the terms of continuing

                                                                              52
<PAGE>

employment, the components of the shareholder group, the reasons for contingent
payment provisions, the formula for determining contingent consideration and
other agreements and issues.  The Company's analysis of these factors indicates
that any contingent payments due will be recorded as additional cost of the
acquired enterprise.  Key factors in the evaluation include the Company's
ability to control the form of principal payments and the similarity of the
development practice to the pre-acquisition MEGAbase organization.

     The Company incurred approximately $56,000 in research and development
expense for the year ended December 31, 1999. The Interactive Media Solution
Area's research and development activity included development of new
applications and software interfaces for interactive video streaming utilizing
hardware components and technology from On Command, continued development of
functional and graphical improvements of the Portraits Online(TM) E-Commerce
platform for on-line viewing of digital photographic images from an Internet
based database archive and development of Portraits Online(TM) Internet-based E-
commerce platform targeted for photographic laboratories that would enable on-
line viewing of scanned and archived images by the laboratories' studio clients.
Forecasts for 2000 indicate expected research and development expenditures of
approximately $175,000 related to Company's Interactive Media Solutions Area.
The Company expects research and development activity during 2000 to focus on
continued development of functional and graphical improvements to the Portraits
Online(TM) E-commerce platforms and continued applications development for
On Command technology. 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, 1999 were
approximately $374,000 and included furniture and leasehold improvements
related to the relocation of Allin Consulting-Pennsylvania's Pittsburgh staff
to the corporate headquarters, furniture and leasehold improvements related to
the expansion of the Ft. Lauderdale office, the purchase of On Command hardware
for an interactive demo system, the purchase of new hardware for hosting of
Internet sites and archival of digital images related to Allin Digital's
Portraits Online(TM) E-commerce platforms and computer hardware, software and
communications equipment for the Company's periodic upgrading of technology.
Forecasts for 2000 indicate expected capital expenditures of approximately
$475,000.  The Company anticipates 2000 capital expenditures will include the
cost of a new enterprise resource planning system, furniture and leasehold
improvements for the Company's new Walnut Creek, California office, and
hardware, software and networking equipment for the Company's ongoing upgrading
of technology. Business conditions and management's plans may change during the
remainder of 2000, so there can be no assurance that the Company's actual
amount of capital expenditures will not exceed the planned amount.

     The Company believes that available funds and cash flows expected to be
generated by its current operations will be sufficient to meet its anticipated
cash needs for working capital and capital expenditures for its existing
operations for at least the next twelve months.  As discussed above, the S&T
Loan Agreement expires September 30, 2000.  The Company believes it will be able
to refinance its existing credit facility or obtain another credit facility on
similar terms upon the expiration of the current credit facility.  If currently
available funds and cash generated by operations were insufficient to satisfy
the Company's ongoing cash requirements, or if the Company identified an
attractive acquisition candidate in the consulting industry, the Company would
be required to consider other financing alternatives, such as selling additional
equity or debt securities, obtaining long or short-term credit facilities, or
selling other operating assets, although no assurance can be given that the
Company could obtain such financing on terms favorable to the Company or at all.
Any sale of additional common or convertible equity or convertible debt
securities would result in additional dilution to the Company's shareholders.

Year 2000 Issue

     The Year 2000 computer issue primarily resulted from the fact that
information technology hardware and software systems and other non-information
technology products containing embedded microchip processors were originally
programmed using a two-digit format, as opposed to four digits, to indicate the
year.   Such programming was unable to interpret dates beyond the year 1999,
which could cause a system or product failure or other computer errors and a
disruption in the operation of such systems and products.  The Company has not
experienced significant Year 2000 problems with its information technology
hardware or software systems.  There were also no problems experienced with
other potentially date-sensitive systems such as telephone or HVAC systems.

                                                                              53
<PAGE>

     The most reasonably likely sources of risk to the Company identified in
conjunction with its analysis of Year 2000 issues included reduced opportunities
for technology consulting engagements due to clients' or potential clients' Year
2000 compliance expenditures on systems reducing available funds for new
technology projects or clients' voluntary postponement of new technology
initiatives until the full impact of the Year 2000 problem was realized,
business disruption arising from the inability of significant customers or
suppliers to be Year 2000 ready, the possibility that Year 2000 issues would
develop in interactive systems sold by the Company, the possibility that
disputes would arise with clients regarding Year 2000 problems involving
solutions developed or implemented by the Company or the interaction of such
solutions with other applications and the disruption of revenue production from
the two interactive television systems aboard cruise ships that the Company
operated as of January 1, 2000 through failures in the systems or the failure of
the cruise lines' shipboard billing systems.

     The first risk described above had the most significant impact on the
Company.  The Company experienced sequential quarter revenue declines in some of
its solution areas during 1999.  While the Company cannot precisely attribute
the proportion of the overall revenue declines to the Year 2000 issue,
management believes, based on its relationships and communications with its
customers and knowledge of overall technology consulting industry trends, that
the Year 2000 issue is a significant cause for the declines.  The Business
Operations Solution Area has experienced the strongest impact.  Business
Operations revenue experienced sequential quarter revenue declines of $498,000,
$503,000 and $331,000 during 1999.  A significant portion of Business Operations
consulting is delivered through the staffing model that was predominant in Allin
Consulting-Pennsylvania's operations when it was acquired in August 1998,
including most of the mainframe computer services and specialized banking
industry consulting services.  The services delivered through the staffing model
have experienced the most negative impact in the Business Operations revenue
decline.  Management believes that many of the Company's customers postponed new
technology initiatives or development projects so that they were conducting a
more simple scope of operations at year end when the full impact of any Year
2000 problems would likely have been realized.  The negative impact of the
revenue decline is mitigated by the corresponding reduction in cost of sales.
Gross profit realized by Business Operations in the fourth quarter of 1999
declined $649,000 from that of the first quarter of 1999.  Management also
believes the Year 2000 issue has negatively impacted the Information Technology
Infrastructure and Knowledge Management solution areas, but to a much less
significant degree.

     Management believes that market conditions will result in increased demand
for technology consulting services in 2000 as previously postponed projects and
developments are undertaken.  The Company plans to aggressively market all of
its solutions-oriented technology consulting services throughout 2000.  The
Company's management views its expertise with Microsoft operating systems and
software and Internet technology as key to restoring previously obtained levels
of revenue and gross profit.  Microsoft is expected to introduce many new
products in 2000 such as Windows 2000, which management believes will offer
opportunities for growth in consulting services.   The Company believes that
solutions-oriented services offer the potential for increased levels of gross
profit as compared to the staffing services which have been most negatively
impacted.  In addition to solutions-oriented services, the Company will continue
to offer consulting services delivered through a staffing model.  The Company's
Management believes staffing-oriented services have stabilized in the first
quarter of 2000.  Management believes that aggressive marketing of technology
consulting services in 2000 can restore previously obtained revenue and gross
profit levels, although there can be no assurance that the Company will be
successful in restoring revenue and gross profit to the prior levels realized.
The Company's failure to restore revenue and gross profit to previously obtained
levels would materially negatively impact the Company's financial condition and
results of operations in future years.

     The Company has not experienced any business disruption to date arising
from vendor, supplier or customer Year 2000 problems.  Year 2000 problems
experienced with interactive television systems either sold or operated by the
Company have been minor.  The Company has expended less than $5,000 to correct
these problems. To date, the Company is not aware of any Year 2000 problems
involving solutions developed or implemented by the Company or the interaction
of such solutions with other customer applications.  The Company's management
believes that the likelihood of any such problems arising in connection with
solutions developed or implemented by the Company or the interaction of such
solutions with other customer applications in the future is minimal, although no
assurance can be given that such problems will not arise.

     The Company has not incurred material costs to date associated with Year
2000 issues.  Without any allocation from the salaries of relevant internal
personnel, the Company has to date expended less than $10,000 to

                                                                              54
<PAGE>

address Year 2000 issues.  The Company does not expect future expenditures, if
any, related to the Year 2000 problem to be material.

Effect of Recently Issued Accounting Standards

     In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133").  The Statement establishes
accounting and reporting standards requiring reporting of all derivative
instruments, including certain derivative instruments embedded in other
contracts, in the balance sheet as either an asset or liability measured at its
fair value.  SFAS No. 133 requires that changes in the derivative's fair value
be recognized currently in earnings unless specific hedge accounting criteria
are met.  The FASB has approved Statement No. 137, Accounting for Derivative
Instruments and Hedging Activities--Deferral of the effective date of FASB
Statement No. 133, which amends SFAS No. 133 to be effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000 (that is January 1,
2001 for companies with calendar years).  Had the Company applied this standard
currently, the effect on the Company's results of operations for the period
ended December 31, 1999 would be immaterial.




                                                                              55
<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 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
or for any other purpose.

     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 $650,000 of variable rate debt maturing September 30,
2000.  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
                            2000   2001  2002  2003  2004    Thereafter        Total       Value
<S>                     <C>        <C>   <C>   <C>   <C>   <C>               <C>          <C>

Current Debt:
Variable Rate Debt      $650,000    ---   ---   ---   ---              ---   $  650,000   $599,000
Average Interest Rate      10.45%   ---   ---   ---   ---              ---        10.45%

Long Term Debt:
Fixed Rate Debt              ---    ---   ---   ---   ---       $1,000,000   $1,000,000   $630,000
Average Interest Rate        ---    ---   ---   ---   ---             7.00%        7.00%
</TABLE>

     Current debt relates to the outstanding balance, as of December 31, 1999,
due to S&T Bank under a revolving credit loan.  The maturity of the revolving
credit loan is September 30, 2000 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%.  During 1999, the applicable
interest rate has varied from a low of 8.75% to a high of 9.50%.  The applicable
rate as of December 31, 1999 was 9.50%.  The average interest rate included in
the above table assumes an average 10% increase in the interest rate during
2000.  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, 1999.  The note payable to the former shareholder of Allin
Consulting-California bears interest at a fixed rate of 7%.  The Company has the
right, at its sole option, to defer payment of note principal from the original
maturity dates in 2000 until April 15, 2005.  The above table assumes deferral
of principal payment until 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, 1999.

                                                                              56
<PAGE>

Item 8 - Financial Statements and Supplementary Data

ALLIN CORPORATION & SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

                                    (Dollars in thousands)

<TABLE>
<CAPTION>

                                                                    December 31, December 31,
                                                                        1998        1999
                                                                    -----------  -----------
<S>                                                                 <C>          <C>

 ASSETS

 Current assets:
        Cash and cash equivalents                                      $  2,510    $  1,888
        Accounts receivable, net of allowance for
                 doubtful accounts of $316 and $274                       2,768       4,134
        Note receivable                                                     463         ---
        Inventory                                                           396         741
        Prepaid expenses                                                    317         429
                                                                       --------    --------
                 Total current assets                                     6,454       7,192

        Property and equipment, at cost:
        Leasehold improvements                                              478         473
        Furniture and equipment                                           2,477       2,684
        On-board equipment                                                3,688         951
                                                                       --------    --------
                                                                          6,643       4,108
        Less--accumulated depreciation                                   (3,559)     (2,607)
                                                                       --------    --------
                                                                          3,084       1,501

        Assets held for resale                                               15          19
        Notes receivable from employees                                      35          17
        Software development costs, net of accumulated
                 amortization of $877 and $887                               36          26
        Goodwill, net of accumulated amortization of
                 $722 and $1,775                                         14,039      12,986
        Intangible and other assets, net of accumulated amortization
                 of $227 and $522                                         2,649       2,285
                                                                       --------    --------

 Total assets                                                          $ 26,312    $ 24,026
                                                                       ========    ========

</TABLE>

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

                                                                              57
<PAGE>

ALLIN CORPORATION & SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

                            (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                        December 31,           December 31,
                                                                           1998                   1999
                                                                      --------------         --------------
<S>                                                                   <C>                    <C>

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
       Current portion of notes payable                               $              2       $            2
       Bank lines of credit                                                      1,506                  650
       Accounts payable                                                            575                  665
       Accrued liabilities:
                Compensation and payroll taxes                                     475                  615
                Dividends on preferred stock                                       546                  865
                Other                                                              694                  756
       Billings in excess of costs                                                  --                  415
       Deferred revenue                                                             76                  996
       Income taxes payable                                                         67                   --
                                                                      ----------------       --------------
                Total current liabilities                                        3,941                4,964

Non-current portion of notes payable                                             4,004                1,002
Deferred income taxes                                                              126                   81
Commitments and contingencies

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

Shareholder's equity:
       Common stock, par value $.01 per share - authorized
                20,000,000 shares, issued 5,995,830 shares                          60                   60
       Preferred stock, par value $.01 per share,
                authorized 100,000 shares:
                Series C redeemable preferred stock, designated
                          issued and outstanding -0- and 25,000
                          shares                                                    --                2,500
                Series D convertible redeemable preferred stock,
                          designated, issued and outstanding -0-
                          and 2,750 shares                                          --                2,152
                Series E convertible redeemable preferred stock,
                          designated -0- and 2,000 shares, issued and
                          outstanding -0- and 1,926 shares                          --                1,926
                Series F convertible redeemable preferred stock,
                          designated, issued and outstanding -0-
                          and 1,000 shares                                          --                1,000
       Additional paid-in-capital                                               40,793               40,198
       Warrants                                                                    598                  598
       Deferred compensation                                                      (104)                  --
       Treasury stock at cost, 1,800 and 8,167 shares                               (6)                 (27)
       Retained deficit                                                        (27,752)             (30,428)
                                                                      ----------------       --------------
Total shareholders' equity                                                      13,589               17,979
                                                                      ----------------       --------------

Total liabilities and shareholders' equity                            $         26,312       $       24,026
                                                                      ================       ==============
</TABLE>

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

                                                                              58
<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,
                                                             1997           1998           1999
                                                          ------------   ------------   ------------
<S>                                                       <C>            <C>            <C>

Revenue                                                   $     9,596    $    15,291    $    24,977

Cost of sales                                                   5,988          8,781         15,558
                                                          -----------    -----------    -----------

Gross profit                                                    3,608          6,510          9,419

Selling, general & administrative                              14,517         13,937         11,841
                                                          -----------    -----------    -----------

Loss from operations                                          (10,909)        (7,427)        (2,422)

Interest expense (income), net                                   (413)            (7)           173
                                                          -----------    -----------    -----------

Loss before provision for income taxes                        (10,496)        (7,420)        (2,595)

Provision for income taxes                                         45            ---             10
                                                          -----------    -----------    -----------

Loss before equity loss                                       (10,541)        (7,420)        (2,605)

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

Loss from continuing operations                               (10,541)        (7,448)        (2,677)

Income (loss) of disposed segment,
                  net of income tax                              (162)           220            ---
Gain on disposal of segment                                       ---          1,437              1
                                                          -----------    -----------    -----------

(Gain) loss from discontinued operations                         (162)         1,657              1
                                                          -----------    -----------    -----------

Net loss                                                      (10,703)        (5,791)        (2,676)

Accretion and dividends on preferred stock                        232            779            699
                                                          -----------    -----------    -----------

Net loss attributable to common shareholders              $   (10,935)   $    (6,570)   $    (3,375)
                                                          ===========    ===========    ===========

Loss per common share from continuing
                  operations - basic and diluted          $     (2.09)   $     (1.50)   $     (0.56)
                                                          ===========    ===========    ===========

Income (loss) per common share from
                  discontinued operations - basic and
                   diluted                                $     (0.03)   $      0.30    $      0.00
                                                          ===========    ===========    ===========

Net loss per common share - basic and diluted             $     (2.12)   $     (1.20)   $     (0.56)
                                                          ===========    ===========    ===========

Weighted average shares outstanding - basic and diluted     5,157,399      5,466,979      5,972,001
                                                          -----------    -----------    -----------

</TABLE>

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

                                                                              59
<PAGE>

ALLIN CORPORATION & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                            (Dollars in thousands)

<TABLE>
<CAPTION>

                                                   Series C            Series D               Series E               Series F
                                                  Redeemable    Convertible Redeemable Convertible Redeemable Convertible Redeemable

                               Common Stock     Preferred Stock    Preferred Stock        Preferred Stock        Preferred Stock
                            ------------------- --------------- ---------------------- ---------------------- ----------------------

                             Shares   Par Value Shares  Balance    Shares   Balance       Shares   Balance       Shares   Balance
                            --------- --------- ------- ------- ---------- ----------- ---------- ----------- ---------- -----------

<S>                         <C>       <C>       <C>     <C>     <C>        <C>         <C>        <C>         <C>         <C>

Balance, December 31, 1996  5,184,067  $   52      ---   $  ---      ---    $  ---          ---    $  ---          ---     $  ---

 Forfeiture of restricted
  common stock                 (1,800)    ---      ---      ---      ---       ---          ---       ---          ---        ---
 Amortization of deferred
  compensation                    ---     ---      ---      ---      ---       ---          ---       ---          ---        ---
 Accretion of Series A
  convertible, redeemable
  preferred stock                 ---     ---      ---      ---      ---       ---          ---       ---          ---        ---
 Accrual of dividends on
  Series A convertible,
  redeemable preferred
  stock                           ---     ---      ---      ---      ---       ---          ---       ---          ---        ---
 Net loss                         ---     ---      ---      ---      ---       ---          ---       ---          ---        ---
                            ---------  ------   ------   ------    -----    ------        -----    ------        -----     ------
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                           ---     ---   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                            ---     ---      ---      ---      ---       ---          ---       ---        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  5,987,663  $   60   25,000   $2,500    2,750    $2,152        1,926    $1,926        1,000     $1,000
                            =========  ======   ======   ======    =====    ======        =====    ======        =====     ======
</TABLE>




<TABLE>
<CAPTION>
                                                             Additional                       Treasury Stock             Total
                                                              Paid-In              Deferred   -------------- Retained Shareholders'
                                                              Capital   Warrants Compensation  Shares  Cost   Deficit    Equity
                                                             ---------- -------- ------------ -------  ----- -------- -------------
<S>                                                          <C>        <C>      <C>          <C>            <C>      <C>

Balance, December 31, 1996                                   $37,905     $ ---      $(377)       ---   $---  $(11,258)  $ 26,322

 Forfeiture of restricted common stock                           (21)      ---         27      1,800     (6)      ---        ---
 Amortization of deferred compensation                           ---       ---        122        ---    ---       ---        122
 Accretion of Series A convertible, redeemable
  preferred stock                                                (20)      ---        ---        ---    ---       ---        (20)
 Accrual of dividends on Series A convertible,
  redeemable preferred stock                                    (212)      ---        ---        ---    ---       ---       (212)
 Net loss                                                        ---       ---        ---        ---    ---   (10,703)   (10,703)
                                                             -------    ------     ------      -----   ----  --------   --------
Balance, December 31, 1997                                   $37,652     $ ---      $(228)     1,800   $ (6) $(21,961)  $ 15,509

 Issuance of common stock in acquisition                       3,424       ---        ---        ---    ---       ---      3,432
 Issuance of warrants                                            ---       598        ---        ---    ---       ---        598
 Amortization of deferred compensation                           ---       ---        124        ---    ---       ---        124
 Beneficial conversion feature of Series B
  redeemable preferred stock                                     485       ---        ---        ---    ---       ---        485
 Accretion of Series B redeemable
  preferred stock                                               (485)      ---        ---        ---    ---       ---       (485)
 Accrual of dividends on Series A convertible,
  redeemable preferred stock and
  Series B redeemable preferred stock                           (294)      ---        ---        ---    ---       ---       (294)
 Option issuance to non-employees                                 11       ---        ---        ---    ---       ---         11
 Net loss                                                        ---       ---        ---        ---    ---    (5,791)    (5,791)
                                                             -------    ------     ------      -----   ----  --------   --------

Balance, December 31, 1998                                   $40,793    $  598     $ (104)     1,800   $ (6) $(27,752)  $ 13,589

 Forfeiture of restricted common stock                           (75)      ---         96      6,367    (21)      ---        ---
 Amortization of deferred compensation                           ---       ---          8        ---    ---       ---          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       ---        ---        ---    ---       ---        176
 Accretion of Series F convertible redeemable
  preferred stock                                               (176)      ---        ---        ---    ---       ---       (176)
 Accrual of dividends on preferred stock                        (523)      ---        ---        ---    ---       ---       (523)
 Option issuance to non-employees                                  3       ---        ---        ---    ---       ---          3
 Net loss                                                        ---       ---        ---        ---    ---    (2,676)    (2,676)
                                                             -------    ------     ------      -----   ----  --------   --------
Balance, December 31, 1999                                   $40,198    $  598     $  ---      8,167   $(27) $(30,428)  $ 17,979
                                                             =======    ======     ======      =====   ====  ========    =======
</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,
                                                                     1997         1998         1999
                                                                 ------------- ----------- ------------
<S>                                                              <C>           <C>         <C>

Cash flows from operating activities:
    Net loss                                                      $(10,703)   $ (5,791)   $ (2,676)
    Adjustments to reconcile net loss to net cash flows
       from operating activities:
           Depreciation and amortization                             4,026       3,414       2,510
           Amortization of deferred compensation                       122         124           8
           Cost of fixed assets sold                                   ---         ---         391
           Loss from disposal of assets                                984         400          87
           Loss from impairment of assets                              241       2,765         ---
           Minority interest in loss of
                              non-consolidated corporation             ---          28          72
           Gain on disposal of segment                                 ---      (1,462)        ---
    Changes in certain assets and liabilities:
           Accounts receivable                                        (636)        633      (1,366)
           Inventory                                                   (53)       (301)       (295)
           Prepaid expenses                                            (78)        (35)       (112)
           Software development costs                                 (327)        (20)        ---
           Assets held for resale                                      ---         (15)         (4)
           Other assets                                                383        (308)         18
           Accounts payable                                         (1,100)       (235)         91
           Accrued liabilities                                         462        (353)        203
           Billings in excess of costs                                 ---         ---         658
           Income taxes payable                                        ---         ---        (112)
           Deferred revenues                                           916         (14)        920
           Customer deposits                                          (695)        ---         ---
                                                                  --------    --------    --------
       Net cash flows from operating activities                     (6,458)     (1,170)        393
                                                                  --------    --------    --------

Cash flows from investing activities:
           Proceeds from sale of assets                                185           9          36
           Capital expenditures                                     (3,110)       (372)       (374)
           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 from investing activities              (2,925)       (358)        125
                                                                  --------    --------    --------

Cash flows from financing activities:
         Issuance of Series B redeemable preferred stock and
                                   warrants                            ---       2,750         ---
         Payment of dividends on preferred stock                       ---         (37)       (204)
         Proceeds from (repayment of) line of credit                   ---       1,483        (856)
         Debt acquisition costs                                        ---         (54)         (3)
         Retirement of subsidiary debt                                 ---        (700)        ---
         Payments on notes payable                                     (42)     (6,206)        (77)
                                                                  --------    --------    --------
            Net cash flows from financing activities                   (42)     (2,764)     (1,140)
                                                                  --------    --------    --------

Net change in cash and cash equivalents                             (9,425)     (4,292)       (622)
Cash and cash equivalents, beginning of period                      16,227       6,802       2,510
                                                                  --------    --------    --------
Cash and cash equivalents, end of period                          $  6,802    $  2,510    $  1,888
                                                                  ========    ========    ========
</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 Consulting-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 information technology
infrastructure, business operations, knowledge management 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., 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 generates revenue from
fees under its contracts for technology consulting services for client/server
and mainframe computer environments.  Additionally, Allin Consulting-
Pennsylvania provides specialized technology consulting services for the banking
industry. Operations are oriented around solution areas meeting customer
information technology infrastructure, business operations, knowledge management
and electronic business needs.  Allin Consulting-Pennsylvania's services are
provided at various locations throughout the United States, 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 also operates two
interactive television systems previously installed on cruise ships.  Revenue is
derived from passengers aboard the cruise ships through usage of pay-per-view
and gaming interactive services.  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 is derived at sea and at various domestic and international ports
of call on ships where Allin Interactive's system has been installed.

     Allin Digital Imaging Corp. ("Allin Digital"), a Delaware corporation,
provides systems integration services for digital imaging systems, technical
support and 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 computer related hardware and software.  Allin
Network's operations have to date been concentrated in northern California and
near Pittsburgh, Pennsylvania.  On February 3, 2000, Allin Network acquired
assets utilized in the operations of Erie Computer Company, which sells computer
related hardware and software and provides technology consulting services.  See
Note 20.

     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 years ended December 31, 1997 and
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.

                                                                              62
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     The Company is subject to a number of risks, including its limited
operating history with its recent acquisitions, uncertainty as to future
profitability; a history of net losses, accumulated deficit, liquidity,
expiration of its line of credit in September 2000, development of new products;
competition in its current and any future lines of business; management of
growth; dependence on key personnel; rapidly changing technology; risks inherent
in developing new markets; and fluctuation in operating results.

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, 1998 and 1999 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,
1997 includes the results of continuing operations of the Company, Allin
Consulting-California, Allin Interactive, Allin Digital, Allin Network and Allin
Holdings.  The Consolidated Statement of Operations for the period ended
December 31, 1998 also includes the results of continuing operations for Allin
Consulting-Pennsylvania subsequent to its acquisition.  The Consolidated
Statement of Operations for the period ended December 31, 1999 includes the
results of continuing operations for all of the companies above.

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 operations for SportsWave for
the periods presented in the Company's Consolidated Statements of Operations
have been reclassified to interest in income or loss of disposed segment, which
is presented after net loss from continuing operations.  The gain recorded on
disposal of SportsWave is also presented after net loss from continuing
operations.  See Note 8-Sale of SportsWave, Inc.

Use of Estimates in the Preparation of Financial Statements

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

Cash and Cash Equivalents

     The Company considers all certificates of deposit with an original 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 Information Technology Infrastructure, Business
Operations, Knowledge Management and Electronic Business Solution Area 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.

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

     Allin Digital recognizes revenue and cost of sales for systems integration
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.

     Allin Network recognizes revenue and associated cost from the sale of
products at the time the products are shipped.

Accounts Receivable

     The Company's subsidiaries record accounts receivable based upon billing or
revenue recognition for services and products.  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, 1999, two significant customers comprised 20% and 14%,
respectively, of the Company's accounts receivable.  One significant customer
accounted for 10% of the Company's 1999 revenue.  As of December 31, 1998, one
significant customer comprised 14% of the Company's accounts receivable.  One
significant customer accounted for 12% of the Company's 1998 revenue.  Three
significant customers accounted for 23%, 16% and 10%, respectively, of the
Company's 1997 revenue.

Inventory

     Inventory, consisting principally of digital photography equipment and
software and computer hardware, software and communications equipment, is stated
at the lower of cost or market.  The Company utilizes a specific identification
method.  Cost of sales and inventory value under this method approximate the
first-in, first-out method.

                                                                              64
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


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, 1997, 1998 and 1999 was approximately $1,847,000, $1,495,000, and
$1,149,000, respectively.

Assets Held for Resale

     Assets held for resale consisted of equipment purchased for an interactive
media system installation in-process as of December 31, 1999 that was sold to
the respective 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

     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.

     As of December 31, 1999, other 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 have been 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.

     As of December 31, 1997, other intangible assets included portions of the
purchase price for Allin Consulting-California as noted above and additionally
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 the
change in name of Allin Consulting-California.

     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.

                                                                              65
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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.

Billings in Excess of Costs

     Billings in excess of costs relates to Allin Interactive projects for which
revenue and cost of sales are being recognized on a percentage of completion
basis or over the minimum period of associated maintenance obligations for
interactive television systems.  Billings in excess of costs consists of amounts
billed for projects recognized on a percentage of completion basis but not yet
recognized as revenue net of costs 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, 1998 and 1999, 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 $558,000,
$118,000, and $194,000, respectively, for the years ended December 31, 1997,
1998, and 1999.  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.

Financial Instruments

     The Company's December 31, 1998 Consolidated Balance Sheet includes two
notes payable to shareholders which relate to the acquisitions of Allin
Consulting-California and Allin Consulting-Pennsylvania, respectively.  The
notes payable are recorded at the face value of the instruments.

     In May 1999, the note payable associated with the acquisition of Allin
Consulting-Pennsylvania and a portion of the note associated with the
acquisition of Allin Consulting-California were exchanged for like amounts of
the Company's Series E Convertible Redeemable Preferred Stock and Series F
Convertible Redeemable Preferred Stock, respectively.  See Note 3.  The notes
payable are recorded at the face value of the instrument.  The Company accrues
interest at fixed rates.  Interest payments were not required in 1999.

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

                                                                              66
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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).  Had the Company applied this standard
currently, the effect on the Company's results of operations for the periods
ended December 31, 1998 and 1999 would be immaterial.

Supplemental Disclosure of Cash Flow Information

     Cash payments for income taxes were approximately $131,000, $85,000, and
$255,000 during the years ended December 31, 1997, 1998, and 1999, respectively.
Cash payments for interest were approximately $29,000, $81,000, and $153,000
during the years ended December 31, 1997, 1998, and 1999, respectively.

     Dividends of approximately $212,000, $258,000 and $347,000 were accrued but
unpaid during the years ended December 31, 1997, 1998 and 1999, respectively, on
outstanding shares of the Company's preferred stock.  Cash payments of dividends
were approximately $-0-, $37,000 and $204,000 during the years ended December
31, 1997, 1998 and 1999, respectively.

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

<TABLE>
<S>                                                                       <C>
  Issuance of common stock in connection with acquisitions                $3,450,000
  Grant of non-employee options                                               11,000
</TABLE>

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

<TABLE>
<S>                                                                       <C>
  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
</TABLE>

                                                                              67
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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 and 1,000 as Series F Convertible
Redeemable Preferred Stock.  On May 31, 1999, all of the Company's outstanding
Series A and B preferred stock was 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 or Series A or B preferred stock.  The order of
liquidation preference of the series of the Company's outstanding preferred
stock, from senior to junior, is Series E, Series F, Series D and Series C. 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
dividends payable in the ordinary course of business on the Company's Series D,
E and F preferred stock. The Loan and Security Agreement expires September 30,
2000. Each of the Certificates governing the Series C, D, E and F preferred
stock prohibits the Company from declaring or paying dividends or any other
distribution on the common stock or any other class of stock ranking junior as
to dividends and upon liquidation unless all dividends on the senior series of
preferred stock for the dividend payment date immediately prior to or concurrent
with the dividend or distribution as to the junior securities are paid or are
declared and funds are set aside for payment.

Series C Redeemable Preferred Stock

     On May 31, 1999, the holders of all of the 25,000 outstanding shares of the
Company's Series A Convertible Redeemable Preferred Stock exchanged their shares
for a like number of shares of the Company's Series C Convertible Preferred
Stock, having a liquidation preference of $100 per share.  As of December 31,
1999, all of the Series C preferred stock remained outstanding.  There is no
mandatory redemption date for the Series C preferred stock whereas mandatory
redemption had been required on June 30, 2006 for the Series A preferred stock.
Series C preferred stock 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.

     The 25,000 Series A shares were convertible into an aggregate of 203,385
common shares, an approximate $12.29 per common share conversion rate, at the
option of the holder, during the period from May 6, 1997 through December 6,
1997.  The conversion price reflected an illiquidity discount from the
subsequent initial public offering price and was representative of fair value of
the common shares as of the date of issuance.  None of the Series A preferred
shares were converted into common shares during this period.  Series A preferred
shares were not convertible into common shares thereafter.  Series C preferred
shares are not convertible into common shares.

     The aggregate value of the Series A preferred shares issued, $2,500,000,
was recorded net of $50,000 to reflect transaction costs related to the
preferred stock issuance.  During the year ended December 31, 1997, $20,000 of
accretion was recorded.

     Dividends on Series A preferred shares of $212,000, $230,000 and $101,000
were accrued during the fiscal years ended December 31, 1997, 1998 and 1999,
respectively.  Dividends on Series C preferred shares of $148,000 were accrued
during the fiscal year ended December 31, 1999.  As of December 31, 1998,
approximately $518,000 of dividends had been accrued for Series A preferred
stock.  No dividends were paid on Series A preferred stock and accrued dividends
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 as of December 31, 1999.  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.


                                                                              68
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Series D Convertible Redeemable Preferred Stock

     On May 31, 1999, the holders of all of the 2,750 outstanding shares of the
Company's Series B Redeemable Preferred Stock, which had been issued on August
13, 1998, exchanged their shares for a like number of shares of the Company's
Series D Convertible Redeemable Preferred Stock having a liquidation preference
of $1,000 per share.  As of December 31, 1999, all of the Series D preferred
stock remained outstanding.  There is no mandatory redemption date for the
Series D preferred stock whereas mandatory redemption had been required for
Series B preferred stock on the earlier of August 13, 2003 or following certain
asset sales by the Company, as defined in the Certificate of Designation for
Series B preferred stock, which is filed as an exhibit to the Company's Current
Report on Form 8-K dated as of August 13, 1998.  Series D preferred stock earns
dividends at the rate of 6% 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.

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

     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 were accrued during the fiscal
year ended December 31, 1999.  As of December 31, 1998, approximately $28,000 of
dividends had been accrued but unpaid for Series B preferred stock.  Accrued but
unpaid dividends on Series D preferred stock were approximately $28,000 as of
December 31, 1999.

                                                                              69
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Series E Convertible Redeemable Preferred Stock

     On May 31, 1999, the holder of a promissory note issued by the Company in
connection with the acquisition of Allin Consulting-Pennsylvania with an
outstanding principal balance of approximately $1,926,000 exchanged the
promissory note for 1,926 shares of the Company's Series E Convertible
Redeemable Preferred Stock having a liquidation preference of $1,000 per share.
As of December 31, 1999, all of the Series E preferred stock remained
outstanding. There is no mandatory redemption date for the Series E preferred
stock.  Series E preferred stock is redeemable solely at the option of the
Company.  Series E preferred stock earns dividends at the rate of 6% of the
liquidation value thereof per annum, payable quarterly, subject to legally
available funds.  Dividends are payable on the first day of each January, April,
July and October.

     The promissory note would have converted to the Company's common stock if
the principal balance was not repaid prior to August 13, 2000.  Series E
preferred stock is convertible to the Company's common stock on terms
substantially identical to those of the promissory note.  If not redeemed by the
Company earlier, outstanding Series E preferred stock will automatically convert
as of August 13, 2000 into the number of shares of the Company's common stock
equal to the amount obtained by dividing the liquidation preference of the
outstanding shares of Series E preferred stock plus accrued and unpaid
dividends, if any, by (i) $4.406 or (ii) at the holder's option, the average of
the bid and asked prices of the common stock for the thirty days preceding
August 13, 2000, subject to a $2.00 minimum price.  Upon the happening of
certain events, the holder of Series E preferred stock will be able to convert
the shares of the Series E preferred stock into the Company's common stock prior
to August 13, 2000.  These events are disclosed in the text of the Certificate
of Voting Powers, Designations, Preferences and Relative, Participating,
Optional or Other Rights and the Qualifications, Limitations or Restrictions
Thereof, of the Series E Convertible Redeemable Preferred Stock filed as an
exhibit to the Company's Current Report on Form 8-K filed on June 15, 1999.

     Dividends on Series E preferred shares of $69,000 were recorded during the
fiscal year ended December 31, 1999.  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.  Series F preferred stock earns dividends
at the rate of 7% of the liquidation value thereof per annum.  The dividends
will accrue until April 15, 2000, when accrued dividends will be payable subject
to legally available funds.  Dividends will be payable and will compound
quarterly after April 15, 2000, subject to legally available funds.

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

                                                                              70
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Nasdaq on the last trading date prior to the first anniversary of the date of
issuance of the Series F preferred stock or (b) $1.236.  The amended and
restated promissory note is not convertible into the Company's common stock.

     Inclusion of the convertibility feature in the Series F preferred stock for
which a portion of the note was exchanged resulted in the issuance of preferred
stock with a non-detachable conversion feature that is "in the money" at the
date of issuance.  Therefore, a beneficial conversion feature was recognized by
allocating a portion of the proceeds equal to the intrinsic value of that
feature to additional paid-in-capital during May 1999, when the Series F
preferred stock was issued.  The value of the beneficial conversion feature,
approximately $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.

     Dividends on Series F preferred shares of $41,000 were accrued during the
fiscal year ended December 31, 1999.  No dividends were paid on Series F
preferred stock during 1999.

4.  Warrants for Common Stock

     In 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 December 31, 1998 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.  As of December 31, 1999, 72,699 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 53,000 options which
vested on grant date and 14,760 options awarded to former SportsWave employees
which vested upon sale of that company.  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 the 67,760 shares noted above, which do
not include an early expiration provision.

                                                                              71
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     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 has recognized approximately
$122,000, $124,000 and $8,000 of compensation expense related to the restricted
stock during the periods ended December 31, 1997, 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 stockholders 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.
As of December 31, 1999, 10,790 shares remained available for future grants
under 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 and 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.  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.

     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, 1999, 71,242 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.  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.

                                                                              72
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Summary of Stock Option Activity from 1997 through 1999:
--------------------------------------------------------

<TABLE>
<CAPTION>
                                      1996 Plan                         1997 Plan                         1998 Plan
                           -------------------------------   -------------------------------   -------------------------------
                                               Weighted-                         Weighted-                         Weighted-
                              Number of         Average         Number of         Average         Number of         Average
                               Options      Exercise Price       Options      Exercise Price       Options      Exercise Price
<S>                        <C>              <C>              <C>              <C>              <C>              <C>

December 31, 1996
Outstanding                    202,550           $15.03              ---              ---              ---              ---
Exercisable                     21,000           $15.00              ---              ---              ---              ---

1997
Granted                         27,500           $18.23           70,050            $6.19              ---              ---
Forfeitures                     58,400           $14.91              500            $4.50              ---              ---
Exercised                          ---              ---              ---              ---              ---              ---
Expired                            ---              ---              ---              ---              ---              ---
                         ------------------------------------------------------------------------------------------------------
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              ---              ---
</TABLE>

                                                                              73
<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  and 1998 Plans.

<TABLE>
<CAPTION>
                                               1996 Plan            1997 Plan             1998 Plan
                                         -------------------  --------------------  -----------------
<S>                                      <C>                  <C>                   <C>
Risk free interest rate                            6.2 %                 5.7 %                 5.5 %
Expected dividend yield                            0.0 %                 0.0 %                 0.0 %
Expected life of options                         7 yrs.                7 yrs.                7 yrs.
Expected volatility rate                            57 %                  57 %                  57 %
</TABLE>

<TABLE>
<CAPTION>
                                                        1996 Plan           1997 Plan          1998 Plan
                                                    ------------------  -----------------  -----------------

<S>                                                 <C>                 <C>                <C>
Options originally issued at market:
Exercisable at December 31, 1999                               110,060             50,720                ---
Weighted average fair value of options granted
 during 1997                                                  $  10.03            $  3.20                ---

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


Options originally issued in excess of market:
Exercisable at December 31, 1999                                 4,000             19,180                ---
Weighted average fair value of options granted
 during 1997                                                       ---            $  2.12                ---

Weighted average fair value of options granted
 during 1998                                                  $   2.02                ---                ---

Weighted average fair value of options granted
 during 1999                                                       ---                ---                ---

</TABLE>


Summary of Information for Stock Options Outstanding or Exercisable at December
-------------------------------------------------------------------------------
31, 1999:
--------

<TABLE>
<CAPTION>
                                    1996 Plan                       1997 Plan                       1998 Plan
                           ----------------------------  --------------------------------  ----------------------------
                                            Weighted-                        Weighted-                      Weighted-
                             Number of       Average        Number of         Average        Number of       Average
                              Options       Exercise         Options         Exercise         Options       Exercise
                                              Price                           Price                           Price
<S>                        <C>            <C>            <C>              <C>              <C>            <C>

Information for options
 outstanding at
 December 31, 1999:

Exercise Price:
Less than $3.00                      ---            ---            1,250            $2.66            ---            ---
From $3.00 to $3.99                5,000         $ 3.25            2,000            $3.25        303,758          $3.25
From $4.00 to $4.99               71,000         $ 4.59          249,460            $4.44            ---            ---
From $5.00 to $7.50                  ---            ---           36,500            $7.50            ---            ---
From $15.00 to $16.25             98,800         $15.06              ---              ---            ---            ---
                         ----------------------------------------------------------------------------------------------
                                 174,800         $10.47          289,210            $4.81        303,758          $3.25
</TABLE>

                                                                              74
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Summary of Information for Stock Options Outstanding or Exercisable at December
-------------------------------------------------------------------------------
31, 1999 (cont.):
----------------

<TABLE>
<CAPTION>
                                    1996 Plan                       1997 Plan                       1998 Plan
                           ----------------------------  --------------------------------  ----------------------------
                                            Weighted-                        Weighted-                      Weighted-
                             Number of       Average        Number of         Average        Number of       Average
                              Options       Exercise         Options         Exercise         Options       Exercise
                                              Price                           Price                           Price

<S>                        <C>            <C>            <C>              <C>              <C>            <C>
Information for options
 exercisable at
 December 31, 1999:

Exercise Price:
Less than $3.00                      ---            ---            1,250            $2.66            ---            ---
From $3.00 to $3.99                1,000         $ 3.25              400            $3.25            ---            ---
From $4.00 to $4.99               36,800         $ 4.57           49,150            $4.40            ---            ---
From $5.00 to $7.50                  ---            ---           19,100            $7.50            ---            ---
From $15.00 to $16.25             76,260         $15.05              ---              ---            ---            ---
                         ----------------------------------------------------------------------------------------------
                                 114,060         $11.56           69,900            $5.21            ---            ---
</TABLE>

<TABLE>
<CAPTION>
                                    1996 Plan                       1997 Plan                       1998 Plan
                           ----------------------------  --------------------------------  ----------------------------
                                            Weighted-                        Weighted-                      Weighted-
                             Number of       Average        Number of         Average        Number of       Average
                              Options      Contractual       Options        Contractual       Options      Contractual
                                              Life                             Life                           Life

<S>                        <C>            <C>            <C>              <C>              <C>            <C>
Information for options
 outstanding at
 December 31, 1999:

Exercise Price:
Less than $3.00                      ---            ---            1,250        6.3 years            ---            ---
From $3.00 to $3.99                5,000      5.9 years            2,000        5.8 years        303,758      6.2 years
From $4.00 to $4.99               71,000      6.3 years          249,460        5.3 years            ---            ---
From $5.00 to $7.50                  ---            ---           36,500        4.8 years            ---            ---
From $15.00 to $16.25             98,800      3.8 years              ---              ---            ---            ---
                                        -------------------------------------------------------------------------------
                                 174,800      4.9 years          289,210        5.2 years        303,758      6.2 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:

<TABLE>
<CAPTION>
          Year ended December 31                      1997                   1998                  1999
                                             ----------------------  ---------------------  -------------------

<S>                                          <C>                     <C>                    <C>
Pro forma net loss (dollars in thousands)                 $(11,026)               $(6,369)             $(3,034)
Pro forma loss per share                                  $  (2.18)               $ (1.31)             $ (0.63)
</TABLE>

     See Note 20 for information regarding 1998 Plan options awarded subsequent
to December 31, 1999.

                                                                              75
<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 26,218, 24,868 and 17,176 shares of outstanding restricted stock for
1997, 1998 and 1999, 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 26,218, 702,451 and 717,749 for the years ended December
31, 1997, 1998 and 1999, respectively.

     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                  1997                     1998                     1999

<S>                                                        <C>                      <C>                      <C>
Net loss                                                               $  (10,703)              $   (5,791)             $    (2,654)

Accretion and dividends on preferred stock                                    232                      779                      699
                                                                       ----------               ----------              -----------
Net loss applicable to common shareholders                             $  (10,935)              $   (6,570)             $    (3,353)


Basic and diluted net loss per common share                             $   (2.12)               $   (1.20)              $    (0.56)
                                                                       ----------               ----------               ----------

Shares used in calculating basic and diluted net loss
 per common share                                                       5,157,399                5,466,979                5,972,001
                                                                       ----------               ----------               ----------
</TABLE>


7.  Acquisitions

     Emerging Issues Task Force Issue 95-8:  "Accounting for Contingent
Consideration Paid to the Shareholders of an Acquired Company in a Purchase
Business Combination" ("EITF 95-8") describes five factors that must be
considered in evaluating the proper treatment of contingent consideration,
including factors involving terms of continuing employment, factors involving
components of shareholder group, factors involving reasons for contingent
payment provisions, factors involving formula for determining contingent
consideration, and factors involving other agreements and issues.  The Company
follows the EITF 95-8 guidelines in determining the accounting treatment for any
contingent consideration related to acquisitions.

Allin Consulting-Pennsylvania

     On August 13, 1998, the Company acquired all of the issued and outstanding
stock of Allin Consulting-Pennsylvania.  The agreement for the purchase of Allin
Consulting-Pennsylvania provided for payment of up to $16.0 million by the
Company, including $14.4 million at closing and potential contingent payments of
up to $1.6 million.  Closing payment terms 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

                                                                              76
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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 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
acquisition of the purchase price to assets acquired and liabilities assumed of
Allin Consulting-Pennsylvania is as follows (dollars in thousands):

<TABLE>
<S>                                                      <C>
Cash                                                                     $   325
Working capital, other than cash                                           1,279
Furniture, equipment and leasehold improvements                              183
Notes payable to bank                                                       (627)
Other liabilities                                                            (51)
Assembled work force                                                         257
Customer base                                                              2,230
Goodwill                                                                  10,825
                                                                         -------
Net purchase price recorded                                              $14,421
                                                                        ========
</TABLE>

     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.

     The agreement for purchase of Allin Consulting-Pennsylvania provided for
contingent payments of up to $1.2 million in cash and $400,000 in the Company's
common stock.  The amount of the contingent payments was to be determined on the
basis of Allin Consulting-Pennsylvania's Adjusted Operating Profit (as defined
in the Stock Purchase Agreement for the acquisition) for the period beginning
January 1, 1998 and ending December 31, 1998.  The former Allin Consulting-
Pennsylvania shareholders were entitled to receive aggregate contingent payments
equal to $4.67 for each dollar by which Adjusted Operating Profit exceeded
$1,671,681, subject to maximum contingent payments of $1,600,000.  Any
contingent payments due were to be made 75% in cash and 25% in the Company's
common stock.  The Company calculated Adjusted Operating Profit of approximately
$1,179,000 for 1998 so no contingent payments were made to the selling
shareholders.

     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, 1997.
Pro forma information is as follows:

                                                                              77
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

<TABLE>
<CAPTION>
                                                           Year Ended                 Year Ended
(Dollars in thousands, except per share data)              December 31,               December 31,
                                                              1997                       1998
                                                        -----------------------------------------------

<S>                                                       <C>                     <C>
  Revenue                                                        $ 22,439                $ 23,567
  Loss from continuing operations                                 (10,962)                 (7,792)
  Net loss                                                        (10,055)                 (6,134)
  Net loss attributable to common shareholders                    (10,452)                 (7,014)
  Net loss per common share - basic and diluted                  $  (1.75)               $  (1.18)
</TABLE>

     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, 1997.

     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.  The agreement for the purchase of
MEGAbase provides for payment of up to $840,000 by the Company, including
$40,000 at closing and potential contingent payments of up to $800,000.  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 has reviewed the
acquired MEGAbase operations and has revised its estimated economic life for
goodwill to seven years.

     The agreement for purchase of MEGAbase provides for contingent payments of
up to $800,000. The amount of the contingent payments is to be determined on the
basis of Allin Consulting-California's Development Practice Gross Margin (as
defined in the stock purchase agreement for the acquisition) for the period
beginning January 1, 1999 and ending December 31, 1999.  The former MEGAbase
sole shareholder is entitled to receive an aggregate contingent payment equal to
$1.00 for each dollar by which Allin Consulting-California's Development
Practice Gross Margin exceeds $500,000, subject to a maximum contingent payment
of $800,000.  Any contingent payment due may be made, at the Company's sole
option, (a) all in cash, (b) 50% in cash and 50% in the Company's common stock
based on a per share amount equal to the average of the bid and asked prices for
the five trading days preceding contingent payment, or (c) 50% in cash and 50%
in the form of a promissory note bearing interest at a rate of 8% per annum to
be due one year from the date of such note.  The contingent payment date was
originally scheduled to be no later than March 31, 2000, unless the Company
selected (c) above, under which 50% of the principal due was scheduled to be
payable no later than March 31, 2000 and 50% due one year later.  The Company
has determined any contingent payments due will be recorded as additional cost
of the acquired enterprise.  The

                                                                              78
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Company and the former MEGAbase sole shareholder have not agreed upon the
calculation of Allin Consulting-California's Development Practice Gross Margin
for 1999.  The Company has initiated litigation to resolve this matter.  Due to
the uncertainty involved in the litigation, the Company is unable to estimate
the amount of the contingent payment, if any.  When the matter is resolved, any
additional purchase consideration to be paid will result in additional goodwill
being recorded on Allin Consulting-California, which will be amortized over the
estimated remaining life of goodwill associated with the MEGAbase acquisition.

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 $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 Second Amended
and Restated Promissory Note (the "Second Note"), which was filed in its
entirety as an exhibit to the Company's Current Report on Form 8-K filed June
15, 1999, provides for principal payments of $500,000 due on April 15, 2000 and
October 15, 2000.  The Second Note, however, provides that the Company may defer
payment of principal at its option until April 15, 2005.  The Second 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 is payable on or before
April 1, 2000.  Quarterly interest payments are required beginning on April 15,
2000, 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 periods ended December 31, 1997
and 1998 have been reclassified to equity basis interest in income or loss of
disposed segment, which is presented after net loss from continuing operations.

                                                                              79
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     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.

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.  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 these assets may
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.

     The Company reorganized its digital photography operations in early 1998.
While the Company continues to own the proprietary digital imaging systems that
had been developed in 1996 and 1997, their usage was less closely related to the
systems integration services offered beginning in early 1998 as the primary
product in the digital photography market. The underlying hardware configuration
utilized by the Company's customers in Allin Digital's early operations under
the new strategy was different than that originally used in developing the
Company's proprietary digital imaging technology.  Adaptations to the
proprietary system were necessary for it to be effectively utilized with the new
hardware configurations.  The Company did not immediately pursue the additional
development necessary for effective immediate utilization of the proprietary
digital photography system in connection with its systems integration services
because the Company wished to evaluate results under the new strategy prior to
making additional capital commitments.  The Company therefore believed that the
change in business strategy during the first quarter of 1998 was an event which
impaired the net realizable value of the proprietary digital photography system.
Because use of the proprietary system in connection with systems integration
services required additional development which the Company did not plan to
pursue at that time, and due to the uncertainty of results of the new business
strategy at that time, the Company believed the net realizable value of the
system to be $-0- due to the impact of the events described above.
Consequently, the Company recorded a write-down of approximately $241,000, as of
December 31, 1997, to reduce the net unamortized software development costs
related to its digital photography system to $-0-.  The loss was recognized as
of December 31, 1997 because it represented significant new information
regarding the realizability of assets between fiscal year-end and the release of
financial statements.  If the Company had not recorded the write-off as of
December 31, 1997, it

                                                                              80
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

would have been required to record a reserve on the assets, which would have
resulted in a similar income statement effect.

     A note receivable from the former President of the Company in the amount of
$130,000 and interest receivable of approximately $10,000 was forgiven during
the first quarter of 1998 in connection with a severance agreement with that
individual.  Impairment of these assets was reflected as of December 31, 1997
because it represented significant new information regarding the realizability
of assets between fiscal year-end and the release of financial statements.

10.  Software Development Costs

     Software development costs capitalized were approximately $48,000, $21,000,
and $-0- during the years ended December 31, 1997, 1998, and 1999, respectively,
relating primarily to the Company's interactive television system and digital
imaging technology.  Amortization expense related to these and previously
capitalized costs was approximately $410,000, $196,000, and $10,000 during the
years ended December 31, 1997, 1998, and 1999, respectively.  See Note 9 for
additional information related to the Company's digital imaging technology.

     Research and development expense was approximately $212,000, $152,000, and
$56,000 for the years ended December 31, 1997, 1998, and 1999, respectively.

11.  Intangible and Other Assets

     Intangible and other assets consist of the following:

<TABLE>
<CAPTION>

                           (Dollars in thousands)                                     December 31,
                                                                               --------------------------
                                                                                   1998          1999
                                                                               ------------  ------------

<S>                                                                            <C>           <C>
     Organizational and start-up costs, net of accumulated amortization of
     $45 and $49  (amortized over five years)................................             5           ---
     Assembled work force of acquired entities, net of accumulated
      amortization of $49 and $113 (amortized over five and seven years).....           296           232

     Customer lists of acquired entities, net of accumulated amortization of
      $118 and $301 (amortized over five and fourteen years).................         2,231         2,049

     Debt acquisition cost, net of accumulated amortization of  $13
      and $57 (amortized over one year)......................................            41           ---

     Equity in non-consolidated corporation..................................            72           ---
     Other assets, net of accumulated amortization of $2.....................             4             4
                                                                                     ------        ------

                                                                                     $2,649        $2,285
                                                                                     ======        ======
</TABLE>

     See Note 12 for additional information regarding the equity in a non-
     consolidated corporation.

                                                                              81
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

12.  Equity in Non-Consolidated Corporation

     Allin Digital has an ownership interest of approximately 10.8% and 5.7%,
respectively, in PhotoWave, Inc. ("PhotoWave"), formerly named Rhino
Communications Corporation ("RCC"), as of December 31, 1998 and 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 of 20% in comparison
to the initial cash capitalization of RCC for the remaining equity.  The book
value of the assets contributed approximated the value placed on the investment.
Allin Digital's ownership percentage has been reduced as a result of additional
capital contributions by third parties.

     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 $72,000 and $-0- as of
December 31, 1998 and 1999.  The investment balance of $72,000 as of December
31, 1998 was included with Other Assets on the Company's Consolidated Balance
Sheets.

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 was amended to renew for a
second one-year period.  The expiration date of the S&T Loan Agreement is
September 30, 2000.  As of December 31, 1999, maximum borrowing availability was
approximately $2,612,000.

     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, 1998 and 1999, the balances outstanding on the line of credit were
$1,483,000 and $650,000, respectively.

     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 9.50%.  The applicable rate as of December 31, 1999 was
9.50%.  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 and $73,000 related to the line of credit borrowings was recorded during
the periods ended December 31, 1998 and 1999.  The principal will be due at
maturity, although any outstanding principal balances may be repaid in whole or
part at any time without penalty.

     The S&T Loan Agreement includes 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 will be 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

                                                                              82
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

term of the loan for periods during which the Company was not in compliance.
The Company is in compliance with all 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 E Convertible Redeemable Preferred Stock and
Series F Convertible Redeemable Preferred Stock. Each of the Certificates of
Designation governing the Series C Redeemable Preferred Stock and the Series D,
E and F preferred stock prohibits the Company from declaring or paying dividends
or any other distribution on the common stock or any other class of stock
ranking junior as to dividends and upon liquidation unless all dividends on the
senior series of preferred stock for the dividend payment date immediately prior
to or concurrent with the dividend or distribution as to the junior securities
are paid or declared and funds are set aside for payment.

     The Company had a balance due on a line of credit with Wells Fargo Bank of
approximately $23,000 as of December 31, 1998.  This credit facility was
originally obtained by MEGAbase to finance equipment purchases.  The outstanding
balance was assumed by the Company upon acquisition of MEGAbase.  Outstanding
borrowings under the line of credit bore interest ranging from 9.50% to 9.85%
and were scheduled to mature in May 2003.  The Company repaid all outstanding
balances on this line of credit in April 1999.

     Non-current portion of notes payable on the Consolidated Balance Sheet as
of December 31, 1998 included a note payable of $2,000,000 related to the
acquisition of Allin Consulting-Pennsylvania.  During April and May 1999,
approximately $74,000 of the principal balance of this note was offset for Allin
Consulting-Pennsylvania's payment of tax liabilities related to pre-acquisition
periods.  On May 31, 1999, the outstanding principal balance of $1,926,000 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 $46,000 and $50,000, respectively, of interest expense was
recorded in the periods ended December 31, 1998 and 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, 1998 also included a note payable of $2,000,000 related to the
acquisition of Allin Consulting-California.  On May 31, 1999, the outstanding
principal balance of the note was reduced by $1,000,000 in exchange for 1,000
shares of the Company's Series F Convertible Redeemable Preferred Stock.  The
note bears interest at a rate of 7% per annum.  Accrued interest as of May 31,
1999 is payable on or prior to April 1, 2000.  Quarterly interest payments will
thereafter be required starting April 15, 2000.  Approximately $21,000 and
$99,000, respectively, of interest expense was recorded in the periods ended
December 31, 1998 and 1999 related to this note.   See Notes 3 and 7.

     Allin Consulting-Pennsylvania acquired certain office equipment under a
capital lease.  As of December 31, 1998, current and non-current principal
obligations under the lease are approximately $2,000 and $4,000, respectively.
As of December 31, 1999, current and non-current principal obligations under the
lease are approximately $2,000 and $2,000, respectively.  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.

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.

     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 Allin Consulting-California's Knowledge Management Solution Area.
As of December 31, 1999, none of the amount accrued had been paid.  The accrued
balance is included in accrued compensation and payroll taxes on the
Consolidated Balance Sheet.  It is anticipated that payments under this plan
will be completed by July 2000.

     A reorganization charge of approximately $208,000 was recorded as of
January 12, 1999 to establish a liability for severance costs associated with
the termination of services of the Company's president.  During the quarterly
period ended December 31, 1999, additional expense of approximately $18,000 was
recorded to adjust the

                                                                              83
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

reorganization 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.  It is
anticipated that payments under this plan will be completed by February 2000.

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

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

     An accrual of approximately $31,000 was recorded as of September 30, 1997
to establish a liability for severance costs associated with a plan for
involuntary employee terminations.  Associated expenses are reflected in
Selling, general & administrative expenses on the Consolidated Statement of
Operations as of that date.  The plan included four proposed employee
terminations.  Included in the plan were technical support positions associated
with digital photography and shipboard interactive television operations, and
administrative support staff positions.  All of the four positions included in
the plan were eliminated.  As of December 31, 1997, all of the amount accrued
under the September 30, 1997 plan had been paid.

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, 1999 are as follows:

<TABLE>
<CAPTION>

         Minimum Future Lease Payments
 <S>                                <C>
     2000                             $441,000
     2001                              386,000
     2002                               76,000
     2003                               10,000
     2004                                3,000
                                      --------
     Total                            $916,000
                                      ========
</TABLE>


                                                                              84
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

16.   License and Royalty Agreements:

License Agreements

     Allin Interactive had an agreement with a vendor that provides for a
software license fee of $25,000 per interactive television installation and
includes specified prices for various hardware components. This agreement
expired in October 1999, and payments for license fees under this arrangement
were $125,000, $-0- and $-0- for the periods ended December 31, 1997, 1998 and
1999, respectively.  These fees were included with on-board equipment upon
installation of the interactive systems.  Allin Interactive did not utilize
software licenses under this agreement for any new interactive systems
subsequent to 1997.

Royalty Agreements

     Allin Interactive's contracts with certain cruise lines provide for
specified royalty payments based upon adjusted gross revenue, as defined in the
respective agreements.  These royalty payments are adjusted upon reaching
specified milestones for cumulative revenue generated by the interactive systems
installations.  Royalty expenses of approximately $42,000, $55,000, and $42,000
are included with selling, general and administrative expenses in the
accompanying consolidated statements of operations for the years ended December
31, 1997, 1998, and 1999, 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 new maintenance agreement between Allin Interactive and Celebrity,
Allin Interactive will provide ongoing technical support for the five
interactive television systems on Celebrity ships for a minimum period of six
months following completion of all system sales and transfers of operational
responsibility.  The minimum maintenance period ended March 17, 2000.  Allin
Interactive earned fixed monthly maintenance fees during the initial six-month
maintenance period.  For services provided in excess of a threshold number of
hours during this period, Allin Interactive will charge additional hourly fees.
Revenue for the four interactive television system sales is being 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 are being recognized as cost of sales over the minimum
period of the maintenance obligation.

                                                                              85
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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, 1998 and 1999, are as follows:

<TABLE>
<CAPTION>
        Assets (liabilities)                               December 31,           December 31,
                                                               1998                   1999
                                                               ----                   ----
<S>                                                        <C>                       <C>
       (Dollars in thousands)
Net operating loss carryforward                            $  7,553                 $  7,095
Deferred revenue                                                ---                      217
Intangible asset differences                                    872                      717
Restricted stock grant                                          108                      ---
Fixed assets                                                   (460)                     447
Research and development                                       (234)                    (247)
Miscellaneous reserves                                           65                      401

Valuation allowance                                          (7,904)                  (8,630)
                                                         -----------------------------------
Net deferred income taxes from operations                  $   ---                  $    ---
                                                         ===================================
</TABLE>

     The deferred income taxes liability balances of $126,000 and $81,000,
respectively, as of December 31, 1998 and 1999, relate 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.

     As of December 31, 1999, the Company had available for federal and state
income tax purposes, net operating loss carryforwards of approximately
$19,200,000 and $12,000,000, respectively, which are scheduled to expire at
various times from 2004 through 2019.

     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, 1998 and 1999 to offset these deferred tax
benefits.

     The fiscal 1997 and 1999 income tax provisions of approximately $45,000 and
$10,000, respectively, consist of currently payable state income taxes of
certain subsidiaries.  No income tax provision was recorded in fiscal 1998.

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 will convert into shares of the Company's common
stock if not redeemed on or before 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 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 and the exchange for preferred
stock.

                                                                              86
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     In November 1998, the Company and the former sole shareholder of Allin
Consulting-California, who is currently a shareholder and formerly 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 provided for principal payments of $1,000,000
plus any accrued interest due on April 15, 2000 and October 15, 2000.  The
Company could, however, defer payment of principal at its option until April 15,
2005.  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 Second Note provides for
principal payments of $500,000 on April 15, 2000 and October 15, 2000.  The
Company can, however, defer payment of principal at its option until April 15,
2005.  Accrued interest as of May 31, 1999 is due for payment on or before April
1, 2000.  Interest is payable quarterly beginning April 15, 2000.  Approximately
$99,000 of interest expense was accrued in 1999 related to this note.  See Notes
3, 7 and 13 for additional information concerning this note and the exchange for
preferred stock.

Loan to Director and Officer

     During 1997, the Company made a $130,000 loan to a director and officer of
the Company.  This loan, including approximately $10,000 of unpaid interest, was
forgiven in connection with the resignation of this director and officer.  The
write-off of this loan balance was recorded as of December 31, 1997.  See Note
9.

Notes Receivable from Employees

     At December 31, 1998 and 1999, respectively, the Company had two long term
notes due from employees.  Outstanding balances on these notes were
approximately $35,000 and $17,000 at December 31, 1998 and 1999, respectively.
Both notes bear interest at fixed rates of 7%.

Services and Products Sold to Related Parties

     During 1997 and 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 $34,000 and $22,000 in 1997 and 1998, respectively.  During 1999,
computer network consulting services of approximately $4,000 were provided to
one of these entities.

     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 1997, 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 $23,000, $30,000 and $1,000 in 1997, 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.

     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.

                                                                              87
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Lease Arrangements

     Allin Interactive occupied office space under a lease agreement with an
entity in which a director, a former director and former officers of the Company
own interests.  The agreement was terminated effective January 31, 1997.  Rental
expense under this agreement was approximately $3,700 in 1997.

     The Company leases office space from an entity in which certain
shareholders have an ownership interest. Rental expense under this arrangement
was approximately $258,000, $295,000 and $302,000 for the years ended December
31, 1997, 1998 and 1999, respectively.  The current lease was effective as of
February 1, 1997 with a term of five years to expire on January 31, 2002.  In
late 1997, an agreement was reached among the Company, the lessor and a third
party for sublet of a portion of the office space, terminating any liability of
the Company for the sublet space for the term of the lease.  The Company assumed
responsibility for design and build-out costs associated with the sublet
agreement, which approximated $61,000 and were recorded in 1997.  This amount
includes approximately $13,000 in fees for an entity in which certain
shareholders of the Company have an interest.  The Company, the lessor and the
same third party agreed on sublet of an additional portion of the office space
in 1998 under similar terms. The Company also assumed responsibility for design
and build-out costs associated with the second sublet agreement, which
approximated $52,000 and were recorded in 1998.  This amount includes
approximately $13,000 in fees for an entity in which certain shareholders of the
Company have an interest.  As of December 31, 1999, minimum lease commitments
under the lease were approximately $570,000.

     The Company provided office space on a month to month basis during 1997 and
1998 to an entity in which a former director had an interest.  Rental charges
were approximately $1,000 and $2,000 during 1997 and 1998.

     Allin Digital sublet office space from an entity in which certain
shareholders have an ownership interest.  Rental expense under this arrangement
was approximately $12,000 during the year ended 1997.  The term of the sublet
arrangement was on a month to month basis and was terminated in March 1997.

     Allin Consulting-California leases office space from a shareholder and
former President of the Company. Rental expense was approximately $65,000 for
each of the years ended December 31, 1997 and 1998, and approximately $41,000
for the year ended December 31, 1999.  The lease is on a month-to-month basis.

     SportsWave leased office space from an entity in which certain shareholders
have an ownership interest.  Rental expense under this arrangement was
approximately $35,000 during 1997.  The office lease expired on June 30, 1997.

Transactions with PhotoWave

     During 1998 and 1999, Allin Digital and Allin Interactive sold digital
photography equipment and supplies and computer hardware to PhotoWave, in which
Allin Digital holds a non-consolidated equity interest.  A director of the
Company also owns an interest in PhotoWave.  The Company's Chairman of the Board
serves as a director of PhotoWave.  Sales were approximately $101,000 and
$53,000 during the years ended December 31, 1998 and 1999, 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 and
$39,000 during the years ended December 31, 1998 and 1999, respectively.

Equipment Purchase

     During the year ended December 31, 1997, Allin Interactive purchased
$49,000 of video production and broadcast equipment from an entity in which a
director and former officers of the Company have an equity interest.

                                                                              88
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Other Services

     Certain shareholders, a director, a former director and an officer of the
Company have an equity interest in an entity which performs services for the
Company and its subsidiaries related to visual media. Charges for these services
were approximately $61,000, $13,000 and $-0- for the periods ended December 31,
1997, 1998 and 1999, respectively.

     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 $51,000, $8,000
and $3,000 for the periods ended December 31, 1997, 1998 and 1999, respectively.

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

     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 $2,000, $3,000 and $1,000 for the periods ended December 31,
1997, 1998 and 1999, respectively.

Reimbursements for Expenditures

     A director, a former director and former officers of the Company own
interests in an entity that made purchases on behalf of the Company and its
subsidiaries during the early phases of the Company's operations.  This practice
was discontinued in early 1997.  Reimbursements for expenditures incurred on
behalf of the Company and its subsidiaries were approximately $123,000 in 1997.

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.

20.  Subsequent Events:

(a.) Acquisition of Assets of Erie Computer Company

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

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

                                                                              89
<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 are no terms for contingent consideration
associated with the agreement.  The Company recorded the stock issuance based on
the market price on the date of closing of the acquisition.

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

(b.) Issuance of Options for Common Stock

     During the first quarter of 2000, the Company awarded options to purchase
60,000, 10,000 and 51,867 common shares, respectively, under the 1996, 1997 and
1998 Plans.

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
introduces a new model for segment reporting called the "management approach".
The management approach is based on the way the chief operating decision maker
organizes segments within a company for making decisions and assessing
performance.

Basis for Determining Segments

     Segments to be reported will fall under two groups, Solution Area Services
and Ancillary Services & Product Sales.  This presentation represents a change
from the segment groups previously reported.  Information as of December 31,
1997 and 1998 and for the years then ended has been restated to conform to this
presentation.  The change is reflective of the Company's continuing refinement
of its focus and marketing strategy adopted early in 1999 to be a solutions-
oriented provider of technology consulting and systems integration services.
The Company's operations and management's evaluations are primarily oriented
around solution areas meeting customer needs for information technology
infrastructure, business operations, knowledge management, electronic business
and interactive media 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.  In connection with its solutions-oriented services,
clients will request that the Company also provide technology-related products
necessary for implementation or ongoing use of technology solutions recommended
and implemented by the solution areas.  To ensure client satisfaction, the
Company maintains an ancillary capability to provide product sales of computer
hardware and software and equipment and supplies utilized by interactive media
systems.  The Company also continues to own and operate two interactive
television systems as a result of a discontinued operating model.  The segment
group Ancillary Services & Product Sales will include these activities which are
ancillary to or outside of the Company's current strategic focus.

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

                                                                              90
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     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.  Services or product
sale of these types are provided by Allin Interactive, Allin Digital and Allin
Network.

     The Company also conducted a sports marketing business from 1996 until the
sale of its subsidiary SportsWave in September 1998.  Results of SportsWave
operations are reflected as discontinued operations on the Company's
Consolidated Statements of Operations and accordingly, sports marketing is not
included in segment revenue or gross profit information.  Sports Marketing is
included as a segment for asset information as of December 31, 1997.

Measurement Method

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

Revenue

     Revenue from external customers during 1997 includes one unusual item.
Interactive television systems integration revenue included approximately $1.2
million related to a project for retrofit of the ship broadcast center aboard
the Cunard ship Queen Elizabeth 2.  The Company no longer offers services for
retrofit of broadcast centers and this was the only significant project of this
type undertaken by the Company.  Information on revenue derived from external
customers is as follows:

<TABLE>
<CAPTION>
(Dollars in thousands)                                                 Revenue from External Customers
Periods ended December 31                                             1997            1998            1999
                                                                   ------------------------------------------
<S>                                                                <C>             <C>             <C>
Solution Area Services:
    Information Technology Infrastructure                              $3,182         $ 4,198         $ 4,143
    Business Operations                                                   474           6,156          11,800
    Knowledge Management                                                  ---             ---             559
    Electronic Business                                                    15             131             286
    Interactive Media:
        Interactive Media Consulting                                      ---              22             758
        Interactive Media Systems Integration                           3,696             327           3,068
        Digital Imaging Systems Integration                               ---             847           1,520
                                                                     ----------------------------------------
Total Solution Area Services                                           $7,367         $11,681         $22,134

Ancillary Services & Product Sales:
    Interactive Television Transactional Revenue
        & Management Fees                                              $1,903         $ 3,023         $ 1,614
    Digital Imaging Product Sales                                         113             251             752
    Information System Product Sales                                      213             306             308
    Other Services                                                        ---              30             169
                                                                     ----------------------------------------
Total Ancillary Services & Product Sales                               $2,229         $ 3,610         $ 2,843
                                                                     ----------------------------------------
Consolidated Revenue from External Customers                           $9,596         $15,291         $24,977
                                                                      =======================================
</TABLE>

                                                                              91
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     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:

<TABLE>
<CAPTION>
(Dollars in thousands)                                                     Revenue from Related Entities
Periods ended December 31                                               1997            1998             1999
                                                                  ---------------------------------------------
<S>                                                               <C>             <C>              <C>
Solution Area Services                                                 $2,401           $  806            $ 264
Ancillary Services & Product Sales                                        309              406              275
                                                                  ---------------------------------------------
Total Revenue from Related Entities in Other Segments                  $2,710           $1,212            $ 539
                                                                  =============================================
</TABLE>

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                                               1997            1998             1999
                                                                    -------------------------------------------
<S>                                                                 <C>             <C>              <C>
Solution Area Services:
    Information Technology Infrastructure                              $1,253          $1,671           $1,941
    Business Operations                                                   187           1,849            3,245
    Knowledge Management                                                  ---             ---              232
    Electronic Business                                                     6              57              164
    Interactive Media:
        Interactive Media Consulting                                      ---              11              396
        Interactive Media Systems Integration                             584              16            1,463
        Digital Imaging Systems Integration                               ---             137              311
                                                                    ------------------------------------------
Total Solution Area Services                                           $2,030          $3,741           $7,752

Ancillary Services & Product Sales:
    Interactive Television Transactional Revenue
        & Management Fees                                              $1,555          $2,711           $1,346
    Digital Imaging Product Sales                                           8              18              117
    Information System Product Sales                                       15              42               48
    Other Services                                                        ---              (2)             156
                                                                    ------------------------------------------
Total Ancillary Services & Product Sales                               $1,578          $2,769           $1,667
                                                                    ------------------------------------------
Consolidated Revenue from External Customers                           $3,608          $6,510           $9,419
                                                                    ==========================================
</TABLE>

                                                                              92
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Assets

     Information on total assets attributable to segments is as follows:

<TABLE>
<CAPTION>
(Dollars in thousands)                                                             Total Assets
As of December 31                                                       1997            1998            1999
                                                                     -----------------------------------------
<S>                                                                 <C>             <C>             <C>
Solution Area Services:
    Information Technology Infrastructure                             $ 4,436         $ 8,285          $ 7,066
    Business Operations                                                   662          12,149           10,766
    Knowledge Management                                                  ---             ---              104
    Electronic Business                                                    21             259              337
    Interactive Media:
        Interactive Media Consulting                                      ---              27               89
        Interactive Media Systems Integration                           1,186             397            1,893
        Digital Imaging Systems Integration                               ---             464              819
                                                                     -----------------------------------------
Total Solution Area Services                                          $ 6,305         $21,581          $21,074

Ancillary Services & Product Sales:
    Interactive Television Transactional Revenue
        & Management Fees                                             $ 6,001         $ 2,124          $   539
    Digital Imaging Product Sales                                         226             138              415
    Information System Product Sales                                      117              57               19
    Other Services                                                        ---              59              ---
                                                                     -----------------------------------------
Total Ancillary Services & Product Sales                              $ 6,344         $ 2,378          $   973

Sports Marketing                                                        3,621             ---              ---
Corporate & Other                                                       5,383           2,353            1,979
                                                                     -----------------------------------------

Consolidated Total Assets                                             $21,653         $26,312          $24,026
                                                                     =========================================
</TABLE>

                                                                              93
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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

<TABLE>
<CAPTION>
(Dollars in thousands)                                                         Property & Equipment (net)
As of December 31                                                          1997             1998             1999
                                                                     -------------------------------------------
<S>                                                                   <C>              <C>              <C>
Solution Area Services:
    Information Technology Infrastructure                               $  351           $  289           $  220
    Business Operations                                                     73              424              239
    Knowledge Management                                                   ---              ---              ---
    Electronic Business                                                     12               11                7
    Interactive Media:
        Interactive Media Consulting                                       ---               11               48
        Interactive Media Systems Integration                              199              169              194
        Digital Imaging Systems Integration                                ---              135               93
                                                                     -------------------------------------------
Total Solution Area Services                                            $  635           $1,039           $  801

Ancillary Services & Product Sales:
    Interactive Television Transactional Revenue
        & Management Fees                                               $4,943           $1,410           $  171
    Digital Imaging Product Sales                                          207               40               28
    Information System Product Sales                                       ---                3                2
    Other Services                                                         ---              ---              ---
                                                                     -------------------------------------------
Total Ancillary Services & Product Sales                                $5,150           $1,453           $  201

Sports Marketing                                                           104              ---              ---
Corporate & Other                                                          742              592              499
                                                                     -------------------------------------------
Consolidated Property & Equipment (net)                                 $6,631           $3,084           $1,501
                                                                     ===========================================
</TABLE>

                                                                              94
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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

<TABLE>
<CAPTION>
(Dollars in thousands)                                                        Property & Equipment Additions
As of December 31                                                        1997              1998               1999
                                                                        --------------------------------------------
<S>                                                                    <C>             <C>                <C>
Solution Area Services:
    Information Technology Infrastructure                               $  197  $             ---              $  26
    Business Operations                                                     31                290                 11
    Knowledge Management                                                   ---                ---                  9
    Electronic Business                                                     13                ---                  2
    Interactive Media:
        Interactive Media Consulting                                       ---                ---                 30
        Interactive Media Systems Integration                               14                  8                121
        Digital Imaging Systems Integration                                ---                  3                 28
                                                                        --------------------------------------------
Total Solution Area Services                                            $  255              $ 301              $ 227

Ancillary Services & Product Sales:
    Interactive Television Transactional Revenue
        & Management Fees                                               $2,023              $   3  $             ---
    Digital Imaging Product Sales                                           52                ---                  3
    Information System Product Sales                                       ---                  3                ---
    Other Services                                                         ---                ---                ---
                                                                        --------------------------------------------
Total Ancillary Services & Product Sales                                $2,075              $   6              $   3

Sports Marketing                                                            32                ---                ---
Corporate & Other                                                          748                 65                144
                                                                        --------------------------------------------

Consolidated Property & Equipment Additions                             $3,110              $ 372              $ 374
                                                                        ============================================
</TABLE>


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:

                                                                              95
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

<TABLE>
<CAPTION>
(Dollars in thousands)                                                       Revenue from External Customers
Period ended December 31                                                  1997             1998             1999
                                                                       -----------------------------------------
<S>                                                                    <C>             <C>              <C>
Domestic Revenue:
    Northeastern United States                                          $  418          $ 3,626          $ 7,335
    Midwestern United States                                                18            1,639            3,395
    Southern United States                                                 382              897            3,909
    Western United States                                                4,010            6,389            8,307
                                                                       -----------------------------------------
Total Domestic Revenue                                                  $4,828          $12,551          $22,946

International & At Sea Revenue:
    Caribbean Islands                                                   $  355          $   440          $   214
    Mexico                                                                 145              134               70
    Bermuda                                                                160              141               64
    Germany                                                                791              ---                1
    France                                                                 173              ---                2
    Finland                                                                170              ---              700
    Other International                                                    254              131               54
    At Sea                                                               2,720            1,894              926
                                                                       -----------------------------------------
Total International & At Sea Revenue                                    $4,768          $ 2,740          $ 2,031
                                                                       -----------------------------------------
Consolidated Revenue from External Customers                            $9,596          $15,291          $24,977
                                                                       =========================================
</TABLE>

     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, Oakland and San Jose, 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.

<TABLE>
<CAPTION>
(Dollars in thousands)                                                     Property & Equipment (net)
As of December 31                                                   1997             1998              1999
                                                             ----------------------------------------------------

<S>                                                            <C>              <C>              <C>
Domestic Locations:
    California                                                          $  498           $  575            $  471
    Florida                                                                193              375               272
    Ohio                                                                   ---               18               ---
    Pennsylvania                                                         1,253              926               672
                                                             ----------------------------------------------------
Total Domestic Locations                                                $1,944           $1,894            $1,415

At Sea                                                                  $4,687           $1,190            $   86
                                                             ----------------------------------------------------
Consolidated Property & Equipment (net)                                 $6,631           $3,084            $1,501
                                                             ====================================================
</TABLE>

                                                                              96
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Information about Major Customers

<TABLE>
<CAPTION>
                                       %
       Revenue (Dollars          Consolidated
         in thousands)              Revenue                    Segments Included
       ----------------          -------------                 -----------------
<S>                             <C>              <C>
Period Ended December 31, 1997
------------------------------

                2,245               23 %         Interactive Television: Systems Integration &
                                                 Consulting, Transactional Revenue & Management
                                                 Fees
                1,500               16 %         Interactive Television: Systems Integration &
                                                 Consulting, Transactional Revenue & Management
                                                 Fees
                  985               10 %         Interactive Television: Systems Integration &
                                                 Consulting, Transactional Revenue & Management
                                                 Fees
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 %         Business Operations
</TABLE>

                                                                              97
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

22.  Unaudited Quarterly Financial Information

     The unaudited quarterly financial information presented for the quarterly
periods ended June 30, 1998 and prior have been restated from data previously
presented in the Company's applicable filings on Form 10-Q to reflect the
results of SportsWave operations as discontinued operations.  The data for the
quarterly period ended September 30, 1998 reflects the data presented in the
Company's filing on Form 10-Q for that period.  Comparable data is presented for
the three-month periods ended December 31, 1998 and 1999.

<TABLE>
<CAPTION>
                                                                    Three Months Ended
         Dollars in thousands except               -------------------------------------------------
               per share data                                              1998
                                                   -------------------------------------------------
                                                     March 31   June 30   September 30   December 31
                                                   -------------------------------------------------
<S>                                                  <C>        <C>       <C>            <C>
Revenue                                               $ 2,499   $ 2,529        $ 4,540       $ 5,723
Gross Profit                                            1,362     1,254          1,864         2,030
Loss from operations                                   (1,742)   (1,126)        (3,588)         (971)
Loss from continuing operations                        (1,684)   (1,078)        (3,653)       (1,033)
(Gain) loss from discontinued operations                   62      (346)        (1,435)           62

Net loss                                              $(1,746)  $  (732)       $(2,218)      $(1,095)
                                                   =================================================
Net loss applicable to common shares                  $(1,801)  $  (789)       $(2,300)      $(1,680)
                                                   =================================================

Net loss per common share from continuing
 operations                                            $(0.34)  $ (0.22)       $ (0.67)      $ (0.27)
                                                   =================================================
Net loss per common share from discontinued
 operations                                            $(0.01)  $  0.07        $  0.26       $ (0.01)
                                                   =================================================
Net loss per common share - basic and diluted          $(0.35)  $ (0.15)       $ (0.41)      $ (0.28)
                                                   =================================================
</TABLE>

<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)
                                                   ==================================================
</TABLE>

                                                                              98
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Shareholders of Allin Corporation:

We have audited the accompanying consolidated balance sheets of Allin
Corporation (formerly Allin Communications Corporation and a Delaware
corporation) and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the years then ended.  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, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.



                                                          /s/ARTHUR ANDERSEN LLP

Pittsburgh, Pennsylvania
March 8, 2000

                                                                              99
<PAGE>

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


     None.

                                                                             100
<PAGE>

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 20,
2000.

<TABLE>
<CAPTION>
Name                          Age          Position with the Company
----                          ---          -------------------------
<S>                          <C>    <C>
Richard W. Talarico........     44  Chairman of the Board and Chief
                                    Executive Officer
Timothy P. O'Shea..........     36  President
Dean C. Praskach...........     42  Chief Financial Officer, Treasurer and
                                    Secretary
Brian K. Blair(2)..........     37  Director
Anthony L. Bucci(1)........     51  Director
William C. Kavan(1)........     49  Director
James S. Kelly, Jr.(2).....     49  Director
Anthony C. Vickers.........     50  Director
</TABLE>
--------------
(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.

     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 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 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.

                                                                             101
<PAGE>

     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 a Vice
President of certain of the Company's other subsidiaries from their inception or
acquisition until February 1998.  Since May 1989, Mr. Blair has been President
of Blair Haven Entertainment, Inc., doing business as Commercial Downlink, a
provider of cable and closed-circuit television services, where he is
responsible for the day-to-day activity of such company.  Mr. Blair also serves
as Secretary and Treasurer of Digital Media Corp., a video production company.

     Anthony L. Bucci became a director of the Company in August 1998.  Mr.
Bucci is Chairman and Chief Executive Officer of MARC Advertising,
Pennsylvania's largest full-service marketing communications company.  Mr. Bucci
has served MARC Advertising 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.  Since 1980, Mr. Kavan has been
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.

     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. Mr. Vickers is a director of PC Tutor
Corporation, which provides computer training services to small and medium-sized
businesses and is also a member of the advisory board of Greenbrier & Russel,
which specializes in E-business enabling. 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 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.

     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.

Section 16(a) Beneficial Ownership Reporting

     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 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, 1999, all

                                                                             102
<PAGE>

such Section 16(a) filing requirements were met, except that Richard W. Talarico
and James S. Kelly, Jr. each filed one late report with respect to one
transaction.

                                                                             103
<PAGE>

Item 11 - Executive Compensation


Summary Compensation Table

     The following table sets forth information concerning 1997, 1998 and 1999
compensation of the Chief Executive Officer and the other executive officers of
the Company (collectively the "Named Executives").  Information with respect to
1997 and 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.

<TABLE>
<CAPTION>
                                                                             Long Term Compensation
                                            Annual Compensation              ----------------------
                                          -----------------------
   Name and Principal Position            Year         Salary ($)        Securities Underlying Options (#)
   ---------------------------            ----         ----------        ---------------------------------
<S>                                    <C>         <C>                  <C>
Richard W. Talarico                        1999           $175,000                     60,000
   Chief Executive Officer                 1998           $164,583                    100,000
                                           1997            150,000                        ---

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

Dean C. Praskach                           1999           $127,500                     28,750
   Chief Financial Officer,                1998           $102,917                     23,500
   Treasurer and Secretary                 1997             91,217                      9,500
</TABLE>


Employment Agreements

     During 1998, the Company entered into a new 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 is to be increased
to $225,000.  The Company has met the performance criteria, but Mr. Talarico has
to date declined any change in annual base salary.  Mr. Talarico is eligible to
receive a discretionary bonus with any annual bonus program in respect of 2000
operations to be established by the Compensation Committee and approved by the
Board of Directors.  Any bonus awarded shall not exceed one and one-half times
Mr. Talarico's annual base salary for 2000.

     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.

     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

                                                                             104
<PAGE>

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. 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 entered into an employment agreement with Mr. O'Shea, the term
of which commenced January 25, 1999 and will continue through December 31, 2001.
Mr. O'Shea's current annual salary is $150,000. The employment agreement permits
annual adjustments to salary.  Mr. O'Shea is also eligible to receive a
discretionary bonus for any annual period subject to approval by 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 provides for option grants to purchase 60,000
shares of the Company's common stock at the commencement of the agreement.  In
March 1999, Mr. O'Shea was granted options to purchase 60,000 shares of the
Company's common stock in accordance with the terms of the employment agreement.
The exercise price of $3.25 per share was based on market price at date of
grant.  Mr. O'Shea is also eligible to receive stock options as may be awarded
from time to time by the Company's Board of Directors.  In January 2000, Mr.
O'Shea was granted options to purchase 15,000 shares of the Company's common
stock.  The exercise price of $4.50 per share was based on market price at date
of grant.  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, the options to acquire shares of
common stock granted to Mr. O'Shea 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 14, 1999, owns 40% or more of the outstanding common
stock.

     The Company entered into an employment agreement with Mr. Praskach, the
term of which commenced November 1, 1997 and will continue through October 31,
2000.  Mr. Praskach's current annual salary is $140,000. 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.

     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.  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 employment agreement, the options to acquire shares of
common stock granted to Mr. Praskach under the Company's 1996, 1997 and 1998
Stock Plans 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 November 1,
1997, owns 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 or
contemporaneously with the occurrence of a change in control of the

                                                                             105
<PAGE>

Company, 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.

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 re-issuance of forfeited shares
under the 1998 Plan.  In February 2000, the Board of Directors adopted the 2000
Stock Plan subject to approval by the Company's stockholders at the 2000 Annual
Meeting of 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,
and 1998 Stock Plans are 266,000, 300,000, and 375,000, respectively.  A total
of 295,000 shares may be awarded under the 2000 Stock Plan upon shareholder
approval of the plan.  At December 31, 1999, 72,699, 10,790 and 71,242 shares
remained available for future grants under the 1996, 1997 and 1998 Plans,
respectively.

Option Grants in Last Fiscal Year

     The following table provides information concerning stock options granted
to the Named Executives during 1999.

<TABLE>
<CAPTION>
                                                               Individual Grants                       Grant Date Value
                                                               -----------------                       ----------------
                              Number of           % of Total
                              Securities       Options Granted     Exercise or
                              Underlying       to Employees in     Base Price                              Grant Date
          Name             Options Granted       Fiscal Year         ($/sh)      Expiration Date        Present Value $ (1)
          ----             ---------------       -----------         ------      ---------------        -------------------
<S>                       <C>                   <C>                <C>           <C>                    <C>
Richard W. Talarico               60,000 (2)              15.6 %          $3.25            3/1/06            $123,600

Timothy P. O'Shea                 60,000 (3)              15.6 %          $3.25            3/1/06            $123,600

Dean C. Praskach                  18,750 (4)               4.9 %          $3.25            3/1/06            $ 38,625
                                  10,000 (4)               2.6 %          $4.81          11/11/06            $ 30,600
                                  ---------               -----                                              --------
                                  28,750                   7.5 %                                             $ 69,625
</TABLE>

(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 1999
    grants to Named Executives.

<TABLE>
<S>                                                <C>
Risk-free interest rate:
    Options granted to Richard W. Talarico                     5.5 %
    Options granted to Timothy P. O'Shea                       5.5 %
    Options granted to Dean C. Praskach (18,750)               5.5 %
    Options granted to Dean C. Praskach (10,000)               6.1 %
Expected dividend yield                                        0.0 %
Expected life of options                                      7 yrs.
Expected volatility rate                                      57.0 %
</TABLE>

                                                                             106
<PAGE>

(2) No adjustments were made for non-transferability or risk of forfeiture.
    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) 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 14, 1999, owns 40% or
    more of the outstanding common stock.

(4) 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 November 1, 1997, owns 40% or
    more of the outstanding common stock.

Fiscal Year End Option Values

     The following table provides information concerning stock options held by
the Named Executives at December 31, 1999.  No options were exercised in 1999.

<TABLE>
<CAPTION>
                                                          Number of Securities            Value of Unexercised
                                                         Underlying Unexercised         In-the-Money Options at
                                                       Options at Fiscal Year End         Fiscal Year End (1)
                                                     ------------------------------  ------------------------------
          Name                                        Exercisable    Unexercisable    Exercisable    Unexercisable
          -----                                      -------------  ---------------  --------------  --------------
<S>                                                  <C>            <C>              <C>             <C>
Richard W. Talarico                                         12,600          168,400             ---        $155,000
Timothy P. O'Shea                                              ---           60,000             ---        $105,000
Dean C. Praskach                                            11,500           55,250          $3.385        $ 47,226
</TABLE>

(1) Based on the December 31, 1999 closing price per share of common stock of
    $5.00, as reported by the Nasdaq National Market tier of the Nasdaq Stock
    Market, and the various option exercise prices per share, certain of the
    options were in-the-money at December 31, 1999.

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 have 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 option is granted.  Messrs. Bucci
and Kelly each received grants to acquire 5,000 shares of common stock at the
exercise price of $4.63 per share on September 1, 1999.  Mr. Kavan received a
grant to acquire 5,000 shares of common stock at the exercise price of $4.81 per
share on November 10, 1999.  James C. Roddey, a former director of the Company,
received a grant to acquire 5,000 shares of common stock at the exercise price
of $4.81 per share on November 10, 1999.  Following approval of the 2000 Stock
Plan, at the conclusion of each non-employee director's current year of service,
such person will be entitled to receive such an immediately exercisable option
to acquire 5,000 shares of common stock at an exercise price equal to the
closing price

                                                                             107
<PAGE>

of the common stock on the date of grant. In addition, 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 that will vest on the
first anniversary of the date of the grant if the individual is serving as a
director on that date.

     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.

Compensation Committee Interlocks and Insider Participation

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

     In March 1998, the Company 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, Rhino Communications Corporation ("RCC"), 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.  RCC
subsequently changed its name to PhotoWave, Inc. ("PhotoWave").  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, is also a director of PhotoWave.  Mr. Henry Posner,
Jr., a beneficial owner of greater than five percent of the Company's
outstanding common stock, is also a shareholder of PhotoWave.  During the fiscal
year ended December 31, 1999, Allin Digital and Allin Interactive sold
approximately $53,000 of digital photography equipment and supplies and computer
hardware 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, 1999, PhotoWave earned approximately $39,000 in commissions
under this agreement.

     During the fiscal year ended December 31, 1999, Allin Consulting-
Pennsylvania performed technology consulting services for MARC Advertising and
MARC USA.  Mr. Bucci serves as Chairman of the Board and Chief Executive Officer
for both MARC Advertising and MARC USA.  Fees charged MARC Advertising and MARC
USA were approximately $27,000 and $1,000, respectively, for the fiscal year
ended December 31, 1999.  The Company believes its charges are on terms
substantially similar to those offered non-affiliated parties.

     James C. Roddey served as a director of the Company during a portion of
1999.  Mr. Talarico is a partner in The Hawthorne Group ("THG") and an officer
of The Hawthorne Group, Inc. ("Hawthorne"), and, as such, he and Mr. Roddey were
shareholders and/or partners in common in certain investments and companies. Mr.
Posner and two of Mr. Posner's sons are shareholders of Hawthorne.  Mr. Talarico
is a shareholder and director of The Bantry Group, Inc. and its affiliates,
Wexford Health Services, Inc. ("WHS"), Longford Health Sources, Inc. and Galway
Technologies, Inc. (collectively "Bantry"), of which Mr. Roddey was a
shareholder, director and an executive officer during a portion of 1999.  Mr.
Posner also has an ownership interest in Bantry.  Mr. Talarico currently is a
partner of and Mr. Roddey was a partner during a portion of 1999 in MA
Associates II.  Mr. Talarico is a shareholder, and Mr. Roddey was a shareholder
during a portion of 1999, in Hawthorne Group Productions, Inc. and Production
Masters, Inc. ("PMI"), of which Mr. Roddey was an executive officer and director
during a portion of 1999.  Mr. Talarico is neither an officer or director of
these companies.  Mr. Talarico is a shareholder, and Mr. Roddey was  a
shareholder during a portion of 1999, in DirecTeam Merchandising, LLC, of which
Mr. Talarico is an officer.  None of these companies has a compensation
committee of its board of directors.

     During the fiscal year ended December 31, 1999, Allin Consulting-California
and Allin Consulting-Pennsylvania provided computer network consulting services
to Hawthorne and WHS.  Fees charged Hawthorne and WHS were approximately $12,000
and $200, respectively, for the fiscal year ended December 31, 1999. The Company
believes its fees are on terms substantially similar to those offered non-
affiliated parties.

     During the fiscal year ended December 31, 1999, Allin Network, a subsidiary
of the Company, sold computer hardware and components to THG and WHS. Amounts
charged THG and WHS for the fiscal year ended December 31, 1999 were
approximately $500 and $300, respectively.  The Company believes its charges are
on terms substantially similar to those offered non-affiliated parties.

                                                                             108
<PAGE>

     Certain stockholders of the Company, including Messrs. Posner, Talarico,
Kavan and Brian K. Blair, a director and former officer of the Company, have
certain rights under a registration rights to require the Company, subject to
certain limitations, to register under the Securities Act of 1933, as amended
("the "Securities Act"), certain of their shares of common stock for public
offering and sale.

     On May 31, 1999, Messrs. Kavan, Posner, Roddey and Talarico exchanged
10,000, 7,059, 588 and 588 shares, respectively, of the Company's Series A
Convertible Redeemable Preferred Stock for a like number of shares of the
Company's Series C Convertible Redeemable Preferred Stock. There is no mandatory
redemption feature for Series C preferred stock whereas mandatory redemption for
Series A preferred stock had been required on June 30, 2006. Also on May 31,
1999, Messrs. Posner, Kavan, Talarico and Roddey exchanged 1,400, 750, 300 and
100 shares, respectively, of the Company's Series B Redeemable Preferred Stock
for a like number of shares of the Company's Series D Convertible Redeemable
Preferred Stock. There is no mandatory redemption feature for Series D preferred
stock whereas mandatory redemption for Series B preferred stock had been
required on the earlier of August 13, 2003 or following certain asset sales by
the Company. On December 30, 1999, Mr. Posner purchased the Series C and D
preferred stock owned by Mr. Roddey. See Item 7-Management's Discussion of
Financial Condition and Results of Operations -Liquidity and Capital Resources
and Note 3 - Preferred Stock included herein under Notes to Consolidated
Financial Statements in Item 8 - Financial Statements and Supplementary Data for
additional information concerning the Series C and D preferred stock. Each of
Messrs. Posner, Kavan and Talarico own shares of Series D preferred stock and
related warrants. Messrs. Posner, Kavan and Talarico own 1,500, 750, and 300
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.
Talarico, Kavan, and Posner 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.

                                                                             109
<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, 2000 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.

<TABLE>
<CAPTION>

                                              Amount and Nature of
Name and Address of Stockholder             Beneficial Ownership (1)      Percent of Class (1)
-------------------------------             ----------------------        --------------------
<S>                                         <C>                           <C>
Henry Posner, Jr. (2)                             2,005,509                      29.6 %
500 Greentree Commons
381 Mansfield Avenue
Pittsburgh, PA  15220

James S. Kelly, Jr. (3)                             729,675                      12.1 %
100 Trotwood Drive
Monroeville, PA  15146

Les D. Kent (4)                                     661,562                      10.2 %
867 El Pintano
Danville, CA  94526

Emanuel J. Friedman (5)                             616,554                      10.3 %
1001 19th Street North
Arlington, VA  22209

Friedman, Billings, Ramsey Group, Inc. and          521,554                       8.7 %
Orkney Holdings, Inc. (6)
1001 19th Street North
Arlington, VA  22209

William C. Kavan (7)                                499,883                       7.8 %
100 Garden City Plaza
Garden City, NY 11530

Dimensional Fund Advisors (8)                       401,400                       6.7 %
1299 Ocean Avenue, 11th Floor
Santa Monica, CA  90401

Continental Casualty Company (9)                    340,000                       5.7 %
CNA Plaza
Chicago, IL  60685
</TABLE>

(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, 2000, and that no other stockholder so converts.  Information
     is provided in the footnotes below for each holder as to the number of
     shares included in the table for conversion of securities.

                                                                             110
<PAGE>

(2)  Includes 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 352,941 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.

(3)  Does not include shares which may be issued upon conversion of 1,926 shares
     of Series E Convertible Redeemable Preferred Stock because Series E
     preferred stock is not convertible within sixty days of March 20, 2000.
     Includes 5,000 shares of common stock which may be acquired by exercise of
     options.

(4)  Mr. Kent owns 1,000 shares of Series F Convertible Redeemable Preferred
     Stock.  Series F preferred stock is convertible into the number of shares
     of common stock equal to the amount obtained by (i) dividing 1,000 by
     $2.231, which is 85% of the closing price of the common stock as reported
     by Nasdaq on the last trading date prior to the issuance of Series F
     referred stock or (ii) if it results in a greater number of common shares,
     dividing 1,000 by the greater of (a) 85% of the closing price of the common
     stock as reported by Nasdaq on the last trading date prior to conversion or
     (b) $1.236, which is 47.1% of the closing price of the common stock as
     reported by Nasdaq on the last trading date prior to the issuance of Series
     F preferred stock.  Since the closing sale price of the Company's common
     stock on March 20, 2000 as reported by Nasdaq was $4.3125, conversion is
     assumed at a rate of $2.231 per common share.  The table includes 448,229
     shares of common stock for conversion of the Series F preferred stock.  The
     Series F preferred stock is convertible into at least 448,229, but no more
     than 809,061 shares of Common Stock.  Assuming that the Series F preferred
     stock became exercisable for the maximum 809,061 shares of Common Stock,
     Mr. Kent would be deemed to beneficially own an aggregate of 1,022,394
     shares of common stock representing approximately 15.0% of the common stock
     outstanding.

(5)  Based on information obtained from the shareholder, as of March 20, 2000,
     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 521,554 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.

(6)  Based on information obtained from the shareholder, as of March 20, 2000,
     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.

(7)  Includes 15,000 shares of common stock which may be acquired by exercise of
     options and 176,471 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.

(8)  As reported on Schedule 13G filed with the SEC on February 3, 2000,
     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.

(9)  The shares indicated are under shared voting power and shared dispositive
     power among Continental Casualty Company, CNA Financial Corporation and
     Loews Corporation as reported on Schedule 13G filed by such entities with
     the SEC on February 13, 1998.  The report states that, under Illinois law,
     assets owned by Continental Casualty Company, an Illinois insurance
     company, are solely under the control of the board of directors of the
     insurer and that the characterization of shared dispositive power with the
     parent holding company is made solely as a consequence of SEC
     interpretations regarding control of the subsidiary.  CNA Financial
     Corporation and Loews Corporation specifically disclaim beneficial
     ownership of the shares.  As reported by Nasdaq-Online on March 20, 2000
     there has been no change

                                                                             111
<PAGE>

     in the number of shares owned since the date of the report on Schedule 13G.
     The number of shares shown 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.

(b)   Security Ownership of Management

  The following table presents certain information as of March 20, 2000 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.

<TABLE>
<CAPTION>
                                            Amount and Nature of
Name and Address of Stockholder           Beneficial Ownership (1)        Percent of Class (1)
-------------------------------           ----------------------          --------------------
<S>                                      <C>                             <C>
Richard W. Talarico (2)                          261,336                          4.2 %
400 Greentree Commons
381 Mansfield Avenue
Pittsburgh, PA  15220

Timothy P. O'Shea                                 12,000                         *
400 Greentree Commons
381 Mansfield Avenue
Pittsburgh, PA  15220

Dean C. Praskach                                  15,250                         *
400 Greentree Commons
381 Mansfield Avenue
Pittsburgh, PA  15220

Brian K. Blair                                   177,200                        2.9 %
2498 Monterey Court
Weston, FL  33327

Anthony L. Bucci                                   8,500                         *
4 Station Square
Suite 500
Pittsburgh, PA  15219

William C. Kavan (3)                             499,883                        7.8 %
100 Garden City Plaza
Garden City, NY  11530

James S. Kelly, Jr. (4)                          729,675                       12.1 %
100 Trotwood Drive
Monroeville, PA  15146

Anthony C. Vickers                                   ---                         ---
1212 Via Zumaya
Palos Verdes Estates, CA  90274

All directors and executive officers,
 as a group (8 persons)                        1,703,844                       25.7 %

</TABLE>

*    Less than one percent

                                                                             112
<PAGE>

(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, 2000, 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, 2000 had been exercised as follows:  Mr. Talarico -
     12,600 shares; Mr. O'Shea - 12,000 shares; Mr. Praskach - 15,250 shares,
     Mr. Kavan - 15,000 shares;  Messrs. Blair, Bucci and Kelly - 5,000 shares
     each; and all directors and executive officers as a group - 69,850 shares.
     The number of shares of common stock that may be acquired upon conversion
     of the Series D preferred stock and exercise of the related warrants are
     also included in the table.  Series D Preferred Stock is convertible into
     the Company's common stock at a conversion rate of $3.6125 per common
     share. Information is provided in the footnotes below for each holder of
     Series D preferred stock as to the number of shares included in the table
     for conversion of Series D preferred stock.

(2)  Includes 70,588 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 that may be acquired upon conversion
     of the Series D preferred stock.  Mr. Talarico also owns 588 shares of the
     Company's Series C preferred stock, representing 2.4% of the Series C
     preferred stock outstanding.

(3)  Includes 176,471 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 also owns 10,000
     shares of the Company's Series C preferred stock, representing 40.0% of the
     Series C preferred stock outstanding.

(4)  Does not include shares which may be issued upon conversion of 1,926 shares
     of Series E Convertible Redeemable Preferred Stock because the Series E
     preferred stock is not convertible within sixty days of March 20, 2000.

                                                                             113
<PAGE>

Item 13 - Certain Relationships and Related Transactions


Arrangements Involving Allin Consulting-Pennsylvania

     The acquisition of Allin Consulting-Pennsylvania in August 1998 included a
promissory note issued by the Company in the amount of $2,000,000 to 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.  A portion of the promissory note
principal balance, approximately $74,000, was offset in 1999 by the Company's
payment of certain tax liabilities of Allin Consulting-Pennsylvania related to
pre-acquisition periods.  The secured promissory note bore interest at 6% per
annum and was scheduled to have matured on August 13, 2000.  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 accrues
dividends at the rate of 6% of the liquidation value thereof per annum.
Dividends are payable quarterly.  There is no mandatory redemption for the
Series E preferred stock.  Series E preferred stock will convert to the
Company's common stock if not redeemed prior to August 13, 2000.  See Item 7-
Management's Discussion of Financial Condition and Results of Operations -
Liquidity and Capital Resources and Note 3 - Preferred Stock included herein
under Notes to Consolidated Financial Statements in Item 8 - Financial
Statements and Supplementary Data for additional information concerning the
convertibility terms of the Series E preferred stock.

Arrangements Involving Allin Consulting-California

     In November 1998, the Company and Les D. Kent, a holder of greater than
five percent of the Company's outstanding common stock and a former President of
the Company, reached agreement on an amendment to modify the terms of a
promissory note for contingent payments related to the Company's acquisition of
Allin Consulting-California.  Under the amendment, the amount of the payment due
was fixed at $2,000,000.  On May 31, 1999, the Company and Mr. Kent agreed to a
second amendment whereby Mr. Kent agreed to a reduction in the principal balance
of the promissory note of $1,000,000 in exchange for 1,000 shares of the
Company's Series F Convertible Redeemable Preferred Stock.  The Series F
Preferred Stock accrues dividends at the rate of 7% of the liquidation value
thereof per annum.  Dividends are payable quarterly beginning in April 2000.
There is no mandatory redemption for the Series F preferred stock.  Series F
preferred stock is convertible to the Company's common stock.  See Item 7-
Management's Discussion of Financial Condition and Results of Operations -
Liquidity and Capital Resources and Note 3 - Preferred Stock included herein
under Notes to Consolidated Financial Statements in Item 8 - Financial
Statements and Supplementary Data for additional information concerning the
convertibility terms of the Series F preferred stock.

     The second amendment of the note provides for principal payments of
$500,000 plus any accrued interest due on April 15, 2000 and October 15, 2000.
The Company may, however, defer payment of principal at its option until April
15, 2005.  The amended note provides for interest at the rate of 7% per annum
from the acquisition date of November 6, 1996.  Mr. Kent was the sole
stockholder of Allin Consulting-California prior to the acquisition. See Item 7-
Management's Discussion of Financial Condition and Results of Operations -
Liquidity and Capital Resources.

Leases

     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 $302,000 during the fiscal year ended
December 31, 1999.  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, 1999, minimum lease commitments were approximately $570,000
for the period from January 1, 2000 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 unaffiliated party.

     During the fiscal year ended December 31, 1999, Allin Consulting-California
made payments of approximately $41,000 to Les D. Kent for the lease of office
space under a month-to-month lease arrangement.  The Company believes that
rental payments under the lease were on terms as favorable to the Company as
could have been obtained from an unaffiliated party.

                                                                             114
<PAGE>

Consulting and Printing Services

     During 1999, Allin Interactive engaged Progent Corporation ("Progent") to
provide technical consulting services in connection with certain research and
development and customer projects.  Les D. Kent has an ownership interest in
Progent.  In respect of the fiscal year ended year ended December 31, 1999,
Allin Interactive recorded approximately $15,000 in fees related to Progent's
services.

     During 1999, the Company utilized Com-Tek Printing and Graphics, Inc.
("Com-Tek") for commercial printing services.  Brian K. Blair, a director of the
Company, has an ownership interest in Com-Tek.  During the fiscal year ended
December 31, 1999, the Company made payment of approximately $3,000 for these
services.

     The Company believes these services were obtained on terms as favorable to
the Company as could have been obtained from unaffiliated parties.

Sale of Digital Imaging System

     During 1999, Allin Digital sold and installed a digital imaging system for
Com-Tek.  Brian K. Blair, a director of the Company, has an ownership interest
in Com-Tek.  Com-Tek paid Allin Digital approximately $44,000 for the system
installation during the fiscal year ended December 31, 1999.  The Company
believes this sale was on terms as favorable to the Company as could have been
obtained from an unaffiliated party.

Separation Agreement and Severance Arrangements

     In connection with his resignation as an executive officer of the Company
in February 1998, the Company entered into a separation agreement with Brian K.
Blair.  Under the separation agreement, the Company was obligated to make
aggregate payments to Mr. Blair in the amount of $225,000 plus accrued vacation
pay, and to provide certain consulting services to Mr. Blair.  Mr. Blair has
continued as a director of the Company.  During 1999, the Company paid
approximately $13,000 to Mr. Blair to complete payment of the amounts due under
the separation agreement.

     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.  Mr.
Kent is a beneficial owner of greater than five percent of the Company's common
stock.  During 1999, the Company paid approximately $194,000 of the amounts due
Mr. Kent.

                                                                             115
<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 57.

     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 Designation of the Registrant relating to the
                 Series A Convertible Redeemable Preferred Stock (incorporated
                 by reference to Exhibit 3(i)(b) to Allin Communications
                 Corporation's Registration Statement No. 333-10447 on Form S-1)

        3(i)(c)  Certificate of Amendment to Certificate of Designation of the
                 Registrant relating to the Series A Convertible Redeemable
                 Preferred Stock (incorporated by reference to Exhibit 3(i)(c)
                 to Allin Communications Corporation's Registration Statement
                 No. 333-10447 on Form S-1)

        3(i)(d)  Certificate of Designation for Series B Redeemable Preferred
                 Stock of the Registrant (incorporated by reference to Exhibit
                 3(i)(a) to Allin Communications Corporation's Report on Form
                 8-K as of August 13, 1998)

        3(i)(e)  Certificate of Correction Relating to the Series B Redeemable
                 Preferred Stock of the Registrant (incorporated by reference to
                 Exhibit 3(i)(b) to Allin Communications Corporation's Report on
                 Form 8-K as of August 13, 1998)

        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 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)(g)  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)



                                                                             116
<PAGE>


     Exhibit
     Number             Description of Exhibit


     3(i)(h)  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)(i)  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(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)

     4.1       Certificate of Designation of Registrant relating to Series A
               Convertible Redeemable Preferred Stock and Certificate of
               Amendment relating thereto (incorporated by reference to Exhibits
               3(i)(b) and 3(i)(c) to Allin Communications Corporation's
               Registration Statement No. 333-10447 on Form S-1)

     4.2       Certificate of Designation for Series B Redeemable Preferred
               stock of the Registrant and Certificate of Correction Relating to
               the Series B Redeemable Convertible Preferred Stock of the
               Registrant (incorporated by reference to Exhibits 3(i)(a) and
               3(i)(b) to Allin Communications Corporation's Report on Form 8-K
               as of August 13, 1998)

     4.3       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)

     4.4       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)

     4.5       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)

     4.6       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)

     4.7       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)

                                                                             117
<PAGE>

    Exhibit
    Number             Description of Exhibit


     4.8   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)

     4.9   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)

     4.10  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)

     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  Separation Agreement dated February 4, 1998 by and between Allin
           Communications Corporation and Brian K. Blair (incorporated by
           reference to Exhibit 10.27 to Allin Communications Corporation's
           Report on Form 10-K for the period ended December 31, 1997)

     10.6* 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)

     10.7  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)

     10.8  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)

     10.9  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)


                                                                             118
<PAGE>

     Exhibit
     Number             Description of Exhibit

     10.10* Employment Agreement dated November 6, 1998 by and between the
            Registrant and Les Kent (incorporated by reference to Exhibit 10.2
            to Allin Communications Corporation's Report on Form 10-Q for the
            period ended September 30, 1998)

     10.11*  Employment Agreement dated November 1, 1997 by and between the
             Registrant and Dean C. Praskach (incorporated by reference to Allin
             Corporation's Report on Form 10-K for the period ended December 31,
             1998)

     10.12*  Employment Agreement dated January 25, 1999 by and between the
             Registrant and Timothy P. O'Shea (incorporated by reference to
             Allin Corporation's Report on Form 10-K for the period ended
             December 31, 1998)

     10.13*  2000 Stock Plan of the Registrant

     11      Computation of Earnings Per Share

     21      Subsidiaries of the Registrant.

     27      Financial Data Schedule.

____________

*    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

        No report on Form 8-K was filed by the Company during the quarter ended
December 31, 1999.

                                                                             119
<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 24, 2000

     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:


<TABLE>
<CAPTION>
                    Signature                                           Title                             Date
                    ---------                                           -----                             ----
<S>                                                 <C>                                            <C>
/s/ Richard W. Talarico                             Chairman of the Board and Chief Executive
---------------------------------                   Officer (Principal Executive Officer)            March 24, 2000
Richard W. Talarico

/s/ Dean C. Praskach                                Chief Financial Officer (Principal Financial
---------------------------------                   and Accounting Officer)                          March 24, 2000
Dean C. Praskach

/s/ Brian K. Blair                                  Director                                         March 24, 2000
---------------------------------
Brian K. Blair

/s/ Anthony L. Bucci
---------------------------------                   Director                                         March 24, 2000
Anthony L. Bucci

/s/ William C. Kavan
---------------------------------                   Director                                         March 24, 2000
William C. Kavan

/s/ James S. Kelly, Jr.
---------------------------------                   Director                                         March 24, 2000
James S. Kelly, Jr.

/s/ Anthony C. Vickers
---------------------------------                   Director                                         March 24, 2000
Anthony C. Vickers
</TABLE>

                                                                             120
<PAGE>

                                                                     Schedule II


                               ALLIN CORPORATION

                       VALUATION AND QUALIFYING ACCOUNTS


<TABLE>
<CAPTION>
                                                  Balance at        Additions
                                                 Beginning of       Charged to                                   Balance at End
           (Dollars in thousands)                   Period           Expense       Other Additions  Deductions     of Period
                                               ----------------  ----------------  ---------------  ----------  ----------------
<S>                                            <C>               <C>               <C>              <C>         <C>
Valuation allowance on deferred tax asset           2,500             3,684              ---         ---             6,184
Allowance for doubtful accounts receivable            ---                84              ---         ---                84
Severance accrual for employee terminations           ---               329              ---         203               126
                                               ---------------------------------------------------------------------------
Year ended December 31, 1997                     $  2,500          $  4,097           $  ---      $  203          $  6,394

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
                                               ===========================================================================
</TABLE>



                                                                   Schedule II-A

                                                                             121
<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 March 8, 2000.  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,
March 8, 2000



                                                                   Schedule II-B


                                                                             122
<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 Designation of the Registrant relating to the
              Series A Convertible Redeemable Preferred Stock (incorporated by
              reference to Exhibit 3(i)(b) to Allin Communications Corporation's
              Registration Statement No. 333-10447 on Form S-1)

     3(i)(c)  Certificate of Amendment to Certificate of Designation of the
              Registrant relating to the Series A Convertible Redeemable
              Preferred Stock (incorporated by reference to Exhibit 3(i)(c) to
              Allin Communications Corporation's Registration Statement No.
              333-10447 on Form S-1)

     3(i)(d)  Certificate of Designation for Series B Redeemable Preferred Stock
              of the Registrant (incorporated by reference to Exhibit 3(i)(a) to
              Allin Communications Corporation's  Report on Form 8-K as of
              August 13, 1998)

     3(i)(e)  Certificate of Correction Relating to the Series B Redeemable
              Preferred Stock of the Registrant (incorporated by reference to
              Exhibit 3(i)(b) to Allin Communications Corporation's Report on
              Form 8-K as of August 13, 1998)

     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
              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)(g)  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)(h)  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)(i)  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(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)
<PAGE>

                             Exhibit Index (cont.)
                             ---------------------

 Exhibit
 Number             Description of Exhibit

    4.1  Certificate of Designation of Registrant relating to Series A
         Convertible Redeemable Preferred Stock and Certificate of Amendment
         relating thereto (incorporated by reference to Exhibits 3(i)(b) and
         3(i)(c) to Allin Communications Corporation's Registration Statement
         No. 333-10447 on Form S-1)

    4.2  Certificate of Designation for Series B Redeemable Preferred stock of
         the Registrant and Certificate of Correction Relating to the Series B
         Redeemable Convertible Preferred Stock of the Registrant (incorporated
         by reference to Exhibits 3(i)(a) and 3(i)(b) to Allin Communications
         Corporation's Report on Form 8-K as of August 13, 1998)

    4.3  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)

    4.4  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)

    4.5  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)

    4.6  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)

    4.7  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)

    4.8  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)

    4.9  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)

    4.10  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)
<PAGE>

                             Exhibit Index (cont.)
                             ---------------------

     Exhibit
     Number             Description of Exhibit

     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   Separation Agreement dated February 4, 1998 by and between Allin
            Communications Corporation and Brian K. Blair (incorporated by
            reference to Exhibit 10.27 to Allin Communications Corporation's
            Report on Form 10-K for the period ended December 31, 1997)

     10.6*  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)

     10.7   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)

     10.8   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)

     10.9   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)

     10.10* Employment Agreement dated November 6, 1998 by and between the
            Registrant and Les Kent (incorporated by reference to Exhibit 10.2
            to Allin Communications Corporation's Report on Form 10-Q for the
            period ended September 30, 1998)

     10.11* Employment Agreement dated November 1, 1997 by and between the
            Registrant and Dean C. Praskach (incorporated by reference to Allin
            Corporation's Report on Form 10-K for the period ended December 31,
            1998)

     10.12* Employment Agreement dated January 25, 1999 by and between the
            Registrant and Timothy P. O'Shea (incorporated by reference to Allin
            Corporation's Report on Form 10-K for the period ended December 31,
            1998)

     10.13* 2000 Stock Plan of the Registrant
<PAGE>

                             Exhibit Index (cont.)
                             ---------------------

     Exhibit
     Number             Description of Exhibit

     11         Computation of Earnings Per Share

     21         Subsidiaries of the Registrant.

     27         Financial Data Schedule.



____________

*    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.