<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, 2001

                                       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)

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

                        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 bid price of the common stock on March
13, 2002 as quoted on the OTC Bulletin Board, was approximately $495,000. Shares
of Common Stock held by each officer and director and by each person who
beneficially owns 5% or more of the Common Stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.

     As of March 13, 2002, the Registrant had outstanding 6,967,339 shares of
Common Stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None
<PAGE>

                                Allin Corporation
                                    Form 10-K
                                December 31, 2001

                                      Index

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

Part I

Item 1  -     Business                                                          Page   4

Item 2  -     Properties                                                        Page  25

Item 3  -     Legal Proceedings                                                 Page  25

Item 4  -     Submission of Matters to a Vote of Security Holders               Page  25

Part II

Item 5  -     Market For Registrant's Common Equity and Related Stockholder
              Matters                                                           Page  25

Item 6  -     Selected Financial Data                                           Page  26

Item 7  -     Management's Discussion and Analysis of Financial Condition
              and Results of Operations                                         Page  28

Item 7A  -    Quantitative and Qualitative Disclosures About Market Risk        Page  45

Item 8  -     Financial Statements and Supplementary Data                       Page  47

Item 9  -     Changes In and Disagreements With Accountants on Accounting
              and Financial Disclosure                                          Page  89

Part III

Item 10 -     Directors and Executive Officers of the Registrant                Page  89

Item 11 -     Executive Compensation                                            Page  91

Item 12 -     Security Ownership of Certain Beneficial Owners and Management    Page  97

Item 13 -     Certain Relationships and Related Transactions                    Page 100

Part IV

Item 14 -     Exhibits, Financial Statement Schedules and Reports on Form 8-K   Page 101

Signatures                                                                      Page 105
</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," "will" and similar
expressions. In addition, any statements that refer to expectations or other
characterizations of future events or circumstances are forward-looking
statements. Readers are cautioned that any such forward-looking statements are
not guarantees of performance and that matters referred to in such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause actual results, performance or achievements of
Allin Corporation to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among other things, risks and uncertainties
discussed throughout Item 1 - Business, and under the caption "Risk Factors,"
and in Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations and Item 7A - Quantitative and Qualitative Disclosures
about Market Risk. Allin Corporation undertakes no obligation to update publicly
any forward-looking statements, whether as a result of new information, future
events or otherwise.

                                       -3-
<PAGE>

Part I

Item 1 - Business

(a) General Development of Business

     Allin Corporation (the "Company") is a leading provider of
solutions-oriented applications development, technology infrastructure
consulting and systems integration services. The Company specializes in
solutions based on interactive media and technology from Microsoft Corporation
("Microsoft"). The Company's operations center on three solution areas:
Interactive Media, Technology Infrastructure and E-Business. The Company
leverages its experience in these areas through a disciplined project framework
to deliver technology solutions that address customer needs on time and on
budget. The Company is headquartered in Pittsburgh, Pennsylvania with additional
offices located in Ft. Lauderdale, Florida and San Jose and Walnut Creek,
California.

     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, 2001, the
organizational legal structure consists of Allin Corporation and six
subsidiaries. Allin Interactive Corporation ("Allin Interactive"), formed in
June 1994, Allin Corporation of California ("Allin Consulting-California"),
acquired by the Company in November 1996, Allin Consulting of Pennsylvania, Inc.
("Allin Consulting-Pennsylvania"), acquired by the Company in August 1998, and
Allin Network Products, Inc. ("Allin Network"), acquired by the Company in
November 1996, are operating subsidiaries focusing on different aspects of the
applications development, technology infrastructure consulting services and
systems integration services provided by the Company. Allin
Consulting-Pennsylvania has also historically performed consulting services
related to certain legacy technologies. Allin Holdings Corporation ("Allin
Holdings"), which was formed in October 1996, is a non-operating subsidiary that
provides treasury management services to the Company. In June 2001, the Company
decided to discontinue the digital imaging technology-based operations of Allin
Digital Imaging Corp. ("Allin Digital"), which was formed in August 1996.
Phase-out of these operations continues and is expected to be completed in 2002.
Allin Interactive, Allin Holdings and Allin Digital are Delaware corporations,
Allin Consulting-California and Allin Network are California corporations and
Allin Consulting-Pennsylvania is a Pennsylvania corporation. The Company
utilizes the trade-names Allin Interactive, Allin Consulting and Allin
Corporation in its operations. All trade- and brand-names included in this
Report on Form 10-K are the property of their respective owners.

     The year 2001 brought continued progress in the Company's development as a
provider of solutions-oriented applications development, technology
infrastructure consulting and systems integration services. Revenue from the
Interactive Media, Technology Infrastructure and E-Business Solution Areas,
which constitute the Company's core business segments, was $15,282,000 in 2001,
an increase of 16% over comparable 2000 revenue of $13,180,000. Revenue growth
was most pronounced for the Interactive Media Solution Area, with a 40% increase
from 2000 to 2001. This revenue growth replaced a portion of the revenue lost
due to the continued decline in the level of legacy technology consulting
services provided by the Company. Overall revenue for 2001 of $18,081,000
represented a 13% decrease from 2000 revenue of $20,870,000. Revenue recognized
in 2000 represented an 8% decrease over 1999 revenue of $22,705,000, primarily
due to a significant decline in the level of legacy technology consulting
services provided. See Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations and Item 8 - Financial Statements
and Supplementary Data for detailed information concerning the Company's revenue
and results of operations.

     The Company's solution area-based organizational structure is designed to
complement the customer-oriented focus of the Company's marketing strategy.
Solution area sales and operational personnel must understand a customer's
business issues to provide a solution customized to meet the customer's
particular needs. The Interactive Media Solution Area focuses on interactive
media application development and integration and its customers have
historically been concentrated in the cruise industry. Interactive Media's
customers include some of the world's largest cruise lines, Carnival Corporation
("Carnival"), Royal Caribbean Cruise Lines, Ltd. ("Royal Caribbean") and its
affiliate Celebrity Cruises ("Celebrity"). Interactive Media operational and
marketing personnel have extensive experience in the cruise industry.
Interactive Media activities are located in Ft. Lauderdale near the most active
concentration of cruise line operations in the United States. The Technology
Infrastructure and E-Business Solution Areas focus on developing Microsoft-based
technology solutions for customers diverse in size and across a broad array of
industries. Technology Infrastructure and E-Business consultants focus on a
customer's use of information. The ability of businesses to manage information
has become a prerequisite for their success and has become increasingly critical
in allowing them to react more quickly to customer needs, bring products to
market with greater speed and respond more completely and competitively to
changing

                                       -4-
<PAGE>

business conditions. The growing influence of the Internet in the business arena
has also fundamentally changed how businesses interact with customers and
suppliers. Technology Infrastructure and E-Business consultants have extensive
experience in designing, developing and deploying solutions that enhance
accessing, communicating and protecting information. Technology Infrastructure
and E-Business consulting services are provided from the Company's Northern
California and Pittsburgh offices. The Company believes the customer-based focus
of its solution area organizational structure and marketing strategy promote the
effective delivery of customer-oriented technology solutions and 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. Management believes that the customer-oriented focus that is the
fundamental principal of its marketing strategy is firmly established throughout
the Company.

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

..    The Interactive Media Solution Area focuses on the Company's expertise in
     interactive media applications by providing interactive television
     solutions that management believes enable customers to improve service and
     increase productivity and revenue. Demand from cruise line customers
     resulted in a significant increase in Interactive Media revenue in 2001 as
     compared to 2000. Committed services for cruise line customers also
     represent a majority of the Company's backlog of business as of December
     31, 2001. Interactive Media enables customers to convert manual and analog
     processes into interactive digital solutions. Management believes that
     interactive television solutions are cost-effective because they leverage a
     pooled set of advanced head-end equipment to deliver advanced applications
     across digital networks or radio frequency distribution systems to end-user
     monitors or televisions. The interactive television system architecture
     features a centralized head-end that interfaces with the customer's other
     information systems. The open architecture of the head-end operating
     systems, which are based on Microsoft BackOffice products, allows for
     development of applications in commonly used programming languages.
     Interactive Media solutions are Internet accessible and support
     highly-functional applications and high-end graphics and MPEG content.
     Among the applications developed for, and utilized by, customers are
     pay-per-view movies, shore excursion ticketing, in-cabin gaming, meal
     service ordering, and distribution of activities and informational content.

..    The Technology Infrastructure Solution Area focuses on customers' network
     and application architecture, messaging and collaboration systems and
     security issues. Technology Infrastructure designs and implements
     enterprise-quality systems that maximize network availability and
     efficiency and enable customers to reduce costs and protect vital
     resources. Technology Infrastructure solutions provide the underlying
     platforms and operating systems necessary to take advantage of the latest
     technology capabilities. Services include design, configuration,
     implementation, evaluation of customer operating systems and database
     platforms, messaging systems, information system security solutions such as
     firewalls and proxy servers and application services such as message queing
     and transaction servers. The domestic economic downturn in 2001 resulted in
     a general decline in technology-based spending, which negatively impacted
     demand for technology infrastructure-based consulting services.

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

     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 are the operating relationships with On
Command Corporation ("On Command") and Microsoft. The Company utilizes end-user
component and computer hardware platforms and configurations developed by On
Command for its interactive television systems integration projects. On Command
is one of the world's largest providers of interactive television services to
the lodging industry. Through extensive research and development efforts, On
Command has developed specifications and configurations for computer hardware
and end-user components that facilitate efficient and reliable interactive
television operations. The Company has a Supplier Agreement with On Command that
grants it exclusivity in purchasing hardware and end-user components for
interactive television systems for the cruise line market.

     Both of the Company's Allin Consulting subsidiaries and Allin Interactive
are certified as Microsoft Solutions Provider Partners. During 2001, both of the
Allin Consulting subsidiaries were also designated as Microsoft Gold Certified

                                       -5-
<PAGE>

Partners in recognition of their attainment of rigorous certification criteria
and demonstrated technical competency in providing complex business solutions.
Allin Consulting-Pennsylvania was the first partner in the Pittsburgh area
awarded gold status. The Allin Consulting subsidiaries are also members of
Microsoft's Infrastructure and Collaborative Solutions Portal Partner Advisory
Councils. Council members are a select group of Microsoft Solution Providers
with a successful history of implementing Microsoft information technology who
work closely with Microsoft to provide guidance on key issues that ultimately
shape Microsoft's channel-based strategy for delivering customer solutions and
services. The Company's role as a member of these Advisory Councils has
positioned it to quickly develop solutions expertise in new Microsoft
technologies. During 2001, Allin Consulting-Pennsylvania was also named to the
Microsoft Project Partner Program for demonstrated capabilities in developing
and deploying project management solutions. The Company intends to continue its
specialization in Microsoft-based technology products.

     The Company was a recipient of Pittsburgh Technology 50 awards in 1998,
1999, 2000 and 2001. The award recognizes the highest three-year revenue growth
rates among technology-based businesses in the Pittsburgh region. The Company
was also a recipient of the Deloitte & Touche Technology Fast 500 award in 2001.

(b)  Financial Information About Industry Segments

     Financial information concerning the industry segments in which the Company
operates is included in Note 19 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. Solution area services comprise
the substantial majority of the Company's current activities and are most
closely associated with its strategic focus. Grouping the solution area services
for discussion in this report emphasizes their commonality of purpose in meeting
the core strategic objectives of the Company. Under the heading "Solution Area
Services" below, discussion includes an overview of the Company's solutions
framework and delivery methods for all solution area services, industry
overviews for the cruise industry, which accounts for the substantial majority
of the Interactive Media Solution Area's current business, and the technology
consulting services industry, in which the Technology Infrastructure and
E-Business Solutions Areas compete, and reviews of operations for each solution
area, including discussion of solution area marketing objectives, backlog,
supply considerations and sources of competition.

     In addition to Microsoft-based technology consulting services, Allin
Consulting-Pennsylvania has also historically performed consulting services for
certain legacy technologies, including application development, data base
development and administration, and data communications development for IBM
proprietary technology. Legacy technology consulting services are overseen by
executive management and support personnel in the Company's Pittsburgh office
with responsibility for all of the Pittsburgh-based solution area operations.
Legacy technology consulting services are not considered by management to be
completely consistent with the Company's marketing and operating strategies due
to their divergence from interactive media or Microsoft-based technology and the
greater role of customer personnel in managing the delivery of the services than
is typical with the Interactive Media, Technology Infrastructure or E-Business
Solution Areas. Consequently, legacy technology consulting is regarded by
management as a separate segment but is included under "Solution Area Services"
since the services are overseen by management responsible for solution area
operations. The discussion of legacy technology operations under the heading
"Solution Area Services" below includes an industry overview, review of
operations, backlog, supply considerations and competitive conditions. While
management expects legacy technology consulting operations to continue, the
level of these services declined significantly in 1999, 2000 and 2001 and is
expected to continue to decline in 2002.

     In connection with solutions-oriented services, customers occasionally
request that the Company provide technology-related products necessary for
implementation or ongoing use of technology solutions recommended and
implemented by the solution areas. To ensure client satisfaction, the Company
maintains an ancillary capability to provide product sales of information system
hardware, software and interactive television equipment. The Company also
formerly operated interactive television systems installed on cruise ships from
which it realized transaction-based revenue. Operations of this type ceased in
December 2001. Under the heading "Ancillary Services & Product Sales" below,
discussion includes reviews of the Company's transactional-based interactive
television operations and information system product sales and a brief
discussion of other services provided by the Company.

                                       -6-
<PAGE>

     During the second quarter of 2001, the Company elected to discontinue the
digital imaging operations of Allin Digital. Current operations for Allin
Digital are primarily of a phase-out nature, including the sale of remaining
inventory, which was less than $50,000 at December 31, 2001, and the collection
of remaining accounts receivable. Allin Digital is also fulfilling remaining
technical support obligations, which extend through May 2002, and continues to
support website hosting for clients utilizing its Portraits Online(R) system.
The Company expects to reassign Portraits Online(R) website hosting activity,
which is not expected to generate significant revenue in the future, to another
subsidiary and to terminate other Allin Digital operations prior to June 30,
2002. Results of Allin Digital's operations have been reclassified to loss from
discontinued operations for all periods presented in the Company's Consolidated
Statements of Operations included in Item 8 - Financial Statements and
Supplementary Data. Information regarding the historical results of operations
of the Company's solution areas or ancillary services and product sales
presented in this Item 1 - Business have been restated to exclude the operations
of Allin Digital.

     During 2001, three significant customers, Carnival, Royal Caribbean and
Celebrity, accounted for 27%, 16% and 15%, respectively, of the Company's
consolidated revenue. Royal Caribbean and Celebrity are affiliated businesses.
The significant growth in Interactive Media revenue in 2001 has resulted in a
significantly higher concentration of the Company's consolidated revenue among a
few customers since the substantial majority of Interactive Media's revenue is
derived from these three customers.

Solution Area Services

     The percentages of total revenue represented by the Company's solution
areas for the three years ended December 31, 2001 are as follows:

Solution Area Services     Year Ended December 31
                           ----------------------
Percentage of              1999     2000     2001
                           ----     ----     ----

Total Revenue              91 %     95 %     96 %

     During 2001, three significant customers, Carnival, Royal Caribbean and
Celebrity accounted for 25%, 16% and 15%, respectively, of solution area
revenue.

Solutions Framework and Delivery Methods

     The Company has developed a solutions framework, the Allin Solutions
Framework, for guiding the planning and conduct of solutions-oriented projects.
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 developed through past projects. 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 Company's solution areas deliver consulting services to customers
through three methods: Allin-managed, co-managed and customer-managed. With the
Allin-managed delivery method, solution area managers and consultants fully
control the planning, development and implementation of turnkey solutions.
Client personnel function as sources of information concerning the business need
for which a solution is sought. With the co-managed delivery method, solution
area managers and consultants and customer technical staff members work on a
collaborative basis in planning, developing and implementing solutions.
Management views services delivered through the Allin-managed or co-managed
methods as

                                       -7-
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being solutions-oriented services because the Company is fully or partially
responsible for the development and implementation of technology-based
solutions. Services delivered under these methods are viewed as being the most
consistent with the Company's marketing strategy and offering the potential for
higher billing rates and margins due to the Company's performance of high level
managerial tasks. References in this report to solutions-oriented services mean
services delivered through the Allin-managed or co-managed methods. With the
customer-managed delivery method, the solution area provides technical resources
with specific technical skill sets that the customer utilizes to complement and
assist its technical staff in the execution of customer-managed tasks or
projects. Currently, the substantial majority of the services of the Interactive
Media, Technology Infrastructure and E-Business Media Solution Areas are
solutions-oriented services because they are delivered on the Allin-managed or
co-managed methods. The substantial majority of legacy technology services are
delivered on the customer-managed method. The Company seeks to continue to
increase the proportion of overall solution area services delivered on the
Allin-managed and co-managed delivery methods.

Industry Overview - Cruise Industry.

     The following industry overview regarding the cruise industry relates to
the operations of the Company's Interactive Media Solution Area.

     In early 2001, worldwide cruise industry revenue was estimated to be $10
billion for 2001, with the dominant North American market accounting for
approximately 80% of worldwide revenue, according to the March 2001 edition of
Porthole Insider, an industry publication. In its Winter 2001/2002 edition,
Cruise Industry News Quarterly forecasts that the North American cruise fleet
will grow to 137 ships in 2002 with a passenger capacity of approximately
8,665,000, an 8% increase from 2001. The industry is dominated by three large
organizations: Carnival, Royal Caribbean and P & O Princess Cruises PLC
("Princess"), which, according to Cruise Industry News Quarterly (Winter
2001/2002 edition), control more than 80% of the North American and 65% of the
worldwide markets. The Company has not to date performed any services for
Princess. The cruise industry was one the fastest growing segments of the
worldwide travel and leisure industry over the last ten years. Passenger levels
increased from 6% to 10% per year throughout the 1990's, according to the
International Council of Cruise Lines, an industry association. International
Cruise & Ferry Review, in its Autumn/Winter 2001 edition, projected North
American passenger levels for 2001 at approximately seven million.

     Growth slowed during 2001, due both to the general economic downturn
throughout the year and a sudden drop in passenger levels following the
September 11, 2001 incidents of terrorism in the United States. Air travel is
used by a significant portion of North American cruise passengers to arrive at
ports of embarkation for cruise ships. Short-term restrictions on, and lingering
fears of, air travel contributed to sharp declines in cruise passenger levels
following the terrorist incidents. The New York Times, in its October 14, 2001
edition, noted a drop in occupancy on many ships of up to 50%. Indications in
early 2002 are that the negative impact of the terrorist incidents is receding.
The Cruise Lines International Association ("CLIA"), an industry trade
organization, noted in a February 4, 2002 press release that cruise reservations
made in the first three weeks of 2002 exceeded reservations made in the
comparable period of 2001. The CLIA attributes the recovery to the cruise
industry's short-term strategic changes, including a significant redeployment of
ships from European, Middle Eastern and Asian to North American and Caribbean
itineraries, diversification to additional North American ports to reduce
dependency on air travel, fare reductions and other incentives, and extensive
marketing campaigns. There can be no assurance, however, that cruise industry
passenger levels will continue to either grow or be maintained at current
levels, or that any growth realized will result in improved financial results
for the cruise industry.

     There has been a significant trend toward consolidation in the cruise
industry over the last ten years. In its March 2001 edition, Porthole Insider
attributes this trend to several factors including economies of scale for
purchasing and operating costs, globalization of operations and benefits from
broad-based marketing. Consolidation is more apparent in the back-office
functions of the cruise lines, however, than in public perception. The brand
names of the acquired cruise lines have often been maintained because of their
traditional association with a market niche, luxury level or geographic area.
Travel Weekly, in its December 17, 2001 edition, notes the events of 2001 will
likely accelerate this trend as the negative economic conditions cause operators
with weak financial positions to seek protection from companies with stronger
financial positions. The recent cessation of operations of Renaissance Cruises
and American Classic Voyages in the wake of the terrorist incidents has also
furthered industry consolidation. In 2001, Royal Caribbean and Princess
announced plans for a merger, which would make the combined entity the
industry's largest. Carnival subsequently made a competing offer to the Princess
shareholders. In February 2002, the Princess shareholders deferred voting on the
Royal Caribbean merger plan pending completion of reviews of the competing bids
by American and European regulators.

     The cruise industry responded to growing demand during the 1990's by
initiating programs to build a significant number of new ships to increase
industry capacity. The September 2001 edition of Seatrade Cruise Review lists
firm orders

                                       -8-
<PAGE>

for forty-two new ships to be built between 2001 and 2005. Of these, thirty are
for cruise lines operated by Carnival, Royal Caribbean and Princess. Cruise
Industry News Quarterly, in its Fall 2001 edition, estimates the average cost of
the vessels to be built between 2001 and 2006 at $365,000,000. The newer ships
typically are significantly larger and wider than most of the ships in operation
today, have more complex information systems and offer more passenger amenities.
The Seatrade Cruise Review orderbook listed fifteen major new cruise ships
expected to enter service over the remainder of 2001 and 2002. The Interactive
Media Solution Area has completed, is presently installing or has an agreement
to install interactive television systems on eight of these ships. There can be
no assurance, however, that the cruise industry will experience continued
growth. There can also be no assurance that the Company will continue to receive
contracts for future interactive television installations in the cruise
industry, or that any sales will result in the desired improvements to the
Company's financial condition or results of operations.

     The economic downturn and world events of 2001 have caused concerns about
future overcapacity in the cruise industry, as noted by Cruise Industry News
Quarterly in the Winter 2001/2002 edition. The sheer size and scope of new build
projects, however, require significant lead times for projects, significant
financial commitments throughout the design and build process, and leave little
scheduling flexibility once projects are committed. The large cruise lines
utilize four European ship builders, each with limited capacity in their
shipyards, for the majority of the new builds. Many of the new ships planned are
part of series of ships designed with similar size and characteristics to
capture economies of scale for structural components and construction labor.
This typically reduces the cruise lines' flexibility in scheduling since the
entire series will be committed to one of the ship builders. Cruise Industry
News Quarterly indicates that these factors make the cruise lines less likely to
delay ships scheduled for completion in the near term. Delays or cancellation of
new build projects are more likely for projects further out on the time horizon.
An example of this trend was noted by International Cruise & Ferry Review in its
Autumn/Winter 2001 edition. Royal Caribbean is in the midst of a program for
fourteen new ships in three series. Seven of these ships have been completed as
of the end of 2001, all of which include interactive television systems designed
and installed by the Company's Interactive Media Solution Area. Royal Caribbean
recently announced that it was extending its options on the final two ships in
the fourteen ship plan to allow further time to evaluate industry capacity.
These ships were originally scheduled for completion in 2004 and 2005. No delays
have been announced for the other five ships remaining from the plan, including
three scheduled for completion in 2002. Capacity added to the industry from new
ships will be partially offset by withdrawal of older ships from service.

     Other trends noted in the cruise industry include expansion of activities
associated with the cruise experience both on and off the ships. The
International Cruise & Ferry Review (Autumn/Winter 2001 edition) notes a trend
toward advertising based on an "explorer" mindset with significant expansion of
choices for activities requiring active participant involvement, such as
bicycling and kayaking excursions. The trend in advertising corresponds to a
broadening of passenger choice for amenities, programs and activities. Both
reflect a strategy to broaden the appeal of cruise vacations since only 4% of
the American population have taken a cruise. The Company's management believes
the trend toward increased choices combined with increased passenger capacities
creates a compelling need for automation of shipboard programs, which can be
satisfied through the technological capabilities of interactive television. The
Company's management believes this trend and others such as increasing demand
for online access create opportunities for additional applications development,
consulting and systems integration services to be provided to the cruise
industry. There can be no assurance, however, that such opportunities will
result in additional business or improvements in financial results for the
Company.

Industry Overview - Technology Consulting Services

     The following industry overview regarding technology consulting services
relates to the operations of the Company's Technology Infrastructure and
E-Business Solution Areas.

     Following double-digit annual growth rates throughout the 1990's and early
2000, growth in information technology services slowed considerably in 2001 to
about five percent, according to the November 9, 2001 Gartner, Inc. report
Worldwide IT Services Forecast: Growing in Tough Times. The Gartner, Inc. report
sizes the worldwide information technology consulting, development and
integration services market at an estimated $215 billion in 2001 with an
expected annual growth rate of 9.9% through 2005, when the estimated market size
will be $337 billion. The projected five-year worldwide industry annual growth
rate is significantly lower than Gartner's earlier forecast of 16.5%, due to the
impact of poor economic conditions and heightened terrorism, which are expected
to restrain 2002 growth to single digits. Improving growth is expected from 2003
to 2005. Gartner, Inc. forecasts that it may be 2003 before decision makers are
comfortable enough with market and security risks to resume significant
investments in technology services. The Legg Mason IT Services Weekly report of
January 15, 2002 notes that no significant catalyst exists to boost near-term
information technology spending and expects recovery will only come when general
economic conditions generate business expansion.

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The current economic downturn has more negatively impacted the technology
services industry than past recessions and downturns. The Fall 2001 edition of
the Legg Mason report IT Services Investment Themes and Industry Review notes
that the current downturn proves that information technology spending is subject
to economic cycles and predicts that future spending on technology-related
products and services will likely more closely correlate to general economic
conditions than in the past, with return on investment carrying more weight in
future evaluations of expenditures.

     Despite the current economic difficulties for technology consulting
services, many factors are identified that support long-term growth in the
industry. The Fall 2001 edition of the Legg Mason report IT Services Investment
Themes and Industry Review predicts strong growth for information technology
services firms over the next decade because information technology services
firms help corporations and governments become more efficient through the use of
technology. Trends expected to generate future growth in demand for technology
consulting services are increasing security concerns, continuing growth of
Internet-based business, the development of more comprehensive web services and
the proliferation of increasingly complex software and operating systems. The
Summer 2001 Legg Mason report Network Security Infrastructure notes long-term
technology trends from mainframe to client/server systems and growing adoption
of Internet-based applications have resulted in both more distributed physical
networks and access to systems expanding to customers, suppliers and employees
through web sites, intranets and extranets. Access to systems is also expected
to expand from computers and wired networks to alternate devices such as cell
phones, personal digital assistants and wireless networks in the future. The
Legg Mason report cites the increasing distribution of information systems and
access to the systems as a driving force requiring organizations to increase
protection of their information systems and assets. The September 2001 incidents
of terrorism in the United States have also prompted significant concerns over
information system security. International Data Corporation's Top 10 IT Trends
for 2002 predicts that concern over terrorism will drive enterprises to
reevaluate their plans for business continuity creating a need to reset
information technology security plans in 2002.

     The Fall 2001 edition of the Legg Mason report IT Services Investment
Themes and Industry Review reports that we are still in the early stages of how
the Internet and related technologies will ultimately impact the global business
environment. The report notes that Internet-based services now focus on
integration of existing business applications with e-commerce capabilities. The
Standard & Poor's Industry Survey Computers: Commercial Services of June 28,
2001 notes that continued expansion of business-to-business commerce over the
Internet will be driven by an expanding number of Internet users, increased
adoption by traditional retailers and improved Internet security. The Standard &
Poor's report predicts that a large portion of current spending and expected
growth in technology services will relate to projects that improve customers'
business-to-business capabilities. The Gartner, Inc. report Worldwide IT
Services Forecast: Growing in Tough Times predicts economic recovery will lead
to sales growth in 2003 and 2004, when complex customer relationship management
and supply chain management applications are expected to increase demand for
consulting services because they can bring about incremental improvements to the
heightened customer interaction and knowledge sharing requirements expected to
result from growth in Internet-based business. Another Gartner, Inc. report,
Gartner Predicts 2002: Top 10 Predictions identifies applications development
associated with mobile and wireless technology and web services based on
Internet-accessible software components as being significant demand drivers for
technology consulting services in 2003 and 2004.

     A labor shortage for computer programmers and system designers contributed
to increased demand for technology services firms in the late 1990's. The Fall
2001 Legg Mason report IT Services Investment Themes and Industry Review notes
that while the economic downturn minimized any impact in 2001 by reducing staff
levels of both information technology service providers and customers, the
information technology labor market could tighten again once information
technology spending resumes and the business environment improves. Information
technology services firms will depend on the attractiveness of a broad mix of
business and a focus on emerging technologies to compete for resources in a
tighter labor market.

     The computer services industry includes companies diverse in size and scope
of activities and includes hardware and software vendors with significant
computer services operations, large technology consulting entities associated
with large public accounting firms and entities primarily focused on
technology-related consulting. The industry is experiencing significant
consolidation currently as firms seek to broaden technological skills or
geographical presence and as economic conditions have driven many smaller
providers from the marketplace. Management expects this consolidation trend to
continue.

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Interactive Media

         Revenue from the Company's Interactive Media Solution Area was a
significant source of growth in 2001. The percentage of solution area and total
revenue for the three years ended December 31, 2001 is as follows:

Interactive Media                         Year Ended December 31
                                          ----------------------
Percentage of                             1999     2000     2001
                                          ----     ----     ----

Solution Area Revenue:
Interactive Media Consulting                4%       6%      21%
Interactive Media Systems Integration      15%      30%      37%
                                           --       --       --
                                           19%      36%      58%

Total Revenue:
Interactive Media Consulting                3%       6%      20%
Interactive Media Systems Integration      14%      28%      36%
                                           --       --       --
                                           17%      34%      56%

Interactive Media Consulting

     The Interactive Media Solution Area offers consulting services specializing
in interactive media applications that the Company's management believes enable
customers to improve service and increase productivity and revenue. A
significant majority of interactive media consulting services provided in 2001
were for customers in the cruise industry, which is expected to remain the
primary market for 2002. Management believes the cruise industry offers
consulting opportunities for applications development, interactive system design
and specifications, and maintenance and trouble-shooting of existing interactive
systems. Interactive Media's management estimates that the revenue producing
applications developed for, and implemented on, cruise ships will generate more
than $150 million of revenue for the cruise lines in 2002. The level of
Interactive Media services provided for cruise industry customers is subject to
uncertainty, however, as cruise line passenger levels and revenue were
negatively impacted in 2001 by the economic downturn and incidents of terrorism
in the United States. Management believes that the Company's Interactive Media
consulting services have the potential to be broadened to other industries in
the future as applications could be developed that improve the efficiency of
labor resources in different industries by facilitating more efficient flow of
information and order processing or by providing a more flexible training
process. There can be no assurance, however, that the Company will be successful
in developing markets for interactive media services in other industries.

     Interactive Media Solution Area consultants have the expertise and
experience in interactive media technology to develop solutions that integrate
broadcasting and information system technology and provide for distribution of
digital or analog video content over digital networks or analog television
infrastructure. Interactive Media develops applications based on the open
architecture of Microsoft BackOffice products such as Windows NT, SQL Server and
Internet Information Server. The open architecture enables significant
customization of application content through commonly used programming
languages. Solutions are Internet-accessible, provide multiple language
capability and support highly-functional applications and high-end graphics and
MPEG content. Applications developed for, and utilized by, customers in the
cruise industry to generate revenue, promote operating efficiencies and enhance
customer service include, among others, shore excursion ticketing, pay-per-view
movies, in-cabin gaming, meal service ordering and distribution of activities
and informational content. Interactive Media has also developed applications in
the past for healthcare and educational institutions, including on-demand
viewing of information related to medical conditions and procedures and
on-demand viewing of educational programs.

     In February 2001, the Company entered into a contract with Carnival for
applications development for interactive television systems to be installed on
six Carnival ships under a related agreement for systems integration services.
Development included applications such as on-demand access to shore excursion
previews and ticketing, room service ordering, pay-per-view movies, Internet
access capabilities, and ship information dissemination capabilities.
Applications development for the Carnival interactive television systems
constituted the majority of Interactive Media's consulting revenue in 2001.
Extensive consulting services were also provided to Royal Caribbean and
Celebrity on a number of projects, including application development for
departure and reservations systems, web interfaces and projects associated with
ship broadcasting system capabilities. Maintenance and support services were
also provided for an installed base of twelve shipboard interactive television
systems.

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     During 2001, Interactive Media consulting operations were conducted
primarily through technical consultants and administrative personnel based in
the Company's Ft. Lauderdale office. Portions of larger engagements were
performed at sites designated by customers. It is anticipated that 2002
operations will be conducted in a similar manner. During 2001, three significant
clients, Carnival, Royal Caribbean and Celebrity, collectively accounted for 96%
of Interactive Media consulting revenue. Revenue is expected to remain highly
concentrated in 2002.

Interactive Media Systems Integration

     In February 2001, the Company entered into an agreement with Carnival for
installation of interactive television systems on six Carnival vessels in 2001
and 2002. The Company has installed seven interactive television systems for
Royal Caribbean and its affiliate Celebrity since 1999. Every new ship put into
service by Royal Caribbean or Celebrity since 1999 has sailed with the Company's
interactive television solution. The Carnival agreement, combined with ongoing
services for Royal Caribbean, positioned the Company as the leading provider of
interactive television services to the cruise industry. During 2001, Interactive
Media completed or substantially completed seven shipboard interactive
television integration projects, far surpassing previous service levels. Systems
integration projects included interactive television solutions for Carnival's
Pride, Triumph and Victory, Royal Caribbean's Radiance of the Seas and Adventure
of the Seas and Celebrity's Infinity and Summit. These seven projects constitute
the significant majority, approximately 94%, of Interactive Media systems
integration revenue in 2001. The remainder relates to early planning and
configuration associated with four additional shipboard interactive television
systems. Two of these projects are for Royal Caribbean, one is for Carnival and
one is for Celebrity. The substantial majority of revenue associated with these
projects is expected to be recognized in 2002. The Company's agreement with
Carnival also includes two interactive television system projects expected for
2002 that had not begun as of December 31, 2001.

     Interactive Media integrates the interactive television hardware platform
with a ship's radio frequency-based cable infrastructure and the ship's
digital-based management information systems. Management believes that
Interactive Media solutions are cost-effective because they leverage a pooled
set of advanced head-end equipment to deliver customized applications across
digital networks or radio frequency distribution systems to end-user monitors or
televisions. The interactive television system architecture features a
centralized head-end pool of Windows-based computers dynamically allocated to
end users. Solutions for radio-frequency based systems utilize low cost
televisions, set top boxes and remote controls for end-user access. Solutions
for digital networks also use a centralized head-end architecture but
communicate with end-user monitors or high-definition televisions over Ethernet
or ATM-based networks. The essence of either type of Interactive Media solution
is to bring the functional equivalent of a Windows-based personal computer to
every end user without the expense of supplying and servicing an actual computer
for each potential user. The Company's interactive television solutions can be
integrated with new or previously existing cable broadcast or information system
networks, thereby enhancing their cost effectiveness. Management believes the
cost effectiveness of the Company's interactive television solutions creates a
competitive advantage for the Company, although there can be no assurance that
this will result in the Interactive Media Solution Area obtaining additional
systems integration projects. The open architecture of the head-end operating
systems based on Microsoft BackOffice products such as Windows NT, SQL Server
and Internet Information Server enables flexible delivery of video content from
various digital and analog sources including digital video servers, video
cassettes, laser disk systems and regular television broadcasts. The solution is
Internet accessible and supports highly-functional applications and high-end
graphics and MPEG content.

     Interactive Media's interactive television solutions utilize state of the
art hardware purchased from On Command. On Command is one of the world's largest
providers of interactive television services to the lodging sector of the travel
and leisure industry. On Command presently estimates its installed base at over
1,000,000 rooms in over 3,400 properties. On Command devotes considerable effort
to researching hardware capabilities and developing specifications and
configurations for hardware platforms and end-user components that optimize the
speed and reliability of interactive television operations. The Company and On
Command have a Supplier Agreement which under which On Command has agreed to
exclusively sell Allin Interactive its proprietary components for use in the
cruise market.

     Management believes that the newer, larger ships that are being developed
within the cruise industry 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 expertise in designing
and installing interactive systems has been recognized in the cruise industry,
where its interactive television solutions are now the system of choice for the
world's two largest cruise lines. The Company believes that it is the only
business with extensive experience implementing effective, consistently
operating interactive television solutions in the cruise industry. The Company
believes this gives it an advantage over competitors for system sales within the
cruise industry. There can be no assurance,

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however, that the Company will continue to receive orders for additional system
sales beyond those already obtained or that any sales made will result in the
desired improvements to the Company's financial condition or results of
operations.

     The Company is actively seeking to secure additional systems integration
projects with existing clients in the cruise industry, their affiliates and
cruise lines for which the Company does not presently provide services. The
Company's management believes the negative impact of the September 2001
terrorist incidents on the cruise industry has temporarily diminished prospects
for award of new projects, as cruise line operators focus on recovery of
passengers and revenue to levels experienced prior to the terrorist incidents.
Recent public announcements by the industry's largest cruise lines, Carnival,
Royal Caribbean and Princess, concerning reservations for 2002 provide
encouragement that substantial recovery is being realized. The Company's
management believes that continuation of this trend in the short-term will
result in the cruise lines being increasingly receptive to awarding additional
systems integration projects for later in 2002, 2003 and beyond. There can be no
assurance, however, that cruise industry passenger and revenue levels will
continue to recover to pre-terrorist incident levels or that any such recovery
will result in the award of additional systems integration projects to the
Company. The Company is also pursuing opportunities for interactive media
systems integration projects with potential customers outside the cruise
industry.

     During 2001, Interactive Media systems integration operations were
conducted primarily through technical consultants and administrative personnel
based in the Company's Ft. Lauderdale office. Substantial portions of the work
associated with major systems integration projects were performed onsite by
Interactive Media personnel at various domestic and international locations,
typically at European shipyards for installations on newly built ships or at sea
for installations on ships currently in service. It is anticipated that 2002
operations will be conducted in a similar manner. Systems integration services
were provided in 2001 exclusively to three significant customers, Carnival,
Royal Caribbean and Celebrity. Revenue is expected to remain highly concentrated
in 2002.

     Backlog and Pricing. As of December 31, 2001, the Company had a committed
backlog of approximately $8,760,000 for Interactive Media consulting and systems
integration services. The substantial majority of the backlog, approximately
$8,670,000 is expected to be earned in 2002, with the remaining $90,000 expected
to be earned in 2003. This compares with a committed backlog of approximately
$2,010,000 for Interactive Media consulting and systems integration services as
of December 31, 2000. The substantial increase in committed backlog is due to
remaining applications development and interactive television systems
commitments under the agreements entered with Carnival in February 2001 and
commitments for substantial remaining portions for three shipboard interactive
television systems for Royal Caribbean and Celebrity as of December 31, 2001 as
compared to two systems as of the prior year end.

     Because of the significant proportion of fixed price services included in
Interactive Media's 2001 consulting and systems integration operations,
meaningful hourly rate information is not available. Interactive Media's gross
profit percentage on consulting and systems integration services increased from
40% in 2000 to 43% in 2001. The increase is attributable to a higher proportion
of consulting services, with typically higher associated margins since
consulting is solely labor-related, in 2001 and Interactive Media's ongoing
efforts to more cost effectively purchase equipment for systems integration
projects.

     Supply Considerations. In 1999, the Company entered a Supplier Agreement
with On Command for end user and other interactive television components to be
used in future system installations. Under the Supplier Agreement, On Command
agreed to exclusively sell Allin Interactive its proprietary components for use
in certain markets. Under the terms of the Supplier Agreement, Allin Interactive
has maintained exclusivity for sale of On Command components to the cruise
industry. The Supplier Agreement also provides Allin Interactive with an
exclusive license to use certain software necessary to operate the On Command
equipment in this market. 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. The Company also believes that On Command's extensive
research and development efforts focused on optimizing interactive television
hardware and end-user component functionality and configurations will provide
expertise for the periodic upgrading of technology that will help maintain the
technological competitiveness of Interactive Media solutions. The Company
ordered almost $5,000,000 of product from On Command in 2001. The original term
of the Supplier Agreement was three years, with automatic renewal for annual
periods unless either party provides notice of intent to terminate 180 days
prior to expiration. The current expiration date of the Supplier Agreement is
December 31, 2002. Although there can be no assurances, the Company anticipates
the Supplier Agreement will automatically renew again in 2002.

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     Certain computer hardware and software, networking components and radio
frequency-based communication equipment utilized in Interactive Media projects
is purchased from other suppliers. These components are readily available and
may be purchased from a number of vendors. 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 2001 systems integration projects on a timely basis and does not anticipate
any such difficulties in 2002.

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

     Competition. The market for interactive media consulting and systems
integration services remains in the early stages of its development. The Company
competes with other companies utilizing various technologies and marketing
approaches, some of which may be larger than and may have greater financial
resources than the Company.

     In the cruise market, competition currently comes from several companies.
High Tech Electronics, a Malaysian company, has contracted with Star Cruise Line
to operate interactive television systems on two ships. IDF, a German company,
has installed a digital-based system on a cruise ship for Happag Lloyd. Another
German company, Prodac, operates systems on several Festival Cruises ships that
Interactive Media's management believes are primarily for pay-per-view movie
operations.

     The Company believes that Interactive Media systems integration solutions
are cost-effective because they can leverage a pooled set of advanced head-end
equipment to deliver advanced applications across digital networks or radio
frequency-based distribution systems to low-cost end-user components. The
Company believes the cost-effectiveness of its solutions and the extensive
experience Interactive Media has developed providing interactive media services
to the cruise industry provide advantages that form the basis for its
competition in this market. 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 develop innovative technologies that can successfully compete
with the Company. There can also be no assurance that competition for system
installations will be solely on a service provider basis as interactive
competitors, including the Company, have at certain times been willing to make
significant capital commitments to obtain system installations.

Technology Infrastructure

     Revenue from the Company's Technology Infrastructure Solution Area
experienced a significant decline of 29% in 2001, after having increased 31% in
2000. Management attributes the decline to the general economic downturn, which
has resulted in a substantial curtailment of spending for technology-based
services. The percentage of solution area and total revenue for the three years
ended December 31, 2001 is as follows:

Technology Infrastructure     Year Ended December 31
Percentage of                 ----------------------
                              1999     2000     2001
                              ----     ----     ----

Solution Area Revenue          14%      19%      16%
Total Revenue                  13%      18%      15%

     The Company has developed a long-standing expertise in technology
infrastructure and is a member of Microsoft's Infrastructure Partner Advisory
Council. The Company's management believes, despite the setback experienced in
2001 due to the economic downturn, that trends in technology have created
conditions favorable to long-term growth for Technology Infrastructure. Among
these trends are heightened security concerns arising from terrorism and the
proliferation of distribution of information networks and accessibility and the
proliferation of increasingly complex software and operating systems. Management
believes these trends could have a beneficial impact on the Technology
Infrastructure Solution Area once general economic conditions improve. There can
be no assurance, however, that improving economic conditions will result in any
growth in Technology Infrastructure revenue or that any growth realized will
result in improvement to the Company's results of operations and financial
condition.

     Technology Infrastructure Solution Area services focus on customers'
network and application architecture, messaging systems and security systems.
Technology infrastructure is the foundation upon which technology applications

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are built. Network and application architecture deals with network design, local
and remote access, Internet connectivity and operating system protocol design,
policies, profiles, desktop standards, client installation/imaging and backup
schemas. Effective messaging systems are collaboration tools that enable
development and decision-making teams to reach a shared vision, make sound
decisions and achieve greater productivity. Security solutions provide
combinations of firewalls, virus protection and intrusion detection to protect
Web servers, e-mail servers and other network components. Technology
Infrastructure solutions provide the underlying platforms and operating systems
necessary to take advantage of the latest technology capabilities.

     The Technology Infrastructure Solution Area services maintain a focus on
Microsoft BackOffice technology including Windows XP and 2000, Windows NT
Server, SQL Server, SNA Server, Systems Management Server, Exchange Server and
Internet Information Server. Messaging and collaboration projects focus on
technologies such as Microsoft Exchange 2000 and SharePoint and utilize the
Research in Motion Blackberry products for wireless communication.
Security-oriented projects can utilize NetIQ technology designed for network
monitoring. The Company believes that Technology Infrastructure enables its
customers to incorporate new applications and new technologies into existing
information systems quickly and with minimal disruption.

     The goal of the Technology Infrastructure Solution Area is to develop and
implement enterprise-quality, scalable solutions solving business problems
thereby bringing tangible benefits to customers. Technology Infrastructure
follows the Allin Solutions Framework in planning and executing its engagements.
The framework is intended to assure proper identification of customer goals for
each project and that the recommended solution provides benefits to the
customer's organization.

     Examples of recent Technology Infrastructure projects include:

     .    Designed and implemented a solution based on NetIQ technology that
          allowed a freight transportation company's technical staff to
          proactively monitor the server environment, anticipate problems and
          resolve them before they affected end users.

     .    Successfully migrated an information storage company from multiple
          operating systems to a fully Microsoft-based operating system
          featuring Windows 2000 and Exchange 2000 that enabled the company to
          take full advantage of existing business solution software, manage
          only one operating system and access systems and data remotely and
          that will accommodate upgrades to new technologies in the future.

     .    Completed a security audit of existing infrastructure for a regional
          bank and developed a plan for correction of weaknesses that allow for
          hosting of a corporate web site and expanded e-commerce functionality.

     .    Designed and implemented a thin-client solution for a grocery store
          chain that allowed remote access of standardized applications to
          individual stores and remote employees without compromising security
          or performance of corporate computing resources.

     .    Designed and implemented monitoring and reporting capabilities for a
          customer relationship management system utilized by a business-to-
          business online auction provider that improved the customer's ability
          to view critical operational data and improving interaction with other
          back-end systems.

     Technology Infrastructure consulting is performed by both of the Company's
Allin Consulting subsidiaries utilizing personnel based in the Company's
Northern California and Pittsburgh locations. The majority of services were
billed on an hourly basis with the remainder based on fixed prices. During 2001,
one significant customer accounted for 12% of Technology Infrastructure revenue.

     There are common attributes to marketing objectives, backlog and pricing,
supply considerations and competition for the Technology Infrastructure and
E-Business Solution Areas. Discussion related to both solution areas is
presented below under E-Business.

E-Business

     Revenue from the Company's E-Business Solution Area increased 16% in 2001,
following a 7% decline in 2000. The increase is primarily due to several large
projects performed for one customer in 2001, which far surpassed the level of
services provided for any single customer in 2000. The customer, Gartner, Inc.,
accounted for 64% of E-Business revenue in 2001. Since many of these projects
have been completed, management expects that E-Business revenue derived from
Gartner, Inc. will decline substantially in 2002. The percentage of solution
area and total revenue for the three years ended December 31, 2001 is as
follows:

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E-Business                Year Ended December 31
                          ----------------------
Percentage of             1999     2000     2001
                          ----     ----     ----

Solution Area Revenue      11%      11%      15%
Total Revenue              10%      10%      14%

     Management expects Internet-driven growth, the complex nature of business
intelligence products and the growing interfacing of electronic business with
traditional business operating systems will be compelling market forces
representing an opportunity for growth in future periods for the E-Business
Solution Area. There can be no assurance, however, that the Company will realize
revenue growth related to its E-Business services.

     The E-Business Solution Area provides customized, scalable solutions that
management believes enable customers to generate, organize and deliver critical
data across their organizations while keeping data protected and secure.
E-Business develops customized applications that automate processes, streamline
workflows and respond to a customer's specific business needs. E-Business
creates solutions based on the latest business intelligence technologies,
including customer relationship management and supply chain management
applications, that organize raw data into understandable information. E-Business
also designs and implements portal-based solutions that connect to the
customer's transactional systems and provide for quick, efficient and secure
access and delivery of information for customers, suppliers and employees. The
E-Business Solution Area provides solutions implementing revenue-generating
customer-accessible E-commerce applications, business-to-business extranets and
internally-focused intranets. These services provide tools to empower customer
personnel with the business intelligence for fast and effective decision making.
E-Business solutions are targeted at increasing customer productivity,
eliminating inefficiencies and reducing costs. The Company's expertise in these
areas of technology is demonstrated by its inclusion in Microsoft's
Collaborative Solutions Portal Partner Advisory Council.

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

     The goal of the E-Business Solution Area is to develop and implement
scalable solutions solving business problems thereby bringing tangible benefits
to customers. E-Business 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
solution provides benefits to the customer's organization.

     Examples of recent projects completed by the E-Business Solution Area
include:

     .    Automated manual processes for a new product development system for a
          rail and transit products and services provider which resulted in
          tighter process control, improved timeliness, standardized program
          tracking and enhanced understanding of projects at summary and
          detailed levels.

     .    Designed and implemented a project management portal utilizing
          Microsoft SharePoint Portal Server for a specialty materials producer
          that enhanced data and project management and lowered costs.

     .    Automated project management methodology for a large financial
          services company, which improved efficiency, facilitated access to
          critical information and enhanced communication among project
          managers, department managers and executive sponsors.

     .    Developed interfaces for plant-based mainframe systems and a
          corporate-wide enterprise resource planning system for a wood
          processing company that allowed for transfer of information that
          expanded reporting functionality.

     .    Redesigned an existing web site for a supplier of technology-based
          products for the rail and transit industries, which improved the
          site's focus, usability, ease of maintenance and graphic design.

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     E-Business consulting was performed by both of the Company's Allin
Consulting subsidiaries utilizing personnel based in the Company's Northern
California and Pittsburgh locations. The majority of services were billed on an
hourly basis with the remainder based on fixed prices.

     The following discussion of marketing, backlog, supply considerations and
competition relates to both the Technology Infrastructure and the E-Business
Solution Areas.

     Marketing. Technology Infrastructure and E-Business target horizontal
markets, meaning businesses across a broad spectrum of industries. The Company's
current target market for these solution areas is mid-market to Fortune 1000
companies seeking to achieve a competitive advantage through technology. The
Company believes that businesses with annual revenue ranging from $250 million
to $1 billion afford the Company the best opportunities to offer solutions
creating value for the customers and to foster the development of long-term
business relationships. Management believes mid-market companies 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 intends to continue the Microsoft focus in the Company's
Technology Infrastructure and E-Business operations through ongoing training and
certification of its consultants and through joint marketing efforts with
Microsoft. Management believes that the Company's Microsoft designations and
advisory council participation, which are described above under General
Development of Business, provide it with the ability to quickly develop
solutions capabilities for new Microsoft product offerings. Management also
believes the established relationship with Microsoft will position the Company
to benefit from Microsoft's expected growth in Internet, business intelligence
and infrastructure 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.

     Backlog and Pricing. As of December 31, 2001, committed backlog totals for
the Technology Infrastructure and E-Business Solution Areas were approximately
$225,000 and $275,000, respectively. All of the committed backlog is expected to
be earned in 2002. As of December 31, 2000, combined committed backlog for
Technology Infrastructure and E-Business was approximately $710,000. Management
attributes the decline in backlog to the impact of the general economic downturn
on technology-related spending in 2001.

     Average billing rates for the Technology Infrastructure and E-Business
Solution Areas as of December 31, 2001 were $151 per hour for Northern
California-based operations and $94 for Pittsburgh-based operations. This
represents an approximate 11% increase for Northern California average billing
rates and a 2% decrease in Pittsburgh average billing rates during 2001. Average
billing rates for the Technology Infrastructure and E-Business Solution Areas as
of December 31, 2000 were $136 per hour for Northern California-based operations
and $96 for Pittsburgh-based operations.

     Supply Considerations. The services performed by the Technology
Infrastructure and E-Business Solution Areas are primarily labor intensive and
are provided by the Company's consultants and engineers. The Company's Allin
Consulting subsidiaries maintain an ongoing search and recruitment process,
including solicitation of referrals from consultants and industry contacts,
advertising and other means as necessary. The Company has not, to date,
experienced undue difficulty in recruiting qualified consultants. The general
economic downturn caused staff reductions in many companies and technology
consulting firms during 2001, diminishing alternate employment prospects for the
Company's consultants and engineers. Compensation for the Company's technical
consulting staff is primarily salary-based, with some hourly production-based
employees. The Company's management believes that a salary-based model helps to
foster continuity in the consulting staff and long-term improvement of its
technical knowledge capital while reducing the costs of employee turnover. The
computer hardware, software and supplies purchased to support the operations and
consultants of these solution areas are readily available from a large number of
suppliers.

     Competition. The technology consulting industry is very fragmented with a
large number of participants due to historic growth of the overall market for
services and low capital barriers to entry. Competitors include very large
consulting organizations such as Electronic Data Systems, Ciber, Inc.,
Accenture, Computer Associates, Keane, Inc. and Sapient Corp. 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. Examples are IBM, Oracle and
Compaq. Management believes the larger competitors are generally oriented to
very large engagements.

                                      -17-
<PAGE>

     Management believes that the solution areas' strongest competition comes
from smaller regional or local consulting firms with service specialties similar
to the Company's and from smaller national organizations with strong operations
in the markets where the Company's services are concentrated. In the
Northeastern United States, competitors would include firms such as Stargate, PC
Solutions, Sarcom and Anexinet. In Northern California, competitors would
include firms such as Convergent, PCS Networks, Infoworks, Magenic, Vertigo and
Terrace.

     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 advantages include the quality and broad scope of its
services and its expertise in Microsoft-based technology.

Legacy Technology Consulting

     Revenue from the Company's legacy technology consulting services declined
steadily as a portion of solution area and total revenue from 1999 to 2001. The
percentage of solution area and total revenue for the three years ended December
31, 2001 is as follows:

Legacy Technology         Year Ended December 31
                          ----------------------
Percentage of             1999     2000     2001
                          ----     ----     ----

Solution Area Revenue      56%      34%      12%
Total Revenue              51%      32%      11%

     Industry Overview. Demand for legacy technology services was flat or
declining in both 2000 and 2001 due to trends away from mainframe computer
systems and the end of evaluation and remediation services related the Year 2000
computer issue. The year 2000 issue had been a significant factor driving growth
in services in the late 1990's. The Standard & Poor's Industry Survey for
Computers: Commercial Services of June 28, 2001 notes continued slowing of
revenue for mainframe custom programming. The survey attributes the decline to
the significant transition from mainframe to client/server network
configurations, where the availability of pre-packaged software and software
application development tools have lessened the need for legacy technology
programming.

     Operations. The Company's legacy technology consulting services are
performed by Allin Consulting-Pennsylvania. Legacy technology consulting
services represented the majority of that entity's services when it was acquired
in August 1998. While management expects such operations to continue, the level
of these services has declined significantly in 1999, 2000 and 2001. Management
expects a continued decline in the level of legacy technology services performed
in 2002. Historically, virtually all of legacy technology consulting services
have been delivered on a customer-managed basis. In the Company's restructuring
of solution area operations in early 2001, legacy technology consulting services
were separated from other solution area services that are more closely
consistent with the Company's interactive television and Microsoft-based
technology focus. Legacy technology consulting services are overseen by
executive management and support personnel in the Company's Pittsburgh office
with responsibility for all of the Pittsburgh-based solution area operations.

     The Company provides legacy technology consulting and custom development
for mainframe systems, including application development, data base development
and administration, and data communications development for IBM proprietary
technology, intended to meet its clients' legacy system needs for special or
deadline sensitive projects, peak and backlogged workloads, and specialized
skill applications. Allin Consulting-Pennsylvania provides technical solutions
including custom development for IBM MVS proprietary environments and mainframe
development and support for Cobol, DB2, IMS DB/DC and CICS applications. The
Company also historically provided specialized legacy technology consulting
services related to Hogan IBA software applications, which are specialized
products for the banking industry. The last Hogan IBA-related engagement was
completed in July 2001. The Company does not intend to offer Hogan IBA-based
services in the future.

     The Company places significantly greater marketing emphasis on the
interactive media and Microsoft-based solutions-oriented services offered by the
Interactive Media, Technology Infrastructure and E-Business Solution Areas.
While the Company is not aggressively seeking new clients for legacy technology
services, renewal and expansion of services with existing clients are being
solicited.

                                      -18-
<PAGE>

     Legacy technology consulting services related to mainframe systems are
based in Pittsburgh and are primarily conducted in the Pittsburgh area. During
2001, all of the services were billed on an hourly basis. During 2001, three
significant customers, Bayer, Wells Fargo Bank and PPG Industries collectively
accounted for 41% of legacy technology consulting revenue. Revenue is expected
to remain concentrated among a small base of customers in 2002.

     Backlog and Pricing. As of December 31, 2001, the Company had a committed
backlog for legacy technology consulting services of approximately $620,000, all
of which is expected to be earned in 2002. As of December 31, 2000, the Company
had a committed backlog for legacy technology consulting services of
approximately $596,000.

     The average billing rate for legacy technology consulting services was $57
per hour as of December 31, 2001, as compared to $55 per hour as of December 31,
2000.

     Supply Considerations. Legacy technology consulting services are primarily
labor intensive and are provided by the Company's consultants and engineers. Due
to the declining nature of these services, the Company recruits only on an
as-needed basis. The Company's legacy technology consulting staff is a mix of
salary- and hourly-based employees and hourly-based independent contractors.

     Competition. For mainframe-based legacy technology consulting services,
competitors include Stargate, PC Solutions, Sarcom and Anexinet. The Company
competes on the basis of the high quality of the services that it offers.

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 associated with
continued operation of previously implemented solutions.

     Revenue from the Company's Ancillary Services & Product Sales has decreased
as a proportion of the Company's overall revenue from 1999 to 2001. The
Company's management believes that this trend is consistent with the Company's
strategic focus of being a provider of the types of technology consulting and
systems integration services described under 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, 2001 are as follows:

Ancillary Services & Product Sales      Year Ended December 31
                                        ----------------------
Percentage of                           1999     2000     2001
                                        ----     ----     ----

Total Revenue                            9%       5%       4%

     Three customers collectively accounted for 66% of Ancillary Services &
Product Sales during 2001.

Interactive Television Transactional Services

     The percentage of total revenue derived from interactive television
transactional services for the three years ended December 31, 2001 is as
follows:

Interactive Television
Transactional Services                  Year Ended December 31
                                        ----------------------
Percentage of                           1999     2000     2001
                                        ----     ----     ----

Total Revenue                            7%       2%       2%

     The Company continued to derive revenue from interactive television
operations on two cruise ships until December 2001 when such operations ceased.
Revenue was derived from pay-per-view movies and video gaming. No management
fees were earned in 2000 or 2001 for operation of interactive television
systems, as had been the case in 1999. In 2001, interactive television
transactional services were provided under a contract with Carnival that
originated when the

                                      -19-
<PAGE>

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 interactive
television transactional services was significantly reduced in 2000 and 2001 as
compared to prior years. The Company began 1999 operating interactive systems on
a total of eight cruise ships for Celebrity, Carnival and Norwegian Cruise
Lines. The systems aboard the two Carnival ships that continued operation in
2000 and 2001 historically provided the highest per-ship revenue from
pay-per-view movies. Carnival purchased the systems in February 2001. The
Company continued operation of the systems and continued to earn transactional
revenue until Carnival accepted operational responsibility. The Company does not
anticipate any operations of this type in the future.

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

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, 2001 is as follows:

Information System Product Sales     Year Ended December 31
                                     ----------------------
Percentage of                        1999     2000     2001
                                     ----     ----     ----

Total Revenue                         1%       2%       1%

     Information system product sales have historically been obtained in
connection with technology consulting engagements carried out by the Company's
solutions areas. The Company's cruise line customers are a secondary source of
information system product sales, primarily for replacement equipment for
interactive television systems. The Company does not aggressively market product
sales of this type.

     Information system products sold include computer hardware and software and
interactive television components. The Company has historically maintained
relatively little inventory, relying on product availability and prompt delivery
from its suppliers. This practice is expected to continue. Hardware and software
sales operations were conducted from the Company's Ft. Lauderdale and Pittsburgh
offices in 2001. From February to May 2000, the Company also operated a business
in Erie, Pennsylvania known as Erie Computer Company. A significant portion of
Erie Computer's sales during this period were information system product sales,
which accounts for the higher level of sales in 2000. During 2001, three
customers collectively accounted for 90% of information system product sales.

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

Other Services

     The percentage of total revenue derived from other services for the three
years ended December 31, 2001 is as follows:

Other Services                       Year Ended December 31
                                     ----------------------
Percentage of                        1999     2000     2001
                                     ----     ----     ----

Total Revenue                         1%       1%       1%

     Other services include several types of revenue not included in solution
area revenue due to a lack of consistency with core solution area objectives,
but which derive from activities peripheral to solution area activity. Examples
of these types of revenue are placement fees and vendor referral fees. The
Company actively discourages customers from hiring solution area consultants;
however, there are occasionally situations where customers solicit employees. In
these situations

                                      -20-
<PAGE>

the Company will charge placement fees. During 2001, the Company also received
commissions from several vendors related to product referrals and also earned
revenue related to the 2000 sale of certain contracts for network monitoring
services. Other services are not expected to be significant to the Company's
operations.

Research and Development

     Because the Company purchases most of key interactive television system
equipment and hardware utilized for Interactive Media systems integration
projects from On Command, Interactive Media's operational and technical
executives monitor On Command's ongoing product research and development
activities. Consequently, the Interactive Media Solution Area did not undertake
any significant research and development efforts in 2001 and did not incur
research and development expenses. The Company does not expect to undertake
extensive research and development efforts or incur substantial research and
development expenses in 2002. Interactive Media incurred research and
development expenses of $23,000 and $21,000 during 1999 and 2000, respectively,
related to application development and functionality improvements associated
with the On Command hardware platforms utilized for interactive television
systems.

Employees

     As of February 15, 2002, the Company employed approximately 80 people and
utilized the services of four 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 Interactive Media Solution Area currently targets the cruise industry
as the primary source of new business, but will also market to other industries
as opportunities arise. The marketing and sales efforts of the Technology
Infrastructure and E-Business Solution Areas are targeted toward businesses
having between $250 million and $1 billion in annual revenue. The Company's
Technology Infrastructure and E-Business Solution Areas target horizontal
markets, meaning potential clients in any industry.

     The Company has seven dedicated sales and marketing personnel focused on
promoting, or securing engagements for, the Company's different solution area
services. Certain of the Company's operational executives also devote a
significant portion of their duties to sales and marketing efforts related to
the Company's solution area operations.

(d)  Financial Information About Geographic Areas

     Financial information about geographic areas in which the Company operates
is included in Note 19 of the Notes to the Company's Consolidated Financial
Statements included herein in Item 8 - Financial Statements and Supplementary
Data.

(e)  Risk Factors

     Certain matters in this Annual Report on 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, Item 7A - Quantitative and Qualitative Disclosures about Market Risk
and other sections of this Annual Report on Form 10-K constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Forward-looking statements are typically identified by the words
"believes," "expects," "anticipates," "intends," "estimates," "will" and similar
expressions. In addition, any statements that refer to expectations or other
characterizations of future events or circumstances are forward-looking
statements. Readers are cautioned that any such forward-looking statements are
not guarantees of performance and that matters referred to in such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause actual results, performance or achievements of the
Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among other things, risks and uncertainties discussed
throughout Item 1 - Business, in this "Risk Factors" section, in Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations and in Item 7A - Quantitative and Qualitative Disclosures about
Market Risk. 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, general domestic and
international economic conditions and future incidents of terrorism that may
negatively impact the markets where the Company

                                      -21-
<PAGE>

competes. The Company undertakes no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.

     Stock Market Requirements. The Company's common stock was delisted from
Nasdaq's National Market as of the opening of business on May 9, 2001. At the
time of the delisting, the common stock was not eligible for listing on Nasdaq's
SmallCap Market. Losing the designation of the common stock as a Nasdaq listed
security likely reduces the liquidity of the common stock and could limit the
Company's ability to raise equity capital. Quotation of the common stock on the
OTC Bulletin Board commenced on May 9, 2001. Should quotation of the common
stock on the OTC Bulletin Board cease for any reason, the liquidity of the
common stock and the Company's ability to raise equity capital would likely
decrease further.

     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. Since the delisting of the Company's common stock
from Nasdaq's National Market, trading volume has been further reduced. 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.

     General Economic Conditions. A number of customers or potential customers
have postponed projects or delayed consideration of new technology initiatives
pending further assessment of the expected magnitude and duration of the
domestic economic downturn. Management attributes the shortfalls in Technology
Infrastructure and E-Business revenue growth from the Company's original
expectations for 2001 to the downturn in the domestic economy beginning late in
2000. Management believes the economic uncertainty will likely negatively impact
the Technology Infrastructure and E-Business Solution Areas for at least the
majority of 2002. There can be no assurance that the effects of the economic
uncertainty will not worsen or extend beyond 2002, which would negatively impact
the Company's results of operations and financial condition.

     World Events. Interactive Media consulting and systems integration services
accounted for approximately 56% of the Company's revenue and 51% of the
Company's gross profit for the year ended December 31, 2001. Interactive Media
projects also represent a substantial majority of the Company's committed
backlog for 2002. Interactive Media services are provided predominantly to
customers in the cruise industry. Following the terrorist attacks which occurred
in the United States in September 2001, the cruise industry experienced declines
in passenger occupancy and revenue. As of early 2002, passenger occupancy and
revenue had partially recovered from these declines. However, should the recent
events or any future world events cause further negative economic impact to the
cruise industry, customers may seek to delay or cancel projects. Any such delays
or cancellations could have a negative impact on the Company's future results of
operations. Any world events which negatively impact the cruise industry may
also negatively impact the Interactive Media Solution Area's ability to obtain
additional future business. To the extent that any future incidents of terrorism
negatively impact the economy in general or any businesses that are current or
potential Technology Infrastructure or E-Business customers, the Company's
future results of operations may also be negatively impacted.

     Decline in Legacy Technology Consulting Services. The Company has
experienced a substantial decline in demand for legacy technology consulting
services related to mainframe systems and specialized Hogan IBA software
products for the banking industry. The Company completed its final Hogan
IBA-based project in July 2001 and does not anticipate further provision of
services related to this legacy technology. Revenue and gross profit derived
from legacy technology services have declined steadily during 1999, 2000 and
2001 and are expected to continue to decline during 2002. The decline is
attributable to both industry trends and the Company's marketing focus on
solutions-oriented services. Legacy technology consulting services were formerly
a significant source of cash flow to the Company. There can be no assurance that
the Company will be successful on an ongoing basis in developing a sufficient
level of solutions-oriented consulting services to offset the declines in
revenue and gross profit from legacy technology consulting services.

     Discontinuation of Digital Imaging Operations. During the second quarter of
2001, the Company determined to discontinue the digital imaging systems
integration operations previously carried out by the Interactive Media Solution
Area and the ancillary sales of digital imaging products. The Company had
implemented changes to the marketing strategy for digital imaging systems
integration services in the third quarter of 2000 to focus on high value-added
integration projects in order to more closely meet the Company's gross profit
percentage objectives. While the projects undertaken thereafter generally
resulted in a higher gross margin percentage, the demand for high value-added
systems integration

                                      -22-
<PAGE>

services within the portrait photography industry was smaller than demand for
the broader range of service levels previously offered. The result was that
aggregate digital imaging systems integration revenue and gross profit declined
from previous levels. The decline in results from operations and the loss of key
managerial and sales personnel in the second quarter of 2001 led to the
determination to discontinue operations. The Company recognized impairment
losses related to Allin Digital's inventory, certain assets related to
photography concessionaire operations, and certain capitalized assets and
recorded additional provisions to increase Allin Digital's allowance for
doubtful accounts receivable in 2001. The Company is currently attempting to
sell the remaining inventory and assets and to collect remaining accounts
receivable from its digital imaging operations. If the Company is unable to sell
the remaining inventory or other assets at the estimates of fair value presently
recorded or if the Company is unable to collect accounts receivable exceeding
the presently recorded allowance for doubtful accounts, the Company's future
profitability will be adversely impacted.

     Dependence on Key Personnel. The Company's success is dependent on a number
of key management, technical and operational personnel for the management of
consulting and systems integration operations, development of new markets and
timely installation of systems. The loss of one or more of these individuals
could have an adverse effect on the Company's business and results of
operations. The Company depends on its continued ability to attract and retain
highly skilled and qualified personnel. There can be no assurance that the
Company will be successful in attracting and retaining such personnel.

     Competitive Market Conditions. The technology consulting industry is
fragmented with a large number of smaller-sized participants due to historical
growth of the overall market for services and low capital barriers to entry.
There are also large national or multinational firms competing in this market.
Rapid rates of change in the development and usage of computer hardware,
software, Internet applications and networking capabilities will require
continuing education and training of the Company's technical consultants and a
sustained effort to monitor developments in the technology industry to maintain
services that provide value to the Company's customers. The Company's
competitors may have resources to develop training and industry monitoring
programs that are superior to the Company's. There can also be no assurance that
the Company will be able to compete effectively with current or future
competitors or that the competitive pressures faced by the Company will not have
a material adverse effect on the Company's business, financial condition and
results of operations. The market for interactive media consulting and 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 may 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. The Company has developed software interfaces and modifications
for end-user operating components from On Command to be utilized in interactive
television system installations. The Company believes its application
development expertise and the On Command hardware platform offer cost-effective,
flexible solutions with a broad range of functionality. There can also be no
assurance, however, that competitors will not develop systems and products with
superior functionality or cost advantages over the Company's products and
applications.

     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. Accordingly, quarterly revenue
and operating results will be difficult to forecast, and the Company believes
that period-to-period comparisons of its operating results will not necessarily
be meaningful and should not be relied upon as an indication of future
performance.

     Recent Net Losses and Accumulated Deficit. The Company sustained
substantial net losses during the years from 1996 through 2001. As of December
31, 2001, the Company had a retained deficit of $45,328,000. Although net income
was recognized for the third and fourth quarters of 2001, the Company
anticipates that net losses may be incurred in future periods. There can be no
assurance that the Company will be able to achieve revenue growth or
improvements to profitability on an ongoing basis in the future.

     Liquidity Risk. The Company's cash resources and cash flow generated from
operations have been adequate to meet its needs to date, but there can be no
assurance that a prolonged downturn in operations or business setbacks to the
Company's operating entities will not result in working capital shortages which
may adversely impact the Company's operations. The liquidity risk is mitigated
somewhat by the Company's current revolving credit facility, which permits
borrowings for short term working capital needs. The Company's revolving credit
facility expires September 30, 2002. Failure of the Company to renew its
existing credit facility beyond September 30, 2002 or replace it with another
facility with similar terms may adversely impact the Company's operations in the
future.

                                      -23-
<PAGE>

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

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

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

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

                                      -24-
<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,
administrative and financial personnel. Management, sales, technical and
administrative personnel associated with the Eastern United States operations of
the Technology Infrastructure and E-Business Solution Areasand the Company's
legacy technology consulting services also utilize the Pittsburgh office.

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

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

     As of December 31, 2001, the Company's leased offices in Ft. Lauderdale,
San Jose and Walnut Creek were fully utilized. The Pittsburgh office is
underutilized due to reductions in personnel based in Pittsburgh during 2001.
Management believed the Company's Pittsburgh-based operations could effectively
utilize a smaller space following the January 31, 2002 expiration of the lease
for the Pittsburgh office. Pursuant to negotiations, the Company's landlord has
agreed to permit the Company to continue to occupy its present space on a
month-to-month basis until such time as the landlord identifies an alternate
tenant for the Company's space. At that time, the Company will likely move to
smaller space within the same building more commensurate to its needs. Such
space is currently available. The Company's rent expense has been reduced by
approximately 51% under the new arrangement reflecting both its reduced
requirements for space and current real estate market conditions. Management
believes the new arrangement is beneficial to the Company since it has currently
secured a rent reduction while deferring the costs and inconvenience of moving.

Item 3 - Legal Proceedings

     The Company from time to time is involved in 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 judgment is
considered probable.

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 2001.

Part II

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

     Allin Corporation's common stock has been quoted on the OTC Bulletin Board
since May 9, 2001. The Company's common stock is quoted under the symbol "ALLN."
The Company's common stock was previously listed on The Nasdaq Stock Market's
("Nasdaq") National Market System from the time of the Company's initial public
offering of its common stock in November 1996 until the common stock was
delisted from the National Market as of the opening of business on May 9, 2001.
The Company was unable to maintain compliance with Nasdaq's criteria for
continued designation of the common stock as a National Market security. At the
time of the delisting, the common stock was not eligible for listing on Nasdaq's
SmallCap Market. Should quotation of the common stock on the OTC Bulletin Board
cease for any reason, the liquidity of the common stock and the Company's
ability to raise equity capital would likely decrease.

                                      -25-
<PAGE>

     From January 1 to May 8, 2001, the high and low closing prices per share of
the common stock as reported by Nasdaq were $1.875 and $0.470, respectively.
From May 9 to December 31, 2001, the high and low bid prices per share of common
stock as quoted on the OTC Bulletin Board were $0.300 and $0.070, respectively.
Over-the-counter quotations per the OTC Bulletin Board reflect inter-dealer
prices, without retail mark-up, mark-down or commission, and may not necessarily
represent actual transactions.

     Quarterly high and low closing prices as reported by Nasdaq or high and low
bid prices per OTC Bulletin Board quotations, as applicable, per share of common
stock during 2000 and 2001 were as follows:

<TABLE>
<CAPTION>
                                                     Quarterly High   Quarterly Low
     High and Low Prices Per Share of Common Stock       Price            Price
<S>                                                     <C>                 <C>
Closing Prices as Reported by Nasdaq:
First Quarter 2000                                      $ 5.125          $ 3.438
Second Quarter 2000                                       3.438            2.188
Third Quarter 2000                                        2.500            1.750
Fourth Quarter 2000                                       2.313            1.250

First Quarter 2001                                      $ 1.875          $ 0.500
Second Quarter 2001 (through May 8, 2001)                 0.980            0.470

Bid Prices per OTC Bulletin Board Quotations:
Second Quarter 2001 (beginning May 9, 2001)             $ 0.300          $ 0.170
Third Quarter 2001                                        0.300            0.110
Fourth Quarter 2001                                       0.170            0.070
</TABLE>

     On March 13, 2002, there were 89 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.

     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, as amended, prohibits the
Company from declaring or paying dividends on any shares of its capital stock,
except for current dividends payable in the ordinary course of business on the
Company's Series D Convertible Redeemable Preferred Stock, Series F Convertible
Redeemable Preferred Stock and Series G Convertible Redeemable Preferred Stock.
The Loan and Security Agreement expires September 30, 2002. Each of the
Certificates of Designation governing the Company's Series C, D, F and G
preferred stock prohibits the Company from declaring or paying dividends or any
other distribution on the common stock or any other class of stock ranking
junior as to dividends and upon liquidation unless all dividends on the senior
series of preferred stock for the dividend payment date immediately prior to or
concurrent with the dividend or distribution as to the junior securities are
paid or are declared and funds are set aside for payment.

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,
1997, 1998, 1999, 2000 and 2001 presented below have been derived from the
audited consolidated financial statements of the Company. The selected financial
data should be read in conjunction with the Consolidated Financial Statements
and Supplementary Data of the Company (Item 8), and Management's Discussion and
Analysis of Financial Condition and Results of Operations (Item 7), included
elsewhere in this Form 10-K and in the Company's Form 10-K reports for the
periods ended December 31, 1999 and 2000.

                                      -26-
<PAGE>

     During the periods presented, the Company's financial position and results
of operations have been materially impacted by acquisitions of businesses.
Acquired businesses include 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. ("SportsWave")
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. In June 2001, the Company decided to discontinue
Allin Digital's digital imaging technology-based operations. Results of
operations for Allin Digital have been reclassified to discontinued operations
for all periods.

     The selected financial data for the period ended December 31, 1997 includes
the results of continuing operations of Allin Corporation, Allin Interactive,
Allin Consulting-California, Allin Network and Allin Holdings for the full year
of 1997. The selected financial data for the period ended December 31, 1998
reflect the results of continuing operations of the previously noted five
companies for the full year of 1998 and Allin Consulting-Pennsylvania for the
portion of 1998 subsequent to acquisition. Operations for MEGAbase subsequent to
acquisition are reflected with Allin Consulting-California. The selected
financial data for the periods ended December 31, 1999, 2000 and 2001 reflect
the financial position and results of operations of Allin Corporation, Allin
Interactive, Allin Consulting-California, Allin Consulting-Pennsylvania, Allin
Network and Allin Holdings for the full years of 1999, 2000 and 2001. The
selected balance sheet data as of December 31, 1997 reflects the financial
position of Allin Corporation, Allin Interactive, Allin Consulting-California,
Allin Network, Allin Holdings, SportsWave and Allin Digital as of that date. The
selected balance sheet data as of December 31, 1998, 1999, 2000 and 2001
reflects the financial position of Allin Corporation, Allin Interactive, Allin
Consulting-California, Allin Consulting-Pennsylvania, Allin Network, Allin
Holdings and Allin Digital as of those dates.

<TABLE>
<CAPTION>
                                                                         Period Ended December 31,
                                                                         -------------------------
                                                         1997         1998         1999         2000         2001
                                                      ----------   ----------   ----------   ----------   ----------
<S>                                                   <C>          <C>          <C>          <C>          <C>
Statement of Operations Data:
    Revenue .......................................   $    9,483   $   14,193   $   22,705   $   20,870   $   18,081
    Cost of sales .................................        5,883        7,833       13,714       12,455        9,723
                                                      ----------   ----------   ----------   ----------   ----------
    Gross profit ..................................        3,600        6,360        8,991        8,415        8,358
    Depreciation & amortization ...................        3,617        3,368        2,446        2,072        1,571
    Loss on impairment or disposal
      of assets ...................................          856        3,165           86           67       10,630
    Other selling, general & administrative .......        8,184        6,976        8,651        8,722        7,297
                                                      ----------   ----------   ----------   ----------   ----------
    Loss from operations ..........................       (9,057)      (7,149)      (2,192)      (2,446)     (11,140)
    Interest (income) expense, net ................         (413)          (7)         173          216          117
                                                      ----------   ----------   ----------   ----------   ----------
    Loss before provision for income taxes ........       (8,644)      (7,142)      (2,365)      (2,662)     (11,257)
    Provision for (benefit from) income taxes .....           45           (2)           9          (79)          --
                                                      ----------   ----------   ----------   ----------   ----------
    Loss from continuing operations ...............       (8,689)      (7,140)      (2,374)      (2,583)     (11,257)
    Gain (loss) from discontinued operations ......       (2,014)       1,349         (302)        (371)        (689)
                                                      ----------   ----------   ----------   ----------   ----------
    Net loss ......................................      (10,703)      (5,791)      (2,676)      (2,954)     (11,946)
    Accretion and dividends on preferred stock ....          232          779          699          637          660
    Net loss attributable to common shareholders ..   $  (10,935)  $   (6,570)  $   (3,375)  $   (3,591)  $  (12,606)
                                                      ==========   ==========   ==========   ==========   ==========
    Net loss per common share .....................   $    (2.12)  $    (1.20)  $    (0.56)  $    (0.56)  $    (1.81)
                                                      ==========   ==========   ==========   ==========   ==========
    Weighted average number of common
      shares outstanding ..........................    5,157,399    5,466,979    5,972,001    6,371,827    6,966,365
                                                      ==========   ==========   ==========   ==========   ==========
</TABLE>

                                   1997      1998      1999      2000      2001
                                  -------   -------   -------   -------   ------
Balance Sheet Data:
     Working capital .......      $ 6,748   $ 2,513   $ 2,228   $ 1,898   $1,431
     Total assets ..........       21,653    26,312    24,026    24,282    9,058
     Total liabilities .....        3,644     8,071     6,047     8,295    5,644
     Preferred stock .......        2,500     4,652     7,578     6,667    6,680
     Stockholders' equity ..       15,509    13,589    17,979    15,987    3,414

                                      -27-
<PAGE>

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

     The following discussion and analysis by management provides information
with respect to the Company's financial condition and results of operations for
the annual periods ended December 31, 1999, 2000 and 2001. This discussion
should be read in conjunction with the information in the consolidated financial
statements and the notes pertaining thereto contained in this Annual Report on
Form 10-K. Unless the context otherwise requires, all references herein to the
"Company" refer to Allin Corporation and its subsidiaries

     In the following Management's Discussion and Analysis of Financial
Condition and Results of Operations and elsewhere in this annual report on Form
10-K, words such as "estimates," "expects," "anticipates," "believes,"
"intends," "will" and other similar expressions, are intended to identify
forward-looking information that involves risks and uncertainties. In addition,
any statements that refer to expectations or other characterizations of future
events or circumstances are forward-looking statements. Actual results and
outcomes could differ materially as a result of important factors including,
among other things, public market and trading issues, uncertainty as to the
Company's future profitability, fluctuations in operating results, the Company's
history of net losses and accumulated deficit, liquidity, and risks associated
with general economic conditions, world events, the decline in demand for legacy
technology consulting services, the Company's discontinuation of digital imaging
operations, dependence on key personnel, competitive market conditions in the
Company's existing and potential future lines of business, rapidly changing
technology, risks of technological obsolescence, as well as other risks and
uncertainties. See Item 1 - Business - under the caption "Risk Factors".

Overview of Organization, Products & Markets

     Allin Corporation is a leading provider of solutions-oriented applications
development, technology infrastructure consulting and systems integration
services. The Company specializes in interactive media applications and
Microsoft Corporation ("Microsoft") product-based technologies, with operations
centered on three solution areas: Interactive Media, Technology Infrastructure
and E-Business. The Company leverages its experience in these specialties and a
disciplined project framework to deliver technology solutions that address
customer needs on time and on budget. The Company is headquartered in
Pittsburgh, Pennsylvania with additional offices located in Ft. Lauderdale,
Florida and San Jose and Walnut Creek, California.

     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, 2001, the
organizational legal structure consists of Allin Corporation and six
subsidiaries. Allin Interactive Corporation ("Allin Interactive"), Allin
Corporation of California ("Allin Consulting-California"), Allin Consulting of
Pennsylvania, Inc. ("Allin Consulting-Pennsylvania"), and Allin Network
Products, Inc. ("Allin Network") are operating subsidiaries focusing on
different aspects of the applications development, technology infrastructure
consulting and systems integration services provided by the Company. Allin
Holdings Corporation ("Allin Holdings") is a non-operating subsidiary that
provides treasury management services to the Company. In June 2001, the Company
decided to discontinue the digital imaging technology-based operations of Allin
Digital Imaging Corp. ("Allin Digital"). Phase-out of these operations continues
and is expected to be completed in 2002. Allin Interactive, Allin Holdings and
Allin Digital are Delaware corporations, Allin Consulting-California and Allin
Network are California corporations and Allin Consulting-Pennsylvania is a
Pennsylvania corporation. The Company utilizes the trade-names Allin
Interactive, Allin Consulting and Allin Corporation in its operations.

     The financial information for the periods ended December 31, 1999, 2000 and
2001 reflect the results of continuing operations of the Company, Allin
Interactive, Allin Consulting-California, Allin Consulting-Pennsylvania, Allin
Network and Allin Holdings. Results of Allin Digital's operations, including
certain losses due to impairment of assets recorded at the time of
discontinuation of operations, are reflected as results of discontinued
operations.

     The Company's solution area-based organizational structure is designed to
complement the customer-oriented focus of the Company's marketing strategy. The
Interactive Media Solution Area focuses on interactive media applications
development and integration. Interactive Media's customers have historically
been concentrated in the cruise industry. Interactive Media activities are
located in Ft. Lauderdale near the most active concentration of cruise line
operations in the United States. The Technology Infrastructure and E-Business
Solution Areas focus on developing Microsoft-based technology solutions for
customers diverse in size and across a broad array of industries. Technology
Infrastructure and E-Business consultants have extensive experience in
designing, developing and deploying solutions to enhance accessing,
communicating and protecting information. Technology Infrastructure and
E-Business consulting services are provided

                                      -28-
<PAGE>

from the Company's Northern California and Pittsburgh offices. The Company
believes the customer-based focus of its solution area organizational structure
and marketing strategy promote the effective delivery of customer-oriented
technology solutions and will foster the growth of long-term customer
relationships with ongoing service opportunities.

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

..    The Interactive Media Solution Area focuses on the Company's expertise in
     interactive media applications by providing interactive television
     solutions that management believes enable customers to improve service and
     increase productivity and revenue. Interactive Media enables customers to
     convert manual and analog processes into interactive digital solutions.
     Management believes that interactive television solutions are
     cost-effective because they leverage a pooled set of advanced head-end
     equipment to deliver advanced applications across digital networks or radio
     frequency distribution systems to end-user monitors or televisions. The
     interactive television system architecture features a centralized head-end
     that interfaces with the customer's other information systems. Interactive
     Media solutions are Internet accessible and support highly-functional
     applications and high-end graphics and MPEG content. Applications developed
     for, and utilized by, customers include pay-per-view movies, shore
     excursion ticketing, in-cabin gaming, meal service ordering, and
     distribution of activities and informational content.

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

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

     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 are the operating relationships with On
Command Corporation ("On Command") and Microsoft. The Company utilizes end-user
component and computer hardware platforms and configurations developed by On
Command for interactive television systems integration projects. The Company has
a Supplier Agreement with On Command which grants it exclusivity in purchasing
hardware and end-user components for interactive television systems for the
cruise industry market.

     Both of the Company's Allin Consulting subsidiaries and Allin Interactive
are certified as Microsoft Solutions Provider Partners. During 2001, both of the
Allin Consulting subsidiaries were also designated as Microsoft Gold Certified
Partners. The Company intends to continue its specialization in Microsoft-based
technology products.

     Allin Consulting-Pennsylvania has also historically performed consulting
services for certain legacy technologies, including application development,
data base development and administration, and data communications development
for IBM proprietary technology. Legacy technology consulting services are
overseen by executive management and support personnel in the Company's
Pittsburgh office with responsibility for all of the Pittsburgh-based solution
area operations. While management expects legacy technology consulting
operations to continue, the level of these services declined significantly in
1999, 2000 and 2001 and is expected to continue to decline in 2002.

     The Company also provides certain ancillary services and information system
product sales, which are those revenue producing activities that, unlike the
solution area services previously described, are not viewed as key to, or
completely aligned with, the Company's overall strategic objectives and
marketing plans.

                                      -29-
<PAGE>

Critical Accounting Policies and Estimates

     The Company's significant accounting policies are described in Note 2 in
the Notes to Consolidated Financial Statements included in Item 8 - Financial
Statements and Supplementary Data in this Report on Form 10-K. The preparation
of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and
assumptions to apply certain of these critical accounting policies. These
estimates and assumptions affect the reported amounts of assets and liabilities
and the reported amounts of revenue and expenses during the reporting periods.
In applying policies requiring estimates and assumptions, management uses its
judgment based on historical experience, terms of existing contracts, industry
practices and trends, information available from customers, publicly available
information and other factors deemed reasonable under the circumstances. Actual
results may differ from estimates. Critical accounting policies requiring the
use of estimates and assumptions include the following.

     Revenue and Cost of Sales Recognition. The Company's recognition method for
revenue and cost of sales for the Interactive Media Solution Area's systems
integration services is based on the size and expected duration of the project
and whether significant software modification is required. For systems
integration projects in excess of $250,000 of revenue and expected to be of
greater than 90 days duration, the Company recognizes revenue and cost of sales
based on percentage of completion, if significant software modification is
required, or proportional performance. Software modification is typically
involved with these projects, including loading of proprietary applications
developed by the Company for the customer, so the percentage of completion
method is normally used for these significant projects. The Company utilizes the
proportion of labor incurred to expected total project labor as a quantitative
factor in determining the percentage of completion when the proportion of total
project costs incurred to expected total project costs is not representative of
actual project completion status. The majority of the equipment for systems
integration projects is typically ordered, and associated costs are incurred, in
the early stages of a project. Consequently, the proportion of labor incurred to
expected total project labor is more frequently representative of percentage of
completion than the proportion of total project costs incurred to expected total
project costs. The labor factor is therefore most often used to determine the
percentage of completion. For systems integration projects of this type,
management must estimate expected total labor hours and costs and expected total
non-labor costs at the beginning of the project. Management reviews the status
of projects monthly, including labor and other costs incurred to date and
expected for completion of the project, project timing, and any issues impacting
project performance. Any changes to expected labor hours or expected costs for
project completion are factored into the monthly estimate of project cumulative
percentage of completion, which is used to determine current revenue and cost of
sales recognition. For consulting engagements performed on a fixed-price basis,
revenue and related cost of sales are recognized on a percentage of completion
basis. Management must estimate expected labor for project completion at the
beginning of each project. Fixed price consulting projects are reviewed monthly,
with any changes to expected project labor factored into the determination of
cumulative percentage of completion, which is used to determine current revenue
and cost of sales recognition. Revenue recognized on a percentage of completion
or proportional performance basis has been growing in proportion to the
Company's total revenue over the last three years, primarily due to increased
Interactive Media activity. Revenue recognized on this basis was approximately
8%, 17% and 46%, respectively, of the Company's total revenue for the years
ended December 31, 1999, 2000 and 2001. Usage of the percentage of completion or
proportional performance methods can result in unwarranted acceleration of or
delay in recognition of revenue and cost of sales if management's estimates of
certain critical factors such as expected total project labor or total project
costs are materially less than or greater than actual project requirements. The
Company believes its monthly reviews of project status, including expected total
project labor and costs, mitigate the potential for inappropriate revenue or
cost of sales recognition since the reviews result in revenue and cost of sales
recognition based on the latest available information. Management's estimates
and assumptions also impact the Company's assets and liabilities as revenue and
cost of sales recognition for these projects may also impact the carrying value,
if any, of unbilled revenue, costs and estimated gross margins in excess of
billings, billings in excess of costs and estimated gross margins, accrued
liabilities and deferred revenue on the Company's Consolidated Balance Sheets.

     Impairment of Long-Lived Assets. Due to significant variances in the rate
of 2001 revenue and gross profit growth from prior expectations for Allin
Consulting-California and Allin Consulting-Pennsylvania and changing perceptions
about market conditions for technology consulting services, the Company's
management believed that facts and circumstances indicated the carrying value of
certain intangible assets related to the acquisitions of those businesses may
not be recoverable. Since information concerning fair value of these assets was
not readily available from outside sources, the Company utilized estimated
future cash flows to determine fair value. This calculation required the
Company's management to make estimates of future revenue and income from
operations of Allin Consulting-Pennsylvania and Allin Consulting-California and
period-to-period growth-rate assumptions for revenue and expenses. Management
was also required to make assumptions regarding the appropriate number of years
to include in the estimate for Allin Consulting-

                                      -30-
<PAGE>

Pennsylvania. Cash flow projections indicated the estimated fair values of the
acquired intangible assets were less than the net unamortized values of the
assets. Once impairment had been determined, management was required to make
assumptions regarding an appropriate interest rate for discounting cash flows to
determine the amounts of the impairment losses. Impairment losses of $10,627,000
associated with goodwill recorded on Allin Consulting-California and Allin
Consulting-Pennsylvania were recorded during 2001. This represents a significant
portion of 2001 selling, general & administrative expenses. No losses of this
type were recorded in 1999 or 2000.

     Inventory. Inventory, consisting principally of digital photography
equipment and software and computer hardware, software and communications
equipment utilized in interactive television systems, is stated at the lower of
cost or market. A portion of Allin Interactive's inventory consisted of
equipment salvaged from shipboard interactive television systems where
operations under an owner-operator model had been discontinued in 1997 and 1998.
The carrying value had been based on prior estimates of salvage value. During
2001, management determined that the quantities of this equipment exceeded the
demand from its cruise line customers for replacement parts for similar systems
still in operation. There was no readily available valuation information for
this equipment due to its age and previous use. Management was therefore
required to determine new estimates of market value for the equipment remaining
in inventory. Allin Interactive recorded an inventory writedown of approximately
$121,000, which represents an immaterial portion of selling, general &
administrative expenses for the year ended December 31, 2001. The Company's
management decided to discontinue digital imaging services in 2001 and to sell
Allin Digital's remaining inventory of equipment as individual components
through Internet-based auctions and to existing clients. Management believed
that this diminished the value of the remaining inventory since some components
offered greater potential value as part of a complete system installation than
sold as individual components. The Company prepared new estimates of the market
value for Allin Digital's inventory, based on sales of similar components on
Internet-based auctions. Inventory was written down approximately $293,000,
which represents a significant portion of the loss from discontinued operations
for the year ended December 31, 2001. The carrying value of all inventory at
December 31, 2001 was approximately $75,000, which is significantly reduced from
prior levels. Due to the discontinuation of Allin Digital's operations and Allin
Interactive's intention to purchase the majority of equipment needed for
projects on an as-needed basis, the Company's inventory levels should remain
lower in 2002 than was typical throughout 2001, which should diminish the
likelihood of future significant writedowns of inventory to estimated market
value.

Certain Related Party Transactions

     During the years ended December 31, 1999, 2000 and 2001, the Company
engaged in transactions with related parties, including sale of services and
products, purchases of services and products and leases for office space.
Services and products sold represented less than 1% of the Company's revenue in
each of these periods. The charges for services and products sold to related
parties were comparable to charges for similar services and products sold to
non-related entities. Purchased services and products represented less than 1%
of cost of sales or selling, general & administrative expenses in each of these
periods. Management believes the cost of these services and products is similar
to that which could have been obtained from non-related entities.

     The Company's office space in Pittsburgh, Pennsylvania is leased from an
entity in which a beneficial holder of greater than five percent of the
Company's common stock, as well as certain of his family members, have equity
interests. Rental expense related to this lease was approximately $302,000,
$284,000 and $290,000 during the years ended December 31, 1999, 2000 and 2001,
respectively, which represented 4%, 3% and 2% of selling, general and
administrative expenses during these periods, respectively. The Company's
management believes that the lease rates were competitive with the marketplace
for similar commercial real estate at the time the lease was entered in 1997.
The lease expired on January 31, 2002. Management believed the Company's
Pittsburgh-based operations could effectively utilize a smaller space due to
staff reductions in 2001. The Company's landlord has agreed to permit the
Company to continue to occupy its present space on a month-to-month basis until
such time as the landlord identifies an alternate tenant for the Company's
space. At that time, the Company will likely move to smaller space within the
same building more commensurate with its needs. The Company's rent expense has
been reduced by approximately 51% under the new arrangement reflecting both its
reduced requirements for space and current real estate market conditions.
Management believes the new arrangement benefits both parties as the Company has
benefited from a rent reduction while deferring the cost and inconvenience of
moving while the landlord has deferred the costs associated with buildout of new
space for the Company. During 1999, the Company also leased space in Oakland,
California, at a cost of approximately $41,000, from a person who was then a
beneficial holder of greater than five percent of the Company's common stock and
who was also President of the Company during a portion of 1999. The Company's
management believes that the lease rates were competitive with the market for
similar commercial real estate.

                                      -31-
<PAGE>

     Throughout 2001, the Company had an outstanding note payable, with interest
fixed at 7% per annum, for $1,000,000 due to a person who was then a beneficial
holder of greater than five percent of the Company's common stock and who was
formerly the President of the Company. The note is associated with the 1996
acquisition of Allin Consulting-California. On March 14, 2002, the holder of the
note sold the note, including accrued interest of approximately $73,000, to
another person who is a beneficial holder of greater than five percent of the
Company's common stock. During a portion of 1999, the Company also had an
outstanding note payable, with interest fixed at 6% per annum, due to a
beneficial holder of greater than five percent of the Company's common stock who
is also a director of the Company. This note was associated with the 1998
acquisition of Allin Consulting-Pennsylvania. Interest expense related to these
notes was approximately $149,000, $128,000 and $74,000 during the years ended
December 31, 1999, 2000 and 2001, respectively. This represents approximately
86%, 59% and 63% of the Company's net interest expense during 1999, 2000 and
2001, respectively.

     See Liquidity and Capital Resources following in this Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations, Notes
17 - Related Party Transactions and 18 - Subsequent Events in the Notes to
Consolidated Financial Statements included in Item 8 - Financial Statements and
Supplementary Data, Item 11 - Executive Compensation and Item 13- Certain
Relationships and Related Transactions for additional information concerning
related party transactions.

Results of Operations

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

Revenue

     The Company's total revenue for the year ended December 30, 2001 was
$18,081,000, a decrease of $2,789,000, or 13%, from total revenue of $20,870,000
for the year ended December 31, 2000. Revenue from the Company's Interactive
Media, Technology Infrastructure and E-Business Solution Areas increased by
$2,102,000 from 2000 to 2001, partially offsetting a decline in legacy
technology consulting services revenue of $4,694,000. Interactive Media's
consulting and systems integration services posted the most significant revenue
gains, an aggregate increase of $2,874,000 from 2000 to 2001.

     The Company's solution area revenue, after elimination of intercompany
sales, was $17,280,000 for the year ended December 31, 2001, including
$10,071,000 for Interactive Media, $2,703,000 for Technology Infrastructure,
$2,508,000 for E-Business and $1,998,000 for legacy technology consulting
services. Comparable solution area revenue for the year ended December 31, 2000
was $19,872,000 in total, including $7,197,000 for Interactive Media, $3,817,000
for Technology Infrastructure, $2,166,000 for E-Business and $6,692,000 for
legacy technology consulting services.

     Revenue for the Interactive Media Solution Area for the year ended December
31, 2001 included $3,612,000 for interactive media consulting and $6,459,000 for
interactive media systems integration. Comparable Interactive Media revenue for
the year ended December 31, 2000 included $1,283,000 for interactive media
consulting and $5,914,000 for interactive media systems integration. The
increase in revenue for the Interactive Media Solution Area from 2000 to 2001
was 40%. The Interactive Media Solution Area's consulting and systems
integration services have historically been highly concentrated, predominantly
with customers in the cruise industry. During 2001, 99% of Interactive Media
revenue was derived from Carnival Corporation ("Carnival"), Royal Caribbean
Cruise Lines, Ltd. ("Royal Caribbean") and Celebrity Cruises ("Celebrity").
Royal Caribbean and Celebrity are affiliated businesses. The level of
Interactive Media services provided for cruise lines, however, is subject to
uncertainty as cruise line passenger levels and revenue declined following the
September 2001 incidents of terrorism in the United States. The Company has not
been negatively impacted to date since Interactive Media had a substantial
backlog of committed projects from its cruise line customers for the remainder
of 2001 and 2002. Management believes the terrorist incidents have temporarily
diminished prospects for award of new projects while the cruise lines are
focused on recovery of passenger and revenue levels to those experienced prior
to the terrorist incidents. Recent public announcements by the industry's
largest cruise lines indicate that a recovery in passenger levels and revenue is
being realized in early 2002. If the recovery of passenger levels and revenue is
not sustained, the prospects for future business for the Interactive Media
Solution Area could be negatively impacted. There can be no assurance that the
Company's Interactive Media Solution Area will continue to realize consulting or
systems integration revenue equal to or greater than the levels realized in 2001
or that any increases realized will result in the desired improvement to the
Company's financial condition or results of operations.

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<PAGE>

     Interactive Media consulting revenue increased $2,329,000, or 182%, for the
year ended December 31, 2001 as compared with the year ended December 31, 2000.
The increase in revenue was primarily attributable to the 2001 commencement of
applications development projects for interactive television systems to be
installed on six Carnival ships in 2001 and 2002, applications development for
an increased number of ship-based interactive television systems for other
cruise line customers and maintenance and trouble-shooting services for a larger
number of ship-based interactive television systems.

     Revenue for Interactive Media systems integration services increased by
$545,000, or 9%, in the year ended December 31, 2001 as compared to the year
ended December 31, 2000. Interactive Media systems integration revenue for 2000
included approximately $929,000 related to the 1999 sale of four interactive
television systems to Celebrity. The interactive television systems had been
installed on Celebrity ships from 1995 to 1997 when Allin Interactive was
following an owner-operator model for interactive television operations. Revenue
from the system sales was recognized over the minimum period of an associated
maintenance obligation, which ended March 17, 2000. The Celebrity ship system
sales were unusual transactions in terms of the magnitude of revenue associated
with concurrent sales of systems previously operated on an owner-operator model.
Revenue from the installation of new interactive television systems increased in
2001 as compared to 2000 due to the commencement of installation services for
Carnival. As of December 31, 2001, systems integration services were being
provided concurrently on seven new ship-based systems, the largest number of
simultaneously active projects of this magnitude undertaken to date by
Interactive Media.

     Technology Infrastructure revenue decreased $1,114,000, or 29%, in the year
ended December 31, 2001 as compared to the year ended December 31, 2000.
Management attributes the decline in period-to-period Technology Infrastructure
revenue to a softening of demand for technology consulting services due to the
downturn in the domestic economy since late 2000. In addition to the cost of the
consulting services, Technology Infrastructure solutions will frequently
recommend or require significant upgrades in customers' hardware, software and
networking equipment. The economic downturn has resulted in a decrease in
spending on technology-related services and equipment during 2001, which has
negatively impacted the demand for the services offered by the Technology
Infrastructure Solution Area. However, management believes that certain trends,
previously discussed in Item 1, Business under the caption "Industry Overview -
Technology Consulting Services", including increasing security concerns and
expected growth in wireless access to distributed networks will foster growth in
long-term demand for Technology Infrastructure services. There can be no
assurance, however, that these trends will result in the realization of future
revenue equal to or greater than current levels for the Technology
Infrastructure Solution Area or that any increases realized will result in the
desired improvements to the Company's financial condition or results of
operations.

     The E-Business Solution Area recorded a revenue increase of $342,000, or
16%, for the year ended December 31, 2001 as compared with the year ended
December 31, 2000. The E-Business Solution Area performed a number of
significant engagements for one customer, Gartner Inc. ("Gartner"), in Northern
California during 2001. There were no customers for whom a comparable level of
E-Business services were provided during 2000. Services provided for Gartner
more than offset declines in services for other customers, which management
believes is attributable to the negative impact of the economic downturn on
demand for technology-based services. Since a significant number of the projects
for Gartner have been completed or are nearing completion, management expects
the level of services provided for Gartner will decrease significantly in 2002.
There can be no assurance that the Company will succeed in replacing any lost
revenue, will realize future revenue equal to or greater than current levels for
the E-Business Solution Area or that any increases realized will result in the
desired improvements to the Company's financial condition or results of
operations.

     Revenue from legacy technology consulting services declined $4,694,000, or
70%, for the year ended December 31, 2001 as compared to the year ended December
31, 2000. Management attributes the decline in demand for legacy technology
consulting services to a general trend in technology away from mainframe systems
toward a client/server environment and the Company placing significantly greater
marketing emphasis over the last three years on the interactive media and
Microsoft-based solutions-oriented services offered by the Interactive Media,
Technology Infrastructure and E-Business Solution Areas. Management expects a
continued decline in legacy technology consulting revenue during 2002. The
Company ceased performing legacy technology services associated with Hogan IBA
software products, which are specialized applications for the banking industry,
in July 2001. Hogan IBA-based services represented the majority of legacy
technology consulting revenue for the year ended December 31, 2000.

     The Company recognized revenue for ancillary services & product sales,
after elimination of intercompany sales, of $801,000 during the year ended
December 31, 2001, including $296,000 for interactive television transactional
services, $253,000 for information system product sales and $252,000 for other
services. Ancillary services & product sales revenue

                                      -33-
<PAGE>

of $998,000 was recognized during the year ended December 31, 2000, including
$436,000 for interactive television transactional services, $422,000 for
information system product sales and $140,000 for other services.

     Interactive television transactional services revenue decreased by $140,000
from 2000 to 2001. Operations of this type ceased in December 2001 after the
transfer of systems operation on two ships to Carnival following the sale of the
systems to Carnival earlier in 2001. The Company does not expect to derive any
revenue from interactive television transactional services in 2002. Information
system product sale revenue decreased by $169,000, or 40%, in 2001 as compared
to 2000. Allin Network operated Erie Computer Company ("Erie Computer") from
February to May 2000. Erie Computer's revenue base included a significant
component of information system product sales. Erie Computer was sold in May
2000, eliminating this revenue stream for 2001. Revenue from other services
increased by $112,000 from 2000 to 2001. The increase is primarily attributable
to significant placement fee revenue of $124,000 being recognized in April 2001
following collection of litigation settlement proceeds from a former customer
who had hired the Company's consultants in violation of the agreement between
the customer and the Company.

Cost of Sales and Gross Profit

     The Company recognized cost of sales of $9,723,000 during the year ended
December 31, 2001 as compared to $12,455,000 during the year ended December 31,
2000. The primary reason for the decrease in cost of sales of $2,732,000 was the
decline in legacy technology consulting services. Gross profit of $8,358,000 was
recognized for the year ended December 31, 2001 as compared to $8,415,000 for
the year ended December 31, 2000, a decrease of $57,000. The changing mix of the
Company's services toward a greater proportion of higher-margin
solutions-oriented consulting and systems integration services and a declining
proportion of lower-margin legacy technology consulting services resulted in
only a 1% decrease in gross profit despite an 13% decline in revenue from 2000
to 2001. Gross profit as a percentage of revenue increased to 46% in 2001 from
40% in 2000. Management believes the improvement in gross profit percentage
demonstrates the Company's success to date in developing higher-margin
solutions-oriented business, although there can be no assurance that the Company
will realize gross profit percentages in the future at or above current levels.

     The Company's solution areas recorded a total of $9,472,000 for cost of
sales during the year ended December 31, 2001, including $5,789,000 for
Interactive Media, $1,099,000 for Technology Infrastructure, $1,083,000 for
E-Business and $1,501,000 for legacy technology consulting services. Comparable
cost of sales for the year ended December 31, 2000 was $11,964,000 in total,
including $4,343,000 for Interactive Media, $1,557,000 for Technology
Infrastructure, $1,187,000 for E-Business and $4,877,000 for legacy technology
consulting services. Gross profit for the Company's solution areas for the year
ended December 30, 2001 was $7,808,000, including $4,282,000 for Interactive
Media, $1,604,000 for Technology Infrastructure, $1,425,000 for E-Business and
$497,000 for legacy technology consulting services. Comparable gross profit for
the year ended December 31, 2000 was $7,908,000 in total, including $2,854,000
for Interactive Media, $2,260,000 for Technology Infrastructure, $979,000 for
E-Business and $1,815,000 for legacy technology consulting services. The
underlying components of solution area gross profit reflect the shift toward
solutions-oriented services and away from legacy technology consulting services
consistent with the Company's strategic objectives over the last two years.

     Cost of sales for the Interactive Media Solution Area for the year ended
December 31, 2001 included $1,239,000 for interactive media consulting and
$4,550,000 for interactive media systems integration. Interactive Media cost of
sales for the year ended December 31, 2000 included $409,000 for interactive
media consulting and $3,934,000 for interactive media systems integration.
Interactive Media Solution Area gross profit for the year ended December 31,
2001 included $2,373,000 for interactive media consulting and $1,909,000 for
interactive media systems integration. Interactive Media gross profit for the
year ended December 31, 2000 included $874,000 for interactive media consulting
and $1,980,000 for interactive media systems integration. The period-to-period
increases in consulting cost of sales and gross profit were primarily
attributable to the 2001 commencement of applications development projects for
interactive television systems for six Carnival ships, applications development
for an increased number of ship-based interactive television systems for other
cruise line customers and maintenance and trouble-shooting services for a larger
number of ship-based interactive television systems. With systems integration
services, the period-to-period increase in cost of sales and decrease in gross
profit were impacted by the recognition of a portion of the cost of sales and
gross profit associated with the sale of four Celebrity ship interactive
television systems in 2000. Since the Company had operated these systems on an
owner-operator model for several years prior to their sale, substantial portions
of the equipment cost for the systems had been depreciated at the time of sale
to Celebrity. This resulted in the recording of unusually low cost of sales and
unusually high gross profit on the system sales. All of the significant systems
integration projects active in 2001 involve the installation of new systems and
the higher cost of sales associated with the purchase of new equipment for the
projects. The result is a slight period-to-period decline in gross profit
despite a 9% increase in systems integration revenue. Management believes that

                                      -34-
<PAGE>

gross profit as a percentage of revenue realized for 2001 is likely to be more
representative of future potential than the percentage realized for 2000. There
can be no assurance, however, that that gross profit from interactive media
systems integration services, either in absolute or percentage terms, will
continue to be realized at levels comparable to or in excess of current levels.

     Technology Infrastructure gross profit decreased $656,000, or 29%, for the
year ended December 31, 2001 as compared to the year ended December 31, 2000.
Management attributes the decline in period-to-period Technology Infrastructure
gross profit to the economic downturn since late 2000, which has curtailed
technology spending for consulting services or the equipment and software
upgrades that will frequently accompany infrastructure solutions.

     E-Business gross profit increased $446,000, or 46%, in 2001 as compared to
2000, while the corresponding increase in revenue was 16%. Gross profit as a
percentage of revenue experienced a 12% period-to-period increase from increased
average billing rates in Northern California. The increase in E-Business gross
profit is also attributable to the performance of a number of significant
engagements for Gartner in Northern California during 2001. There were no
customers for whom a comparable level of E-Business services were provided
during 2000. Since a significant number of these projects have been completed or
are nearing completion, management expects the level of services provided for
this customer will decrease significantly in 2002. There can be no assurance
that the Company will realize gross profit in future periods equal to or greater
than current levels for its E-Business Solution Area.

     Gross profit realized on legacy technology consulting services declined
from $1,815,000 in 2000 to $497,000 in 2001. The decline in legacy technology
consulting gross profit is consistent with the period-to-period decline in
revenue. Management attributes the decline to both industry trends away from
mainframe computer systems and the Company's shift in marketing focus since
early 1999 to developing higher-margin solutions-oriented business.

     Cost of sales for the Company's ancillary services and product sales was
$251,000 for the year ended December 31, 2001, including $99,000 for
pay-per-view movies associated with interactive television transactional
services, $162,000 for information system product sales and $(10,000) for other
services. Cost of sales for ancillary services and product sales was $491,000
for the year ended December 31, 2000, including $139,000 for pay-per-view
movies, $316,000 for information system product sales and $36,000 for other
services. Gross profit on ancillary services and product sales was $550,000 for
the year ended December 31, 2001, including $197,000 for interactive television
transactional services, $91,000 for information system product sales and
$262,000 for other services. Gross profit for ancillary services and product
sales was $507,000 for the year ended December 31, 2000, including $297,000 for
interactive television transactional services, $106,000 for information system
product sales and $104,000 for other services. The largest factor in the
period-to-period increase in gross profit of $43,000 was the inclusion of
significant gross profit of $124,000 on a placement fee recognized in 2001
following collection of litigation settlement proceeds from a former client who
hired Company consultants in violation of the customer's agreement. This was
partially offset by declines in gross profit for interactive television
transactional services due to cessation of operations and gross profit for
information system product sales due to four months of operating activity during
2000 for Erie Computer, which included a significant component of information
system product sales.

Selling, General & Administrative Expenses

     The Company recorded $19,498,000 in selling, general & administrative
expenses during the year ended December 31, 2001, including $1,571,000 for
depreciation and amortization, $10,751,000 for losses on impairment or disposal
of assets and $7,176,000 for other selling, general & administrative expenses.
Selling, general & administrative expenses were $10,861,000 during the year
ended December 31, 2000, including $2,072,000 for depreciation and amortization,
$67,000 for losses on disposal of assets and $8,722,000 for other selling,
general & administrative expenses. The period-to-period increase of $8,637,000
is attributable to substantial losses totaling $10,748,000 recorded in the
second quarter of 2001 for impairment of certain assets, including goodwill
associated with the acquisitions of Allin Consulting-Pennsylvania and Allin
Consulting-California and inventory maintained by Allin Interactive. Other
selling, general & administrative expenses declined $1,546,000 from 2000 to
2001.

     Since early 1999, the Company's strategic focus has been on developing
solutions-oriented consulting revenue, including revenue derived from the
activities of its Technology Infrastructure and E-Business Solution Areas.
During 1999 and 2000, the Company was able to successfully grow revenue in these
solution areas. In late 2000, based on this growth history and industry
projections for continuing significant increases in the demand for e-business
and infrastructure technology consulting services, the Company anticipated
significant revenue and gross profit increases in future periods for its
Technology Infrastructure and E-Business Solution Areas. During this time
period, anticipated results indicated

                                      -35-
<PAGE>

sufficient expected cash flows to support the net unamortized values of the
intangible assets associated with the acquisitions of Allin
Consulting-Pennsylvania and Allin-Consulting-California. The downturn in the
domestic economy experienced beginning late in 2000 significantly lowered
technology-based spending in the United States, which has negatively impacted
the demand for technology consulting services. The Company experienced a 13%
decline in the level of revenue for the Technology Infrastructure and E-Business
Solution Areas in 2001 as compared to 2000. However, the Company had previously
expected a significant level of growth for 2001. During the second quarter of
2001, due to the continuing variance in the rate of revenue and gross profit
growth from prior expectations and the growing perception among industry
analysts that the negative impact of the economic downturn on technology
consulting would continue at least until 2002, the Company completed new
projections which indicated the estimated fair values of the intangible assets
associated with the acquisitions of Allin Consulting-Pennsylvania and Allin
Consulting-California were less than the net unamortized values of the assets.
Based on the Company's revised projections, a loss due to impairment of
approximately $10,627,000 was recorded in the second quarter of 2001 to reduce
the net unamortized value of goodwill recorded on Allin Consulting-Pennsylvania
and Allin Consulting-California. There was no comparable loss recognized during
the year ended December 31, 2000.

     Allin Interactive maintained an inventory of interactive television
equipment salvaged from ships on which it had previously operated interactive
television systems on an owner-operator model. The inventory values had been
based on estimated salvage values after the equipment was removed from the
ships. Allin Interactive sought to sell its inventory to two cruise lines for
spare parts for similar systems that had been sold to the cruise lines and which
continued to be operated. While a portion of the inventory was sold to these
parties, it became apparent during the second quarter of 2001 that neither
cruise line was prepared to purchase significant quantities of the inventoried
equipment. A loss due to impairment of approximately $121,000 was recorded in
the second quarter of 2001 to adjust the recorded value of Allin Interactive's
inventory to the revised estimate of fair value. There was no comparable loss
recognized during the year ended December 31, 2000.

     The Company added managerial, marketing and delivery personnel during 2000
and early 2001 to continue the Company's transition toward a solutions-oriented
project focus throughout its solution areas. This was particularly pronounced in
the Interactive Media Solution Area in the early portion of 2001 as it began to
augment its personnel in order to have an appropriately sized and trained staff
to handle the expected substantial increase in project activity resulting from
the addition of in excess of $12,000,000 of committed backlog from Carnival
pursuant to Allin Interactive's February 2001 agreements with Carnival. The
scope of Interactive Media project activity increased substantially following
execution of the Carnival agreements. Through the third quarter of 2000, the
Company had been able to offset most of the cost associated with its investment
in solution area managerial, marketing and delivery personnel with overhead cost
reductions associated with legacy technology consulting services. However, most
of the potential for these cost reductions had been realized by September 2000.
Consequently, since late in the first quarter of 2001, management has moved to
reduce the cost of personnel resources in its Technology Infrastructure and
E-Business Solution Areas as well as in its corporate marketing and financial
departments. As a result of these actions, the Company expects the expense
associated with personnel resources to be lower in 2002 than that incurred in
2001, unless the Company is successful in obtaining new business for 2002 in
excess of levels currently expected and needs a larger workforce than is
presently contemplated.

     During the year ended December 31, 2001, severance accruals of
approximately $132,000 were recorded as a result of the termination of services
of three managerial personnel associated with the Company's Interactive Media,
Technology Infrastructure and E-Business Solution Area services. During the year
ended December 31, 2000, severance accruals of approximately $94,000 were
recorded due to the Company's termination of services of three managerial
personnel associated with the Company's legacy technology consulting services.

     There were several unusual items impacting selling, general &
administrative expenses in the year ended December 31, 2000. The Company
incurred expenses of approximately $111,000 in connection with an abandoned
acquisition candidate. A loss of approximately $53,000 was recorded on the sale
of assets related to Allin Network's Erie Computer operations. There were no
comparable losses recorded in the year ended December 31, 2001.

     Depreciation and amortization were $1,571,000 for the year ended December
31, 2001 as compared to $2,072,000 for the year ended December 31, 2000. The
decrease of 24% is due to significantly reduced goodwill amortization in 2001
due to impairment of the asset values, the discontinuation of depreciation on
two ship-based interactive television systems upon their sale to Carnival in
February 2001 and significant levels of fixed assets reaching full depreciation
in December 2000 and June 2001. The Company anticipates depreciation and
amortization expense will be further reduced in 2002 as amortization of goodwill
will be discontinued under new accounting standards effective in 2002 and due to
additional fixed assets reaching full depreciation in December 2001 and June
2002.

                                      -36-
<PAGE>

Loss from Continuing Operations

     The Company recorded a loss from continuing operations of $11,257,000 for
the year ended December 31, 2001, as compared to a loss from continuing
operations of $2,583,000 for the year ended December 31, 2000. The increase in
loss from continuing operations is primarily attributable to impairment losses
of $10,748,000 recognized in the second quarter of 2001, as discussed above.

Loss from Discontinued Operations

     During the year ended December 30, 2001, the Company recorded a loss of
$689,000 from its discontinued digital imaging operations as compared to a loss
of $371,000 during the year ended December 31, 2000. The increased loss
recognized in 2001 was due to inclusion of an impairment loss of approximately
$348,000 related to Allin Digital's inventory of digital imaging equipment and
consumable supplies, assets utilized in certain photography concessionaire
operations and capitalized hardware, software and equipment. Allin Digital also
recorded provisions of approximately $48,000 to increase its allowance for
doubtful accounts receivable during the year ended December 31, 2001.

Net Loss

     The Company's net loss for the year ended December 31, 2001 was $11,946,000
as compared to $2,954,000 for the year ended December 31, 2000. The most
significant factor in the decrease in profitability was the inclusion of
impairment losses associated with goodwill and inventory in 2001, as discussed
above.

     Several factors contributed to improvement in the Company's results of
operations in the second half of 2001, including increased Interactive Media
activity associated with the Carnival agreements, decreased personnel costs and
a reduced level of amortization expense for goodwill. The Company recognized net
income of $772,000 during the second half of 2001. The Company's operations are
subject to significant variability due to frequent increases or decreases in
project activity.

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

Revenue

     The Company's total revenue for the year ended December 31, 2000 was
$20,870,000, a decrease from total revenue of $22,705,000 for the year ended
December 31, 1999. The decrease of $1,835,000, or 8%, is the result of several
offsetting factors. Revenue from the Company's Interactive Media, Technology
Infrastructure and E-Business Solution Areas, which are most closely aligned
with the Company's strategic objective of providing interactive media and
Microsoft-focused technology solutions, increased by $4,103,000, or 45%, for the
year ended December 31, 2000 as compared to the year ended December 31, 1999.
However, these gains in revenue were more than offset by decreases in revenue of
$4,845,000, or 42%, for the Company's legacy technology consulting services and
$1,178,000, or 73%, for interactive television transactional services.

     The Company's solution area revenue, after elimination of intercompany
sales, was $19,872,000 for the year ended December 31, 2000, including
$7,197,000 for Interactive Media, $3,817,000 for Technology Infrastructure,
$2,166,000 for E-Business and $6,692,000 for legacy technology consulting
services. Comparable solution area revenue for the year ended December 31, 1999
was $20,614,000 in total, including $3,826,000 for Interactive Media, $2,911,000
for Technology Infrastructure, $2,340,000 for E-Business and $11,537,000 for
legacy technology consulting services.

     Interactive Media Solution Area revenue for the year ended December 31,
2000 included $1,283,000 for interactive media consulting and $5,914,000 for
interactive media systems integration. Comparable Interactive Media revenue for
the year ended December 31, 1999 included $758,000 for interactive media
consulting and $3,068,000 for interactive media systems integration. The
increase in Interactive Media Solution Area revenue from 1999 to 2000 was 88%.

     Interactive Media consulting revenue increased $525,000, or 69%, for the
year ended December 31, 2000 as compared with the prior year. The increase in
revenue was attributable to applications development for an increased number of
ship-based interactive television systems, an increased level of applications
design and development for

                                      -37-
<PAGE>

healthcare industry customers and maintenance and trouble-shooting services for
a larger number of ship-based interactive television systems.

     Revenue for Interactive Media systems integration services increased by
$2,846,000, or 93%, in the year ended December 31, 2000 as compared to the year
ended December 31, 1999. In 2000, installation of interactive television systems
were completed aboard two ships and partially completed on two others. In 1999,
one ship-based interactive television system was installed. Systems integration
services provided to customers in the healthcare industry also substantially
increased in 2000 as compared to 1999. Interactive Media systems integration
revenue recognized in both years included portions of sales revenue associated
with four interactive systems originally installed on Celebrity ships under the
Company's prior owner-operator model. Revenue related to the Celebrity ship
system sales was higher in absolute dollars as well as a significantly higher
proportion of overall systems integration revenue in 1999.

     Technology Infrastructure revenue increased $906,000, or 31%, in the year
ended December 31, 2000 as compared to the year ended December 31, 1999. The
Company's management believes several factors contributed to the Technology
Infrastructure revenue growth, including businesses evaluating and upgrading
their technology infrastructure to be able to take advantage of Internet-driven
business-to-business opportunities, proliferation of portal and business
intelligence technology products that required more robust infrastructure and
the introduction of Microsoft's Windows 2000 operating platform.

     The E-Business Solution Area recorded a revenue decrease of $174,000, or
7%, for the year ended December 31, 2000 as compared with the prior year.
Management attributes the decline in E-Business revenue from 1999 to 2000 to
normal variations in the level of services based on rapidly evolving
technologies, a short-term marketing emphasis on Technology Infrastructure
services due to the introduction of Windows 2000 and the impact of the early
stage of the economic downturn in late 2000.

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

     The Company recognized revenue for ancillary services & product sales of
$998,000 during the year ended December 31, 2000, including $436,000 for
interactive television transactional services, $422,000 for information system
product sales and $140,000 for other services. Ancillary services & product
sales revenue of $2,091,000 was recognized during the year ended December 31,
1999, including $1,614,000 for interactive television transactional services,
$308,000 for information system product sales and $169,000 for other services.

     Interactive television transactional service revenue decreased by
$1,178,000, or 73%, in the year ended December 31, 2000 as compared to the year
ended December 31, 1999. The Company operated interactive television systems on
two ships in 2000 as compared to eight ships for all or a portion of 1999, when
the Company ceased operating systems on six ships. No management fees were
earned for system operation in 2000 while this had been a revenue stream for a
portion of 1999. Information system product sale revenue increased by $114,000
in 2000 as compared to 1999. The Company's operation of Erie Computer from
February to May 2000 contributed to the increase in this type of revenue. Erie
Computer's revenue base included a significant component of information system
product sales. The Company also realized a higher incidence of sales of
replacement interactive television system equipment to cruise line customers.
Other services revenue recognized in both 2000 and 1999 is principally derived
from placement fees and vendor referral fees.

Cost of Sales and Gross Profit

     The Company recognized cost of sales of $12,455,000 during the year ended
December 31, 2000 as compared to $13,714,000 during the year ended December 31,
1999. The decrease in cost of sales of $1,259,000 is due to the same offsetting
factors which resulted in the year-to-year changes in revenue discussed
previously. Cost of sales associated with the Interactive Media, Technology
Infrastructure and E-Business Solution Areas increased by $2,246,000 while cost
of sales associated with legacy technology consulting services decreased by
$3,455,000. Gross profit of $8,415,000 was recognized for 2000 as compared to
$8,991,000 for 1999, a decrease of $576,000, or 6%. The Company realized an
increase in Interactive Media, Technology Infrastructure and E-Business Solution
Area gross profit of $1,857,000, or 44%,

                                      -38-
<PAGE>

but this was more than offset by decreases in legacy technology consulting gross
profit of $1,390,000 and gross profit from interactive television transactional
services of $1,049,000. Solution area gross profit as a percentage of revenue
grew from 36% in 1999 to 40% in 2000, despite significant growth in Interactive
Media systems integration services, which typically carry lower margins on the
equipment associated with the projects. Management believes the improvement in
gross profit percentage for the solution area services demonstrates the
Company's success in 2000 in developing higher-margin solutions-oriented
business.

     The Company's solution areas recorded a total of $11,964,000 for cost of
sales during the year ended December 31, 2000, including $4,343,000 for
Interactive Media, $1,557,000 for Technology Infrastructure, $1,187,000 for
E-Business and $4,877,000 for legacy technology consulting services. Comparable
cost of sales for the year ended December 31, 1999 was $13,173,000 in total,
including $1,967,000 for Interactive Media, $1,450,000 for Technology
Infrastructure, $1,424,000 for E-Business and $8,332,000 for legacy technology
consulting services. Increases or decreases in cost of sales are also
attributable to the factors that resulted in changes in revenue for these
services. Gross profit for the Company's solution areas for the year ended
December 31, 2000 was $7,908,000, including $2,854,000 for Interactive Media,
$2,260,000 for Technology Infrastructure, $979,000 for E-Business and $1,815,000
for legacy technology consulting services. Comparable gross profit for the year
ended December 31, 1999 was $7,441,000 in total, including $1,859,000 for
Interactive Media, $1,461,000 for Technology Infrastructure, $916,000 for
E-Business and $3,205,000 for legacy technology consulting services. The
substantial increase in the solutions-oriented services provided by Interactive
Media and Technology Infrastructure in 2000 is primarily responsible for the
increase in gross profit.

     Cost of sales for the Interactive Media Solution Area for the year ended
December 31, 2000 included $409,000 for interactive media consulting and
$3,934,000 for interactive media systems integration. Interactive Media cost of
sales for the year ended December 31, 1999 included $362,000 for interactive
media consulting and $1,605,000 for interactive media systems integration.
Interactive Media Solution Area gross profit for the year ended December 31,
2000 included $874,000 for interactive media consulting and $1,980,000 for
interactive media systems integration. Interactive Media gross profit for the
year ended December 31, 1999 included $396,000 for interactive media consulting
and $1,463,000 for interactive media systems integration. The increases in
interactive media consulting and systems integration cost of sales and gross
profit primarily resulted from applications development and installation
services associated with two complete and two partially complete ship-based
interactive television systems in 2000 as compared to one system in 1999 and a
substantially higher level of development and integration services for
healthcare-industry customers in 2000 as compared to 1999. Interactive Media
gross profit as a percentage of revenue declined from 49% in 1999 to 40% in
2000. The Company attributes the percentage decline to the significant increase
in Interactive Media systems integration realized, which typically carries a
lower margin potential due to the inclusion of an equipment component. Another
factor was that gross profit realized on the sale of four Celebrity ship-based
systems was a significantly higher proportion of overall systems integration
gross profit in 1999 than in 2000. The Celebrity system sales had an unusually
high gross profit percentage due the system equipment having been depreciated
for significant time periods prior to sale.

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

     The Company was able to realize a $63,000, or 7%, increase in E-Business
gross profit in 2000 as compared to 1999 despite a 7% decrease in
period-to-period revenue. Management believes that the increase in gross profit
for E-Business reflected the growing complexity of E-Business projects in 2000.
Due to this trend, E-Business was also able to make substantial progress in
increasing average billing rates in 2000, which outpaced the rate of
compensation increase for the solution area's technical staff. E-Business gross
profit as a percentage of revenue increased from 39% in 1999 to 45% in 2000.

     Gross profit realized on legacy technology consulting services declined
from $3,205,000 in 1999 to $1,815,000 in 2000. The decline in legacy technology
consulting gross profit is consistent with the period-to-period decline in
revenue. Management attributes the decline to both industry trends away from
mainframe computer systems and the Company's marketing focus over 1999 and 2000
on developing higher-margin solutions-oriented business.

     Cost of sales for the Company's ancillary services and product sales was
$491,000 for the year ended December 31, 2000, including $139,000 for
pay-per-view movies associated with interactive television transactional
services,

                                      -39-
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$316,000 for information system product sales and $36,000 for other services.
Cost of sales for ancillary services and product sales was $541,000 for the year
ended December 31, 1999, including $268,000 for pay-per-view movies, $260,000
for information system product sales and $13,000 for other services. Gross
profit on ancillary services and product sales was $507,000 for 2000, including
$297,000 for interactive television transactional revenue, $106,000 for
information system product sales and $104,000 for other services. Gross profit
for ancillary services and product sales was $1,550,000 for 1999, including
$1,346,000 for interactive television transactional services, $48,000 for
information system product sales and $156,000 for other services. The decline in
gross profit of $1,049,000 on interactive television transactional services was
attributable to both the reduction in the number of operating ship systems and
the discontinuation of management fees for system operation as a revenue source.
The growth of gross profit on information system product sales of $58,000 in
2000 as compared to 1999 reflects the growth in sales from the Erie Computer
operations.

Selling, General & Administrative Expenses

     The Company recorded $10,861,000 in selling, general & administrative
expenses during the year ended December 31, 2000, including $2,072,000 for
depreciation and amortization, $67,000 for losses on disposal of assets and
$8,722,000 for other selling, general & administrative expenses. Selling,
general & administrative expenses for the year ended December 31, 1999 were
$11,183,000, including $2,446,000 for depreciation and amortization, $86,000 for
losses on disposal of assets and $8,651,000 for other selling, general &
administrative expenses. The period-to-period decrease was $322,000, or 3%. The
Company experienced decreases in certain expenses in 2000 as compared to 1999,
including depreciation, amortization and severance costs. These decreases were
partially offset by the Company's addition of sales, marketing and delivery
resources to facilitate the Company's move toward a solutions-oriented project
focus.

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

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

     There were also several unusual items impacting selling, general &
administrative expenses in the year ended December 31, 2000. The Company
incurred expenses of approximately $111,000 in connection with an abandoned
acquisition candidate. A loss of approximately $53,000 was recorded on the sale
of assets related to the operations of Erie Computer.

     Depreciation and amortization were $2,072,000 for the year ended December
31, 2000 as compared to $2,446,000 for the year ended December 31, 1999. The
decline is primarily due to the inclusion of depreciation expense during 1999
for four shipboard interactive television systems sold to Celebrity in August
and September 1999.

Loss from Continuing Operations

     The Company recorded a loss from continuing operations of $2,583,000 for
the year ended December 31, 2000, as compared to a loss from continuing
operations of $2,374,000 for the year ended December 31, 1999. The increase in
loss from continuing operations is primarily attributable to the declines in
gross profit realized from legacy technology consulting and interactive
television transactional services, as discussed above.

Loss from Discontinued Operations

     During the year ended December 30, 2000, the Company recorded a loss of
$371,000 from its discontinued digital imaging operations as compared to a loss
of $303,000 during the year ended December 31, 1999. The increased loss from
discontinued operations was due to increased selling, general & administrative
expenses in 2000 related to Allin Digital's operations, primarily due to an
increased workforce. The loss related to Allin Digital's operations was
partially offset by a

                                      -40-
<PAGE>

$1,000 adjustment to the gain realized on the 1998 sale of SportsWave, Inc., a
subsidiary specializing in sports marketing services, that the Company owned
from 1996 to 1998.

Net Loss

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

Liquidity and Capital Resources

     At December 31, 2001, the Company had cash and liquid cash equivalents of
$2,226,000 available to meet its working capital and operational needs. The net
change in cash from December 31, 2000 was a decrease of $104,000, which resulted
primarily from repayment of the outstanding balance on the Company's line of
credit and cash used for preferred stock dividends and capital expenditures,
partially offset by cash provided by the Company's operations.

     The Company recognized a net loss for the year ended December 31, 2001 of
$11,946,000. The Company recorded significant non-cash losses of $11,105,000 due
to impairment or disposal of assets and non-cash expenses of $1,614,000 for
depreciation of property and equipment and amortization of intangible assets,
resulting in net cash provided of $773,000 related to the income statement.
Working capital adjustments resulted in additional net cash provided of
$1,749,000. Among the working capital adjustments resulting in cash provided
were an increase in billings in excess of costs and estimated gross margins of
$934,000 and decreases in accounts receivable and inventory of $1,371,000 and
$496,000, respectively. These were substantially offset by working capital
adjustments using cash, including decreases in accounts payable and accrued
liabilities of $454,000 and $577,000, respectively, and an increase in unbilled
receivables of $169,000. The net result of the income statement activity and
working capital adjustments was net cash provided of $2,522,000 related to
operating activities.

     Investing activities resulted in a net cash use of $143,000 for the year
ended December 31, 2001 due primarily to capital expenditures of $85,000 for
build-out costs, furniture and equipment related to the expansion of the
Company's Ft. Lauderdale office and the periodic upgrading of the Company's
computer hardware, software and communications equipment, and a cash payment of
$60,000 as a portion of additional purchase consideration pursuant to the
January 2001 settlement of litigation related to the Company's 1998 acquisition
of MEGAbase, Inc. ("MEGAbase"), which entity was subsequently merged into Allin
Consulting-California.

     Financing activities resulted in a net cash use of $2,483,000 during the
year ended December 31, 2001, due primarily to repayment of the outstanding
balance on the Company's line of credit of $2,155,000 and payments for preferred
stock dividends of $326,000.

     The Company does not rely on off-balance sheet financing and does not have
non-consolidated special purpose entities.

     The Company's common stock has been quoted on the OTC Bulletin Board since
May 9, 2001. The Company's common stock was previously listed on The Nasdaq
Stock Market's ("Nasdaq") National Market from the time of the Company's initial
public offering of its common stock in November 1996 until the common stock was
delisted from the National Market as of the opening of business on May 9, 2001.
The Company was unable to maintain compliance with Nasdaq's criteria for
continued designation of the common stock as a National Market security. At the
time of the delisting, the common stock was not eligible for listing on Nasdaq's
SmallCap Market. Should quotation of the common stock on the OTC Bulletin Board
cease for any reason, the liquidity of the common stock and the Company's
ability to raise equity capital would likely decrease further.

     On October 1, 1998, the Company and S&T Bank, a Pennsylvania banking
association, entered into a Loan and Security Agreement (the "S&T Loan
Agreement"), under which S&T Bank agreed to extend the Company a revolving
credit loan. The S&T Loan Agreement has subsequently been renewed as of October
1, 1999, 2000 and 2001 for additional annual periods. The expiration date of the
S&T Loan Agreement is September 30, 2002. The maximum borrowing availability
under the S&T Loan Agreement is the lesser of $5,000,000 or 80% of the aggregate
gross amount of eligible trade accounts receivable aged sixty days or less from
the date of invoice. The percentage of trade accounts receivable qualifying for
borrowing availability was reduced in conjunction with the 2001 credit facility
renewal. The applicable

                                      -41-
<PAGE>

percentage had been 85% prior to October 1, 2001. 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, 2001, maximum borrowing
availability under the S&T Loan Agreement was approximately $2,072,000. There
was no outstanding balance as of December 31, 2001 and there have been no
borrowings under the S&T Loan Agreement subsequent to that date. As of March 8,
2002, maximum borrowing availability under the S&T Loan Agreement was
approximately $853,000. The reduction in availability since December 31 was due
to significant accounts receivable collections in the first quarter of 2002.

     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 2001, the applicable
interest rate ranged from 5.75% to 10.50%. The interest rate in effect at
December 31, 2001 was 5.75%. As of March 8, 2002, the same interest rate
remained in effect. 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 $50,000 in interest expense related to this revolving credit loan
for the year ended December 31, 2001. If additional borrowings are made under
the revolving credit loan, 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. 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, as amended, 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 Exhibit 4 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, F and G preferred shares. The covenants also
include a cash flow to interest ratio of not less than 1.0 to 1.0. Cash flow is
defined as operating income before depreciation, amortization and interest. The
cash flow coverage ratio is measured for each of the Company's fiscal quarters.
S&T Bank waived the cash flow coverage covenant for the second, third and fourth
quarters of 2000 and the first quarter of 2001. The Company would not have
otherwise met the cash flow covenant requirements for those quarterly periods.
For the second quarter of 2001, S&T Bank agreed to exclude from the cash flow
calculation certain non-cash losses due to impairment of assets (See Note 8 -
Impairment of Long-Lived Assets in the Notes to Consolidated Financial
Statements under Item 8 - Financial Statements and Supplementary Data) and
increases in the allowance for doubtful accounts receivable related to the
discontinuation of Allin Digital's operations. The Company was in compliance
with the cash flow coverage covenant after the exclusion of the non-cash losses.
The Company was in compliance with the cash flow coverage covenant for the third
and fourth fiscal quarters of 2001. The Company was in compliance with all other
covenants as of December 31, 2001 and currently remains in compliance with all
other covenants. The S&T Loan Agreement also includes reporting requirements
regarding annual and monthly financial reports, accounts receivable and payable
statements, weekly borrowing base certificates and audit reports.

     As of December 31, 2001, the Company had outstanding 25,000 shares of the
Company's Series C Redeemable Preferred Stock, having a liquidation preference
of $100 per share. There is no mandatory redemption date for the Series C
preferred stock. There are no sinking fund provisions applicable to the Series C
preferred stock; however, the Company may redeem shares of Series C preferred
stock at any time. Accrued but unpaid dividends on the Series C preferred stock
were approximately $1,329,000 as of December 31, 2001 and approximately
$1,396,000 as of March 26, 2002. Series C preferred stock earns dividends at the
rate of 8% of the liquidation value thereof per annum, compounded quarterly,
until June 30, 2006, when the Company will be obligated to pay accrued
dividends, subject to legally available funds. Any accrued dividends on the
Series C preferred stock not paid by this date will compound thereafter at a
rate of 12% of the liquidation value thereof per annum. After June 30, 2006,
dividends on the Series C preferred stock will accrue and compound at a rate of
12% per annum and will be payable quarterly, subject to legally available funds.
The Company's current credit agreement with S&T Bank prohibits payment of
dividends on Series C preferred stock during the term of the agreement.

                                      -42-
<PAGE>

     As of December 31, 2001, the Company had outstanding 2,750 shares of the
Company's Series D Convertible Redeemable Preferred Stock having a liquidation
preference of $1,000 per share. There is no mandatory redemption date for the
Series D preferred stock; however, the Company may redeem shares of Series D
preferred stock after August 13, 2003. There are no sinking fund provisions
applicable to the Series D preferred stock. Series D preferred stock is
convertible into the Company's common stock until August 13, 2003. Each share of
Series D preferred stock is convertible into 276 shares of common stock, the
number of shares determined by dividing 1,000 by $3.6125, which is 85% of the
$4.25 closing price of the common stock on the last trading day prior to the
date of closing of the acquisition of Allin Consulting-Pennsylvania. Series D
preferred stock earns dividends at the rate of 6% of the liquidation value
thereof per annum, compounded quarterly if unpaid. Dividends on Series D
preferred stock are payable quarterly in arrears as of the last day of October,
January, April and July, subject to legally available funds. Accrued but unpaid
dividends on Series D preferred stock were approximately $28,000 as of December
31, 2001 and approximately $24,000 as of March 26, 2002. Holders of the Series D
preferred stock who exercise the conversion right will have the right to receive
any accrued and unpaid dividends through the date of conversion.

     As of December 31, 2001, the Company had outstanding 1,000 shares of the
Company's Series F Convertible Redeemable Preferred Stock having a liquidation
preference of $1,000 per share. There is no mandatory redemption date for the
Series F preferred stock; however, the Company may redeem shares of Series F
preferred stock at any time. There are no sinking fund provisions applicable to
the Series F preferred stock. Series F preferred stock is convertible to the
Company's common stock until the earlier of May 31, 2004 or the Company's
redemption of the Series F preferred shares, if any. Until and including May 31,
2004, the outstanding shares of Series F preferred stock are convertible into a
total of 508,647 shares of the Company's common stock, the number of shares
obtained by dividing 1,000 per preferred share by $1.966, 85% of the closing
price of the common stock as reported by Nasdaq on the last trading date prior
to the first anniversary of the date of issuance of the Series F preferred
stock. Series F preferred stock earns dividends at the rate of 7% of the
liquidation value thereof per annum. Dividends are payable quarterly in arrears
on the 15th of the first month of the following calendar quarter, subject to
legally available funds. Dividends accrued for seven months during 1999 of
approximately $41,000 are not required to be paid prior to redemption or
conversion, if any. Dividends not paid at scheduled dates will compound
quarterly thereafter. Accrued but unpaid dividends on Series F preferred stock
were approximately $59,000 as of December 31, 2001 and approximately $57,000 as
of March 26, 2002. Holders of the Series F preferred stock who exercise the
conversion right will have the right to receive any accrued and unpaid dividends
through the date of conversion.

     On March 14, 2002, Les D. Kent sold all of the 1,000 outstanding shares of
the Series F preferred stock, with accrued dividends of approximately $55,000, a
note due from the Company, as discussed below, with a principal balance of
$1,000,000, with approximately $73,000 of accrued interest, and 213,333 shares
of the Company's common stock, held by him to Henry Posner, Jr., a beneficial
owner of greater than five percent of the Company's common stock both before and
after the sale. Prior to the sale, Mr. Kent was also a beneficial owner of
greater than five percent of the Company's common stock.

     As of December 30, 2001, the Company had outstanding 150 shares of the
Company's Series G Convertible Redeemable Preferred Stock having a liquidation
preference of $10,000 per share. There is no mandatory redemption date for the
Series G preferred stock; however, the Company may redeem Series G shares after
December 29, 2005. The redemption price for each share of Series G preferred
stock will be the liquidation value of such share, plus an amount that would
result in an aggregate 25% compounded annual return on such liquidation value to
the date of redemption after giving effect to all dividends paid on such share
through the date of redemption. There are no sinking fund provisions applicable
to the Series G preferred stock. Each share of Series G preferred stock is
convertible into 28,571 shares of common stock at any time prior to redemption
by the Company, if any. The conversion price was set on December 29, 2001, the
first anniversary of the issuance of the Series G preferred stock, at the
minimum permissible price of $0.35 per common share. The minimum price became
effective since it exceeded 85% of the average closing price of the common stock
for the five trading days prior to December 29, 2001. Holders of the Series G
preferred stock who exercise the conversion right will have the right to receive
any accrued and unpaid dividends through the date of conversion. Any shares of
Series G preferred stock which are not converted to common stock will remain
outstanding until converted or until redeemed. Unless redeemed or converted to
common stock sooner, Series G preferred earns cumulative quarterly dividends at
the rate of 8% of the liquidation value thereof per annum until December 29,
2005. Thereafter, the dividend rate will increase to 12% of the liquidation
value until the earlier of the date of any redemption or the date of conversion
into common stock. Dividends are payable quarterly in arrears on the first day
of each calendar quarter, subject to legally available funds. Accrued but unpaid
dividends on the Series G preferred stock were approximately $30,000 as of
December 31, 2001 and approximately $28,000 as of March 26, 2002.

                                      -43-
<PAGE>

     The order of liquidation preference of the Company's outstanding preferred
stock, from senior to junior, is Series F, Series G, Series D and Series C. The
S&T Loan Agreement prohibits the Company from declaring or paying dividends on
any shares of its capital stock, except for current dividends payable in the
ordinary course of business on the Company's Series D, F and G preferred stock.
Each of the Certificates of Designation governing the Series C, D, F and G
preferred stock prohibits the Company from declaring or paying dividends or any
other distribution on the common stock or any other class of stock ranking
junior as to dividends and upon liquidation unless all dividends on the senior
series of preferred stock for the dividend payment date immediately prior to or
concurrent with the dividend or distribution as to the junior securities are
paid or are declared and funds are set aside for payment. In the event that the
number of shares of outstanding common stock is changed by any stock dividend,
stock split or combination of shares at any time shares of Series D, F or G
preferred stock are outstanding, the number of shares of common stock that may
be acquired upon conversion will be proportionately adjusted.

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

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

     The Company has an outstanding amended note payable 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 Convertible
Redeemable Preferred Stock, the outstanding principal balance of the note is
$1,000,000. The principal balance of the note is due April 15, 2005. The note
provides for interest at the rate of 7% per annum. Interest is payable quarterly
in arrears on the 15th of the first month of the following calendar quarter. Any
unpaid interest is compounded quarterly. Accrued interest of approximately
$58,000 applicable to the period June 1, 1999 to December 31, 1999 is not due
prior to the maturity of the loan principal. Accrued but unpaid interest was
approximately $76,000 as of December 31, 2001 and approximately $73,000 as of
March 26, 2002.

     Capital expenditures during the year ended December 31, 2001 were
approximately $85,000 and included build-out costs, furniture and equipment for
expansion of the Company's Ft. Lauderdale office and computer hardware, software
and communications equipment for the Company's periodic upgrading of technology.
Capital expenditures of approximately $50,000 are forecast for 2002, primarily
for computer hardware, software and communications equipment for the Company's
periodic upgrading of technology. Business conditions and management's plans may
change during 2002, so there can be no assurance that the Company's actual
amount of capital expenditures will not exceed the planned amount.

     The Company believes that available funds and cash flows expected to be
generated by current operations will be sufficient to meet its anticipated cash
needs for working capital and capital expenditures for its existing operations
for at least the next twelve months. As discussed above, the S&T Loan Agreement
expires September 30, 2002. 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 was unable to renew or replace the
current credit facility, 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 securities or convertible debt securities would
result in additional dilution to the Company's stockholders.

Effect of Recently Issued Accounting Standards

     In July 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations ("SFAS No. 141"),
and No. 142, Goodwill and Other Intangible Assets ("SFAS No. 142").

                                      -44-
<PAGE>

SFAS No. 141 requires all business combinations initiated after June 30, 2001 to
be accounted for using the purchase method. Under SFAS No. 142, goodwill and
intangible assets with indefinite lives are no longer amortized but are reviewed
annually (or more frequently if impairment indicators arise) for impairment.
Separable intangible assets that are not deemed to have indefinite lives will
continue to be amortized over their useful lives (but with no maximum life). The
amortization provisions of SFAS No. 142 apply to goodwill and intangible assets
acquired after June 30, 2001. With respect to goodwill and intangible assets
acquired prior to July 1, 2001, the Company is required to adopt SFAS No. 142
effective January 1, 2002. The Company is currently evaluating the effect that
the January 1, 2002 adoption of the goodwill impairment and transition
provisions of SFAS No. 142 will have on its results of operations and financial
position. Amortization expense of approximately $340,000 per year related to
goodwill and assembled workforces recorded in connection with the acquisitions
of Allin Consulting-California, MEGAbase and Allin Consulting-Pennsylvania will
no longer be recorded effective January 1, 2002.

     In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets ("SFAS No. 144"). SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
This statement supersedes Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of, Accounting Principles Board Opinion No. 30, Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions, and Committee on Accounting Procedure Accounting Research Bulletin
No. 51, Consolidated Financial Statements. SFAS No. 144 is effective for fiscal
years beginning after December 15, 2001 and interim periods within those fiscal
years. The Company adopted SFAS No. 144 effective January 1, 2002. The Company
is currently evaluating the effect that adoption of SFAS No. 144 will have on
its results of operations and financial position.

Item 7A - Quantitative and Qualitative Disclosure about Market Risk

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

     Foreign Currency Exchange Rate Risk. The Company currently does not invest
excess funds in derivative financial instruments or other market rate sensitive
instruments for the purpose of managing its foreign currency exchange rate risk.
Contracts covering any of the Company's foreign or at sea operations are
denominated in United States dollars. The Company believes that costs associated
with any projects or services conducted outside the United States are also
predominantly in United States dollars. Therefore, the Company does not believe
it is subject to material foreign exchange currency risk.

     Interest Rate Risk. In the ordinary course of business, the Company is
exposed to risks that increases in interest rates may adversely affect funding
costs associated with any balance, which may be outstanding from time to time,
of variable rate debt maturing September 30, 2002. There was no variable rate
debt outstanding as of December 31, 2001. The revolving credit loan bears
interest at S&T Bank's prime interest rate plus 1%. The Company believes S&T
Bank's prime interest rate will likely follow variations in short-term interest
rates set by the United States Federal Reserve Bank. During 2001, the applicable
interest rate varied from a low of 5.75% to a high of 10.50%. The applicable
rate as of December 31, 2001 was 5.75%. Decreases in the applicable interest
rate for the revolving credit loan during 2001 resulted in the Company incurring
approximately $7,000 less interest expense than would have resulted if the
interest rate had remained unchanged from the rate in effect on January 1, 2001.

     The following table presents approximate principal cash flows and related
interest rates by expected maturity date for the Company's fixed rate debt.
There is no current or variable rate debt outstanding at this time.

                               2002   2003   2004      2005        Total

Long Term Debt:
Fixed Rate Debt                 --     --     --    $1,000,000   $1,000,000
Average Interest Rate           --     --     --          7.00%        7.00%

                                      -45-
<PAGE>

     Fixed rate debt represents a note payable with an outstanding principal
balance of $1,000,000 as of December 31, 2001. The note payable bears interest
at a fixed rate of 7%. Note principal is due April 15, 2005. The note is related
to the November 1996 acquisition of Allin Consulting-California, with the
principal balance of the note being fixed and the maturity of the note being
revised in a November 1998 amendment. The amendment was entered into between the
Company and the former sole shareholder of Allin Consulting-California, who at
the time was the President of the Company and a beneficial holder of more than
five percent of the Company's common stock. Because the terms of the note were
established by related parties and were related to the particular circumstances
of the acquisition of Allin Consulting-California, the Company does not believe
the note is comparable to any publicly-traded debt instruments from which
independent evidence of fair value could be obtained. Consequently, no fair
value can be estimated for the note. 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.

     Trading Risk. The Company does not undertake any trading activities
involving commodity contracts that are accounted for at fair value, but for
which a lack of market price quotations necessitates the use of fair value
estimation techniques.

     Accounts Receivable/Accounts Payable. Accounts receivable and accounts
payable carrying amounts approximate the fair values of the accounts receivable
and accounts payable balances at December 31, 2001, respectively.

                                      -46-
<PAGE>

Item 8 -- Financial Statements and Supplementary Data

ALLIN CORPORATION & SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS



                            (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                            December 31,      December 31,
                                                                               2000              2001
                                                                            -----------       ----------
<S>                                                                         <C>               <C>
ASSETS
Current assets:
  Cash and cash equivalents                                                 $    2,330        $    2,226
  Accounts receivable, net of allowance for
           doubtful accounts of $116 and $124                                    4,730             3,359
  Unbilled receivable                                                               42               211
  Note receivable                                                                   14               ---
  Inventory                                                                        991                75
  Prepaid expenses                                                                 274               196
  Assets held for sale                                                              90                 8
  Costs and estimated gross margins
           in excess of billings                                                   722               ---
                                                                             ----------        ----------
           Total current assets                                                  9,193             6,075

  Property and equipment, at cost:
  Leasehold improvements                                                           465               471
  Furniture and equipment                                                        3,089             2,964
  On-board equipment                                                               951               ---
                                                                             ----------        ----------
                                                                                 4,505             3,435
  Less--accumulated depreciation                                                (3,394)           (2,953)
                                                                             ----------        ----------
                                                                                 1,111               482

  Notes receivable from employees                                                    3               ---
  Software development costs, net of accumulated
           amortization of $907 and $912                                             6               ---
  Goodwill, net of accumulated amortization of
           $2,829 and $3,502                                                    11,932               712
  Intangible and other assets, net of accumulated amortization
           of $664 and $912                                                      2,037             1,789
                                                                             ----------        ----------

Total assets                                                                $   24,282        $    9,058
                                                                             ==========         =========
</TABLE>


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

                                      -47-
<PAGE>

ALLIN CORPORATION & SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS



                 (Dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                              December 31,            December 31,
                                                                                  2000                    2001
                                                                             --------------          --------------
<S>                                                                          <C>                     <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Current portion of notes payable                                           $          2            $          ---
  Bank lines of credit                                                              2,155                       ---
  Accounts payable                                                                  2,783                     2,329
  Accrued liabilities:
           Compensation and payroll taxes                                             426                       298
           Dividends on preferred stock                                             1,124                     1,445
           Other                                                                      757                       307
  Billings in excess of costs and
           estimated gross margins                                                    ---                       212
  Deferred revenue                                                                     47                        53
  Income taxes payable                                                                  1                       ---
                                                                              ------------               -----------
           Total current liabilities                                                7,295                     4,644

Non-current portion of notes payable                                                1,000                     1,000
Commitments and contingencies

Shareholder's equity:
  Preferred stock, par value $.01 per share,
           authorized 100,000 shares:
           Series C redeemable preferred stock, designated,
                    issued and outstanding 25,000 shares                            2,500                     2,500
           Series D convertible redeemable preferred stock,
                    designated, issued and outstanding 2,750
                    shares                                                          2,152                     2,152
           Series F convertible redeemable preferred stock,
                    designated, issued and outstanding 1,000
                    shares                                                          1,000                     1,000
           Series G convertible redeemable preferred stock,
                    designated, issued and outstanding 150
                    shares                                                          1,015                     1,028
  Common stock, par value $.01 per share - authorized
           20,000,000 shares, issued 6,953,114 and
           6,967,339 shares                                                            70                        70
  Additional paid-in-capital                                                       41,642                    41,002
  Warrants                                                                          1,017                     1,017
  Treasury stock at cost, 8,167 common shares                                         (27)                      (27)
  Retained deficit                                                                (33,382)                  (45,328)
                                                                              ------------               -----------
Total shareholders' equity                                                         15,987                     3,414
                                                                              ------------               -----------

Total liabilities and shareholders' equity                                   $     24,282          $          9,058
                                                                              ============               ===========

</TABLE>



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

                                      -48-
<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,
                                                                                  1999           2000           2001
                                                                              ------------   ------------   ------------
<S>                                                                            <C>            <C>            <C>
Revenue:
                  Solution area consulting services                            $    6,009     $    7,266     $    8,824
                  Solution area integration services                                3,068          5,914          6,459
                  Legacy technology consulting services                            11,537          6,692          1,998
                  Ancillary services                                                1,783            576            547
                  Ancillary product sales                                             308            422            253
                                                                               ----------     ----------     ----------

                         Total revenue                                             22,705         20,870         18,081

Cost of sales                                                                      13,714         12,455          9,723
                                                                               ----------     ----------     ----------

Gross profit                                                                        8,991          8,415          8,358

Selling, general & administrative expenses:
                  Depreciation and amortization                                     2,446          2,072          1,571
                  Loss on impairment or disposal of assets                             86             67         10,751
                  Other selling, general & administrative expenses                  8,651          8,722          7,176
                                                                               ----------     ----------     ----------

                         Total selling, general & administrative expenses          11,183         10,861         19,498
                                                                               ----------     ----------     ----------

Loss from operations                                                               (2,192)        (2,446)       (11,140)

Interest (income) expense, net                                                        173            216            117
                                                                               ----------     ----------     ----------

Loss before provision for income taxes                                             (2,365)        (2,662)       (11,257)

Provision for (benefit from) income taxes                                               9            (79)            --
                                                                               ----------     ----------     ----------

Loss from continuing operations                                                    (2,374)        (2,583)       (11,257)

Loss from discontinued operations                                                    (303)          (371)          (689)
Gain on disposal of segment                                                             1             --             --
                                                                               ----------     ----------     ----------

Loss from discontinued operations                                                    (302)          (371)          (689)
                                                                               ----------     ----------     ----------

Net loss                                                                           (2,676)        (2,954)       (11,946)

Accretion and dividends on preferred stock                                            699            637            660
                                                                               ----------     ----------     ----------

Net loss attributable to common shareholders                                   $   (3,375)    $   (3,591)    $  (12,606)
                                                                               ==========     ==========     ==========

Loss per common share from continuing
                  operations - basic and diluted                               $    (0.51)    $    (0.50)    $    (1.71)
                                                                               ----------     ----------     ----------

Loss per common share from
                  discontinued operations - basic and diluted                  $    (0.05)    $    (0.06)    $    (0.10)
                                                                               ----------     ----------     ----------

Net loss per common share - basic and diluted                                  $    (0.56)    $    (0.56)    $    (1.81)
                                                                               ----------     ----------     ----------

Weighted average number of shares outstanding - basic and diluted               5,972,001      6,371,827      6,966,365
                                                                               ----------     ----------     ----------
</TABLE>

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

                                      -49-
<PAGE>

ALLIN CORPORATION & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                  (Dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                                              Series C                 Series D                   Series E
                                                             Redeemable       Convertible   Redeemable   Convertible   Redeemable
                                                        Preferred    Stock     Preferred      Stock       Preferred      Stock
                                                        -------------------   ------------------------   ------------------------
                                                         Shares     Balance      Shares       Balance       Shares      Balance
                                                         ------     -------      ------       -------       ------      -------
<S>                                                      <C>        <C>          <C>          <C>            <C>        <C>
Balance, December 31, 1998                                   --     $   --          --        $   --            --      $    --

    Forfeiture of restricted common stock                    --         --          --            --            --           --
    Amortization of deferred compensation                    --         --          --            --            --           --
    Issuance of Series C redeemable preferred
        stock in exchange for Series A
        convertible, redeemable preferred stock          25,000      2,500          --            --            --           --
    Issuance of Series D convertible redeemable
        preferred stock in exchange for Series B
        redeemable preferred stock                           --         --       2,750         2,152            --           --
    Issuance of Series E convertible redeemable
        preferred stock in exchange for
        promissory note                                      --         --          --            --         1,926        1,926
    Issuance of Series F convertible redeemable
        preferred stock in exchange for
        promissory note                                      --         --          --            --            --           --
    Beneficial conversion feature of Series F
        convertible redeemable preferred stock               --         --          --            --            --           --
    Accretion of Series F convertible redeemable
        preferred stock                                      --         --          --            --            --           --
    Accrual of dividends on preferred stock                  --         --          --            --            --           --
    Option issuance to non-employees                         --         --          --            --            --           --
    Net loss                                                 --         --          --            --            --           --
                                                         ------     ------       -----        ------        ------      -------
Balance, December 31, 1999                               25,000     $2,500       2,750        $2,152         1,926      $ 1,926

    Issuance of common stock in acquisition of assets        --         --          --            --            --           --
    Conversion of Series E convertible, redeemable
        preferred stock and accrued dividends
        to common stock                                      --         --          --            --        (1,926)      (1,926)
    Issuance of Series G convertible redeemable
        preferred stock                                      --         --          --            --            --           --
    Beneficial conversion feature of Series G
        convertible redeemable preferred stock               --         --          --            --            --           --
    Accretion of Series G convertible redeemable
        preferred stock                                      --         --          --            --            --           --
    Issuance of warrants                                     --         --          --            --            --           --
    Accrual of dividends on preferred stock                  --         --          --            --            --           --
    Net loss                                                 --         --          --            --            --           --
                                                         ------     ------       -----        ------        ------      -------
Balance, December 31, 2000                               25,000     $2,500       2,750        $2,152            --      $    --
                                                         ======     ======       =====        ======        ======      =======

    Issuance of common stock in acquisition                  --         --          --            --            --           --
    Accretion of Series G convertible redeemable
        preferred stock                                      --         --          --            --            --           --
    Accrual of dividends on preferred stock                  --         --          --            --            --           --
    Net loss                                                 --         --          --            --            --           --
                                                         ------     ------       -----        ------        ------      -------
Balance, December 31, 2001                               25,000     $2,500       2,750        $2,152            --      $    --
                                                         ======     ======       =====        ======        ======      =======

<CAPTION>
                                                                 Series F                 Series G
                                                        Convertible   Redeemable   Convertible   Redeemable
                                                         Preferred      Stock       Preferred      Stock
                                                        ------------------------   ------------------------
                                                           Shares       Balance       Shares       Balance
                                                           ------       -------       ------       -------
<S>                                                        <C>          <C>            <C>         <C>
Balance, December 31, 1998                                    --        $   --          --         $   --

    Forfeiture of restricted common stock                     --            --          --             --
    Amortization of deferred compensation                     --            --          --             --
    Issuance of Series C redeemable preferred
        stock in exchange for Series A
        convertible, redeemable preferred stock               --            --          --             --
    Issuance of Series D convertible redeemable
        preferred stock in exchange for Series B
        redeemable preferred stock                            --            --          --             --
    Issuance of Series E convertible redeemable
        preferred stock in exchange for
        promissory note                                       --            --          --             --
    Issuance of Series F convertible redeemable
        preferred stock in exchange for
        promissory note                                    1,000         1,000          --             --
    Beneficial conversion feature of Series F
        convertible redeemable preferred stock                --            --          --             --
    Accretion of Series F convertible redeemable
        preferred stock                                       --            --          --             --
    Accrual of dividends on preferred stock                   --            --          --             --
    Option issuance to non-employees                          --            --          --             --
    Net loss                                                  --            --          --             --
                                                           -----        ------         ---         ------
Balance, December 31, 1999                                 1,000        $1,000          --         $   --

    Issuance of common stock in acquisition of assets         --            --          --             --
    Conversion of Series E convertible, redeemable
        preferred stock and accrued dividends
        to common stock                                       --            --          --             --
    Issuance of Series G convertible redeemable
        preferred stock                                       --            --         150          1,015
    Beneficial conversion feature of Series G
        convertible redeemable preferred stock                --            --          --             --
    Accretion of Series G convertible redeemable
        preferred stock                                       --            --          --             --
    Issuance of warrants                                      --            --          --             --
    Accrual of dividends on preferred stock                   --            --          --             --
    Net loss                                                  --            --          --             --
                                                           -----        ------         ---         ------
Balance, December 31, 2000                                 1,000        $1,000         150         $1,015
                                                           =====        ======         ===         ======

    Issuance of common stock in acquisition                   --            --          --             --
    Accretion of Series G convertible redeemable
        preferred stock                                       --            --          --             13
    Accrual of dividends on preferred stock                   --            --          --             --
    Net loss                                                  --            --          --             --
                                                           -----        ------         ---         ------
Balance, December 31, 2001                                 1,000        $1,000         150         $1,028
                                                           =====        ======         ===         ======
</TABLE>

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

                                       50
<PAGE>

ALLIN CORPORATION & SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                  (Dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                                         Common       Stock     Additional
                                                        ---------------------    Paid-In
                                                          Shares    Par Value    Capital     Warrants
                                                        ---------   ---------   ----------   --------
<S>                                                     <C>            <C>       <C>          <C>
Balance, December 31, 1998                              5,994,030      $60       $40,793      $  598

    Forfeiture of restricted common stock                  (6,367)      --           (75)         --
    Amortization of deferred compensation                      --       --            --          --
    Issuance of Series C redeemable preferred
        stock in exchange for Series A
        convertible, redeemable preferred stock                --       --            --          --
    Issuance of Series D convertible redeemable
        preferred stock in exchange for Series B
        redeemable preferred stock                             --       --            --          --
    Issuance of Series E convertible redeemable
        preferred stock in exchange for
        promissory note                                        --       --            --          --
    Issuance of Series F convertible redeemable
        preferred stock in exchange for
        promissory note                                        --       --            --          --
    Beneficial conversion feature of Series F
        convertible redeemable preferred stock                 --       --           176          --
    Accretion of Series F convertible redeemable
        preferred stock                                        --       --          (176)         --
    Accrual of dividends on preferred stock                    --       --          (523)         --
    Option issuance to non-employees                           --       --             3          --
    Net loss                                                   --       --            --          --
                                                        ---------      ---       -------      ------
Balance, December 31, 1999                              5,987,663      $60       $40,198      $  598

    Issuance of common stock in acquisition of assets      23,310       --            93          --
    Conversion of Series E convertible, redeemable
        preferred stock and accrued dividends
        to common stock                                   942,141       10         1,930          --
    Issuance of Series G convertible redeemable
        preferred stock                                        --       --            --          --
    Beneficial conversion feature of Series G
        convertible redeemable preferred stock                 --       --            58          --
    Accretion of Series G convertible redeemable
        preferred stock                                        --       --           (58)         --
    Issuance of warrants                                       --       --            --         419
    Accrual of dividends on preferred stock                    --       --          (579)         --
    Net loss                                                   --       --            --          --
                                                        ---------      ---       -------      ------
Balance, December 31, 2000                              6,953,114      $70       $41,642      $1,017
                                                        =========      ===       =======      ======

    Issuance of common stock in acquisition                14,225       --            20          --
    Accretion of Series G convertible redeemable
        preferred stock                                        --       --           (13)         --
    Accrual of dividends on preferred stock                    --       --          (647)         --
    Net loss                                                   --       --            --          --
                                                        ---------      ---       -------      ------
Balance, December 31, 2001                              6,967,339      $70       $41,002      $1,017
                                                        =========      ===       =======      ======

<CAPTION>
                                                                       Treasury   Stock                 Total
                                                          Deferred     ----------------   Retained   Shareholders'
                                                        Compensation    Shares    Cost    Deficit      Equity
                                                        ------------   --------   -----   --------   -------------
<S>                                                        <C>           <C>      <C>     <C>           <C>
Balance, December 31, 1998                                 $(104)        1,800    $ (6)   $(27,752)     $(13,589)

    Forfeiture of restricted common stock                     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
    Accretion of Series F convertible redeemable
        preferred stock                                       --            --      --          --          (176)
    Accrual of dividends on preferred stock                   --            --      --          --          (523)
    Option issuance to non-employees                          --            --      --          --             3
    Net loss                                                  --            --      --      (2,676)       (2,676)
                                                           -----         -----    ----    --------      --------
Balance, December 31, 1999                                 $  --         8,167    $(27)   $(30,428)      (17,979)

    Issuance of common stock in acquisition of assets         --            --      --          --            93
    Conversion of Series E convertible, redeemable
        preferred stock and accrued dividends
        to common stock                                       --            --      --          --            14
    Issuance of Series G convertible redeemable
        preferred stock                                       --            --      --          --         1,015
    Beneficial conversion feature of Series G
        convertible redeemable preferred stock                --            --      --          --            58
    Accretion of Series G convertible redeemable
        preferred stock                                       --            --      --          --           (58)
    Issuance of warrants                                      --            --      --          --           419
    Accrual of dividends on preferred stock                   --            --      --          --          (579)
    Net loss                                                  --            --      --      (2,954)       (2,954)
                                                           -----         -----    ----    --------      --------
Balance, December 31, 2000                                 $  --         8,167    $(27)   $(33,382)      (15,987)
                                                           =====         =====    ====    ========      ========

    Issuance of common stock in acquisition                   --            --      --          --            20
    Accretion of Series G convertible redeemable
        preferred stock                                       --            --      --          --            --
    Accrual of dividends on preferred stock                   --            --      --          --          (647)
    Net loss                                                  --            --      --     (11,946)      (11,946)
                                                           -----         -----    ----    --------      --------
Balance, December 31, 2001                                 $  --         8,167    $(27)   $(45,328)     $  3,414
                                                           =====         =====    ====    ========      ========
</TABLE>

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

                                      -51-
<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,
                                                                               1999                  2000             2001
                                                                          ----------------       ------------     ------------
<S>                                                                       <C>                    <C>              <C>
Cash flows from operating activities:
  Net loss                                                                $      (2,676)      $   (2,954)      $   (11,946)
  Adjustments to reconcile net loss to net cash flows
     from operating activities:
         Depreciation and amortization                                            2,510            2,138             1,614
         Amortization of deferred compensation                                        8              ---               ---
         Cost of fixed assets sold                                                  391              248               ---
         Loss (gain) from disposal of assets                                         87              (85)               25
         Loss from impairment of assets                                             ---              ---            11,080
         Equity in loss of non-consolidated corporation                              72              ---               ---
         Gain on disposal of segment                                                 (1)             ---               ---
  Changes in certain assets and liabilities:
         Accounts receivable                                                     (1,366)            (596)            1,371
         Unbilled receivable                                                        ---              (42)             (169)
         Inventory                                                                 (295)            (250)              496
         Prepaid expenses                                                          (112)             155                77
         Assets held for sale                                                        (4)             (71)               49
         Other assets                                                                18              ---                17
         Accounts payable                                                            91            2,118              (454)
         Accrued liabilities                                                        204             (189)             (577)
         Billings in excess of costs and
                  estimated gross margins                                           658           (1,374)              934
         Income taxes payable                                                      (112)             (80)               (1)
         Deferred revenue                                                           920             (949)                6
                                                                            ------------       ----------       -----------
     Net cash flows (used for) provided by operating activities                     393           (1,931)            2,522
                                                                            ------------       ----------       -----------

Cash flows from investing activities:
  Proceeds from sale of assets                                                       36              186                 2
  Capital expenditures                                                             (374)            (444)              (85)
  Proceeds from disposal of subsidiary                                              463              ---               ---
  Acquisition of subsidiaries                                                       ---              ---               (60)
                                                                            ------------       ----------       -----------
     Net cash flows (used for) provided by investing activities                     125             (258)             (143)
                                                                            ------------       ----------       -----------

Cash flow from financing activities:
  Issuance of preferred stock and warrants                                          ---            1,434               ---
  Payment of dividends on preferred stock                                          (204)            (306)             (326)
  Proceeds from (repayment of) line of credit                                      (856)           1,505            (2,155)
  Debt acquisition costs                                                             (3)             ---               ---
  Payments on notes payable                                                         (77)              (2)               (2)
                                                                            ------------       ----------       -----------
     Net cash flows (used for) provided by financing activities                  (1,140)           2,631            (2,483)
                                                                            ------------       ----------       -----------

Net change in cash and cash equivalents                                            (622)             442              (104)
Cash and cash equivalents, beginning of period                                    2,510            1,888             2,330
                                                                            ------------       ----------       -----------
Cash and cash equivalents, end of period                                  $       1,888       $    2,330       $     2,226
                                                                            ===========        ==========       ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.

                                       52
<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. The Company's
corporate headquarters are located in Pittsburgh, Pennsylvania.

     Allin Interactive Corporation ("Allin Interactive"), a Delaware
corporation, provides interactive media systems integration and consulting
services from its Ft. Lauderdale, Florida headquarters and at various domestic
and international locations. Allin Interactive also derives revenue from the
sale of products related to interactive television technology. Allin Interactive
historically operated interactive television systems installed on cruise ships
and derived revenue from passengers through pay-per-view and gaming interactive
services. Operation of the last two of these systems ceased in December 2001.
Transactional revenue from cruise ship systems was derived at sea and at various
domestic and international ports of call.

     Allin Corporation of California ("Allin Consulting-California"), a
California corporation, generates revenue from fees for technology consulting
services that develop and deploy solutions based on technology from Microsoft
Corporation ("Microsoft"). Operations are oriented around solution areas meeting
customer technology infrastructure and electronic business needs. Allin
Consulting-California's services are provided at various locations within the
United States, mostly located near its two offices in northern California.

     Allin Consulting of Pennsylvania, Inc. ("Allin Consulting-Pennsylvania"), a
Pennsylvania corporation, also generates fee-based revenue from services that
develop and deploy Microsoft-based technology solutions. Microsoft-based
services are oriented around Technology Infrastructure and E-Business Solution
Areas. Additionally, Allin Consulting-Pennsylvania provides services related to
specialized legacy technologies, primarily IBM mainframe systems. Allin
Consulting-Pennsylvania's Microsoft-based and legacy technology services are
provided mostly near its operational headquarters in Pittsburgh. Until mid-2001,
Allin Consulting-Pennsylvania also provided specialized banking industry legacy
technology consulting services at various locations nationally. The specialized
banking industry services are no longer provided.

     Allin Network Products, Inc. ("Allin Network"), a California corporation,
generates revenue from sales of information system products and provision of
technology infrastructure services. Allin Network's operations are concentrated
near Pittsburgh and in northern California.

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

     During June 2001, the Company elected to discontinue the digital imaging
systems integration and product sales activities of Allin Digital Imaging Corp.
("Allin Digital"), a Delaware corporation. Information presented herein
concerning revenue, cost of sales, gross profit, and selling, general and
administrative expenses excludes the operations of Allin Digital. The results of
operations of Allin Digital are presented as loss from discontinued operations.
See Note 9 - Discontinuation of Digital Imaging Operations.

     All of the outstanding stock of SportsWave, Inc. ("SportsWave"), a
Pennsylvania corporation, was sold by the Company on September 30, 1998. An
adjustment of $1,000 to the gain recognized on the disposal of SportsWave was
recorded during the year ended December 31, 1999, and is presented after loss
from continuing operations in the Company's Consolidated Statements of
Operations.

     The Company is subject to a number of risks, including, among others,
public stock market requirements and trading issues, uncertainty as to the
Company's future profitability, fluctuations in operating results, the Company's
history of net losses and accumulated deficit, liquidity, expiration of its line
of credit in September 2002, and risks associated with general economic
conditions, world events, such as the September 2001 incidents of terrorism in
the United States, which negatively impact the Company or its customers, the
decline in the demand for legacy technology services, competitive market
conditions; dependence on key personnel; rapidly changing technology; and risks
inherent in developing new products and markets.

                                      -53-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

2.   Summary of Significant Accounting Policies

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

Principles of Consolidation

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

     The Consolidated Balance Sheets as of December 31, 2000 and 2001 include
the financial position of the Company, Allin Interactive, Allin
Consulting-California, Allin Consulting-Pennsylvania, Allin Network, Allin
Holdings and Allin Digital as of those dates. The Consolidated Statements of
Operations for the periods ended December 31, 1999, 2000 and 2001 reflect the
results of continuing operations for the Company, Allin Interactive, Allin
Consulting-California, Allin Consulting-Pennsylvania, Allin Network and Allin
Holdings.

Discontinued Operations

     During June 2001, the Company elected to discontinue the digital imaging
systems integration, technical support and product sales activities of Allin
Digital. Allin Digital's activities represented all of the Company's revenue and
gross profit previously reported for two segments, Digital Imaging Systems
Integration and Digital Imaging Product Sales, as well as a portion of the
revenue and gross profit previously reported for the segment Other Services.
Accordingly, the results of operations, net of tax, for Allin Digital for the
periods ended December 31, 1999, 2000 and 2001 have been reclassified to loss
from discontinued operations, which is presented after income or loss from
continuing operations. See Note 9 - Discontinuation of Digital Imaging
Operations. Also, the information related to the Company's revenue and gross
profit included in Note 19 - Industry Segment Information - has been
reclassified for the periods presented to exclude the discontinued operations.

     An adjustment to recognize an additional $1,000 gain on the disposal of
SportsWave was recorded during the year ended December 31, 1999, and is
presented after loss from continuing operations in the Company's Consolidated
Statements of Operations.

Use of Estimates in the Preparation of Financial Statements

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

Cash and Cash Equivalents

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

Market Risk Sensitive Instruments

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

                                      -54-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Revenue and Cost of Sales Recognition

     Allin Interactive's recognition method for revenue and cost of sales for
systems integration services is based on the size and expected duration of the
project and whether significant software modification is required. For systems
integration projects in excess of $250,000 of revenue and expected to be of
greater than 90 days duration, Allin Interactive recognizes revenue and cost of
sales based on percentage of completion (if significant software modification is
required) or proportional performance. Allin Interactive utilizes the proportion
of labor incurred to expected total project labor as a quantitative factor in
determining the percentage of completion or proportional performance recognized
for projects when the proportion of total project costs incurred to expected
total project costs is not representative of actual project completion status.
For all other systems integration projects, revenue and cost of sales are
recognized upon completion of the project. For consulting engagements performed
on a fixed-price basis, revenue and related cost of sales are recognized on a
percentage of completion basis. Time-based consulting revenue and cost of sales
are recognized as services are performed. Allin Interactive recognizes revenue
and associated cost from the sale of products at the time the products are
shipped. Interactive television transactional revenue and any associated cost of
sales were recognized as the services were performed prior to cessation of these
activities in December 2001. On the accompanying Consolidated Statements of
Operations, systems integration revenue is included in "Solution area
integration services", consulting revenue is included in "Solution area
consulting services", interactive television transactional revenue is included
in "Ancillary services" and product sales are included in "Ancillary product
sales."

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

     Allin Network recognizes revenue and associated cost from the sale of
products at the time the products are shipped. Allin Network also performs
technology infrastructure services for fixed monthly fees. Revenue is recognized
when the period of service for the fixed monthly fee elapses and associated cost
of sales is recognized as services are performed. Revenue from product sales is
included in "Ancillary product sales" and revenue from technology infrastructure
consulting services is included in "Solution area consulting services" on the
accompanying Consolidated Statements of Operations.

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

     Three significant customers accounted for approximately 27%, 16% and 15%,
respectively, of the Company's 2001 revenue. Three significant customers
accounted for approximately 13%, 12% and 10%, respectively, of the Company's
2000 revenue. Two significant customers each accounted for approximately 11% of
the Company's 1999 revenue.

Accounts Receivable and Unbilled Receivables

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

     As of December 31, 2001, three significant customers comprised 35%, 27% and
11%, respectively, of the Company's accounts receivable. As of December 31,
2000, one significant customer comprised 27% of the Company's accounts
receivable.

                                      -55-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Inventory

     Inventory, consisting principally of digital photography equipment and
software and computer hardware, software and communications equipment utilized
in interactive television systems, is stated at the lower of cost or market. The
Company utilizes an average cost method. During 2001, the carrying value for
inventory held by Allin Digital and Allin Interactive was determined to be
impaired and was written down to estimated market value. See Note 8 - Impairment
of Long-Lived Assets - for additional information.

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, 1999, 2000 and 2001 was approximately $1,098,000, $759,000, and $650,000,
respectively.

Assets Held for Sale

     Assets held for sale as of December 31, 2001 consisted of information
system equipment purchased prior to year-end that was sold to customers during
January 2002.

Software Development Costs and Research and Development Expense

     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. All of the Company's
previously capitalized software development costs were fully amortized as of
December 31, 2001. Amortization expense related to software development costs
was approximately$-0-, $8,000, and $1,000 during the years ended December 31,
1999, 2000 and 2001, respectively. Research and development expense was
approximately $23,000, $21,000, and $-0- for the years ended December 31, 1999,
2000, and 2001, respectively.

Intangible Assets

     Intangible assets include values assigned in recording the 1996 acquisition
of Allin Consulting-California and the 1998 acquisitions of Allin
Consulting-Pennsylvania and MEGAbase, Inc. ("MEGAbase"), which was merged into
Allin Consulting-California, in accordance with Accounting Principals Board
Opinion No. 16, "Accounting for Business Combinations" (APB No. 16). During
2001, due to significant variances in the rate of revenue and gross profit
growth from prior expectations for these operations and changing perceptions
about market conditions, the Company re-evaluated the recorded values of the
intangible assets related to these acquisitions. Cash flow projections indicated
the estimated fair values of the acquired intangible assets were less than the
net unamortized values of the assets. Accordingly, the Company recorded losses
for impairment of goodwill associated with the acquisitions. See Note 8 -
Impairment of Long-Lived Assets - for additional information.

     As of December 31, 2001, intangible assets recorded on Allin
Consulting-California included assembled work force and goodwill, net of
impairment loss, related to the acquisition of Allin Consulting-California and
goodwill, net of impairment loss, related to the acquisition of MEGAbase, all
with useful lives of seven years. As of December 31, 2001, intangible assets
recorded on Allin Consulting-Pennsylvania included assembled work force,
customer list and goodwill, net of impairment loss. The originally estimated
useful life of five years for assembled workforce remains in effect as of
December 31, 2001 while the originally estimated useful lives for customer list
and goodwill, fourteen and thirty years, respectively, were revised during 2001
to reflect useful lives extending through 2011.

                                      -56-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     The agreement for the acquisition of MEGAbase included provisions for
contingent payments based on the achievement of certain financial results, as
defined in the agreement, subsequent to the acquisition. In January 2001,
additional purchase consideration consisting of cash and shares of the Company's
common stock was recorded related to this acquisition. The additional purchase
consideration was recorded as goodwill and is being amortized over the remaining
useful life of goodwill recorded at the time of the acquisition. See Notes 7 -
Acquisitions.

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

Impairment of Long-Lived Assets

          The Company follows the guidelines set forth in Statement of Financial
Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of" (SFAS No. 121). In the event that
facts and circumstances indicate that the carrying value of an asset may not be
recoverable, fair value, or if not readily available, estimated future
undiscounted cash flows associated with the asset, would be compared to the
asset's carrying value to determine if a write-down to market value or
discounted cash flow is required. See Note 8 - Impairment of Long-Lived Assets -
for information related to impairment losses recorded in 2001.

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

     Costs and estimated gross margins in excess of billings and billings in
excess of costs and estimated gross margins relate to Allin Interactive projects
for which revenue and cost of sales are being recognized on a percentage of
completion or proportional performance basis. Costs and estimated gross margins
in excess of billings consists of costs and estimated gross margins associated
with these projects recognized on a percentage of completion or proportional
performance basis, net of amounts billed but not yet recognized as revenue.
Billings in excess of costs and estimated gross margins consists of amounts
billed for projects recognized on a percentage of completion or proportional
performance basis but not yet recognized as revenue, net of costs and estimated
gross margins associated with these projects which have not yet been recognized
as cost of sales.

Deferred Revenue

     Deferred revenue is recorded for amounts billed or received for which
services will be performed in future periods. Such amounts are recognized as
revenue when services are performed. As of December 31, 2000 and 2001,
respectively, deferred revenue represented amounts expected to be recognized as
revenue within one year of the applicable date.

Advertising and Promotions

     Expenditures for advertising and promotions were approximately $70,000,
$64,000, and $60,000 for the years ended December 31, 1999, 2000, and 2001,
respectively. 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.

                                      -57-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Financial Instruments

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

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

Earnings Per Share

     Earnings per share ("EPS") of common stock have been computed in accordance
with Financial Accounting Standards Board Statement No. 128, "Earnings Per
Share". See Note 6 - Earnings Per Share.

Recently Issued Accounting Standards

     In July 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, "Business Combinations" ("SFAS No.
141"), and No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142").
SFAS No. 141 requires all business combinations initiated after June 30, 2001 to
be accounted for using the purchase method. Under SFAS No. 142, goodwill and
intangible assets with indefinite lives are no longer amortized but are reviewed
annually (or more frequently if impairment indicators arise) for impairment.
Separable intangible assets that are not deemed to have indefinite lives will
continue to be amortized over their useful lives (but with no maximum life). The
amortization provisions of SFAS No. 142 apply to goodwill and intangible assets
acquired after June 30, 2001. With respect to goodwill and intangible assets
acquired prior to July 1, 2001, the Company is required to adopt SFAS No. 142
effective January 1, 2002. The Company is currently evaluating the effect that
the January 1, 2002 adoption of the goodwill impairment and transition
provisions of SFAS No. 142 will have on its results of operations and financial
position. Amortization expense of approximately $340,000 per year related to
goodwill and assembled workforces recorded in connection with the acquisitions
of Allin Consulting-California, MEGAbase and Allin Consulting-Pennsylvania will
no longer be recorded effective January 1, 2002.

     In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS No. 144"). SFAS No. 144 addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets. This statement supersedes Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", Accounting Principles Board Opinion No. 30,
"Reporting the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions" and Committee on Accounting Procedure Accounting
Research Bulletin No. 51, "Consolidated Financial Statements". SFAS No. 144 is
effective for fiscal years beginning after December 15, 2001 and interim periods
within those fiscal years. The Company adopted SFAS No. 144 effective January 1,
2002. The Company is currently evaluating the effect that adoption of SFAS No.
144 will have on its results of operations and financial position.

Supplemental Disclosure of Cash Flow Information

     Cash payments for income taxes were approximately $255,000, $7,000, and
$4,000 during the years ended December 31, 1999, 2000, and 2001, respectively.
Cash payments for interest were approximately $153,000, $557,000, and $132,000
during the years ended December 31, 1999, 2000, and 2001, respectively.

     Dividends of approximately $347,000, $314,000 and $367,000 were accrued but
unpaid during the years ended December 31, 1999, 2000 and 2001, respectively, on
outstanding shares of the Company's preferred stock. Cash payments of dividends
were approximately $204,000, $306,000 and $326,000 during the years ended
December 31, 1999, 2000 and 2001, respectively.

                                      -58-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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

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

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

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

     The non-cash investing and financing activities for the year ended December
31, 2001 are as follows:

Issuance of common stock for additional purchase consideration
     related to the acquisition of MEGAbase                         $    20,000

3.   Preferred Stock

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

     Under the terms of the Loan and Security Agreement between the Company and
S&T Bank, dated as of October 1, 1998 and amended as of October 1, 1999, and the
annual renewal of the agreement for the year ended September 30, 2001, the
Company is prohibited from declaring or paying dividends on any shares of its
capital stock, except for current dividends payable in the ordinary course of
business on the Company's Series D, F and G preferred stock. The Loan and
Security Agreement expires September 30, 2002. However, the Company expects the
Loan and Security Agreement will be renewed. Each of the Certificates of
Designation governing the Series C, D, F and G preferred stock prohibits the
Company from declaring or paying dividends or any other distribution on the
common stock or any other class of stock ranking junior as to dividends and upon
liquidation unless all dividends on the senior series of preferred stock for the
dividend payment date immediately prior to or concurrent with the dividend or
distribution as to the junior securities are paid or are declared and funds are
set aside for payment.

                                      -59-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Series C Redeemable Preferred Stock

     As of December 31, 2001, 25,000 shares of the Company's Series C
Convertible Preferred Stock, having a liquidation preference of $100 per share,
were outstanding. There is no mandatory redemption date for the Series C
preferred stock; however, the Company may redeem shares of Series C preferred
stock at any time. Series C preferred stock accrues dividends at the rate of 8%
of the liquidation value thereof per annum, compounded quarterly, until June 30,
2006, when the Company will be obligated to pay accrued dividends, subject to
legally available funds. Any accrued dividends on the Series C preferred stock
not paid by this date will compound thereafter at a rate of 12% of the
liquidation value thereof per annum. After June 30, 2006, dividends on the
Series C preferred stock will accrue and compound at a rate of 12% of the
liquidation value thereof per annum and will be payable quarterly, subject to
legally available funds. Series C preferred shares are not convertible into
common shares. There are no sinking fund provisions applicable to the Series C
preferred stock.

     Dividends on Series C preferred shares of approximately $148,000, $270,000
and $292,000 were accrued during the fiscal years ended December 31, 1999, 2000
and 2001, respectively. Dividends on Series A preferred shares of approximately
$101,000 were accrued during the fiscal year ended December 31, 1999 prior to
the exchange of Series A for Series C preferred shares. Accrued dividends on
Series A preferred shares as of May 31, 1999 were assumed under the issuance of
Series C preferred stock in exchange for the Series A shares. Accrued but unpaid
dividends on Series C preferred stock were approximately $1,037,000 and
$1,329,000 as of December 31, 2000 and 2001, respectively. No dividends have
been paid to date on Series C preferred shares. The Company's current credit
agreement with S&T Bank prohibits payment of dividends on Series C preferred
stock during the term of the agreement.

Series D Convertible Redeemable Preferred Stock

     As of December 31, 2001, 2,750 shares of the Company's Series D Convertible
Redeemable Preferred Stock, having a liquidation preference of $1,000 per share,
were outstanding. There is no mandatory redemption date for the Series D
preferred stock; however, the Company may redeem shares of Series D preferred
stock after August 13, 2003. There are no sinking fund provisions applicable to
the Series D preferred stock. 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.

     Until August 13, 2003, each share of Series D preferred stock is
convertible into 276 shares of common stock, determined by dividing 1,000 by
$3.6125. In the event that the number of shares of outstanding common stock is
changed by any stock dividend, stock split or combination of shares at any time
shares of Series D preferred stock are outstanding, the number of shares of
common stock that may be acquired upon conversion will be proportionately
adjusted.

     Dividends accrued on Series D preferred shares were approximately $97,000
during the fiscal year ended December 31, 1999 and $165,000 during each of the
fiscal years ended December 31, 2000 and 2001. Dividends on Series B preferred
shares of $68,000 were recorded during the fiscal year ended December 31, 1999,
prior to the exchange of Series B for Series D preferred shares. Accrued
dividends on Series B preferred shares as of May 31, 1999 were assumed under the
issuance of Series D preferred stock in exchange for the Series B shares.
Accrued but unpaid dividends on Series D preferred stock were approximately
$28,000 as of December 31, 2000 and 2001.

                                      -60-
<PAGE>

                       S ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Series E Convertible Redeemable Preferred Stock

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

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

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; however, the Company may redeem shares of
Series F preferred stock at any time. There are no sinking fund provisions
applicable to the Series G preferred stock.

     Series F preferred stock earns dividends at the rate of 7% of the
liquidation value thereof per annum. Dividends accrued each calendar quarter are
payable on the 15th day of the succeeding month, subject to legally available
funds. Unpaid dividends compound quarterly at 7% interest. Dividend payments
began April 15, 2000. Dividends accrued for seven months during 1999 are not
required to be paid prior to redemption, if any. Dividends accrued on Series F
preferred shares were approximately $41,000 during the fiscal year ended
December 31, 1999 and $70,000 during each of the fiscal years ended December 31,
2000 and 2001. Accrued but unpaid dividends on Series F preferred stock were
approximately $59,000 as of December 31, 2000 and 2001.

     Series F preferred stock is convertible to the Company's common stock until
the earlier of May 31, 2004 or the Company's redemption of the Series F
preferred shares, if any. Until and including May 31, 2004, the Series F
preferred stock will be convertible into 508,647 shares of the Company's common
stock, the number of shares obtained by dividing 1,000 per preferred share by
$1.966. In the event that the number of shares of outstanding common stock is
changed by any stock dividend, stock split or combination of shares at any time
shares of Series F preferred stock are outstanding, the number of shares of
common stock that may be acquired upon conversion will be proportionately
adjusted.

     Inclusion of the convertibility feature in the Series F preferred stock for
which a portion of the note was exchanged resulted in the issuance of preferred
stock with a non-detachable conversion feature that was "in the money" at the
date of issuance. Therefore, a beneficial conversion feature of approximately
$176,000 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 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.

                                      -61-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Series G Convertible Redeemable Preferred Stock

     On December 29, 2000, the Company issued 150 shares of its Series G
Convertible Redeemable Preferred Stock. The Series G preferred stock has a
liquidation value of $10,000 per share. There is no mandatory redemption date
for the Series G preferred stock; however, the Company may redeem shares of
Series G preferred stock after December 29, 2005. The redemption price for each
share of Series G preferred stock will be the liquidation value of such share,
plus an amount that would result in an aggregate 25% compounded annual return on
such liquidation value to the date of redemption after giving effect to all
dividends paid on such share through the date of redemption. There are no
sinking fund provisions applicable to the Series G preferred stock.

     Unless redeemed or converted to common stock sooner, Series G preferred
earns cumulative quarterly dividends at the rate of 8% of the liquidation value
thereof per annum until December 29, 2005. Thereafter, the dividend rate will
increase to 12% of the liquidation value until the earlier of the date of
redemption, if any, or the date of conversion into common stock. Dividends are
payable quarterly in arrears on the first day of each calendar quarter.
Dividends accrued on Series G preferred shares were approximately $1,000 and
$120,000 during the fiscal years ended December 31, 2000 and 2001, respectively.
Accrued but unpaid dividends on Series G preferred stock were approximately
$1,000 and $30,000 as of December 31, 2000 and 2001, respectively.

     Each share of Series G preferred stock is convertible into 28,571 shares of
common stock at any time prior to redemption by the Company, if any, determined
by dividing $10,000 by $0.35. The conversion price was set on December 29, 2001,
the first anniversary of the issuance of the Series G preferred stock, at the
minimum permissible price of $0.35 per common share. The minimum price became
effective since it exceeded 85% of the average closing price of the common stock
for the five trading days prior to December 29, 2001. Holders of the Series G
preferred stock who exercise the conversion right will have the right to receive
any accrued and unpaid dividends through the date of conversion. Any shares of
Series G preferred stock which are not converted to common stock will remain
outstanding until converted or until redeemed.

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

     Inclusion of the convertibility feature in the Series G preferred stock
resulted in the issuance of preferred stock with a non-detachable conversion
feature that was "in the money" at the date of issuance. Therefore, a beneficial
conversion feature of approximately $58,000 was recognized by allocating a
portion of the proceeds equal to the intrinsic value of that feature to
additional paid-in-capital during December 2000, when the Series G preferred
stock was issued. The beneficial conversion feature was treated as an immediate
dividend to the Series G preferred shareholders since the Series G preferred
shareholders had rights for immediate conversion. Consequently, the value of the
beneficial conversion feature represented a dividend that would accrete
immediately upon approval. Since the Company had an accumulated deficit as of
the issuance date, the accretion was netted against additional paid-in-capital
rather than accumulated deficit, resulting in no net change to shareholders'
equity. The beneficial conversion feature results in additional accretion of
preferred stock in determining net loss available to common shareholders during
2000, which resulted in lower earnings per share. The beneficial conversion
feature will not otherwise impact the earnings per share calculations during
periods in which the Company has net losses as the effect would be
anti-dilutive.

                                      -62-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     In December 2000, the Company allocated the proceeds of $1,500,000 from the
issuance of Series G preferred stock and accompanying warrants to purchase
common stock between the relative fair values of the preferred stock and
warrants. The Series G preferred stock was recorded at approximately $1,015,000,
which reflected the fair value of the preferred stock, net of approximately
$66,000 of offering costs. The offering costs are being accreted on a
straight-line basis over five years. The recorded values of the Series G
preferred stock were approximately $1,015,000 and $1,028,000 as of December 31,
2000 and 2001, respectively.

4.   Warrants for Common Stock

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

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

5.   Stock Based Compensation and Restricted Stock Award

     On October 25, 1996, the Company adopted the "1996 Stock Plan" (the "1996
Plan") for executive management, non-employee directors, employees and
consultants of the Company and its subsidiaries. The 1996 Plan provided for the
issuance of up to 266,000 shares of common stock to be awarded as stock options,
stock appreciation rights, restricted shares and restricted units. During 1998,
the Company's Board of Directors approved the reissuance of forfeited stock
options under the 1996 Plan. As of December 31, 2001, 42,199 shares remained
available for future grants under the 1996 Plan.

     Stock options awarded under the 1996 Plan are exercisable based on prices
established at the grant dates and vest at 20% of the award per year for five
years on the anniversaries of the grant date, except for 56,000 options which
vested on grant date, 14,760 options awarded to former SportsWave employees
which vested upon the sale of that company, 15,000 options which vested on May
15, 2001 and 40,000 options which will vest on the date of a change in control
of the Company, as defined in a certain employment agreement, if earlier than
the normal vesting schedule. The right to purchase shares expires seven years
from the date of grant or earlier if an option holder ceases to be employed by,
or ceases to provide consulting services to, the Company or a subsidiary for any
reason, except for 70,760 of the options noted above, which do not include an
early expiration provision, and 2,900 of the options, which do not require
ongoing employment or consulting services.

     The Company granted 26,668 restricted shares under the 1996 Plan to
employees of Allin Consulting-California on November 6, 1996. Allin
Consulting-California recorded deferred compensation for the restricted shares
based on market value of the shares at date of grant and recorded amortization
over three years on a straight-line basis. The Company recognized approximately
$8,000 of compensation expense related to the restricted stock during the year
ended December 31, 1999. 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 18,501 shares which were held by individuals who had
remained employees or consultants of the Company throughout the three-year
period.

                                      -63-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     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
under the 1997 Plan. As of December 31, 2001, 75,790 shares remained available
for future grants under the 1997 Plan. The Company recognized approximately
$3,000 of expense during the year ended December 31, 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 the sale of that company, 100,000 options which vested on May
15, 2001 and 33,000 options which will vest on the date of a change in control
of the Company, as defined in a certain employment agreement, if earlier than
the normal vesting schedule. For grants made to date, the right to purchase
shares expires seven years from the date of grant or earlier if an option holder
ceases to be employed by, or ceases to provide consulting services to, the
Company or a subsidiary for any reason, except for 30,400 of the shares noted
above, which do not include an early expiration provision.

     On December 31, 1998, the Company's stockholders approved the Company's
"1998 Stock Plan" (the "1998 Plan") which reserved an aggregate of 375,000
shares of the Company's Common Stock to be awarded as stock options, stock
appreciation rights, restricted shares and restricted units to officers and
other employees of the Company and its subsidiaries and to consultants and
advisors (including non-employee directors) of the Company and its subsidiaries.
Forfeited stock options under the 1998 Stock Plan may be reissued. As of
December 31, 2001, 126,860 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 135,000 options which
vested on May 15, 2001 and for 25,000 options which will vest on the date of a
change in control of the Company, as defined in a certain employment agreement,
if earlier than the normal vesting schedule. Rights to purchase shares for
awards made to date under the 1998 Plan expire seven years from the date of
grant or earlier if an option holder ceases to be employed by, or ceases to
provide consulting services to, the Company or a subsidiary for any reason.

     On May 11, 2000, the Company's stockholders approved the Company's "2000
Stock Plan" (the "2000 Plan") which reserved an aggregate of 295,000 shares of
the Company's Common Stock to be awarded as stock options, stock appreciation
rights, restricted shares and restricted units to officers and other employees
of the Company and its subsidiaries and to consultants and advisors (including
non-employee directors) of the Company and its subsidiaries. Forfeited stock
options under the 2000 Stock Plan may not be reissued. As of December 31, 2001,
87,250 shares remained available for future grants under the 2000 Plan.

     Options awarded under the 2000 Plan to date are exercisable based on prices
established at the grant dates and vest at 20% of the award per year for five
years on the anniversaries of the grant date except for 25,000 options which
vested on grant date, 20,000 options which vested on the first anniversary of
grant date, 5,000 options which will vest on the first anniversary of grant date
and 10,000 options which vested on May 15, 2001. Rights to purchase shares for
awards made to date under the 2000 Plan expire seven years from the date of
grant or earlier if an option holder ceases to be employed by or ceases to
provide consulting services to the Company or a subsidiary for any reason,
except for 50,000 of the shares noted above, which do not include an early
expiration provision.

                                      -64-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Summary of Stock Option Activity from 1999 through 2001:
--------------------------------------------------------

<TABLE>
<CAPTION>
                         1996 Plan             1997 Plan             1998 Plan             2000 Plan
                         ---------             ---------             ---------             ---------
                              Weighted-             Weighted-             Weighted-             Weighted-
                    Number     Average    Number     Average    Number     Average    Number     Average
                      of      Exercise      of      Exercise      of      Exercise      of      Exercise
                    Options    Price      Options    Price      Options    Price      Options    Price
<S>                 <C>         <C>       <C>         <C>       <C>         <C>       <C>         <C>
December 31, 1998
Outstanding         233,400     $ 9.06    291,000     $4.82          --        --          --        --
Exercisable          74,030     $13.58     38,040     $5.56          --        --          --        --

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

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

2001
Granted              37,000     $ 1.27     40,000     $1.25      97,500     $1.28      75,000     $1.42
Forfeitures          33,000     $ 5.07     71,540     $2.94     125,020     $3.27      95,750     $1.77
Exercised                --         --         --        --          --        --          --        --
Expired                  --         --         --        --          --        --          --        --
                    ------------------------------------------------------------------------------------
December 31, 2001
Outstanding         205,300     $ 7.83    224,210     $4.73     248,140     $2.62     112,000     $1.78
Exercisable         141,700     $10.15    190,800     $4.74     171,358     $2.39      60,500     $1.92
</TABLE>

                                      -65-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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

<TABLE>
<CAPTION>
                                            1996 Plan    1997 Plan    1998 Plan    2000 Plan
                                            ---------    ---------    ---------    ---------
<S>                                          <C>          <C>          <C>          <C>
Risk free interest rate                       5.0%         4.9%         5.0%         5.1%
Expected dividend yield                       0.0%         0.0%         0.0%         0.0%
Expected life of options                     7 yrs.       7 yrs.       7 yrs.       7 yrs.
Expected volatility rate                      102%         102%         102%         102%
</TABLE>

<TABLE>
<CAPTION>
                                            1996 Plan    1997 Plan    1998 Plan    2000 Plan
                                            ---------    ---------    ---------    ---------
<S>                                          <C>         <C>          <C>          <C>
Options originally issued at market:
Exercisable at December 31, 2001              141,700     190,800      171,358      60,500
Weighted average fair value of options
 granted during 1999                         $   3.06    $   1.68     $   2.06          --
Weighted average fair value of options
 granted during 2000                         $   2.78    $   3.16     $   2.91     $  1.41
Weighted average fair value of options
 granted during 2001                         $   1.08    $   1.06     $   1.09     $  1.21
</TABLE>

Summary of Information for Stock Options Outstanding or Exercisable at December
--------------------------------------------------------------------------------
31, 2001:
--------

<TABLE>
<CAPTION>
                                    1996 Plan             1997 Plan             1998 Plan             2000 Plan
                                    ---------             ---------             ---------             ---------
                                         Weighted-             Weighted-             Weighted-             Weighted-
Information for options         Number    Average    Number     Average    Number     Average    Number     Average
 outstanding at                  of      Exercise      of      Exercise      of      Exercise      of      Exercise
December 31, 2001:             Options     Price     Options     Price     Options     Price     Options     Price
<S>                            <C>         <C>       <C>         <C>       <C>         <C>       <C>         <C>
Exercise Price:
Less than $2.00                 37,000     $ 1.29         --        --      87,500     $1.27      92,000     $1.74
From $2.00 to $2.99                500     $ 2.25      1,250     $2.66          --        --      20,000     $2.00
From $3.00 to $3.99              5,000     $ 3.25      2,000     $3.25     139,470     $3.25          --        --
From $4.00 to $4.99             86,500     $ 4.53    198,960     $4.45      21,170     $4.00          --        --
From $5.00 to $7.50                 --         --     22,000     $7.50          --        --          --        --
From $15.00 to $16.25           76,300     $15.08         --        --          --        --          --        --
                               -------     ------    -------     -----     -------     -----     -------     -----
                               205,300     $ 7.83    224,210     $4.73     248,140     $2.62     112,000     $1.78
</TABLE>

<TABLE>
<CAPTION>
                                    1996 Plan             1997 Plan             1998 Plan             2000 Plan
                                    ---------             ---------             ---------             ---------
                                         Weighted-             Weighted-             Weighted-             Weighted-
Information    for   options   Number    Average     Number     Average    Number     Average    Number     Average
 exercisable at                  of      Exercise      of      Exercise      of      Exercise      of      Exercise
December 31, 2001:             Options     Price     Options     Price     Options     Price     Options     Price
<S>                            <C>         <C>       <C>         <C>       <C>         <C>       <C>         <C>
Exercise Price:
Less than $2.00                  1,000     $ 1.47         --        --      75,000     $1.25      40,500     $1.88
From $2.00 to $2.99                500     $ 2.25      1,250     $2.66          --        --      20,000     $2.00
From $3.00 to $3.99              3,000     $ 3.25      1,200     $3.25      92,076     $3.25          --        --
From $4.00 to $4.99             60,900     $ 4.51    169,250     $4.46       4,282     $4.00          --        --
From $5.00 to $7.50                 --         --     19,100     $7.50          --        --          --        --
From $15.00 to $16.25           76,300     $15.08         --        --          --        --          --        --
                               -------     ------    -------     -----     -------     -----      ------     -----
                               141,700     $10.15    190,800     $4.74     171,358     $2.39      60,500     $1.92
</TABLE>

                                      -66-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Summary of Information for Stock Options Outstanding or Exercisable at December
-------------------------------------------------------------------------------
31, 2001 (cont.):
---------------

<TABLE>
<CAPTION>
                               1996 Plan              1997 Plan            1998 Plan             2000 Plan
                               ---------              ---------            ---------             ---------
                                    Weighted-             Weighted-             Weighted-             Weighted-
Information for options   Number     Average    Number     Average    Number     Average    Number     Average
outstanding at              of      Contract-     of      Contract-     of      Contract-     of      Contract-
December 31, 2001:        Options    ual Life   Options   ual Life    Options    ual Life   Options    ual Life

<S>                       <C>       <C>         <C>       <C>         <C>       <C>         <C>       <C>
Exercise Price:
Less than $2.00            37,000   6.0 years        --          --    87,500   6.0 years    92,000   5.8 years
From $2.00 to $2.99           500   5.8 years     1,250   4.3 years        --          --    20,000   5.7 years
From $3.00 to $3.99         5,000   3.9 years     2,000   3.8 years   139,470   4.2 years        --          --
From $4.00 to $4.99        86,500   4.7 years   198,960   3.4 years    21,170   5.0 years        --          --
From $5.00 to $7.50            --                22,000   2.8 years        --          --        --          --
From $15.00 to $16.25      76,300   1.8 years        --          --        --          --        --          --
                          -------------------------------------------------------------------------------------
                          205,300   3.8 years   224,210   3.3 years   248,140   4.9 years   112,000   5.8 years
</TABLE>

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

          Year ended December 31          1999         2000        2001
                                         -------     -------     --------

Net loss (dollars in thousands)
   As reported                           $(2,676)    $(2,954)    $(11,946)
   Pro forma                              (3,034)     (3,495)     (12,615)

Earnings per share:
   As reported                           $ (0.56)    $ (0.56)    $  (1.81)
   Pro forma                               (0.63)      (0.65)       (1.91)

     See Note 18 - Subsequent Events - for information regarding options awarded
subsequent to December 31, 2001.

                                      -67-
<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 17,176 shares of outstanding restricted stock for 1999. 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 717,749, 293,411and -0-
for the years ended December 31, 1999, 2000 and 2001, respectively. Outstanding
options to purchase common shares for which the option exercise prices exceeded
the respective year's average market price of the common shares aggregated
460,760, 718,710 and 789,650, respectively, as of December 31, 1999, 2000 and
2001. The additional shares that would have been included in the diluted EPS
calculation related to the convertible preferred stock, if the effect was not
anti-dilutive, were 1,209,475, 2,559,128 and 5,555,607 for the years ended
December 31, 1999, 2000 and 2001, 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                  1999          2000          2001
<S>                                                             <C>           <C>           <C>
Loss from continuing operations                                 $   (2,374)   $   (2,583)   $  (11,257)
Loss from discontinued operations                                     (302)         (371)         (689)
                                                                ----------    ----------    ----------
Net loss                                                        $   (2,676)   $   (2,954)   $  (11,946)
Accretion and dividends on preferred stock                             699           637           660
Net loss attributable to common shareholders                            --            --            --
                                                                ----------    ----------    ----------
                                                                $   (3,375)   $   (3,591)   $  (12,606)
                                                                ----------    ----------    ----------

Loss per common share from continuing operations
      - basic and diluted                                       $    (0.51)   $    (0.50)   $    (1.71)
                                                                ----------    ----------    ----------
Loss per common share from discontinued operations
      - basic and diluted                                       $    (0.05)   $    (0.06)   $    (0.10)
                                                                ----------    ----------    ----------
Net loss per common share - basic and diluted                   $    (0.56)   $    (0.56)   $    (1.81)
                                                                ----------    ----------    ----------

Shares  used in  calculating  basic and  diluted net loss per
common share                                                     5,972,001     6,371,827     6,966,365
                                                                ----------    ----------    ----------
</TABLE>

7.   Acquisitions

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

Erie Computer Company

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

                                      -68-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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

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

     On May 19, 2000, Allin Network sold the acquired assets to Engage IT, Inc.
("Engage IT"). The Company recorded a loss on disposal of the assets sold to
Engage IT of approximately $53,000. Engage IT assumed the Erie Computer
workforce and occupancy of the building utilized for the Erie Computer
operations through lease termination. The Company terminated the lease as of
June 30, 2000. Consideration received from Engage IT consisted of a cash payment
of $10,000 and a note receivable for $30,000 payable over six months and
accruing interest at 9% per annum. The note receivable was reduced by the
portion of customer prepaid service contract fees applicable to the period
subsequent to May 19, 2000. Engage IT defaulted on the final three note payments
due from September to November 2000. During 2000, Allin Network recorded a bad
debt reserve for the outstanding balance of the note receivable, approximately
$14,000, and for approximately $8,000 due from Engage IT due to its deposit of
Erie Computer customer receipts related to accounts receivable retained by Allin
Network under the terms of the asset sale. During 2001, Allin Network wrote off
the amounts due from Engage IT based on the Company's assessment that the
amounts would not be recoverable.

MEGAbase

     On November 20, 1998, the Company acquired all of the issued and
outstanding stock of MEGAbase. The MEGAbase operations were merged into Allin
Consulting-California following acquisition. Closing payment terms included a
cash payment of $12,000, 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 and the Company's payment of approximately $73,000 to discharge
outstanding notes due from MEGAbase to a bank and two individuals. The
acquisition of MEGAbase was accounted for using the purchase method. The
acquisition price was allocated among the net assets of the acquired entity and
goodwill. During 1999, the Company reviewed the acquired MEGAbase operations and
revised the estimated economic life for goodwill to seven years.

     The agreement for purchase of MEGAbase provided for contingent payments to
be determined on the basis of Allin Consulting-California's 1999 Development
Practice Gross Margin (as defined in the stock purchase agreement for the
acquisition). The former MEGAbase sole shareholder was entitled to receive an
aggregate contingent payment equal to $1.00 for each dollar by which Allin
Consulting-California's Development Practice Gross Margin exceeded $500,000,
subject to a maximum contingent payment of $800,000. The Company and the former
MEGAbase sole shareholder were unable to agree upon the calculation of Allin
Consulting-California's Development Practice Gross Margin for 1999. The Company
initiated litigation to resolve the matter. In January 2001, the Company and the
former MEGAbase sole shareholder reached a settlement concerning contingent
payments. On January 26, 2001 the Company made a cash payment of $60,000 and
issued 14,225 shares of its common stock to the former MEGAbase sole
shareholder. The Nasdaq market price of the Company's common stock on the date
of issuance was $1.406 per share. The additional purchase consideration was
recorded as additional cost of the acquired enterprise, which resulted in
additional goodwill being recorded on Allin Consulting-California. In June 2001,
goodwill related to this acquisition was determined to be impaired. See Note 8
-Impairment of Long-Lived Assets. The additional goodwill was amortized during
2001 on a straight-line basis utilizing the estimated remaining life of goodwill
associated with the MEGAbase acquisition.

                                      -69-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

8.   Impairment of Long-Lived Assets

     The operations of Allin Consulting-Pennsylvania and Allin
Consulting-California were acquired by the Company in August 1998 and November
1996, respectively. The operations of MEGAbase were acquired in November 1998
and were merged into the operations of Allin Consulting-California. Allin
Consulting-Pennsylvania and Allin Consulting-California represent a significant
portion of the Company's solution area consulting operations, including
virtually all of the Technology Infrastructure Consulting, E-Business Consulting
and Legacy Technology Consulting segment revenue and gross profit. The acquired
businesses provided consulting services and were not capital-intensive
businesses. Consequently, significant portions of the acquisition prices were
attributed to intangible assets, including client lists, assembled workforces
and goodwill. Since early 1999, the Company's strategic focus has been on
developing solutions-oriented consulting revenue, including revenue derived from
the activities of its Technology Infrastructure and E-Business Solution Areas.
During 1999 and 2000, the Company was able to successfully grow revenue in these
solution areas. Based on this growth history and industry projections for
continuing significant increases in the demand for e-business and infrastructure
technology consulting services, as of late 2000, the Company anticipated
significant revenue and gross profit increases in future periods for its
Technology Infrastructure and E-Business Solution Areas. During this time
period, anticipated results indicated sufficient expected cash flows to support
the net unamortized values of the intangible assets associated with the
acquisitions of Allin Consulting-Pennsylvania and Allin-Consulting-California.
The downturn in the domestic economy experienced in the first half of 2001
significantly lowered technology-based spending in the United States, which
negatively impacted the demand for technology consulting services. Industry
analysis from mid-2001 indicated that any increase in the demand for technology
consulting services would not be likely to occur until 2002 at the earliest.
While the Company experienced a small increase in the level of revenue for the
Technology Infrastructure and E-Business Solution Areas in the first six months
of 2001 as compared to the first six months of 2000, the level of growth was
significantly below the Company's expectations for 2001. During June 2001, due
to the continuing variance in the rate of revenue and gross profit growth from
prior expectations and the growing perception among industry analysts that the
negative impact of the economic downturn on technology consulting would continue
at least until 2002, the Company completed new cash flow projections for Allin
Consulting-Pennsylvania and Allin Consulting-California. These projections
indicated the estimated fair values of the intangible assets associated with the
acquisitions of those operations were less than the net unamortized values of
the assets.

     The negative impact of the economic downturn on Allin
Consulting-Pennsylvania was particularly pronounced since the slower than
anticipated growth in solutions-oriented Technology Infrastructure and
E-Business revenue during the first half of 2001 was accompanied by a continuing
decline in the level of legacy technology consulting. Solutions-oriented
consulting has grown in significance and legacy technology consulting has
lessened in significance for Allin Consulting-Pennsylvania since its acquisition
in August 1998. Solutions-oriented revenue typically featured higher billing
rates and gross profit potential, but shorter duration of projects and more
volatility in results. Also, the significant impact of the current economic
downturn on technology consulting indicated a likelihood of additional risk due
to economic cycles. Consequently, the period over which expected cash flows were
projected was shortened to ten years beyond 2001. The original expected useful
life for goodwill and customer list had been thirty and fourteen years,
respectively. The Company's forecast for Allin Consulting-Pennsylvania included
low expectations of revenue and gross profit growth through 2003, as the level
of legacy technology consulting services was expected to continue to decline
throughout this period. The Company expects that growth rates for revenue and
gross profit will increase thereafter. Based on the Company's revised
projections, a loss due to impairment of approximately $9,530,000 was recorded
in June 2001 to reduce the net unamortized value of goodwill recorded on Allin
Consulting-Pennsylvania. The impairment loss is included in Selling, general &
administrative expenses in the Company's Consolidated Statement of Operations
for the year ended December 31, 2001. The remaining amortization periods for
customer list and goodwill were adjusted prospectively after June 2001 to equal
the period of the Company's projection.

     The economic downturn also negatively impacted the demand for Technology
Infrastructure and E-Business consulting services provided by Allin
Consulting-California. The Company's expectations of future revenue and gross
profit as of the beginning of 2001 had been based on growth achieved in 2000 and
industry analysis for expected future demand for technology consulting services.
Due to the economic downturn, during 2001, the Company was unable to sustain the
revenue growth that had been realized late in 2000. Prior to recording the
impairment loss, approximately 92 % of the net unamortized value of Allin
Consulting-California's intangible assets related to goodwill associated with
its

                                      -70-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

acquisition in November 1996. The original useful life was seven years.
Consequently, the projection for cash flows related to goodwill from the 1996
acquisition was based on the remaining useful life, with low expectations for
revenue and gross profit growth due to the likelihood that the negative impact
of the economic downturn would persist through a substantial portion of the
remaining useful life. Based on the Company's revised projections, a loss due to
impairment of approximately $1,097,000 was recorded in June 2001 to reduce the
net unamortized value of goodwill recorded on Allin Consulting-California. The
impairment loss was included in Selling, general & administrative expenses in
the Company's Consolidated Statement of Operations for the year ended December
31, 2001.

     Allin Interactive maintained an inventory of interactive television
equipment salvaged from ships on which it had previously operated interactive
television systems on an owner-operator model. The equipment had been removed
from ships on which operations under this model were discontinued in 1997 and
1998. The inventory values had been based on estimated salvage values after the
equipment was removed from the ships. Allin Interactive continued to own and
operate other ship-based systems utilizing similar equipment and, from 1999 to
2001, sold the remaining operating systems to two cruise lines. During this time
period, Allin Interactive sought to sell its inventory to these cruise lines for
spare parts for the systems that continued to be operated. While a portion of
the inventory was sold to these parties, it became apparent during the second
quarter of 2001 that neither cruise line was prepared to purchase significant
quantities of the inventoried equipment. Since the equipment was not likely to
be saleable other than as spare parts for the aforementioned systems, the
Company believed the estimated fair value of the remaining inventory was less
than the value recorded for the inventory. A loss due to impairment of
approximately $121,000 was recorded in June 2001 to adjust the recorded value of
Allin Interactive's inventory to the revised estimate of fair value. The
impairment loss was included in Selling, general & administrative expenses in
the Company's Consolidated Statement of Operations for the year ended December
31, 2001.

     Allin Digital maintained an inventory of digital imaging equipment and
consumable supplies that was utilized to configure digital imaging systems to be
sold and installed and for sales of digital photography equipment and consumable
supplies. During June 2001, the Company determined that its digital imaging
operations would be discontinued. See Note 9 - Discontinuation of Digital
Imaging Operations - for additional information. The Company believed that
certain of the equipment components maintained in inventory offered greater
potential value when sold as components of a complete system installation which
included system configuration, software installation and training of customer
personnel. Since the Company determined in June 2001 that it would discontinue
operations of this type, Allin Digital would be required to sell its remaining
inventory of equipment as individual components. Since Allin Digital lacked a
retail outlet for this equipment, it planned to attempt to sell its inventory
through Internet-based auctions and to existing clients. The Company believed
significant discounts would need to be offered to sell certain components which
were normally sold as part of complete digital imaging systems. Consequently, in
June 2001, the Company estimated fair values for Allin Digital's inventory
components based on sales of similar components on Internet-based auctions. The
estimated fair value of Allin Digital's inventory was less than the value
recorded for the inventory. A loss due to impairment of approximately $272,000
was recorded in June 2001 to adjust the recorded value of Allin Digital's
inventory to the revised estimate of fair value. Due to the determination to
discontinue its digital photography operations, the Company also estimated
similar fair values for equipment utilized in certain photography concessionaire
operations and determined which capitalized hardware, software and equipment
would no longer be utilized. A loss due to impairment of approximately $55,000
was recorded related to these assets. In December 2001, the Company revised its
estimates of fair value for certain components remaining in inventory and
recorded an additional impairment loss of $21,000. The impairment losses were
included in the losses from discontinued operations included in the Company's
Consolidated Statement of Operations for the year ended December 31, 2001.

9.   Discontinuation of Digital Imaging Operations

     During June 2001, the Company determined that its digital imaging
operations would be discontinued. The discontinuation was due to declines in
revenue and gross profit realized during the first six months of 2001 as
compared to 2000 operations and due to the June 2001 loss of key managerial and
sales personnel. In the third quarter of 2000, the Company had determined that
the gross profit as a percentage of revenue being realized through its digital
imaging operations was not meeting the Company's objectives and, consequently,
the Company refocused its digital imaging sales strategy on being a high
value-added provider of digital imaging systems integration services. The
Company believes that results during the first six months of 2001 indicated that
there was not sufficient demand for high value-added integration services to
assure that future operations would meet the Company's revenue and gross profit
objectives. The Company also

                                      -71-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

believed that the loss of key personnel in June 2001 lessened the likelihood
that such objectives could be realized. The Company evaluated estimated fair
values for its inventory of digital imaging equipment and consumable supplies,
assets utilized in certain photography concessionaire operations and capitalized
hardware, software and equipment. A loss due to impairment of approximately
$327,000 was recorded related to these assets in June 2001. An additional loss
due to impairment of approximately $21,000 was recorded in December 2001 due to
a downward revision of estimated fair values for certain components remaining in
inventory. See Note 8 - Impairment of Long-Lived Assets - for additional
information. Subsequent to the determination that digital imaging operations
would be discontinued, Allin Digital recorded an additional provision of
approximately $48,000 to increase its allowance for doubtful accounts
receivable. The results of Allin Digital's operations for all periods presented
in the Company's Consolidated Statements of Operations and the impairment losses
related to Allin Digital's assets have been reclassified to loss from
discontinued operations.

     Allin Digital will fulfill its remaining obligations to clients for
technical support which extend through May 2002. Allin Digital will also support
website hosting for clients utilizing its Portraits Online system until such
time as an alternate service provider can be obtained. Allin Digital expects to
continue to sell digital imaging equipment held in inventory until the inventory
is exhausted. Revenue derived from these activities and associated cost of sales
and operating expenses will be presented as a gain or loss from discontinued
operations in future periods. The Company expects that all activities carried
out by Allin Digital will be discontinued no later than June 30, 2002.

     Allin Digital had an ownership interest in PhotoWave, Inc. ("PhotoWave")
resulting from the March 1998 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 20% stock ownership percentage in comparison to the initial
cash capitalization of PhotoWave for the remaining equity. The Company
recognized a loss of $72,000 during the period ended December 31, 1999 for its
equity basis interest in the results of operations of PhotoWave, which reduced
the carrying value of the Company's investment to $-0- as of December 31, 1999.
On June 14, 2000, Allin Digital sold all of its 20 shares of common stock of
PhotoWave, then representing less than a 6% ownership interest. Allin Digital
recorded a gain of approximately $137,000 on the sale of the PhotoWave stock.
Due to the Company's discontinuation of digital imaging operations in 2001, the
loss recorded in 1999 for Allin Digital's equity basis interest in the results
of PhotoWave's operations and the gain recognized in 2000 on the sale of the
PhotoWave stock have been reclassified to loss from discontinued operations in
the Company's Consolidated Statements of Operations for the respective periods.

10.  Intangible and Other Assets

     Intangible and other assets consist of the following:

<TABLE>
<CAPTION>
                                                                                     December 31,
                              (Dollars in thousands)                               ---------------
                                                                                    2000     2001
                                                                                   ------   ------
<S>                                                                                <C>      <C>
Assembled work force of acquired entities, net of accumulated
    amortization of $177 and $241 (amortized over five and seven years)               168      104
Customer lists of acquired entities, net of accumulated amortization of $485 and
$668 (amortized over five and thirteen years)                                       1,865    1,682
Other assets, net of accumulated amortization of $2 and $3                              4        3
                                                                                   ------   ------

                                                                                   $2,037   $1,789
                                                                                   ======   ======
</TABLE>

     The estimated useful life of the customer list associated with the
acquisition of Allin Consulting-Pennsylvania was reduced in June 2001 to a
period extending through 2011. The unamortized value of the customer list as of
June 30, 2001 is being amortized on a straight-line basis over the revised
estimate of remaining useful life.

                                      -72-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

11.  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 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 percent of the aggregate gross amount of
trade accounts receivable aged sixty days or less from the date of invoice.
Accounts receivable qualifying for inclusion in the borrowing base will be net
of any prepayments, progress payments, deposits or retention and must not be
subject to any prior assignment, claim, lien, or security interest. The S&T Loan
Agreement had an original term of one year, but has been renewed for three
successive one-year periods. The expiration date of the S&T Loan Agreement is
September 30, 2002. As of December 31, 2001, maximum borrowing availability was
approximately $2,072,000.

     Borrowings are permitted under the S&T Loan Agreement for general working
capital purposes. The Company has from time to time borrowed and subsequently
repaid amounts under the revolving credit loan. As of December 31, 2000 and
2001, the balances outstanding on the line of credit were $2,155,000 and $-0-,
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 5.75% to a high of 10.50%. The applicable rate as of December 31, 2001 was
5.75%. Interest payments due on any outstanding loan balances are to be made
monthly on the first day of the month. Interest expense of approximately
$73,000, $102,000 and $50,000 related to line of credit borrowings was recorded
during the years ended December 31, 1999, 2000 and 2001, respectively. Any
principal balance will be due at maturity, but may be repaid in whole or part at
any time without penalty.

     The S&T Loan Agreement and an amendment renewing the line of credit as of
October 1, 1999 include various covenants relating to matters affecting the
Company including a required cash flow to interest ratio of not less than 1.0 to
1.0, insurance coverage, financial accounting practices, audit rights,
prohibited transactions, dividends and stock purchases. The cash flow coverage
ratio is measured for each of the Company's fiscal quarters. Cash flow is
defined as operating income before depreciation, amortization and interest. S&T
Bank waived the cash flow coverage covenant for the second, third and fourth
quarters of 2000 and the first quarter of 2001. The Company would not have
otherwise met the cash flow covenant requirements for those quarterly periods.
For the second quarter of 2001, S&T Bank agreed to exclude from the cash flow
calculation certain non-cash losses due to impairment of assets (See Note 8 -
Impairment of Long-Lived Assets) and increases in the allowance for doubtful
accounts receivable related to the discontinuation of Allin Digital's
operations. The Company was in compliance with the cash flow coverage covenant
after the exclusion of the non-cash losses. The Company was in compliance with
the cash flow coverage covenant for the third and fourth fiscal quarters of
2001. As of December 31, 2001, the Company is in compliance with all other
covenants under the amended S&T Loan Agreement.

     The revolving credit loan 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. The revolving credit
loan also includes reporting requirements regarding annual and monthly financial
reports, accounts receivable and payable statements, weekly borrowing base
certificates and audit reports.

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

     Non-current portion of notes payable on the Consolidated Balance Sheet as
of December 31, 2000 and 2001 included a note payable of $1,000,000 related to
the acquisition of Allin Consulting-California. The principal balance of the
note is due April 15, 2005. The note bears interest at a rate of 7% per annum
with quarterly compounding

                                      -73-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

for unpaid interest. Accrued interest as of May 31, 1999 was paid on April 1,
2000. Quarterly interest payments began April 14, 2000. Approximately $99,000,
$128,000 and $74,000 of interest expense was recorded in the periods ended
December 31, 1999, 2000 and 2001, respectively, related to this note.

     Allin Consulting-Pennsylvania acquired certain office equipment under a
capital lease. As of December 31, 2000, current principal obligations under the
lease were approximately $2,000 and were reflected as current portion of notes
payable on the Consolidated Balance Sheets. The lease matured in October 2001.

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

12. Liability for Employee Termination Benefits:

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

     A restructuring charge of approximately $14,000 was recorded in December
2001 to establish a liability for severance costs associated with the
termination of services of a managerial executive associated with the consulting
services provided by the Company's Interactive Media Solution Area. Expense
associated with the restructuring charge is reflected in Selling, general &
administrative expenses on the Consolidated Statement of Operations for the year
ended December 31, 2001. As of December 31, 2001, approximately $4,000 of the
restructuring charge had been paid. The remaining balance, approximately
$10,000, is included in accrued compensation and payroll taxes on the
Consolidated Balance Sheet. The accrued balance was paid in January 2002.

     Restructuring charges of approximately $118,000 were recorded in March and
June 2001 to establish and increase a liability for severance costs associated
with the termination of services of two managerial executives associated with
the technology consulting services provided by the Company's Technology
Infrastructure and E-Business Solution Areas. One of the severance obligations
was of variable duration up to six months dependent upon the executive's ability
to obtain replacement employment. The Company's original restructuring charge
was based on an estimate of the most likely period for the severance obligation.
Information subsequently available indicated the duration of the severance
obligation would exceed the originally estimated period. Expenses associated
with the restructuring charges are reflected in Selling, general &
administrative expenses on the Consolidated Statement of Operations for the year
ended December 31, 2001. As of December 31, 2001, all of the restructuring
charges had been paid.

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

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

     An accrual of approximately $81,000 was recorded as of December 3, 1999 to
establish a liability for severance costs associated with an involuntary
employee termination. Associated expenses were recorded in Selling, general &
administrative expenses on the Consolidated Statement of Operations during this
period. The involuntary termination

                                      -74-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

involved an individual responsible for management of one of Allin
Consulting-California's technology consulting solution areas. As of December 31,
1999 and 2000, none and all, respectively, of the amount accrued had been paid.

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

13.  Lease Commitments:

     The Company leases office space and equipment under operating leases that
expire at various times through 2005. Minimum future annual rental commitments
for all non-cancelable operating leases as of December 31, 2001 are as follows:

Minimum Future Lease Payments

2002                             $308,000
2003                              299,000
2004                              117,000
2005                               66,000
                                 ---------

Total                            $790,000
                                 =========

14.  Royalty Agreement

     Allin Interactive's contracts with certain cruise lines for operation of
interactive television systems, from which Allin Interactive derived
transactional revenue, provided for specified royalty payments based upon
adjusted gross revenue, as defined in the respective agreements. Royalty
expenses of approximately $42,000, $16,000, and $11,000 are included with
Selling, general and administrative expenses in the accompanying Consolidated
Statements of Operations for the years ended December 31, 1999, 2000, and 2001,
respectively. Operations under the last of these contracts ceased in December
2001. Transactional revenue from the operation of interactive television systems
will no longer be earned and related royalty expenses will no longer be
incurred.

15.  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. Upon transfer of operational responsibility for each
ship, transactional revenue from pay-per-view movies, video gaming and
management fees terminated for Allin Interactive and Celebrity assumed
responsibility for operational staffing for the ship's interactive system.

     Under the August 1999 maintenance agreement between Allin Interactive and
Celebrity, Allin Interactive was to provide ongoing technical support for the
five interactive television systems on Celebrity ships for a minimum period of
six months following completion of all system sales and transfers of operational
responsibility. The minimum maintenance

                                      -75-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

period ended March 17, 2000. Revenue for the four interactive television system
sales was recognized over the minimum period of the maintenance agreement
concurrent with Allin Interactive's ongoing technical maintenance obligation.
The net book values of the four owned systems were recognized as cost of sales
over the minimum period of the maintenance obligation.

     Allin Interactive earned fixed monthly maintenance fees under the August
1999 maintenance agreement through October 2000. Since November 2000, technical
support services have been provided on an hourly fee basis subject to a minimum
quarterly fee for each ship.

16. Income Taxes

     The Company records current and deferred provisions for or benefits from
income taxes and deferred tax assets and liabilities in accordance with the
requirements of SFAS No. 109. Valuation allowances will reduce deferred tax
assets if there is material uncertainty as to the ultimate realization of the
deferred tax benefits. Because the Company's operations have not historically
generated taxable income, valuation allowances have been recorded to date to
reduce all deferred tax assets arising from net operating loss carryforwards or
any temporary or permanent differences in recognition between the financial
reporting and tax bases of income. The Company also has not typically recorded
current benefits from income taxes for taxable net losses due to uncertainty as
to the ultimate realization of the related tax assets.

     The components of the deferred tax assets and liabilities, as of December
31, 2000 and 2001, are as follows:

         Assets (liabilities)                   December 31,  December 31,
                                                -----------   -----------
                                                   2000          2001
                                                  -------        -------
     (Dollars in thousands)
Net operating loss carryforward                   $ 8,117      $ 8,307
Deferred revenue                                       --         (272)
Intangible asset differences                          748          634
Restricted stock grant                                161          161
Fixed assets                                          371          500
Research and development                             (247)        (248)
Miscellaneous reserves                               (381)        (448)

Valuation allowance                                (8,769)      (8,634)
                                                  -------      -------

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

     As of December 31, 2001, the Company had available for federal and state
income tax purposes, net operating loss carryforwards of approximately
$22,264,000 and $12,302,000, respectively, which are scheduled to expire at
various times from 2006 through 2021. The realization of these tax benefits
depends on the Company's ability to generate future taxable income. The Company
has established valuation allowances as of December 31, 2000 and 2001 to offset
the deferred tax benefits related to the net operating loss carryforwards.

     No income tax provision was recorded in the fiscal year ended December 31,
2001. Currently payable state income tax provisions of certain subsidiaries of
approximately $2,000, along with an $81,000 benefit resulting from reversal of a
deferred tax liability, resulted in the recognition of a net benefit from income
taxes of approximately $79,000 for the year ended December 31, 2000. The Company
was able to utilize tax losses generated from its operations to offset a
deferred tax liability related to the pre-acquisition operations of Allin
Consulting-Pennsylvania that had been assumed by the Company as a component of
the purchase price. The fiscal 1999 income tax provision of approximately $9,000
consisted of currently payable state income taxes of certain subsidiaries.

                                      -76-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     The provisions for or benefits from income taxes are different from that
which would be obtained by applying the statutory federal income tax rate of 34%
to losses before income taxes. A reconciliation of the differences is as
follows:

            Year ended December 31                 1999      2000        2001
                                                 -------    -------    --------
            (Dollars in thousands)

Net loss before income taxes                     $(2,667)   $(3,033)   $(11,946)
Estimated benefit from income taxes at
federal statutory rate                           $  (907)   $(1,031)   $ (4,062)

Effect of tax-basis income recognition
differences related to:
Intangible asset amortization and impairment
losses                                               315        350       3,852
Fixed asset depreciation and gains or losses
on disposal                                          179         (5)         40
Deferred revenue                                      --       (231)         --
Section 481 adjustment                                79         (2)         (2)
Other                                                 32        (57)         37
                                                 ------------------------------
Subtotal                                             605         55       3,927

State income tax provision                             9          2          --
Reversal of deferred federal tax liability            --        (81)         --
Change in valuation allowance related to
current taxable loss                                 302        976         135
                                                 ------------------------------

Provision for (benefit from) income taxes        $     9    $   (79)   $     --
                                                 ==============================

     Cash payments for income taxes were approximately $255,000, $7,000, and
$4,000 during the years ended December 31, 1999, 2000, and 2001, respectively.
Cash payments during 1999 related primarily to the pre-acquisition operations of
Allin Consulting-Pennsylvania. Approximately $112,000 of the cash payments
reduced income tax liabilities assumed in the 1998 acquisition of Allin
Consulting-Pennsylvania while another $74,000 was offset against a note payable
to a former shareholder of Allin Consulting-Pennsylvania. Approximately $63,000
of the 1999 cash payments were made by Allin Consulting-Pennsylvania for safe
harbor deposits for Pennsylvania corporate net income tax, which were required
due to the amount of the prior year tax liability. No provision for income tax
was recognized related to these deposits during 1999 since Allin
Consulting-Pennsylvania recognized a taxable net loss related to its operations
in Pennsylvania. The deposits have subsequently been applied against
Pennsylvania capital stock tax obligations. The remaining cash payments for
income taxes for 1999 as well as cash payments for income taxes during 2000 and
2001 related to various state and local income tax obligations of the Company
and its subsidiaries.

17.  Related Party Transactions

Shareholder Notes Payable

     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 a former
shareholder of Allin Consulting-Pennsylvania who is currently a shareholder and
director of the Company. The secured promissory note bore interest at 6% per
annum. During March and April 1999, the note was offset by approximately $74,000
for Allin Consulting-Pennsylvania's payment of tax liabilities related to the
pre-acquisition period. On May 31, 1999, the outstanding balance of this note,
approximately $1,926,000, was exchanged for 1,926 shares of the Company's Series
E Convertible Redeemable Preferred Stock. The Series E preferred stock
subsequently converted into 942,141 shares of the Company's common stock on
August 13, 2000. The Company recorded interest expense of approximately $50,000
and made interest payments of approximately $80,000 during the period ended
December 31, 1999 related to this note. See Notes 3 - Preferred Stock - and 11 -
Line of Credit and Notes Payable - for additional information.

                                      -77-
<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 was then a shareholder of the Company, and who
remained a shareholder until March 14, 2002, and who was formerly the President
of the Company, reached agreement on an amendment to modify the terms of a
promissory note for contingent payments related to the acquisition of Allin
Consulting-California. Under the amendment, the amount of the payment was fixed
at $2,000,000. The amended note provides for interest at the rate of 7% per
annum from the acquisition date of November 6, 1996, with quarterly compounding
of any unpaid interest. On May 31, 1999, the former sole shareholder of Allin
Consulting-California agreed to a reduction in note principal balance of
$1,000,000 in exchange for 1,000 shares of the Company's Series F Convertible
Redeemable Preferred Stock. The amended note originally provided for principal
payments of $500,000 on April 15, 2000 and October 15, 2000. However, the
Company had the sole option to defer payment of principal until April 15, 2005,
which it did. Accrued interest as of May 31, 1999 of approximately $390,000 was
paid in April 2000. Payment of interest accrued in the preceding calendar
quarter also began in April 2000. Quarterly interest payments of approximately
$63,000 and $74,000 were made in the years ended December 31, 2000 and 2001,
respectively. Approximately $99,000, $128,000 and $74,000 of interest expense
was accrued in the years ended December 31, 1999, 2000 and 2001, respectively,
related to this note. See Notes 3 - Preferred Stock and 11 - Line of Credit and
Notes Payable for additional information concerning this note and the exchange
for preferred stock. On March 14, 2002, the former sole shareholder of Allin
Consulting-California sold the note and accrued interest of approximately
$73,000 to another shareholder of the Company. See Note 19 - Subsequent Events -
for additional information.

Notes Receivable from Employees

     At December 31, 2000, the Company had a note due from an employee with an
outstanding balance of approximately $3,000. The note bore interest at a fixed
rate of 7%. The outstanding balance of the note was repaid in 2001.

Services and Products Sold to Related Parties

     During 1999, Allin Consulting-California provided computer network
consulting services to an entity in which certain shareholders, directors and an
officer of the Company own or owned interests. Fees charged were approximately
$4,000. No services were provided to related parties by Allin
Consulting-California in 2000 or 2001.

     During 1999, Allin Consulting-Pennsylvania provided computer network
consulting services to two entities in which certain shareholders, directors and
an officer of the Company own or owned interests. Fees charged were
approximately $8,000. During 2000 and 2001, computer network consulting services
of approximately $46,000 and $21,000, respectively, were provided to one of
these entities.

     During 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 $28,000. No
services were provided to these entities by Allin Consulting-Pennsylvania in
2000 or 2001.

     During 2000 and 2001, Allin Interactive sold interactive television
equipment to an entity in which a director of the Company has an ownership
interest. Revenue from these sales was approximately $1,000 and $3,000,
respectively.

     During 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 $1,000.
During 2001, Allin Network provided infrastructure technology consulting
services to one of these entities. Fees charged for these services were
approximately $19,000. No products or services were sold to these entities by
Allin Network in 2000.

     During 2001, Allin Network sold computer hardware and components to an
entity in which certain shareholders of the Company have an equity interest.
Revenue from these sales was approximately $8,000. During 2001, Allin Network
also provided infrastructure technology consulting services to this entity. Fees
charged for these services were approximately $26,000. No products or services
were sold to this entity by Allin Network in 1999 or 2000.

                                      -78-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

     During 1999, Allin Digital sold and installed a digital imaging system to
an entity in which a director of the Company has an ownership interest. Allin
Digital recorded revenue related to this sale of approximately $44,000 in 1999.
Allin Digital also recognized revenue of approximately $1,000 for technical
support for this entity in 2000 and sold approximately $1,000 of digital imaging
equipment to this entity in 2001.

Sale of Technical Support Contracts

     In October 2000, Allin Consulting-California sold rights to perform
technical support services under certain contracts to an entity in which a
former shareholder of the Company, who remained a shareholder until March 14,
2002, and who was formerly the President of the Company, has an ownership
interest. The sale was effective for services performed subsequent to December
31, 2000. Allin Consulting-California is entitled to receive percentages of
certain revenue realized by the related entity during the period from January 1,
2001 through December 31, 2005, including fifteen percent of the contractual
backlog for services remaining to be performed for contracts in place as of
December 31, 2000, ten percent of any additional revenue derived from clients
with contracts in place as of December 31, 2000, and five percent of any revenue
earned from certain former clients of Allin Consulting-California, as specified
in the agreement. As of December 31, 2000, the backlog for services remaining to
be performed under sold contracts was approximately $113,000. Allin
Consulting-California recognized approximately $54,000 of revenue during the
year ended December 31, 2001 related to its interests in the related entity's
technical support services. The agreement also provided for a management fee to
the related entity equal to 10% of the revenue earned by Allin
Consulting-California during November and December 2000 under the contracts sold
for the related entity's assistance in managing the technical support services
provided during this period. Allin Consulting-California recorded expense of
approximately $12,000 during the year ended December 31, 2000 for the management
fees.

Lease Arrangements

     The Company leases office space from an entity in which certain
shareholders have an ownership interest. Rental expense under this arrangement
was approximately $302,000, $284,000 and $290,000 for the years ended December
31, 1999, 2000 and 2001, respectively. The current lease will expire on January
31, 2002. In 1997 and 1998, an agreement was reached among the Company, the
lessor and a third party for sublet of two portions of the office space,
terminating any liability of the Company for the sublet space for the remaining
term of the lease. As of December 31, 2001, minimum lease commitments under the
lease were approximately $23,000.

     Allin Consulting-California leased office space in 1999 from a former
shareholder of the Company, who remained a shareholder until March 14, 2002, and
who was formerly the President of the Company. Rental expense was approximately
$41,000 for the year ended December 31, 1999. No rent expense was recorded in
2000 or 2001 and Allin Consulting-California no longer occupies the office
space.

Transactions Related to PhotoWave

     During 1999, Allin Digital and Allin Interactive sold digital photography
equipment and supplies and computer hardware to PhotoWave. Allin Digital also
sold digital photography equipment to PhotoWave in 2000. From March 1998 until
June 2000, Allin Digital held a non-consolidated equity interest in PhotoWave.
The Company's Chairman of the Board served as a director of PhotoWave from 1998
to 2000. Another director who is also a beneficial owner of greater than five
percent of the Company's common stock has also held an ownership interest in
PhotoWave and has served as a director of PhotoWave since 1998. Sales were
approximately, $53,000 and $20,000 during the years ended December 31, 1999 and
2000, respectively. There were no sales of digital photography equipment or
supplies to PhotoWave during 2001.

     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 $39,000,
$13,000 and $2,000 during the years ended December 31, 1999, 2000 and 2001,
respectively.

                                      -79-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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

Services and Products Purchased from Related Parties

     Certain shareholders, a director and an officer of the Company have an
equity interest in an entity which performed services for the Company and its
subsidiaries related to visual media. Charges for these services were
approximately $1,000 for the year ended December 31, 2001. There were no
purchases from this related entity in 1999 or 2000.

     An 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 $3,000, $200 and
$3,000 for the periods ended December 31, 1999, 2000 and 2001, respectively.

     An entity in which a former shareholder of the Company, who remained a
shareholder until March 14, 2002, and who was formerly the President of the
Company, has an interest provided technical consulting services to the Company.
Charges for these services were approximately $15,000 and $36,000, respectively,
for the periods ended December 31, 1999 and 2000. No consulting services were
provided by this entity in 2001.

     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 $1,000 for the period ended December 31, 1999. There were no
purchases from this related entity in 2000 or 2001.

     Consulting services related to the technology consulting industry were
provided by a director of the Company in 2001. Fees paid for the services were
approximately $2,000.

18.  Subsequent Events

Issuance of Options for Common Stock

     During the first quarter of 2002, the Company awarded options to purchase
25,000 common shares under the 2000 Stock Plan. The grant price of the options
is $0.18 per share which was the market price of the Company's common stock on
the grant date. The options to purchase common shares will vest on the first
anniversary of the grant date.

Sale of Note, Preferred Stock and Common Stock Between Related Parties

     On March 14, 2002, the former sole shareholder of Allin
Consulting-California sold a note due from the Company, with a principal balance
of $1,000,000 due on April 15, 2005, approximately $73,000 of accrued but unpaid
interest related to the note, all of the 1,000 outstanding shares of the
Company's Series F Convertible Redeemable Preferred Stock, approximately $55,000
of accrued but unpaid dividends related to the preferred stock, and 213,333
shares of the Company's common stock to another shareholder of the Company.

19. Industry Segment Information

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

                                      -80-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Basis for Determining Segments

     Segments to be reported will fall under two groups, Solution Area Services
and Ancillary Services & Product Sales. The Company's operations and
management's evaluations are primarily oriented around three solution areas
meeting customer needs for Microsoft-based technology services: Interactive
Media, Technology Infrastructure and E-Business. Solution area services comprise
the substantial majority of the Company's current activities and are most
closely associated with its strategic focus. Grouping the solution area services
in segment reporting emphasizes their commonality of purpose in meeting the core
marketing strategy of the Company.

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

     In connection with its solutions-oriented services, clients will request
that the Company also provide technology-related products necessary for
implementation or ongoing use of technology solutions recommended and
implemented by the solution areas. To ensure client satisfaction, the Company
maintains an ancillary capability to provide sales of information system
equipment and supplies. Until December 2001, the Company continued to operate
interactive television systems as a result of a discontinued operating model
under which the Company derived transactional revenue. The segment group
Ancillary Services & Product Sales includes 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 Interactive
Media Consulting, Interactive Media Systems Integration, Technology
Infrastructure Consulting, E-Business Consulting and Legacy Technology
Consulting. Solution area services are provided by Allin Interactive, Allin
Consulting-California, Allin Consulting-Pennsylvania and Allin Network.

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

     During June 2001, the Company elected to discontinue the digital imaging
systems integration and product sales activities of Allin Digital. Allin
Digital's activities represented all of the Company's revenue and gross profit
previously reported for two segments, Digital Imaging Systems Integration (under
Solution Area Services) and Digital Imaging Product Sales (under Ancillary
Services and Product Sales), as well as a portion of the revenue and gross
profit previously reported for the segment Other Services. Accordingly, the
information related to the Company's revenue and gross profit presented has been
restated for the periods presented to exclude the discontinued operations.
Information about assets related to Allin Digital's operations previously
reported under these segment captions has been reclassified to a line item
captioned Discontinued Operations-Digital Imaging.

                                      -81-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Measurement Method

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

Revenue

     Information on revenue derived from external customers is as follows:

<TABLE>
<CAPTION>
(Dollars in thousands)                                   Revenue from External Customers
Periods ended December 31                                  1999       2000        2001
                                                         -------------------------------
<S>                                                       <C>        <C>        <C>
Solution Area Services:
    Interactive Media Consulting                          $   758    $ 1,283    $ 3,612
    Interactive Media Systems Integration                   3,068      5,914      6,459
    Technology Infrastructure Consulting                    2,911      3,817      2,703
    E-Business Consulting                                   2,340      2,166      2,508
    Legacy Technology Consulting                           11,537      6,692      1,998
                                                          -----------------------------
Total Solution Area Services                              $20,614    $19,872    $17,280

Ancillary Services & Product Sales:
    Interactive Television Transactional Services         $ 1,614    $   436    $   296
    Information System Product Sales                          308        422        253
    Other Services                                            169        140        252
                                                          -----------------------------
Total Ancillary Services & Product Sales                  $ 2,091    $   998    $   801

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

Consolidated Revenue from External Customers              $22,705    $20,870    $18,081
                                                          =============================
</TABLE>

     Certain of the Company's segments have also performed services for related
entities in other segments. All revenue recorded for these services is
eliminated in consolidation. The Company does not break down 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                                 1999        2000       2001
                                                         -----------------------------
<S>                                                       <C>         <C>        <C>
Solution Area Services                                    $264        $247       $ 2
Ancillary Services & Product Sales                         275         159        43
                                                          --------------------------

Total Revenue from Related Entities in Other Segments     $539        $406       $45
                                                          ==========================
</TABLE>

                                      -82-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Gross Profit

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

(Dollars in thousands)                                      Gross Profit
Periods ended December 31                              1999     2000     2001
                                                      ------------------------
Solution Area Services:
    Interactive Media Consulting                      $  396   $  874   $2,373
    Interactive Media Systems Integration              1,463    1,980    1,909
    Technology Infrastructure Consulting               1,461    2,260    1,604
    E-Business Consulting                                916      979    1,425
    Legacy Technology Consulting                       3,205    1,815      497
Total Solution Area Services                          $7,441   $7,908   $7,808

Ancillary Services & Product Sales:
    Interactive Television Transactional Services     $1,346   $  297   $  197
    Information System Product Sales                      48      106       91
    Other Services                                       156      104      262
Total Ancillary Services & Product Sales              $1,550   $  507   $  550

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

Consolidated Gross Profit                             $8,991   $8,415   $8,358
                                                      ========================

Assets

     Information on total assets attributable to segments is as follows:

(Dollars in thousands)                                      Total Assets
As of December 31                                     1999      2000     2001
                                                    --------------------------

Solution Area Services:
    Interactive Media Consulting                    $    89   $   486   $1,158
    Interactive Media Systems Integration             1,893     3,275    2,555
    Technology Infrastructure Consulting              4,967     6,574    1,592
    E-Business Consulting                             1,808     1,618      935
    Legacy Technology Consulting                     11,498     8,447    1,764
                                                    --------------------------
Total Solution Area Services                        $20,255   $20,400   $8,004

Ancillary Services & Product Sales:
    Interactive Television Transactional Services   $   539   $   262   $   93
    Information System Product Sales                     19        83       42
    Other Services                                       --       135       86
                                                    --------------------------
Total Ancillary Services & Product Sales            $   558   $   480   $  221

Corporate & Other                                     1,979     2,048      678
Discontinued Operations - Digital Imaging             1,234     1,354      155
                                                    --------------------------

Consolidated Total Assets                           $24,026   $24,282   $9,058
                                                    ==========================

                                      -83-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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

(Dollars in thousands)                                Property & Equipment (net)
As of December 31                                      1999       2000      2001
                                                      --------------------------

Solution Area Services:
    Interactive Media Consulting                      $   48     $   36     $ 40
    Interactive Media Systems Integration                194        155      129
    Technology Infrastructure Consulting                 155        140       69
    E-Business Consulting                                 37         40       28
    Legacy Technology Consulting                         274        162       65
                                                      --------------------------
Total Solution Area Services                          $  708     $  533     $331

Ancillary Services & Product Sales:
    Interactive Television Transactional Services     $  171     $   97     $ --
    Information System Product Sales                       2          3        3
    Other Services                                        --         --       --
                                                      --------------------------
Total Ancillary Services & Product Sales              $  173     $  100     $  3

Corporate & Other                                        499        399      134
Discontinued Operations - Digital Imaging                121         79       14
                                                      --------------------------

Consolidated Property & Equipment (net)               $1,501     $1,111     $482
                                                      ==========================

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

<TABLE>
<CAPTION>
(Dollars in thousands)                              Property & Equipment Additions
As of December 31                                    1999        2000      2001
                                                    ------------------------------
<S>                                                  <C>         <C>        <C>
Solution Area Services:
    Interactive Media Consulting                     $ 30        $ 17       $17
    Interactive Media Systems Integration             121          79        27
    Technology Infrastructure Consulting               18          74        12
    E-Business Consulting                              12          45        11
    Legacy Technology Consulting                       18          --        --
                                                     ----        ----       ---
Total Solution Area Services                         $199        $215       $67

Ancillary Services & Product Sales:
    Interactive Television Transactional Services    $ --        $ --       $--
    Information System Product Sales                   --          --         1
    Other Services                                     --          --        --
                                                     ----        ----       ---
Total Ancillary Services & Product Sales             $ --        $ --       $ 1

Corporate & Other                                     144         214        15
Discontinued Operations - Digital Imaging              31          15         2
                                                     ----        ----       ---

Consolidated Property & Equipment (net)              $374        $444       $85
                                                     ====        ====       ===
</TABLE>

                                      -84-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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 locations where interactive media
consulting or systems integration services are performed for all services
performed on land or in port for extended periods. Interactive media consulting
and systems integration revenue generated on sailing ships is attributed as at
sea. Interactive television transactional 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:

(Dollars in thousands)                           Revenue from External Customers
Period ended December 31                             1999      2000      2001
                                                 -------------------------------

Domestic Revenue:
    Northeastern United States                     $ 6,656   $ 5,047   $ 3,415
    Midwestern United States                         2,554     1,407       465
    Southern United States                           3,313     5,771     3,823
    Western United States                            8,151     6,936     4,076
                                                   ---------------------------
Total Domestic Revenue                             $20,674   $19,161   $11,779

International & At Sea Revenue:
    Caribbean Islands                              $   214   $    47   $    64
    Finland                                            700       562     2,037
    France                                               2       628     1,619
    Germany                                              1       112       695
    Other International                                188        24         9
    At Sea                                             926       336     1,878
                                                   ---------------------------
Total International & At Sea Revenue               $ 2,031   $ 1,709   $ 6,302

                                                   ---------------------------
Consolidated Revenue from External Customers       $22,705   $20,870   $18,081
                                                   ===========================

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

(Dollars in thousands)                               Property & Equipment (net)
As of December 31                                    1999        2000       2001
                                                    ----------------------------

Domestic Locations:
    California                                      $  471      $  337      $154
    Florida                                            272         215       148
    Pennsylvania                                       672         544       180
                                                    ----------------------------
Total Domestic Locations                            $1,415      $1,096      $482

At Sea                                              $   86      $   15      $ --
                                                    ----------------------------

Consolidated Property & Equipment (net)             $1,501      $1,111      $482
                                                    ============================

                                      -85-
<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>       <C>
Period Ended December 31, 1999

                     2,568              11 %      Legacy Technology Consulting

                     2,428              11 %      Interactive Media Consulting,  Interactive Media Systems
                                                  Integration, Interactive Television Transactional Services

Period Ended December 31, 2000

                     2,768              13 %      Interactive Media Consulting,  Interactive Media Systems
                                                  Integration, Information System Product Sales,
                                                  Interactive Television Transactional Services

                     2,407              12 %      Legacy Technology Consulting

                     2,136              10 %      Interactive Media Consulting,  Interactive Media Systems
                                                  Integration, Information System Product Sales

Period Ended December 31, 2001

                     4,851              27 %      Interactive Media Consulting,  Interactive Media Systems
                                                  Integration, Information System Product Sales,
                                                  Interactive Television Transactional Services

                     2,952              16 %      Interactive Media Consulting,  Interactive Media Systems
                                                  Integration, Information System Product Sales

                     2,623              15 %      Interactive Media Consulting,  Interactive Media Systems
                                                  Integration, Information System Product Sales
</TABLE>

                                      -86-
<PAGE>

                        ALLIN CORPORATION & SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

20.  Unaudited Quarterly Financial Information

     The data for the quarterly periods ended June 30 and September 30, 2001
reflects the data presented in the Company's filings on Form 10-Q for those
periods. The data for the quarterly periods ended March 31, June 30, and
September 30, 2000 and March 31, 2001 has been restated to reflect the results
of the Company's digital imaging operations as gain or loss from discontinued
operations. Comparable data is presented for the three-month periods ended
December 31, 2000 and 2001.

<TABLE>
<CAPTION>
          Dollars in thousands except                           Three Months Ended
                                                 -----------------------------------------------
                 per share data                                     2000
                                                 -----------------------------------------------
                                                 March 31   June 30   September 30   December 31
                                                 -----------------------------------------------
<S>                                               <C>       <C>          <C>           <C>
Revenue                                           $6,002    $ 4,412      $ 4,381       $6,075
Gross Profit                                       2,680      1,639        1,731        2,365
Income (loss) from operations                         67     (1,086)        (955)        (472)
Income (loss) from continuing operations               2     (1,130)      (1,004)        (451)
Gain (loss) from discontinued operations              17         71         (216)        (243)
Net income (loss)                                 $   19    $(1,059)     $(1,220)      $ (694)
                                                  ===========================================
Net loss attributable to common shareholders      $ (134)   $(1,213)     $(1,362)      $ (882)
                                                  ===========================================

Net loss per common share from continuing
operations -basic and diluted                     $(0.02)   $ (0.21)     $ (0.18)      $(0.09)
                                                  ===========================================
Net loss per common share from discontinued
operations - basic and diluted                    $ 0.00    $  0.01      $ (0.03)      $(0.04)
                                                  ===========================================
Net loss per common share - basic and diluted     $(0.02)   $ (0.20)     $ (0.21)      $(0.13)
                                                  ===========================================
</TABLE>

<TABLE>
<CAPTION>
          Dollars in thousands except                        Three Months Ended
                                              ------------------------------------------------
                 per share data                                      2001
                                              ------------------------------------------------
                                              March 31    June 30   September 30   December 31
                                              ------------------------------------------------
<S>                                           <C>        <C>           <C>           <C>
Revenue                                       $ 4,804    $  4,097      $4,315        $4,865
Gross Profit                                    2,219       1,936       1,956         2,247
(Loss) income from operations                    (843)    (11,211)        275           639
(Loss) income from continuing operations         (890)    (11,248)        256           625
Loss from discontinued operations                (107)       (473)        (85)          (24)
Net (loss) income                             $  (997)   $(11,721)     $  171        $  601
                                              =============================================
Net (loss) income attributable to common
shareholders                                  $(1,158)   $(11,885)     $    4        $  433
                                              =============================================

Net (loss) income per common share from
continuing operations - basic                 $ (0.15)   $  (1.64)     $ 0.01        $ 0.06
                                              =============================================
Net loss per common share from discontinued
operations - basic                            $ (0.02)   $  (0.07)     $(0.01)       $ 0.00
                                              =============================================
Net (loss) income per common share - basic    $ (0.17)   $  (1.71)     $ 0.00        $ 0.06
                                              =============================================

Net (loss) income per common share from
continuing operations - diluted               $ (0.15)   $  (1.64)     $ 0.01        $ 0.04
                                              =============================================
Net loss per common share from discontinued
operations - diluted                          $ (0.02)   $  (0.07)     $(0.01)       $ 0.00
                                              =============================================
Net (loss) income per common share- diluted   $ (0.17)   $  (1.71)     $ 0.00        $ 0.04
                                              =============================================
</TABLE>

                                      -87-
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of Allin Corporation:

We have audited the accompanying consolidated balance sheets of Allin
Corporation (a Delaware corporation) and subsidiaries as of December 31, 2001
and 2000, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 2001. 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, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.


                                                          /s/ARTHUR ANDERSEN LLP

Pittsburgh, Pennsylvania
February 8, 2002 (except with respect to certain matters discussed in Notes 17
and 18, as to which the date is March 14, 2002)

                                      -88-
<PAGE>

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

     None.

Part III
Item 10 - Directors and Executive Officers of the Registrant

     The following table sets forth certain information concerning each of the
directors and executive officers of the Company. Ages are given as of March 14,
2002.

Name                          Age        Position with the Company
----                          ---        -------------------------
Richard W. Talarico........   46    Chairman of the Board and Chief
                                    Executive Officer
Dean C. Praskach...........   44    Chief Financial Officer, Treasurer and
                                    Secretary
Brian K. Blair(1)..........   39    Director
Anthony L. Bucci(2)........   53    Director
William C. Kavan(2)........   51    Director
James S. Kelly, Jr.(1).....   51    Director
Anthony C. Vickers.........   52    Director

(1)  Member of Audit Committee.

(2)  Member of Compensation Committee.

     The office of President has been vacant since August 2001 when Timothy P.
O'Shea stepped down as President to become Managing Director of Allin
Consulting-Pennsylvania. The Board of Directors expects to appoint a President
no later than the Board's first meeting following the next annual meeting of the
stockholders, scheduled to be held on May 16, 2002. Mr. Talarico has fulfilled
the duties of this office since Mr. O'Shea stepped down.

     Richard W. Talarico became Chairman of the Board and Chief Executive
Officer of the Company in July 1996. He has also served as a director of Allin
Interactive since October 1994 and as Chairman of the Board and Chief Executive
Officer of Allin Interactive since June 1996. Mr. Talarico has served Allin
Interactive in various other capacities, including Vice President of Finance
from October 1994 to October 1995, President from October 1995 to June 1996 and
Chief Financial Officer, Secretary and Treasurer from October 1994 to June 1996.
Mr. Talarico has served as an officer and director of the Company's other
subsidiaries since their inception or acquisition by the Company. Since 1991,
Mr. Talarico has been a partner in The Hawthorne Group ("THG"), where he has
been involved in numerous business ventures and has served in various financial
and operating capacities. THG is a private investment and management company
which invests through affiliates primarily in media and communications
companies. Mr. Talarico also serves as a director of Wexford Health Sources,
Inc., a provider of health and rehabilitation-related services, and during 2001
served as a director of its affiliated companies, Longford Health Sources, Inc.
and Galway Technologies, Inc.

     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.

     Brian K. Blair became a director of the Company in July 1996. Mr. Blair
also served as Chief Operating Officer and Secretary of the Company from July
1996 until his resignation from these positions in February 1998. Mr. Blair has
served as a director of Allin Interactive since October 1994 and as a director
of the Company's other subsidiaries since their inception or acquisition by the
Company. Mr. Blair also served as Vice President of Administration and
Operations of Allin Interactive from October 1994 until June 1996 and as its
President from June 1996 until February 1998. Mr. Blair served as President of
Blair Haven Entertainment, Inc, doing business as Commercial Downlink, a
provider of cable and closed circuit television services, from 1989 to 1998. Mr.
Blair currently serves as a director and President of Digital

                                      -89-
<PAGE>

Media Corp., a video production and satellite communications company. In 1999,
Mr. Blair founded Novair Media Corp., a niche market television media company,
and serves as its Chief Executive Officer. Mr. Blair also currently is a
director of Novair Media Corp. and Com-Tek Printing and Graphics, Inc., a
commercial printing company.

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

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

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

     Anthony C. Vickers became a Director of the Company in November 1999. Mr.
Vickers founded IT Services Development ("ITSD") in 1998 and has served as
principal of ITSD since its inception. ITSD is a management consulting firm that
assists clients with projects ranging from strategic planning to acquisitions
and customer satisfaction surveys. From 1996 to 1998, Mr. Vickers served as
Chairman of the Information Technology Services Division of the Information
Technology Association of America ("ITAA"), a technology industry association.
Mr. Vickers currently serves as a director of ITAA. Mr. Vickers also currently
serves as a member of advisory boards for several entities, including the
University of Southern California Integrated Media Systems Center (since
November 1999), Technology Empowerment, Inc. (since September 2000), Blue Crane,
Inc. (since November 2001) and Make Corp. (since January 2002). Mr. Vickers
founded Computer People, a public information technology services organization,
in 1972 and served as its Chief Executive Officer and President until November
1995 and as a director until March 1998. Mr. Vickers served as a director of PC
Tutor Corporation, which provided computer training services to small and
medium-sized businesses from 1998 to 2000. Mr. Vickers also served as a director
of Computer Technology Associates, a provider of information technology services
and E-government solutions to the federal and state governments, from January to
October 2000, and as a member of the advisory board of Greenbrier & Russel,
which specializes in E-business enabling, since August 1999.

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

Section 16(a) Beneficial Ownership Reporting Compliance

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

     To the Company's knowledge, based solely on the review of the copies of
such reports and written representations that no other reports were required
during or with respect to the year ended December 31, 2001, all such Section
16(a) filing requirements were met, except that Henry Posner, Jr., a significant
stockholder, did not file a year end report and filed one late report, both with
respect to the same transaction in which 1,000 shares of common stock were
transferred for no consideration by a trust of which Mr. Posner was a trustee to
a trust of which he is not a trustee.

                                      -90-
<PAGE>

Item 11 - Executive Compensation

Summary Compensation Table

     The following table sets forth information concerning 1999, 2000 and 2001
compensation of the Chief Executive Officer and the other executive officer of
the Company (collectively the "Named Executives").

<TABLE>
<CAPTION>
                                                                      Long Term
                                       Annual Compensation         Compensation (2)
                                       -------------------         ----------------

                                                                      Securities
                                                                      ----------
                                                                      Underlying
                                                                      ----------
 Name and Principal Position    Year   Salary ($)   Bonus ($)(1)      Options(#)
 ---------------------------    ----   ----------   ------------      ----------
<S>                             <C>      <C>           <C>              <C>
Richard W. Talarico             2001     $175,000      $50,000          75,000
    Chief Executive Office      2000     $175,000           --          25,000
                                1999     $175,000           --          60,000

Dean C. Praskach                2001     $145,000      $25,000          30,000
   Chief Financial Officer,     2000     $140,625           --           6,250
   Treasurer and Secretary      1999     $127,500           --          28,750
</TABLE>

(1)  Bonuses were earned in 2001, but paid in 2002.

(2) In 2001, stock appreciation rights related to an aggregate of 281,000 and
103,000 shares of common stock covered by options to purchase common stock
granted prior to February 13, 2001 were granted to Mr. Talarico and Mr.
Praskach, respectively. The stock appreciation rights granted to Mr. Talarico
were pursuant to the terms of an employment agreement between Mr. Talarico and
the Company entered into in January 2002. The term of the employment agreement
was made retroactive to January 1, 2001 and, accordingly, the Company deems the
stock appreciation rights to have been granted in 2001. During 2001, the
employment agreement between the Company and Mr. Praskach was amended such that
stock appreciation rights were granted. Such rights for each Named Executive
will become effective in the event of termination of their employment, whether
voluntary or involuntary, in conjunction with or within one year after the
occurrence of a change in control of the Company, as defined in their respective
employment agreements. For more information about the terms of the stock
appreciation rights held by the Named Executives, see the discussion under
"Employment Agreements" below.

Employment Agreements

     On January 10, 2002, the Company entered into a new employment agreement
with Mr. Talarico, which was made effective as of January 1, 2001, with a term
continuing through December 31, 2003. The new agreement replaced the prior
employment agreement between the Company and Mr. Talarico, which lapsed on May
15, 2001. The annual salary as set forth in the new employment agreement is
$175,000, subject to annual merit increases.

     During the term of the employment agreement, Mr. Talarico will be eligible
to earn an annual bonus in accordance with an annual bonus program to be
established for the Company by the Compensation Committee and approved by the
Board of Directors. The payment of any annual bonus under any such program will
be contingent upon the achievement of certain corporate and/or personal
performance goals. The performance goals will be approved by the Board of
Directors and are designed to enhance stockholder value. To be eligible for a
bonus for a particular year, Mr. Talarico must be employed by the Company on the
last day of the calendar year for which the bonus is earned unless cessation of
employment is due to death, disability, as defined in the agreement, a change in
control of the Company or the attainment of performance goals for that year
prior to year end. In the event of death or disability, a pro-rated portion of
any bonus due will be awarded based on the performance of the Company annualized
as of the date of cessation of employment. In the event of a change in control
of the Company, Mr. Talarico will receive a single sum payment of $225,000,
except that in the event the Company sells a significant portion, but not all,
of its assets, Mr. Talarico will receive a portion of such sum as determined by
the Board of Directors. A change in control is defined in the employment
agreement as a sale of all or substantially all of the Company's assets, a
merger in which the Company is not the surviving corporation or when a person or
group, other than the stockholders of the Company as of January 1, 2001, owns or
controls 40% or more of the outstanding common stock. The Compensation Committee
has not yet established the criteria for any annual bonus program for the
remainder of the term of the employment agreement. The Board of Directors
awarded a discretionary

                                      -91-
<PAGE>

bonus of $50,000 to Mr. Talarico in respect of 2001 based on the Company's
financial performance in the second half of 2001. The bonus was paid in February
2002.

     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 that Mr. Talarico will be eligible to
participate in the Company's various stock plans. The employment agreement with
Mr. Talarico does not, however, specify any minimum number of options to be
awarded during the term of the agreement. Options granted to Mr. Talarico prior
to February 13, 2001 vested on May 15, 2001. In January 2001, Mr. Talarico was
granted options to purchase 75,000 shares of the Company's common stock. The
exercise price of $1.25 per share was based on market price of the common stock
at the date of grant. There have been no options awarded to Mr. Talarico
subsequent to the January 2001 award.

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

     In June 2000, the Company entered into an employment agreement with Mr.
Praskach, the term of which commenced June 23, 2000 and will continue through
June 23, 2005. The Company and Mr. Praskach amended the employment agreement on
February 13, 2001. Mr. Praskach's current annual salary is $145,000. The
employment agreement permits annual merit increases to salary. Mr. Praskach is
also eligible to receive a discretionary bonus for any annual period subject to
approval by the Board of Directors. A discretionary bonus of $25,000 in respect
of 2001 was awarded to Mr. Praskach based on the Company's financial performance
in the second half of 2001. The bonus was paid in February 2002.

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

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

     The employment agreement also provides that Mr. Praskach will be entitled
to receive for up to one year following termination of employment by the Company
without cause, semi-monthly severance payments equal to the semi-monthly base
salary payment which he was receiving immediately prior to such termination
until the earlier of the first anniversary of the termination or the date on
which Mr. Praskach obtains other full-time employment. In the event of
termination of employment, whether voluntary or involuntary, in conjunction with
or within one year after the occurrence of a change in control of the Company,
Mr. Praskach will also be entitled to receive a bonus equal to his annual base
salary at the time of

                                      -92-
<PAGE>

termination and will have the right to convert each of his vested options to
purchase the Company's stock granted prior to February 13, 2001 into the right
to receive cash in an amount equal to the difference between the fair market
value of the stock on the date the right is exercised and the exercise price of
the option from which the right was converted. The rights may be exercised at
any time prior to the final expiration date of Mr. Praskach's options,
notwithstanding the expiration of the options based on Mr. Praskach's
termination prior to such expiration date. In addition, Mr. Praskach's options
granted prior to February 13, 2001 will automatically convert into such rights
immediately prior to the day such options would otherwise terminate based on
termination of Mr. Praskach's employment in connection with a change of control
of the Company.

Stock Plans

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

     The number of shares that may be awarded under the Company's 1996, 1997,
1998 and 2000 stock plans are 266,000, 300,000, 375,000 and 295,000,
respectively. As of December 31, 2001, 42,199, 75,790, 126,860 and 87,250 shares
remained available for future grants under the 1996, 1997, 1998 and 2000 Plans,
respectively.

Option and Stock Appreciation Right Grants in Last Fiscal Year

     The following table and its notes provide information concerning stock
options and related stock appreciation rights granted to the Named Executives
during 2001.

<TABLE>
<CAPTION>
                                              Individual Grants                                   Grant Date
                                              -----------------                                   ----------
                                                                                                    Value
                                                                                                    -----
                        Number of         % of Total
                        ---------         ----------
                        Securities    Securities Granted
                        ----------    ------------------
                        Underlying      to Employees in    Exercise or Base Price   Expiration     Grant Date
                        ----------      ---------------    ----------------------   ----------     ----------
      Name                Grants          Fiscal Year             ($/sh)               Date      Present Value $
      ----                ------          -----------             ------               ----      ---------------
<S>                   <C>                   <C>                   <C>                <C>          <C>
Richard W. Talarico   75,000 (1)(4)         30.1 %                $1.25              1/5/08       $79,500 (3)
Dean C. Praskach      30,000 (2)(4)         12.0 %                $1.25              1/5/08       $31,800 (3)
</TABLE>

(1)  Under the terms of the Company's current and prior employment agreements
     with Mr. Talarico, the options to acquire shares of common stock granted to
     Mr. Talarico vested on May 15, 2001.

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

                                      -93-
<PAGE>

(3)  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 2001
     grants to Named Executives.

     Risk-free interest rate         4.9 %
     Expected dividend yield         0.0 %
     Expected life of options       7 yrs.
     Expected volatility rate      102.0 %

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

(4)  Pursuant to the Company's current employment agreements with Messrs.
     Talarico and Praskach, each Named Executive will have the right to convert
     each of his vested options granted prior to February 13, 2001, including
     vested portions of the options shown in the table, into the right to
     receive cash in an amount equal to the difference between the fair market
     value of the stock on the date the right is exercised and the exercise
     price of the associated option from which the right was converted. Each
     stock appreciation right becomes effective only upon conversion of the
     associated option held by the Named Executives in the event of a change in
     control of the Company (as defined in the respective employment agreements
     discussed above) and the respective option holder's termination of
     employment, whether voluntary or involuntary, in conjunction with or within
     one year of a change in control of the Company. Each right may be exercised
     at any time prior to the final expiration date of the associated option
     notwithstanding the expiration of the option based on the Named Executive's
     termination. The exercise prices of the stock appreciation rights are
     identical to the exercise prices of the options that would be converted, if
     any. There is uncertainty as to whether the events that could result in
     conversion of the Named Executives' options into stock appreciation rights
     will occur at all or when they may occur. Due to these factors, no present
     values can be determined for stock appreciation rights separate from those
     estimated for the associated options. The various exercise prices and
     expiration dates with respect to the stock appreciation rights held by the
     Named Executives are as follows:

                           Stock Appreciation
            Name              Rights (#)        Exercise Price   Expiration Date

     Richard W. Talarico         21,000              $15.00           11/6/03
                                100,000              $ 4.50            6/1/05
                                 60,000              $ 3.25            3/1/06
                                 15,000              $ 4.50            1/3/07
                                 10,000              $ 1.91            8/8/07
                                 75,000              $ 1.25            1/5/08

     Dean C. Praskach             5,000              $15.00           11/6/03
                                  2,000              $ 7.50           11/3/04
                                  7,500              $ 4.50           11/3/04
                                 23,500              $ 4.38           6/25/05
                                 18,750              $ 3.25            3/8/06
                                 10,000              $ 4.81          11/11/06
                                  6,250              $ 4.00           2/16/07
                                 30,000              $ 1.25            1/5/08

Fiscal Year End Option and Related Stock Appreciation Right Values

     The following table and its notes provide information concerning stock
options and related stock appreciation rights held by the Named Executives at
December 31, 2001. No options or related stock appreciation rights were
exercised in 2001.

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

      Name                  Exercisable   Unexercisable           Exercisable   Unexercisable
      ----                  -----------   -------------           -----------   -------------
<S>                           <C>             <C>                     <C>             <C>
Richard W. Talarico           281,000             --                  --              --
Dean C. Praskach               39,450         63,550                  --              --
</TABLE>

                                      -94-
<PAGE>

(1)  Based on the December 31, 2001 closing price per share of common stock of
     $0.09, as quoted on the OTC Bulletin Board, and the various option exercise
     prices per share, none of the options were in-the-money at December 31,
     2001. The stock appreciation rights related to the options included in this
     table held by the Named Executives will only become effective upon
     conversion of the options. Accordingly, none of the stock appreciation
     rights were exercisable as of December 31, 2001. Since the exercise prices
     of the stock appreciation rights are identical to the exercise prices of
     the associated options, none of the stock appreciation rights were in-the-
     money at December 31, 2001.

Long-Term Incentive and Defined Benefit Plans

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

Compensation of Directors

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

     On February 14, 2001, Mr. Blair received an immediately exercisable grant
to acquire 5,000 shares of common stock and a grant to acquire 5,000 shares of
common stock vesting one year from date of grant, both at the exercise price of
$1.56 per share. The Board of Directors deferred award of options throughout the
remainder of 2001 as non-employee directors' service anniversaries were reached
due to the low prices of the Company's common stock. However, once all of the
non-employee directors had reached a service anniversary, the Board of Directors
approved the customary award of options to non-employee directors. On February
7, 2002, Messrs. Blair, Bucci, Kavan, Kelly and Vickers each received a grant to
acquire 5,000 shares of common stock, vesting one year from date of grant, at
the exercise price of $0.18 per share.

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

Compensation Committee Interlocks and Insider Participation

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

     Mr. Kavan, a director and stockholder of the Company, also has been a
director and stockholder of PhotoWave, Inc., an entity which performs digital
photography services, since 1998. Allin Digital had a non-controlling equity
interest in PhotoWave from March 1998 to June 2000, when it sold all of the
common shares it held in PhotoWave to Mr. Kavan. Richard W. Talarico, Chairman
and Chief Executive Officer of the Company and a director and executive officer
of each of the Company's subsidiaries, served as a director of PhotoWave from
1998 to 2000. 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, 2001, PhotoWave earned
approximately $2,000 in commissions under this agreement.

     On December 29, 2000, Mr. Kavan, Mr. Talarico, Henry Posner, Jr. and Thomas
D. Wright, who each beneficially owns greater than five percent of the Company's
common stock, and Dean C. Praskach, an executive officer of the Company,
purchased 10, 10, 113, 10 and 2 shares, respectively, of the Company's Series G
Convertible Redeemable Preferred Stock at a purchase price of $10,000 per Series
G preferred share. In conjunction with the purchase of the Series G shares,
Messrs. Kavan, Talarico, Posner, Wright and Praskach also received warrants to
purchase 57,142, 57,142, 645,710, 57,142 and 11,428 shares, respectively, of the
Company's common stock at $1.75 per common share. See Item 7- Management's
Discussion of

                                      -95-
<PAGE>

Financial Condition and Results of Operations - Liquidity and Capital Resources
and Note 3 - Preferred Stock and Note 4 - Warrants for Common Stock included
herein under Notes to Consolidated Financial Statements in Item 8 - Financial
Statements and Supplementary Data for additional information concerning the
Series G preferred stock and related warrants. If the Company does issue any
shares of common stock upon conversion of the Series G preferred stock or upon
exercise of the warrants, the holders of such shares, including Messrs. Kavan,
Talarico, Posner, Wright and Praskach will have certain rights to require the
Company to register the shares for resale under the Securities Act of 1933, as
amended (the "Securities Act"). See Item 12 - Security Ownership of Certain
Beneficial Owners and Management.

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

                                      -96-
<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 15, 2002 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)                                6,622,518                 54.6 %
381 Mansfield Avenue, Suite 500
Pittsburgh, PA  15220

Emanuel J. Friedman (3)                              1,622,277                 23.3 %
1001 19th Street North
Arlington, VA  22209

James S. Kelly, Jr. (4)                              1,557,816                 22.3 %
2406 Oak Hurst Court
Murrysville, PA  15668

Friedman, Billings, Ramsey Group, Inc. and           1,527,277                 21.9 %
Orkney Holdings, Inc. (5)
1001 19th Street North
Arlington, VA  22209

Richard W. Talarico (6)                               868,838                   11.2%
381 Mansfield Avenue, Suite 400
Pittsburgh, PA  15220

William C. Kavan (7)                                  842,740                  10.9 %
117 Brixton Road
Garden City, NY 11530

Thomas D. Wright (8)                                  469,459                   6.3 %
381 Mansfield Avenue, Suite 500
Pittsburgh, PA  15220
</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 15, 2002, and that no other stockholder so converts. Each share of
     Series D Convertible Redeemable Preferred Stock may currently be converted
     into 276 shares of common stock. Each share of Series F Convertible
     Redeemable Preferred Stock may currently be converted into 508 shares of
     common stock. Each share of Series G Convertible Redeemable Preferred Stock
     may currently be converted into 28,571 shares of common stock. The number
     of shares of common stock that may be acquired on conversion of one share
     of any series of preferred stock does not include any fraction of a share
     of common stock as no fractional shares may be issued upon conversion. The
     aggregate numbers of shares of common stock that may be acquired by any
     individual upon conversion of any series of preferred stock do cumulate
     fractional shares, but exclude any remaining fractional share. Prior to any
     conversion, the holders of Series G preferred stock are entitled to 5,295
     votes per share, and, generally, such stockholders will vote together with
     the holders of the common stock as a single class. Warrants

                                      -97-
<PAGE>

     issued in August 1998 and December 2000 may be exercised to purchase common
     stock at $4.25 and $1.75 per common share, respectively. Information is
     provided in the footnotes below for each holder as to the number of shares
     included in the table for conversion of securities.

(2)  Includes 1,370,420 shares of common stock held by Mr. Posner and 101,000
     shares held in a trust and a family foundation of which Mr. Posner and his
     wife are trustees and with respect to which shares Mr. Posner shares voting
     and investment power. Does not include 1,000 shares owned by Mr. Posner's
     wife and 2,000 shares held by trusts of which Mr. Posner's wife is a
     trustee. Includes 998,655 shares of common stock which may be acquired by
     exercise of warrants. Mr. Posner owns 1,500 shares of Series D Convertible
     Redeemable Preferred Stock. The number of shares indicated includes 415,225
     shares of common stock for conversion of the Series D preferred stock. Mr.
     Posner owns 1,000 shares of Series F Convertible Redeemable Preferred
     Stock. The table includes 508,647 shares of common stock for conversion of
     the Series F preferred stock. Mr. Posner owns 113 shares of Series G
     Convertible Redeemable Preferred Stock. The table includes 3,228,571 shares
     of common stock for conversion of the Series G preferred stock.

(3)  As reported on Schedule 13G/A filed with the Securities and Exchange
     Commission (the "SEC") on February 14, 2002, Mr. Friedman has sole voting
     and dispositive power with respect to 95,000 of these shares. Mr. Friedman
     may be deemed to indirectly beneficially own and share voting and
     dispositive power with respect to 1,527,277 shares directly owned by
     Friedman, Billings, Ramsey Group, Inc. ("FBRG") by virtue of his control
     position as Chairman and Chief Executive Officer of FBRG. Mr. Friedman
     disclaims beneficial ownership of such shares. The number of shares assumes
     that there has been no change in the number of shares beneficially owned
     from the number of shares reported as being beneficially owned in the
     Schedule 13G/A.

(4)  Includes 1,542,816 shares of common stock held by Mr. Kelly and 15,000
     shares of common stock which may be acquired by exercise of options.

(5)  As reported on Schedule 13G/A filed with the SEC on February 13, 2002,
     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 and Orkney Holdings, Inc., a wholly-owned subsidiary of
     FBRG, share voting and dispositive power with respect to the shares. The
     number of shares assumes that there has been no change in the number of
     shares beneficially owned from the number of shares reported as being
     beneficially owned in the Schedule 13G/A.

(6)  Includes 87,347 shares of common stock held by Mr. Talarico. Includes 4,000
     shares of common stock held by Mr. Talarico's son who shares the same
     household. Includes 281,000 shares of common stock which may be acquired by
     exercise of options within sixty days of March 15, 2002. Includes 127,732
     shares of common stock which may be acquired by exercise of warrants. Mr.
     Talarico owns 300 shares of Series D preferred stock. The table includes
     83,045 shares of common stock for conversion of the Series D preferred
     stock. Mr. Talarico owns 10 shares of Series G preferred stock. The table
     includes 285,714 shares of common stock for conversion of the Series G
     preferred stock.

(7)  Includes 90,800 shares of common stock held by Mr. Kavan. Includes 25,000
     shares of common stock which may be acquired by exercise of options within
     sixty days of March 15, 2002 and 233,614 shares of common stock which may
     be acquired by exercise of warrants. Mr. Kavan owns 750 shares of Series D
     preferred stock. The table includes 207,612 shares of common stock for
     conversion of the Series D preferred stock. Mr. Kavan owns 10 shares of
     Series G preferred stock. The table includes 285,714 shares of common stock
     for conversion of the Series G preferred stock.

(8)  Includes 24,181 shares of common stock held by Mr. Wright, but does not
     include 174,000 shares held by Mr. Wright's spouse, 5,000 shares in her own
     name, and 169,000 shares as trustee for various trusts. Includes 104,201
     shares of common stock which may be acquired by exercise of warrants. Mr.
     Wright owns 200 shares of Series D preferred stock. The number of shares
     includes 55,363 shares of common stock for conversion of the Series D
     preferred stock. Mr. Wright owns 10 shares of Series G preferred stock. The
     number of shares includes 285,714 shares of common stock for conversion of
     the Series G preferred stock.

                                      -98-
<PAGE>

(b)   Security Ownership of Management

     The following table presents certain information as of March 15, 2002 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 Beneficial
                                                 -------------
           Name of Stockholder                   Ownership (1)     Percent of Class (1)
           -------------------                   -------------     --------------------
<S>                                                 <C>                   <C>
Richard W. Talarico (2)                             868,838               11.2 %
381 Mansfield Avenue, Suite 400
Pittsburgh, PA  15220

Dean C. Praskach (3)                                119,022                1.7 %
381 Mansfield Avenue, Suite 400
Pittsburgh, PA  15220

Brian K. Blair                                      159,570                2.3 %
2498 Monterey Court
Weston, FL  33327

Anthony L. Bucci                                     18,500                  *
4 Station Square
Suite 500
Pittsburgh, PA  15219

William C. Kavan (4)                                842,740               10.9 %
117 Brixton Road
Garden City, NY  11530

James S. Kelly, Jr.                               1,557,816               22.3 %
2406 Oak Hurst Court
Murrysville, PA  15668

Anthony C. Vickers                                   10,000                  *
1212 Via Zumaya
Palos Verdes Estates, CA  90274

All directors and executive  officers,  as a
group (7 persons)                                 3,576,486               41.2 %
</TABLE>

*    Less than one percent

(1)  The number of shares and the percent of the class in the table and these
     notes to the table have been calculated in accordance with Rule 13d-3 under
     the Exchange Act, and assume, on a stockholder by stockholder basis, that
     each stockholder has converted all securities owned by such stockholder
     that are convertible into common stock at the option of the holder
     currently or within 60 days of March 15, 2002, 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 15, 2002 had been exercised as follows: Mr. Talarico -
     281,000 shares; Mr. Praskach - 50,450 shares, Mr. Kavan - 25,000 shares;
     Messrs. Blair, Bucci and Kelly - 15,000 shares each; Mr. Vickers - 10,000
     shares, and all directors and executive officers as a group - 411,450
     shares. The number of shares of the Company's outstanding common stock held
     directly by directors and executive officers is as follows: Mr. Talarico -
     87,347 shares, Mr. Blair - 144,570 shares, Mr. Bucci - 3,500 shares, Mr.
     Kavan - 90,800 shares and Mr. Kelly - 1,542,816 shares. Each share of
     Series D Convertible Redeemable Preferred Stock may currently be converted
     into 276 shares of the Company's common stock. Each share of Series G
     Convertible Redeemable Preferred Stock may currently

                                      -99-
<PAGE>

     be converted into 28,571 shares of common stock. The number of shares of
     common stock that may be acquired on conversion of one share of any series
     of preferred stock does not include any fraction of a share of common stock
     as no fractional shares may be issued upon conversion. The aggregate
     numbers of shares of common stock that may be acquired by any individual
     upon conversion of any series of preferred stock do cumulate fractional
     shares, but exclude any remaining fractional share. Prior to any
     conversion, the holders of Series G preferred stock are entitled to 5,295
     votes per share, and, generally, such stockholders will vote together with
     the holders of the common stock as a single class. Warrants issued in
     August 1998 and December 2000 may be exercised to purchase common stock at
     $4.25 and $1.75 per common share, respectively. Information is provided in
     the footnotes below for each holder as to the number of shares included in
     the table for conversion of securities other than options for which
     information is given above in this footnote.

(2)  Includes 4,000 shares of common stock held by Mr. Talarico's son who shares
     the same household. Includes 127,732 shares of common stock which may be
     acquired by exercise of warrants. Mr. Talarico owns 300 shares of Series D
     preferred stock, representing 10.9% of the Series D preferred stock
     outstanding. The table includes 83,045 shares of common stock for
     conversion of the Series D preferred stock. Mr. Talarico owns 10 shares of
     Series G preferred stock, representing 6.7% of the Series G preferred stock
     outstanding. The table includes 285,714 shares of common stock for
     conversion of the Series G preferred stock. Mr. Talarico also owns 588
     shares of the Company's Series C Redeemable Preferred Stock, representing
     2.4% of the Series C preferred stock outstanding.

(3)  Includes 11,429 shares of common stock which may be acquired by exercise of
     warrants. Mr. Praskach owns 2 shares of Series G preferred stock,
     representing 1.3% of the Series G preferred stock outstanding. The table
     includes 57,143 shares of common stock for conversion of the Series G
     preferred stock.

(4)  Includes 233,614 shares of common stock which may be acquired by exercise
     of warrants. Mr. Kavan owns 750 shares of Series D preferred stock,
     representing 27.3% of the Series D preferred stock outstanding. The table
     includes 207,612 shares of common stock that may be acquired upon
     conversion of the Series D preferred stock. Mr. Kavan owns 10 shares of
     Series G preferred stock, representing 6.7% of the Series G preferred stock
     outstanding. The table includes 285,714 shares of common stock for
     conversion of the Series G 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.

Item 13 - Certain Relationships and Related Transactions

Arrangements Involving the Former Sole Stockholder of Allin
Consulting-California

     Les D. Kent, a beneficial holder of greater than five percent of the
Company's common stock during 2001 and formerly the President of the Company,
held during 2001 all of the 1,000 outstanding shares of the Company's Series F
Convertible Redeemable Preferred Stock with a liquidation value of $1,000 per
share. On March 14, 2002, Mr. Kent sold all of the outstanding shares of the
Series F preferred stock to Henry Posner, Jr., a beneficial holder of greater
than five percent of the Company's outstanding common stock. The Series F
preferred stock was issued on May 31, 1999, in exchange for a reduction in the
principal balance of a promissory note related to the acquisition of Allin
Consulting-California of $1,000,000. Mr. Kent was the sole stockholder of Allin
Consulting-California prior to the acquisition. The Series F preferred stock
accrues dividends at the rate of 7% of the liquidation value thereof per annum.
Dividends of approximately $70,000 were paid in 2001.

     The Company also has an outstanding note, with a principal balance of
$1,000,000, related to the Company's acquisition of Allin Consulting-California.
This was due to Mr. Kent during 2001, but was also sold by him to Mr. Posner on
March 14, 2002. The promissory note provides for interest at the rate of 7% per
annum. The principal balance of the promissory note is due April 15, 2005.
Interest payments during 2001 were approximately $74,000.

     See Item 7- Management's Discussion of Financial Condition and Results of
Operations - Liquidity and Capital Resources for additional information
regarding the Company's Series F preferred stock and the promissory note.

     In October 2000, Allin Consulting-California sold rights to perform
technical support services under certain contracts to Progent Corporation
("Progent"). Mr. Kent has an ownership interest in Progent. The sale was
effective for services performed subsequent to December 31, 2000. Allin
Consulting-California earns percentages of certain revenue realized by Progent
during the period from January 1, 2001 through December 31, 2005, including
fifteen percent of the

                                      -100-
<PAGE>

contractual backlog for services remaining to be performed for contracts in
place as of December 31, 2000, ten percent of any additional revenue derived
from clients with contracts in place as of December 31, 2000, and five percent
of any revenue earned from certain former clients of Allin
Consulting-California, as specified in the agreement. During 2001, Allin
Consulting-California recognized revenue of approximately $54,000 associated
with this agreement.

Lease

     Effective February 1, 1997, the Company entered into a five-year lease for
office space with Executive Office Associates ("EOA"). The aggregate rental
payment under this lease was approximately $290,000 during the fiscal year ended
December 31, 2001. Henry Posner, Jr. and two of Mr. Posner's sons and his spouse
each own an indirect equity interest in EOA. As of December 31, 2001, minimum
lease commitments were approximately $23,000 for January 2002, the final month
of the lease. The Company believes that rental payments under the long-term
lease were on terms as favorable to the Company as could have been obtained from
an unrelated party. The lease expired on January 31, 2002. Management believed
the Company's Pittsburgh-based operations could effectively utilize a smaller
space due to staff reductions in 2001. The Company's landlord has agreed to
permit the Company to continue to occupy its present space on a month-to-month
basis until such time as the landlord identifies an alternate tenant for the
Company's space. At that time, the Company will likely move to smaller space
within the same building more commensurate with its needs. The Company's rent
expense has been reduced by approximately 51% under the new arrangement
reflecting both its reduced requirements for space and current real estate
market conditions. Management believes the new arrangement benefits both parties
as the Company has benefited from a rent reduction while deferring the cost and
inconvenience of moving while the landlord has deferred the costs associated
with buildout of new space for the Company.

Services and Products Provided to Related Parties

     During the fiscal year ended December 31, 2001, Allin Consulting
-Pennsylvania and Allin Network provided computer network consulting
services to The Hawthorne Group, Inc. ("Hawthorne"). Richard W. Talarico, a
director, executive officer and beneficial owner of greater than five percent of
the Company's common stock, is an officer of, and has an ownership interest in,
Hawthorne. Mr. Posner, two of Mr. Posner's sons, and Thomas D. Wright, a
beneficial holder of greater than five percent of the Company's common stock,
are shareholders of Hawthorne. Fees charged Hawthorne were approximately $40,000
for the fiscal year ended December 31, 2001. The Company believes its fees are
on terms substantially similar to those offered unrelated parties.

     See Compensation Committee Interlocks and Insider Participation under Item
11 - Executive Compensation - and Note 17 - Related Party Transactions -
included in the Notes to Consolidate Financial Statements included in Item 8 -
Financial Statements and Supplementary Data for additional information on
transactions with related parties.

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 47.

     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.

                                      -101-
<PAGE>

3.   Exhibits

     Exhibit
     Number            Description of Exhibit (1)

     3(i)(a)    Certificate of Incorporation of the Registrant, as amended
                (incorporated by reference to Exhibit 3(i)(a) to Allin
                Communications Corporation's Registration Statement
                No. 333-10447 on Form S-1)

     3(i)(b)    Certificate of Voting Powers, Designations, Preferences and
                Relative, Participating, Optional or Other Rights, and the
                Qualifications, Limitations or Restrictions Thereof, of the
                Series C Redeemable Preferred Stock of Allin Corporation
                (incorporated by reference to Exhibit 4.1 to Allin
                Corporation's Report on Form 8-K filed on June 18, 1999)

     3(i)(c)    Certificate of Voting Powers, Designations, Preferences and
                Relative, Participating, Optional or Other Rights, and the
                Qualifications, Limitations or Restrictions Thereof, of the
                Series D Convertible Redeemable Preferred Stock of Allin
                Corporation (incorporated by reference to Exhibit 4.2 to Allin
                Corporation's Report on Form 8-K filed on June 18, 1999)

     3(i)(d)    Certificate of Voting Powers, Designations, Preferences and
                Relative, Participating, Optional or Other Rights, and the
                Qualifications, Limitations or Restrictions Thereof, of the
                Series F Convertible Redeemable Preferred Stock of Allin
                Corporation (incorporated by reference to Exhibit 4.4 to Allin
                Corporation's Report on Form 8-K filed on June 18, 1999)

     3(i)(e)    Certificate of Voting Powers, Designations, Preferences and
                Relative, Participating, Optional or Other Rights, and the
                Qualifications, Limitations or Restrictions Thereof, of the
                Series G Convertible Redeemable Preferred Stock of Allin
                Corporation (incorporated by reference to Exhibit 4.1 to Allin
                Corporation's Report on Form 8-K filed on January 4, 2001)

     3(ii)(a)   Amended and Restated  By-laws of the  Registrant  (incorporated
                by reference to Exhibit 3(ii) to Allin Communications
                Corporation's Registration Statement No. 333-10447 on Form S-1)

     3(ii)(b)   Amendment to By-laws of the Registrant (incorporated by
                reference to Exhibit 3(ii) to Allin Communications
                Corporation's Report on Form 10-Q for the period ended June
                30, 1998)

     3(ii)(c)   Amendment to By-laws of the Registrant (incorporated by
                reference to Exhibit 3(ii)(c) to Allin Corporation's Report on
                Form 10-K for the fiscal year ended December 31, 2000)

     4.1        Form of Warrant for purchasers of Series B Redeemable
                Preferred Stock (incorporated by reference to Exhibit 4.2 to
                Allin Communications Corporation's Report on Form 8-K as of
                August 13, 1998)

     4.2        Loan and Security Agreement dated as of October 1, 1998 by and
                between Allin Communications Corporation and S&T Bank, a
                Pennsylvania banking association (incorporated by reference to
                Exhibit 4 to Allin Communications Corporation's Report on Form
                8-K as of September 30, 1998)

     4.3        Certificate of Voting Powers, Designations, Preferences and
                Relative, Participating, Optional or Other Rights, and the
                Qualifications, Limitations or Restrictions Thereof, of the
                Series C Redeemable Preferred Stock of Allin Corporation
                (incorporated by reference to Exhibit 4.1 to Allin
                Corporation's Report on Form 8-K filed on June 18, 1999)

     4.4        Certificate of Voting Powers, Designations, Preferences and
                Relative, Participating, Optional or Other Rights, and the
                Qualifications, Limitations or Restrictions Thereof, of the
                Series D Convertible Redeemable Preferred Stock of Allin
                Corporation (incorporated by reference to Exhibit 4.2 to Allin
                Corporation's Report on Form 8-K filed on June 18, 1999)

                                      -102-
<PAGE>

     Exhibit
     Number            Description of Exhibit

     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 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)

     4.6        Second Amended and Restated Promissory Note dated as of June
                1, 1999 made by Allin Corporation in favor of Les Kent
                (incorporated by reference to Exhibit 4.5 to Allin
                Corporation's Report on Form 8-K filed on June 18, 1999)

     4.7        Second Amendment to Note and Loan and Security Agreement by
                and between Allin Corporation and S&T Bank, a Pennsylvania
                banking association (incorporated by reference to Exhibit 4.1
                to Allin Corporation's Report on Form 10-Q for the period
                ended September 30, 1999)

     4.8        Certificate of Voting Powers, Designations, Preferences and
                Relative, Participating, Optional or Other Rights, and the
                Qualifications, Limitations or Restrictions Thereof, of the
                Series G Convertible Redeemable Preferred Stock of Allin
                Corporation (incorporated by reference to Exhibit 4.1 to Allin
                Corporation's Report on Form 8-K filed on January 4, 2001)

     4.9        Form of Warrant for purchasers of Series G Convertible
                Redeemable Preferred Stock of Allin Corporation (incorporated
                by reference to Exhibit 4.2 to Allin Corporation's Report on
                Form 8-K filed on January 4, 2001)

     4.10       Third Amendment to Loan and Security Agreement by and between
                Allin Corporation, each of its subsidiaries and S&T Bank, a
                Pennsylvania banking association (incorporated by reference to
                Exhibit 4.1 to Allin Corporation's Report of Form 10-Q for the
                period ended September 30, 2001)

     10.1*      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)

     10.2*      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)

     10.3*      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)

     10.4       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)

     10.5       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)

     10.6       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)

     10.7*      2000 Stock Plan of the Registrant (incorporated by reference
                to Exhibit 10.13 to Allin Corporation's Report on Form 10-K
                for the period ended December 31, 1999)

     10.8*      Employment Agreement dated June 23, 2000 by and between the
                Registrant and Dean C. Praskach (incorporated by reference to
                Exhibit 10.1 to Allin Corporation's Report on Form 10-Q for
                the period ended June 30, 2000)

                                      -103-
<PAGE>

     Exhibit
     Number            Description of Exhibit

     10.9       Registration Rights Agreement dated December 29, 2000 by and
                among Allin Corporation and the holders of the Series G
                Convertible Redeemable Preferred Stock of Allin Corporation
                (incorporated by reference to Exhibit 10.1 to Allin
                Corporation's Report on Form 8-K filed on January 4, 2001)

     10.10*     Amendment to Employment Agreement dated February 13, 2001 by
                and between the Registrant and Dean C. Praskach (incorporated
                by reference to Exhibit 10.13 to Allin Corporation's Report on
                Form 10-K for the fiscal year ended December 31, 2000)

     10.11      Master Agreement dated February 20, 2001 by and between Allin
                Interactive Corporation and Carnival Corporation (incorporated
                by reference to Exhibit 10.14 to Allin Corporation's Report on
                Form 10-K for the fiscal year ended December 31, 2000)

     10.12      Interactive Television System Agreement dated February 20,
                2001 by and between Allin Interactive Corporation and Carnival
                Cruise Lines (incorporated by reference to Exhibit 10.15 to
                Allin Corporation's Report on Form 10-K for the fiscal year
                ended December 31, 2000)

     10.13      First Amendment to Interactive Television System Agreement
                dated February 20, 2001 by and between Allin Interactive
                Corporation and Carnival Cruise Lines (subject to request for
                confidential treatment)

     10.14      Second Amendment to Interactive Television System Agreement
                dated February 20, 2001 by and between Allin Interactive
                Corporation and Carnival Cruise Lines (subject to request for
                confidential treatment)

     10.15*     Employment  Agreement  dated  January  10,  2002 by and  between
                the  Registrant  and Richard W. Talarico

     11         Computation of Earnings Per Share

     21         Subsidiaries of the Registrant.

     99         Registrant's Letter to the Securities and Exchange Commission
                dated March 25, 2002

----------
*    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, 2001.

                                      -104-
<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 27, 2002

                                     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>

                                                   Chairman of the Board and Chief Executive
/s/ Richard W. Talarico                            Officer (Principal Executive Officer)        March 27, 2002
-----------------------------------------------
Richard W. Talarico

                                                   Chief Financial Officer (Principal
/s/ Dean C. Praskach                               Financial and Accounting Officer)            March 27, 2002
-----------------------------------------------
Dean C. Praskach


/s/ Brian K. Blair                                 Director                                     March 27, 2002
-----------------------------------------------
Brian K. Blair


/s/ Anthony L. Bucci                               Director                                     March 27, 2002
-----------------------------------------------
Anthony L. Bucci


/s/ William C. Kavan                               Director                                     March 27, 2002
-----------------------------------------------
William C. Kavan


/s/ James S. Kelly, Jr.                            Director                                     March 27, 2002
-----------------------------------------------
James S. Kelly, Jr.


/s/ Anthony C. Vickers                             Director                                     March 27, 2002
-----------------------------------------------
Anthony C. Vickers
</TABLE>

                                      -105-
<PAGE>

                                                                     Schedule II

                                ALLIN CORPORATION

                        VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                               Balance at    Additions
                                               ----------    ---------
                                              Beginning of   Charged to     Other                    Balance at
                                              ------------   ----------     -----                    ----------
             (Dollars in thousands)              Period       Expense     Additions   Deductions   End of Period
                                                 ------       -------     ---------   ----------   -------------
<S>                                                <C>            <C>        <C>       <C>            <C>
Valuation allowance on deferred tax asset          7,904          726         --           --          8,630
Allowance for doubtful accounts receivable           316           58         --          100            274
Severance accrual for employee terminations           28          307         --          229            106
                                              ------------------------------------------------------------------
Year ended December 31, 1999                      $8,248       $1,091        $--       $  329         $9,010

Valuation allowance on deferred tax asset          8,630          139         --       $8,769
Allowance for doubtful accounts receivable           274          100         --          258            116
Severance accrual for employee terminations          106           94         --          200             --
                                              ------------------------------------------------------------------
Year ended December 31, 2000                      $9,010       $  333        $--       $  458         $8,885

Valuation allowance on deferred tax asset          8,769           --         --          135         $8,634
Allowance for doubtful accounts receivable           116           93         --           85            124
Severance accrual for employee terminations           --          132         --          122             10
                                              ------------------------------------------------------------------
Year ended December 31, 2001                      $8,885       $ ,225        $--       $  342         $8,768
                                              ==================================================================
</TABLE>

                                                                   Schedule II-A

                                      -106-
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of Allin Corporation:

We have audited, in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements included in this Form 10-K,
and have issued our report thereon dated February 8, 2002. Our audit was made
for the purpose of forming an opinion on the basic consolidated financial
statements taken as a whole. The schedule listed in the index in Item 14 (a) 2
of this Form 10-K is the responsibility of the Company's management and is
presented for the purpose of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic consolidated financial statements and, in our opinion,
fairly states in all material respects the financial data required to be set
forth in relation to the basic consolidated financial statements taken as a
whole.


                                                         /s/ ARTHUR ANDERSEN LLP

Pittsburgh, Pennsylvania,
February 8, 2002

                                                                   Schedule II-B

                                      -107-
<PAGE>

                                  Exhibit Index
                                  -------------

Exhibit
Number            Description of Exhibit (1)

3(i)(a)    Certificate of Incorporation of the Registrant, as amended
           (incorporated by reference to Exhibit 3(i)(a) to Allin Communications
           Corporation's Registration Statement No. 333-10447 on Form S-1)

3(i)(b)    Certificate of Voting Powers, Designations, Preferences and
           Relative, Participating, Optional or Other Rights, and the
           Qualifications, Limitations or Restrictions Thereof, of the
           Series C Redeemable Preferred Stock of Allin Corporation
           (incorporated by reference to Exhibit 4.1 to Allin
           Corporation's Report on Form 8-K filed on June 18, 1999)

3(i)(c)    Certificate of Voting Powers, Designations, Preferences and
           Relative, Participating, Optional or Other Rights, and the
           Qualifications, Limitations or Restrictions Thereof, of the
           Series D Convertible Redeemable Preferred Stock of Allin
           Corporation (incorporated by reference to Exhibit 4.2 to Allin
           Corporation's Report on Form 8-K filed on June 18, 1999)

3(i)(d)    Certificate of Voting Powers, Designations, Preferences and
           Relative, Participating, Optional or Other Rights, and the
           Qualifications, Limitations or Restrictions Thereof, of the
           Series F Convertible Redeemable Preferred Stock of Allin
           Corporation (incorporated by reference to Exhibit 4.4 to Allin
           Corporation's Report on Form 8-K filed on June 18, 1999)

3(i)(e)    Certificate of Voting Powers, Designations, Preferences and
           Relative, Participating, Optional or Other Rights, and the
           Qualifications, Limitations or Restrictions Thereof, of the
           Series G Convertible Redeemable Preferred Stock of Allin
           Corporation (incorporated by reference to Exhibit 4.1 to Allin
           Corporation's Report on Form 8-K filed on January 4, 2001)

3(ii)(a)   Amended and Restated  By-laws of the  Registrant  (incorporated
           by reference to Exhibit 3(ii) to Allin Communications Corporation's
           Registration Statement No. 333-10447 on Form S-1)

3(ii)(b)   Amendment to By-laws of the Registrant (incorporated by
           reference to Exhibit 3(ii) to Allin Communications
           Corporation's Report on Form 10-Q for the period ended June
           30, 1998)

3(ii)(c)   Amendment to By-laws of the Registrant (incorporated by
           reference to Exhibit 3(ii)(c) to Allin Corporation's Report on
           From 10-K for the fiscal year ended December 31, 2000)

4.1        Form of Warrant for purchasers of Series B Redeemable
           Preferred Stock (incorporated by reference to Exhibit 4.2 to
           Allin Communications Corporation's Report on Form 8-K as of
           August 13, 1998)

4.2        Loan and Security Agreement dated as of October 1, 1998 by and
           between Allin Communications Corporation and S&T Bank, a
           Pennsylvania banking association (incorporated by reference to
           Exhibit 4 to Allin Communications Corporation's Report on Form
           8-K as of September 30, 1998)

4.3        Certificate of Voting Powers, Designations, Preferences and
           Relative, Participating, Optional or Other Rights, and the
           Qualifications, Limitations or Restrictions Thereof, of the
           Series C Redeemable Preferred Stock of Allin Corporation
           (incorporated by reference to Exhibit 4.1 to Allin
           Corporation's Report on Form 8-K filed on June 18, 1999)

4.4        Certificate of Voting Powers, Designations, Preferences and
           Relative, Participating, Optional or Other Rights, and the
           Qualifications, Limitations or Restrictions Thereof, of the
           Series D Convertible Redeemable Preferred Stock of Allin
           Corporation (incorporated by reference to Exhibit 4.2 to Allin
           Corporation's Report on Form 8-K filed on June 18, 1999)

                                      -108-
<PAGE>

                       Exhibit Index (cont.)
                       ---------------------
Exhibit
Number              Description of Exhibit

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 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)

4.6        Second Amended and Restated Promissory Note dated as of June
           1, 1999 made by Allin Corporation in favor of Les Kent
           (incorporated by reference to Exhibit 4.5 to Allin
           Corporation's Report on Form 8-K filed on June 18, 1999)

4.7        Second Amendment to Note and Loan and Security Agreement by
           and between Allin Corporation and S&T Bank, a Pennsylvania
           banking association (incorporated by reference to Exhibit 4.1
           to Allin Corporation's Report on Form 10-Q for the period
           ended September 30, 1999)

4.8        Certificate of Voting Powers, Designations, Preferences and
           Relative, Participating, Optional or Other Rights, and the
           Qualifications, Limitations or Restrictions Thereof, of the
           Series G Convertible Redeemable Preferred Stock of Allin
           Corporation (incorporated by reference to Exhibit 4.1 to Allin
           Corporation's Report on Form 8-K filed on January 4, 2001)

4.9        Form of Warrant for purchasers of Series G Convertible
           Redeemable Preferred Stock of Allin Corporation (incorporated
           by reference to Exhibit 4.2 to Allin Corporation's Report on
           Form 8-K filed on January 4, 2001)

4.10       Third Amendment to Loan and Security Agreement by and between
           Allin Corporation, each of its subsidiaries and S&T Bank, a
           Pennsylvania banking association (incorporated by reference to
           Exhibit 4.1 to Allin Corporation's Report of Form 10-Q for the
           period ended September 30, 2001)

10.1*      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)

10.2*      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)

10.3*      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)

10.4       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)

10.5       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)

10.6       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)

                                      -109-
<PAGE>

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

Exhibit
Number             Description of Exhibit

10.7*      2000 Stock Plan of the Registrant (incorporated by reference
           to Exhibit 10.13 to Allin Corporation's Report on Form 10-K
           for the period ended December 31, 1999)

10.8*      Employment Agreement dated June 23, 2000 by and between the
           Registrant and Dean C. Praskach (incorporated by reference to
           Allin Corporation's Report on Form 10-Q for the period ended
           June 30, 2000)

10.9       Registration Rights Agreement dated December 29, 2000 by and
           among Allin Corporation and the holders of the Series G
           Convertible Redeemable Preferred Stock of Allin Corporation
           (incorporated by reference to Exhibit 10.1 to Allin
           Corporation's Report on Form 8-K filed on January 4, 2001)

10.10*     Amendment to Employment Agreement dated February 13, 2001 by
           and between the Registrant and Dean C. Praskach (incorporated
           by reference to Exhibit 10.13 to Allin Corporation's Report on
           Form 10-K for the fiscal year ended December 31, 2000)

10.11      Master Agreement dated February 20, 2001 by and between Allin
           Interactive Corporation and Carnival Corporation (incorporated
           by reference to Exhibit 10.14 to Allin Corporation's Report on
           Form 10-K for the fiscal year ended December 31, 2000)

10.12      Interactive Television System Agreement dated February 20,
           2001 by and between Allin Interactive Corporation and Carnival
           Cruise Lines (incorporated by reference to Exhibit 10.15 to
           Allin Corporation's Report on Form 10-K for the fiscal year
           ended December 31, 2000)

10.13      First Amendment to Interactive Television System Agreement
           dated February 20, 2001 by and between Allin Interactive
           Corporation and Carnival Cruise Lines (subject to request for
           confidential treatment)

10.14      Second Amendment to Interactive Television System Agreement
           dated February 20, 2001 by and between Allin Interactive
           Corporation and Carnival Cruise Lines (subject to request for
           confidential treatment)

10.15*     Employment Agreement dated January 10, 2002 by and between
           the Registrant and Richard W. Talarico

11         Computation of Earnings Per Share

21         Subsidiaries of the Registrant.

99         Registrant's Letter to the Securities and Exchange Commission dated
           March 25, 2002

----------
*    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.

                                      -110-