10-Q

FORM 10-Q

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

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended: June 30, 2003
	OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 0-21395

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

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

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

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

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      o   No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act)

o   Yes      x   No

Shares Outstanding of the Registrant’s Common Stock

As of July 31, 2003

Common Stock, 6,967,339 Shares

Allin Corporation

Form 10-Q

Index

Forward-Looking Information	Page 3
Part I - Financial Information
Item 1. Financial Statements	Page 4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	Page 23
Item 3. Quantitative and Qualitative Disclosure about Market Risk	Page 49
Item 4. Controls and Procedures	Page 50
Part II - Other Information
Item 3. Defaults Upon Senior Securities	Page 51
Item 4. Submission of Matters to a Vote of Securities Holders	Page 53
Item 6. Exhibits and Reports on Form 8-K	Page 54
Signatures	Page 55

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Forward-Looking Information

         Certain matters in this Form 10-Q, including, without limitation, certain matters discussed under Part I - Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are typically identified by the words “believes,” “expects,” “anticipates,” “intends,” “estimates,” “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 the actual results, performance or achievements of Allin Corporation to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, risks and uncertainties discussed throughout Part I, Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations and under the caption “Risk Factors” included therein. Allin Corporation undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

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Part I - Financial Information

Item 1. - Financial Statements

ALLIN CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)

	December 31, 2002			June 30, 2003
ASSETS
Current assets:
Cash and cash equivalents	$	1,895		$	4,241
Accounts receivable, net of allowance for doubtful accounts of $48		4,579			1,782
Unbilled receivables		270			180
Inventory		24			57
Prepaid expenses		217			122
Current costs and estimated gross margins in excess of billings		438			663
Current portion of deferred income tax asset		272			182
Assets held for sale		—			7
Total current assets		7,695			7,234
Property and equipment, at cost:
Leasehold improvements		471			478
Furniture and equipment		3,007			3,034
		3,478			3,512
Less--accumulated depreciation		(3,330	)		(3,408	)
		148			104
Other assets:
Non-current costs and estimated gross margins in excess of billings		129			146
Non-current portion of deferred income tax asset		—			69
Goodwill, net of accumulated amortization of $3,742		817			790
Customer list, net of accumulated amortization of $717 and $786		1,513			1,444
Total assets	$	10,302		$	9,787

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

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ALLIN CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)

	December 31, 2002			June 30, 2003
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,558		$	910
Accrued liabilities:
Compensation and payroll taxes		290			233
Current portion of dividends on preferred stock		76			75
Other		276			232
Billings in excess of costs and estimated gross margins		637			1,311
Deferred revenue		28			51
Income taxes payable		—			13
Total current liabilities		3,865			2,825
Non-current portion of dividends on preferred stock		1,685			1,851
Non-current portion of notes payable		1,000			1,000
Commitments and contingencies
Shareholders’ equity:
Preferred stock, par value $.01 per share, authorized 100,000 shares:
Series C redeemable preferred stock, designated, issued and outstanding 25,000 shares		2,500			2,500
Series D convertible redeemable preferred stock, designated, issued and outstanding 2,750 shares		2,152			2,152
Series 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		1,041			1,048
Common stock, par value $.01 per share - authorized 20,000,000 shares, outstanding 6,967,339 shares		70			70
Additional paid-in-capital		40,318			39,970
Warrants		1,017			1,017
Treasury stock at cost, 8,167 common shares		(27	)		(27	)
Retained deficit		(44,319	)		(43,619	)
Total shareholders’ equity		3,752			4,111
Total liabilities and shareholders’ equity	$	10,302		$	9,787

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

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ALLIN CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)

	Three Months Ended June 30, 2002			Three Months Ended June 30, 2003		Six Months Ended June 30, 2002			Six Months Ended June 30, 2003
Revenue:
Solution area consulting services	$	1,624		$	1,927	$	2,988		$	3,701
Solution area integration services		1,412			1,332		2,363			2,546
Outsourced services		324			181		681			364
Ancillary services		17			24		36			46
Ancillary product sales		59			69		185			121
Total revenue		3,436			3,533		6,253			6,778
Cost of sales		1,811			1,636		3,286			3,145
Gross profit		1,625			1,897		2,967			3,633
Selling, general & administrative expenses:
Depreciation and amortization		152			76		301			150
Loss on impairment or disposal of assets		—			—		—			27
Other selling, general & administrative expenses		1,292			1,290		2,694			2,681
Total selling, general & administrative expenses		1,444			1,366		2,995			2,858
Income (loss) from operations		181			531		(28	)		775
Interest expense, net		10			7		9			20
Income (loss) before provision for income taxes		171			524		(37	)		755
Provision for income taxes		—			70		—			55
Income (loss) from continuing operations		171			454		(37	)		700
Loss from discontinued operations		12			—		5			—
Net income (loss)		159			454		(42	)		700
Accretion and dividends on preferred stock		170			176		336			349
Net (loss) income attributable to common shareholders	$	(11	)	$	278	$	(378	)	$	351
Income (loss) per common share from continuing operations - basic	$	0.00		$	0.04	$	(0.05	)	$	0.05
Loss per common share from discontinued operations - basic	$	0.00		$	0.00	$	0.00		$	0.00
Net (loss) income per common share - basic	$	0.00		$	0.04	$	(0.05	)	$	0.05
Income (loss) per common share from continuing operations - diluted	$	0.00		$	0.03	$	(0.05	)	$	0.04
Loss per common share from discontinued operations - diluted	$	0.00		$	0.00	$	0.00		$	0.00
Net (loss) income per common share - diluted	$	0.00		$	0.03	$	(0.05	)	$	0.04
Weighted average shares outstanding - basic and diluted		6,967,339			6,967,339		6,967,339			6,967,339
Weighted average shares outstanding - basic and diluted		6,967,339			11,262,163		6,967,339			11,257,959

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

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ALLIN CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)

	Six Months Ended June 30, 2002			Six Months Ended June 30, 2003
Cash flows from operating activities:
Net (loss) income	$	(42	)	$	700
Adjustments to reconcile net (loss) income to net cash flows from operating activities:
Depreciation and amortization		308			150
Provision for income taxes		—			21
Loss from impairment or disposal of assets		—			27
Provision for uncollectable accounts receivable		6			—
Changes in certain assets and liabilities:
Accounts receivable		2,121			2,797
Unbilled receivables		(21	)		90
Inventory		43			(33	)
Prepaid expenses		65			95
Assets held for sale		8			(7	)
Costs and estimated gross margins in excess of billings		201			(241	)
Accounts payable		(1,197	)		(1,648	)
Accrued liabilities		(127	)		(101	)
Billings in excess of costs and estimated gross margins		(308	)		674
Income taxes payable		—			13
Deferred revenues		(36	)		23
Net cash flows provided by operating activities		1,021			2,560
Cash flows from investing activities:
Capital expenditures		(13	)		(38	)
Net cash flows used for investing activities		(13	)		(38	)
Cash flows from financing activities:
Payment of dividends on preferred stock		(176	)		(176	)
Net cash flows used for financing activities		(176	)		(176	)
Net change in cash and cash equivalents		832			2,346
Cash and cash equivalents, beginning of period		2,226			1,895
Cash and cash equivalents, end of period	$	3,058		$	4,241

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

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Allin Corporation and Subsidiaries
Notes to Consolidated Financial Statements

1.     Summary of Significant Accounting Policies

               The information contained in these financial statements and notes for the three- and six-month periods ended June 30, 2002 and 2003 should be read in conjunction with the audited financial statements and notes for the years ended December 31, 2001 and 2002, contained in Allin Corporation’s (the “Company”) Annual Report on Form 10-K for the year ended December 31, 2002. The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States and the rules and regulations of the Securities and Exchange Commission. These interim statements do not include all of the information and footnotes required for complete financial statements. It is management’s opinion that all adjustments (including all normal recurring accruals) considered necessary for a fair presentation have been made. However, results for these interim periods are not necessarily indicative of results to be expected for the full year. See Note 5 - Income Taxes for information concerning the Company’s basis of presentation regarding income taxes and deferred tax assets.

Principles of Consolidation

              The consolidated financial statements include the accounts of the Company and its subsidiaries, of which the Company is the sole shareholder. 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.

Reclassifications

              The Consolidated Statement of Cash Flows for the six-month period ended June 30, 2002 included in this Report on Form 10-Q reflects reclassifications to the statement as previously reported in the Company’s Report on Form 10-Q for the period ended June 30, 2002. The reclassifications have been made to conform the prior period information to the current presentation of this statement. The reclassifications did not impact the Company’s results of operations or earnings per share during the period ended June 30, 2002 and accordingly, no changes have been made to the Consolidated Statement of Operations for this period. Separate changes are reflected for costs and estimated gross margins in excess of billings and billings in excess of costs and estimated gross margins under changes in certain assets and liabilities in cash flows from operating activities under the current presentation. Previously, the changes had been presented on a net basis. The provision for uncollectible accounts receivable is reflected as an adjustment to reconcile the net loss to net cash flows from operating activities in cash flows from operating activities. Previously, the provision for uncollectible accounts receivable had been presented as a component of the change in accounts receivable under changes in certain assets and liabilities in cash flows from operating activities. There is no change to the aggregate net cash flows provided by operating activities for the period ended June 30, 2002.

Discontinued Operations

              During June 2001, the Company elected to discontinue the digital imaging systems integration, technical support and product sales activities of Allin Digital Imaging Corp. (“Allin Digital”). Allin Digital’s operations during the three- and six-month periods ended June 30, 2002 were of a wrap-up nature and included the sale of digital imaging equipment remaining in inventory and fulfillment of technical support obligations. Allin Digital ceased operations in the second quarter of 2002 and was merged into Allin Interactive Corporation (“Allin Interactive”) on December 31, 2002. The results of operations for Allin Digital included in the Company’s Consolidated Statement of Operations for the three- and six-month periods ended June 30, 2002 are presented as results from discontinued operations, which is presented after income or loss from continuing operations. The information related to the Company’s revenue and gross profit included in Note 6 – Industry Segment Information excludes the discontinued operations.

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Allin Corporation and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)

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 materially from those estimates.

Market Risk Sensitive Instruments

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

Revenue and Cost of Sales Recognition

              Revenue is accounted for in accordance with the guidelines included in Staff Accounting Bulletin 101, Revenue recognition in Financial Statements (“SAB 101”). The Company’s policy is to recognize revenue when the applicable revenue recognition criteria have been met, which generally include the following:

• Persuasive evidence of an arrangement exists;

• Price is fixed or determinable;

• Delivery has occurred or services have been rendered; and

• Collectibility is reasonably assured.

              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. 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” and product sales are included in “Ancillary product sales.”

              Allin Corporation of California (“Allin Consulting-California”) and Allin Consulting of Pennsylvania, Inc. (“Allin Consulting-Pennsylvania”) charge consulting fees for their Technology Infrastructure and E-Business Solution Area services. Allin Consulting-Pennsylvania also charges consulting fees for outsourced 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 on the percentage of completion method based on the proportion of labor expended through the end of the period to expected total project labor. Allin Consulting-Pennsylvania recognizes revenue and associated cost from the sale of products at the time the products are shipped. Revenue from Technology Infrastructure and E-Business Solution Area services is included in “Solution area consulting services” on the accompanying Consolidated Statements of Operations. Revenue from product sales is included in “Ancillary product sales.”

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Allin Corporation and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)

         Allin Network Products, Inc. (Allin Network”) recognizes revenue and associated cost from the sale of products at the time the products are shipped. Allin Network also performs computer network monitoring and consulting 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 after services are performed. Revenue from product sales is included in “Ancillary product sales” and revenue from monitoring and consulting services is included in “Solution area consulting services” on the accompanying Consolidated Statements of Operations.

         Allin Consulting-Pennsylvania, Allin Interactive and Allin Network recognize amounts billed to customers for shipping charges as revenue and associated shipping costs are recorded as cost of sales.

         Three significant customers accounted for approximately 29%, 19% and 15%, respectively, of the Company’s revenue for the three-month period ended June 30, 2003 and approximately 27%, 20% and 14%, respectively, of the Company’s revenue for the six-month period ended June 30, 2003. The customers with the largest two percentages in these three- and six-month periods are affiliates of each other. Three significant customers accounted for approximately 25%, 24% and 11%, respectively, of the Company’s revenue for the three-month period ended June 30, 2002 and approximately 23%, 18% and 17%, respectively, of the Company’s revenue for the six-month period ended June 30, 2002. The customers with the largest two percentages, which differed from the customers noted above for 2003, in the three- and six-month periods ended June 30, 2002 are affiliates of each other. The segments included in the revenue associated with these customers were Interactive Media Consulting, Interactive Media Systems Integration and Information System Product Sales.

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. The Company’s outstanding stock options and warrants and the Company’s Series D, F and G convertible redeemable preferred stock could all be considered dilutive securities under SFAS No. 128.

         The Company recognized net income attributable to shareholders in the three- and six-month periods ended June 30, 2003. The calculation of diluted EPS for these periods resulted in the addition of 4,285,714 shares for the potential conversion of the Company’s Series G preferred stock to weighted average shares outstanding for each of these periods. A total of 1,269,893 shares potentially convertible from the Company’s Series D and F preferred stock were not included in the calculation of diluted EPS for the three- and six-month periods ended June 30, 2003 as the reclassification of dividends associated with their inclusion resulted in a calculation of EPS that was anti-dilutive. A total of 50,000 and 45,000 shares, respectively, were included in the calculation of diluted EPS for the three-and six-month periods ended June 30, 2003 related to outstanding stock options where the exercise prices of the options were below the average market prices for these periods. The average market prices of the Company’s common stock during the three- and six-month periods ended June 30, 2003 did not exceed the exercise prices of all other options and warrants outstanding during the periods.

         The Company recognized net losses attributable to common shareholders in the three- and six-month periods ended June 30, 2002. Therefore, the Company’s convertible preferred stock and outstanding options and warrants have not been included in the calculation of diluted EPS for these periods, as the effect would be anti-dilutive. The additional shares that would have been included in the diluted EPS calculation related to the Company’s Series D, F and G preferred stock, if the effect had been dilutive, were 5,555,607 for the three- and six-month periods ended June 30, 2002. A total of 25,000 options to purchase common shares would have been considered in the calculation of diluted EPS for the three-month period ended June 30, 2002, if the effect was dilutive, since the average market price of the Company’s common stock during this period exceeded the exercise price of these options. The exercise prices of all other options and warrants outstanding during the three-month period ended June 30, 2002, and all options and warrants outstanding during the six-month period ended June 30, 2002, exceeded the average market prices for the respective periods and, accordingly, none would have been considered in any calculation of diluted EPS for these periods.

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Allin Corporation and Subsidiaries
Notes to Consolidated Financial Statements - (Continued)

Accounts Receivable and Unbilled Receivables

         The Company’s subsidiaries record accounts receivable based upon billing for services and products. Unbilled receivables are recorded when labor-based services have been provided prior to the end of the period and invoicing has not occurred. The Company evaluates the extension of credit to potential customers based on financial or other information and any special circumstances regarding the potential engagement. Payment for services or products is normally due within thirty days of billing, although alternate terms may be included in contracts or letters of engagement as agreed upon by the Company and the customer. Accounts receivable are not normally collateralized. The Company does not routinely charge interest on past due accounts receivable. However, the Company will occasionally reach agreement with a customer on a payment plan for accounts receivable that includes interest charges if the Company believes this will facilitate collection. In these instances, interest income is recognized as payments are received. As of December 31, 2002 and June 30, 2003, the Company’s risk of loss for accounts receivable and unbilled receivables was limited to the amounts recorded on the Consolidated Balance Sheets as of those dates.

         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. Bad debt expense is reflected in Other selling, general and administrative expenses on the Consolidated Statements of Operations when allowances on accounts receivable are increased or when accounts written off exceed available allowances.

         As of June 30, 2003, two significant customers comprised 32% and 13%, respectively, of the Company’s accounts receivable. As of December 31, 2002, three significant customers comprised 31%, 25% and 24%, respectively, of the Company’s accounts receivable. As of December 31, 2002, two of the customers were affiliates of each other.

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. For an individual project, costs and estimated gross margins in excess of billings consists of costs not yet recognized as cost of sales and estimated gross margins, net of amounts billed but not yet recognized as revenue. For an individual project, billings in excess of costs and estimated gross margins consists of amounts billed but not yet recognized as revenue, net of costs which have not yet been recognized as cost of sales and estimated gross margins associated with the project. Projects with costs and estimated gross margins in excess of billings are aggregated separately from projects with billings in excess of costs and estimated gross margins for presentation on the consolidated balance sheets. Billings, costs and estimated gross margins associated with this type of project expected to be recognized as revenue, cost of sales or gross margin within one year result in the inclusion of current assets and/or liabilities on the consolidated balance sheets while amounts expected to be recognized as revenue, cost of sales or gross margin beyond one year result in the inclusion of non-current assets and/or liabilities on the consolidated balance sheets.

Goodwill and Intangible Assets

         As of June 30, 2003, goodwill and intangible assets include goodwill associated with the 1996 acquisition of Allin Consulting-California and the 1998 acquisitions of Allin Consulting-Pennsylvania and MEGAbase, Inc., which was merged into Allin Consulting-California, and a customer list associated with the acquisition of Allin Consulting-Pennsylvania. Upon acquisition, valuation of the intangible assets was performed in accordance with Accounting Principals Board Opinion No. 16, Accounting for Business Combinations. On January 1, 2002, the Company implemented Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS No. 142”).

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Allin Corporation and Subsidiaries
Notes to Consolidated Financial Statements – (Continued)

         Under SFAS No. 142, goodwill is no longer amortized but is reviewed for impairment annually, or more frequently if impairment indicators arise. The Company attributes the recognized assets of the acquired businesses, including cash, accounts receivable, prepaid expenses, property and equipment, customer list and goodwill, net of accounts payable, accrued liabilities and deferred revenue, to reporting units. The reporting units utilized are the Company’s reported segments applicable to the acquired subsidiaries, Technology Infrastructure, E-Business and Outsourced Services, further broken down geographically between northern California-based and Pittsburgh-based operations. Recognized assets are attributed to reporting units in a manner consistent with that used for segment reporting. Management utilizes industry information for public technology consulting businesses to develop assumptions for appropriate revenue multiples for estimating the fair values of the reporting units. The industry valuation multiple utilized in the 2003 annual test, performed as of January 1, 2003, represented a decrease of over 25% from the multiple used for the 2002 annual test, reflecting lower future growth expectations in the technology consulting industry. Allin Consulting-Pennsylvania recorded a loss due to impairment of goodwill related to the Outsourced Services reporting unit of approximately $11,000 in January 2003. Due to the estimated fair values of goodwill for the other reporting units exceeding the reported values of the assets by substantially lower amounts as of January 1, 2003 than as of January 1, 2002, the Company believed conditions were indicative of the potential for additional impairment of the intangible assets and that testing on a more frequent basis than annual was warranted. The Company completed additional estimates of the fair value of goodwill, as of March 31, 2003 and as of June 30, 2003, in a manner consistent with the 2003 annual test. Allin Consulting-Pennsylvania recorded a loss due to impairment of goodwill related to the Pittsburgh-based Technology Infrastructure reporting unit of approximately $16,000 in March 2003. No impairment loss was indicated in testing as of June 30, 2003, but the excesses of estimated fair value over recorded value were small for both the Technology Infrastructure and Outsourced Services reporting units. The Company will continue to monitor the factors relevant to its fair value estimate for goodwill and the attribution of assets to reporting units on an ongoing basis for indicators of potential impairment and will conduct future tests for potential impairment on an annual basis, or more frequently if indicators of potential impairment arise.

         Separable intangible assets that are deemed to have definite lives, such as the customer list, are amortized over their useful lives. The Company estimates the fair value of the customer list associated with the acquisition of Allin Consulting-Pennsylvania through undiscounted cash flows attributable to the customers included on the acquired list. Management utilizes historical information related to business derived from these customers, future projections for the operations of Allin Consulting-Pennsylvania and industry information concerning expected growth in the technology consulting industry to develop assumptions and estimates of future cash flows applicable to the acquired customer list. The resulting estimate of fair value exceeded the recorded value of the customer list in 2003 annual testing, which was performed as of January 1, 2003. Industry analysis as of early 2003 included more conservative growth forecasts for technology consulting services than as of the beginning of 2002. The excess of estimated fair value over the recorded value of the customer list was significantly lower as of January 1, 2003 than as of January 1, 2002, indicating increasing risk for future impairment if recovery from the current economic downturn occurs later or is weaker than is projected in recent industry forecasts, or if the proportion of revenue attributable to customers on the acquired list decreases more rapidly than expected. Due to this, the Company also estimated the fair value of the customer list as of March 31, 2003, in a manner consistent with the 2003 annual test, with the resulting estimate of fair value exceeding the recorded value. The Company will continue to monitor the factors relevant to its fair value estimate for the customer list on an ongoing basis for indicators of potential impairment and will conduct future tests for potential impairment on an annual basis, or more frequently if indicators of potential impairment arise. The estimated useful life of the customer list extends through 2013, which is the final year in which expected cash flows were attributed to the customer list in the Company’s most recent estimate. Amortization expense of approximately $34,000 and $69,000 was recognized related to the customer list in the three- and six-month periods ended June 30, 2003, respectively.

Financial Instruments

         As of June 30, 2003, the Company’s Consolidated Balance Sheet includes a note payable which relates to the acquisition of Allin Consulting-California. The principal balance of the note payable, which is due April 15, 2005, is recorded at the face value of the instrument. The Company accrues interest at fixed rates and makes

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Allin Corporation and Subsidiaries
Notes to Consolidated Financial Statements – (Continued)

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

Stock-Based Compensation

         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. Financial Accounting Standards Board Statement No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure (“SFAS No. 148”) amends SFAS No. 123 to provide alternate transition methods for adoption of the fair value based method of financial accounting. 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 the intrinsic value method established by 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 compensation cost, net loss or income and earnings per share would have been as follows:

(Dollars in thousands)	Three Months Ended June 30, 2002			Three Months Ended June 30, 2003		Six Months Ended June 30, 2002			Six Months Ended June 30, 2003
As reported:
Stock-based employee compensation cost, net of tax	$	—		$	—	$	—		$	—
Net income (loss)		159			454		(42	)		700
Net (loss) income attributable to common shareholders		(11	)		278		(378	)		351
Earnings (loss) per share– basic	$	0.00		$	0.04	$	(0.05	)	$	0.05
Earnings (loss) per share– diluted	$	0.00		$	0.03	$	(0.05	)	$	0.04
Pro forma
Stock-based employee compensation cost, net of tax	$	40		$	19	$	79		$	40
Net income (loss)		119			435		(121	)		660
Net (loss) income attributable to common shareholders		(51	)		259		(457	)		311
Earnings (loss) per share– basic	$	(0.01	)	$	0.04	$	(0.07	)	$	0.04
Earnings (loss) per share– diluted	$	(0.01	)	$	0.03	$	(0.07	)	$	0.03

Recently Issued Accounting Standards

         In April 2002, the Financial Accounting Standards Board (“FASB”) published Statement of Financial Accounting Standards (“SFAS”) No. 145, Recission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections (“SFAS No. 145”). SFAS No. 145 rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt (an amendment of APB Opinion No. 30), and SFAS No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements (an amendment of SFAS No. 4), which address the accounting for gains and losses from the extinguishment of debt. SFAS No. 145 also rescinds SFAS No. 44, Accounting for Intangible Assets of Motor Carriers (an amendment of Chapter 5 of ARB No. 43 and an interpretation of APB Opinions No. 17 and 30), which addressed the accounting for intangible assets of motor carriers. SFAS No. 145 also amends SFAS No. 13, Accounting for Leases, to eliminate inconsistencies between the accounting for sale-leaseback transactions and the accounting for certain lease modifications that have economic effects similar to sale-leaseback transactions. Certain of the provisions of SFAS No. 145 were applicable for transactions occurring after May 15, 2002 and certain provisions were to be applied as of the beginning of the next fiscal year after May 15, 2002. The Company’s adoption of SFAS No. 145 did not have a material effect on its results of operations or financial position.

- 13 -

Allin Corporation and Subsidiaries
Notes to Consolidated Financial Statements – (Continued)

         In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit of Disposal Activities. SFAS No. 146 nullifies Emerging Issues Task Force (“EITF”) No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity, which had required that costs associated with an exit or disposal activity be recorded as liabilities as of the date the exit or disposal plan was approved by management. SFAS No. 146 requires a liability for a cost associated with an exit or disposal activity be recognized at fair value on the date the liability is incurred. The Company’s adoption of SFAS No. 146 did not have a material effect on its results of operations or financial position.

         In November 2002, the FASB issued Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, which elaborates on the existing disclosure requirements for most guarantees, including loan guarantees. Interpretation No. 45 also clarifies that at the time an organization issues a guarantee, an initial liability must be recognized for the fair value, or market value, of the obligations the company is assuming under the guarantee. Disclosure of information related to guarantees is also required in the organization’s interim and annual financial statements. The initial recognition and initial measurement provisions apply on a prospective basis to guarantees issued or modified after December 31, 2002. The Company’s adoption of Interpretation No. 45, effective as of January 1, 2003, did not have a material effect on its results of operations or financial position.

         In December 2002, the FASB published SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure, which amends SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair-value based method of accounting for stock-based employee compensation. The alternate transition methods reflect the full amount of stock-based compensation expense under the fair-value method immediately upon adoption of SFAS No. 148. SFAS No. 123 had required prospective application of fair-value based accounting to new awards of stock options. SFAS No. 148 also amends the annual disclosure requirements concerning the pro forma effects of fair-value based accounting for stock-based compensation and requires future disclosure in interim reports in addition to annual statements. The transition guidance and annual disclosure provisions of SFAS No. 148 are effective for fiscal years ending after December 15, 2002. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. The Company implemented SFAS No. 148 on January 1, 2003. The Company continues to account for stock-based compensation plans under Accounting Principles Board Opinion (“APB”) No. 25, Accounting for Stock Issued to Employee, as permitted under SFAS Nos. 123 and 148. Accordingly, adoption of SFAS No. 148 did not have an effect on the Company’s results of operations or financial position, but primarily impacts the Company by increasing the frequency of disclosures regarding stock-based employee compensation plans.

         In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities. In general, a variable interest entity is a corporation, partnership, trust, or any other legal structure used for business purposes that either does not have equity investors with voting rights or has equity investors that do not provide sufficient financial resources for the entity to support its activities. Interpretation 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest’s activities or is entitled to receive a majority of the entity’s residual returns or both. The consolidation requirements of Interpretation 46 apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period beginning after June 15, 2003. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The Company adopted Interpretation No. 46 as of July 1, 2003. The Company does not expect that Interpretation No. 46 will have a material effect on the Company’s results of operations or financial condition as the Company does not currently utilize or have interests in any variable interest entities.

- 14 -

Allin Corporation and Subsidiaries
Notes to Consolidated Financial Statements – (Continued)

         In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. SFAS No. 149 amends accounting and reporting of derivative instruments and hedging activities under SFAS No. 133. SFAS No. 149 is effective for contracts entered into or modified and for hedging relationships designated after June 30, 2003. The Company does not expect that the adoption of SFAS No. 149 will have a material effect on the Company’s results of operations or financial condition as the Company does not currently invest excess funds in derivative financial instruments or other market rate sensitive instruments.

         In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, except for mandatorily redeemable financial instruments. Mandatorily redeemable financial instruments are subject to the provisions of SFAS No. 150 beginning as of January 1, 2004. The Company does not expect that the adoption of SFAS No. 150 will have a material effect on the Company’s results of operations or financial condition.

Supplemental Disclosure of Cash Flow Information

         There were no cash payments for income taxes during the three-month period ended June 30, 2002. Cash payments for income taxes were approximately $5,000 during the three-month period ended June 30, 2003. Cash payments for interest were approximately $18,000 during each of the three-month periods ended June 30, 2002 and 2003. Cash payments of dividends were approximately $87,000 during each of the three-month periods ended June 30, 2002 and 2003. Dividends of approximately $153,000 and $159,000 were accrued but unpaid during the three-month periods ended June 30, 2002 and 2003, respectively, on outstanding shares of the Company’s preferred stock.

         There were no cash payments for income taxes during the six-month period ended June 30, 2002. Cash payments for income taxes were approximately $24,000 during the six-month period ended June 30, 2003. Cash payments for interest were approximately $37,000 during each of the six-month periods ended June 30, 2002 and 2003. Cash payments of dividends were approximately $176,000 during each of the six-month periods ended June 30, 2002 and 2003. Dividends of approximately $228,000 and $241,000 were accrued but unpaid during the six-month periods ended June 30, 2002 and 2003, respectively, on outstanding shares of the Company’s preferred stock.

2.     Preferred Stock

         The Company has the authority to issue 100,000 shares of preferred stock with a par value of $.01 per share. Of the authorized shares, 40,000 have been designated as Series A Convertible Redeemable Preferred Stock, 5,000 as Series B Redeemable Preferred Stock, 25,000 as Series C Redeemable Preferred Stock, 2,750 as Series D Convertible Redeemable Preferred Stock, 2,000 as Series E Convertible Redeemable Preferred Stock, 1,000 as Series F Convertible Redeemable Preferred Stock and 150 as Series G Convertible Redeemable Preferred Stock. As of June 30, 2003, the Company has outstanding 25,000, 2,750, 1,000 and 150 shares of Series C, D, F and G preferred stock, respectively. The Company will not issue any additional shares of any of its existing series of 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.

3.     Equity Transactions

         During the three months ended June 30, 2003, vested and non-vested options to purchase 4,800 and 7,200 shares of common stock, respectively, previously awarded under the Company’s 2000 Stock Plan were forfeited under the terms of the Plan. There were no forfeitures of options during this period under the terms of the Company’s 1996, 1997 and 1998 Stock Plans. There were no options awarded under any of the Company’s Stock Plans during the three months ended June 30, 2003. Options granted under the 1996, 1997, 1998 and 2000 Stock Plans to purchase 198,600, 222,850, 239,800 and 146,000 shares, respectively, of common stock remain outstanding as of June 30, 2003.

- 15 -

Allin Corporation and Subsidiaries
Notes to Consolidated Financial Statements – (Continued)

4.     Revolving Credit Loan

         On October 1, 1998, the Company and S&T Bank, a Pennsylvania banking association, entered into a Loan and Security Agreement, under which S&T Bank agreed to extend the Company a revolving credit loan. The original term of the revolving credit loan was one year and it has subsequently been renewed for five annual periods. The current expiration date of the revolving credit loan is September 30, 2004. Borrowings may be made under the S&T Loan Agreement for general working capital purposes. The maximum borrowing availability under the revolving credit loan 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. 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 June 30, 2003, maximum borrowing availability under the revolving credit loan was approximately $1,261,000. There was no outstanding balance as of June 30, 2003. Loans made under the revolving credit loan bear interest at the bank’s prime interest rate plus one percent. As of June 30, 2003, the rate of interest on any outstanding borrowings under the revolving credit loan would have been 5.00%. The interest rate for the revolving credit loan ranged from a low of 5.00% to a high of 5.25% during the six months ended June 30, 2003.

         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 audit reports, monthly financial reports, monthly accounts receivable and payable reports and weekly borrowing base certificates. The revolving credit loan also includes various covenants relating to matters affecting the Company including insurance coverage, financial accounting practices, audit rights, prohibited transactions, dividends and stock purchases. 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. The Company was in compliance with the cash flow covenant for the fiscal quarter ended June 30, 2003 and was also in compliance with all other covenants as of June 30, 2003.

5.     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 Statement of Financial Accounting Standards No. 109 – Accounting for Income Taxes. 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 historically did not generate taxable income prior to 2002, valuation allowances were recorded in prior years to reduce all deferred tax assets arising from net operating loss carryforwards or any temporary differences in recognition between the financial reporting and tax bases of recorded assets and liabilities. The Company believes that material uncertainty continues to exist as of June 30, 2003 as to the long-term realization of the deferred tax benefits given the Company’s relatively brief history of positive earnings and risks associated with operations, including concentration of significant portions of the Company’s revenue among a small number of customers and concentration of these customers in one industry. However, based on the results of operations over the second half of 2001, the full year 2002 and the first half of 2003, the Company has reduced the valuation allowance for deferred tax assets such that net deferred tax assets of $251,000, including a current portion of $182,000 and a non-current portion of $69,000, are included in the Company’s Consolidated Balance Sheet as of June 30, 2003. The Company expects to realize the benefits from these deferred tax assets over the remainder of 2003 and in 2004.

- 16 -

Allin Corporation and Subsidiaries
Notes to Consolidated Financial Statements – (Continued)

         The components of the deferred tax assets and liabilities, as of December 31, 2002 and June 30, 2003, are as follows:

Deferred Tax Assets and Liabilities	December 31, 2002			June 30, 2003
(Dollars in thousands)
Deferred tax assets:
Net operating loss carryforward	$	8,431		$	8,068
Intangible asset differences		706			706
Restricted stock grant		161			161
Fixed assets		536			534
Total deferred tax assets		9,834			9,469
Deferred tax liabilities:
Deferred revenue	$	272		$	272
Research and development		248			248
Miscellaneous reserves		479			479
Total deferred tax liabilities		999			999
Excess of assets over liabilities		8,835			8,470
Valuation allowance		(8,563	)		(8,219	)
Net deferred income taxes from operations	$	272		$	251

         As of June 30, 2003, the Company had available for federal and state income tax purposes, net operating loss carryforwards of approximately $20,610,000 and $16,515,000, respectively, which are scheduled to expire at various times from 2004 through 2023, as detailed below.

Net Operating Loss Carryforward Year of Expiration	Federal		State
(Dollars in thousands)
2004	$	—	$	94
2005		—		380
2006		—		218
2007		—		3
2012		—		344
2013		—		90
2016		4,145		2,859
2017		8,606		3,965
2018		3,687		2,770
2019		889		743
2020		2,863		1,567
2021		420		2,062
2022		—		1,213
2023		—		207
Net Operating Loss Carryforward	$	20,610	$	16,515

- 17 -

Allin Corporation and Subsidiaries
Notes to Consolidated Financial Statements – (Continued)

         The realization of the potential federal and state tax benefits related to net operating loss carryforwards, estimated to be approximately $7,008,000 and $1,060,000, respectively, as of June 30, 2003, depends on the Company’s ability to generate future taxable income. The Company established a valuation allowance as of June 30, 2003 to offset all of the deferred tax benefits related to net operating loss carryforwards and temporary differences in recognition between the financial reporting and tax bases of recorded assets and liabilities, except for deferred tax benefits of approximately $251,000 expected to be realized over the remainder of 2003 and in 2004.

         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 or income before income taxes. A reconciliation of the differences is as follows:

(Dollars in thousands)	Three Months Ended June 30, 2002			Three Months Ended June 30, 2003			Six Months Ended June 30, 2002			Six Months Ended June 30, 2003
Net income (loss) before income taxes	$	171		$	524		$	(37	)	$	755
Loss from discontinued operations		12			—			5			—
Subtotal		159			524			(42	)		755
Estimated (benefit from) provision for income taxes at federal statutory rate	$	54		$	179		$	(14	)	$	257
Effect of tax-basis income recognition differences related to:
Intangible asset amortization and impairment losses		15			15			29			32
Fixed asset depreciation and gains or losses on disposal		9			(1	)		18			(2	)
Other		11			2			16			3
Subtotal		89			195			49			290
State income tax provision		—			—			—			21
Change in valuation allowance related to estimated future realization of deferred tax asset		—			(125	)		—			(256	)
Change in valuation allowance related to current operations		(89	)		—			(49	)		—
Provision for income taxes	$	—		$	70		$	—		$	55

         The Company estimates provisions for federal income taxes for the three- and six-month periods ended June 30, 2003 approximate $195,000 and $290,000, respectively. However, the federal provisions are partially offset by the recording of adjustments to decrease the amounts of the valuation allowance previously established for deferred tax assets by approximately $125,000 and $273,000 for the three- and six-month periods ended June 30, 2003, respectively. Such adjustments to the valuation allowance reflect changes in estimates of deferred tax assets related to federal net operating loss carryforwards expected to be realized over the remainder of 2003 and in 2004. The Company recognized a provision of $21,000 for state income tax for the six-month period ended June 30, 2003. The provision is for California income tax for the years ended December 31, 2002 and 2003 and arises due to California’s suspension of the net operating loss tax credit for 2002 and 2003. A deferred tax asset of $17,000 recorded in 2002 related to benefits expected to be realized from California net operating loss carryforwards was reversed in 2003 due to California’s suspension of the net operating loss credit. The Company estimates that approximately $277,000 of previously recognized deferred tax assets related to federal net operating loss carryforwards were utilized in the six-month period ended June 30, 2003 to offset the current provision for federal income taxes, resulting in a net liability of $13,000 for federal income taxes as of June 30, 2003.

- 18 -

Allin Corporation and Subsidiaries
Notes to Consolidated Financial Statements – (Continued)

6.     Industry Segment Information

Basis for Determining Segments

         The Company follows Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information (“SFAS No. 131”), as the basis for determining its segments. SFAS No. 131 requires use of a model for segment reporting called the “management approach”. The management approach is based on the way the chief operating decision maker organizes segments within a company for making decisions and assessing performance. Segments reported 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 interactive media and 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. The reportable segments reflect aggregated solution area activity across the Company’s subsidiaries due to the similarity in nature of services, processes, types of customers and distribution methods for the solution areas. Segments grouped as Solution Area Services include Interactive Media Consulting, Interactive Media Systems Integration, Technology Infrastructure Consulting, E-Business Consulting and Outsourced Services. The Company’s Outsourced Services operations are grouped with Solution Area Services because the 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.

         Ancillary Services & Product Sales includes activities which are ancillary to or outside of the Company’s current strategic focus. Segments grouped as Ancillary Services & Product Sales include Information System Product Sales and Other Services. In connection with its solutions-oriented services, clients will occasionally 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 customer satisfaction, the Company maintains an ancillary capability to provide information system products, including interactive television equipment and computer hardware, software and supplies. The Company also occasionally performs ancillary services resulting in revenue such as website hosting or placement fees.

         During June 2001, the Company elected to discontinue the digital imaging systems integration and product sales activities of Allin Digital. Accordingly, information presented related to the Company’s revenue and gross profit excludes the discontinued operations. Information about assets related to Allin Digital’s operations is captioned Discontinued Operations-Digital Imaging.

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.

- 19 -

Allin Corporation and Subsidiaries
Notes to Consolidated Financial Statements – (Continued)

Revenue

Information on revenue derived from external customers is as follows:

	Revenue from External Customers
(Dollars in thousands)	Three Months Ended June 30, 2002		Three Months Ended June 30, 2003		Six Months Ended June 30, 2002		Six Months Ended June 30, 2003
Solution Area Services:
Interactive Media Consulting	$	621	$	791	$	1,126	$	1,549
Interactive Media Systems Integration		1,412		1,332		2,363		2,546
Technology Infrastructure Consulting		478		452		840		787
E-Business Consulting		525		684		1,022		1,365
Outsourced Services		324		181		681		364
Total Solution Area Services	$	3,360	$	3,440	$	6,032	$	6,611
Ancillary Services & Product Sales:
Information System Product Sales	$	59	$	69	$	185	$	121
Other Services		17		24		36		46
Total Ancillary Services & Product Sales	$	76	$	93	$	221	$	167
Consolidated Revenue from External Customers	$	3,436	$	3,533	$	6,253	$	6,778

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

	Revenue from Related Entities
(Dollars in thousands)	Three Months Ended June 30, 2002		Three Months Ended June 30, 2003		Six Months Ended June 30, 2002		Six Months Ended June 30, 2003
Solution Area Services	$	19	$	—	$	20	$	4
Ancillary Services & Product Sales		—		—		3		—
Total Revenue from Related Entities in Other Segments	$	19	$	—	$	23	$	4

- 20 -

Allin Corporation and 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 are eliminated in calculating gross profit. Information on gross profit is as follows:

	Gross Profit
(Dollars in thousands)	Three Months Ended June 30, 2002		Three Months Ended June 30, 2003		Six Months Ended June 30, 2002		Six Months Ended June 30, 2003
Solution Area Services:
Interactive Media Consulting	$	408	$	628	$	725	$	1,191
Interactive Media Systems Integration		516		596		880		1,166
Technology Infrastructure Consulting		282		236		480		408
E-Business Consulting		301		331		598		682
Outsourced Services		88		41		183		79
Total Solution Area Services	$	1,595	$	1,832	$	2,866	$	3,526
Ancillary Services & Product Sales:
Information System Product Sales	$	13	$	41	$	66	$	61
Other Services		17		24		35		46
Total Ancillary Services & Product Sales	$	30	$	65	$	101	$	107
Consolidated Gross Profit	$	1,625	$	1,897	$	2,967	$	3,633

Assets

         Information on total assets attributable to segments is as follows:

	Total Assets
(Dollars in thousands) As of June 30	2002		2003
Solution Area Services:
Interactive Media Consulting	$	281	$	401
Interactive Media Systems Integration		823		1,528
Technology Infrastructure Consulting		1,392		1,249
E-Business Consulting		1,035		1,517
Outsourced Services		1,279		885
Total Solution Area Services	$	4,810	$	5,580
Ancillary Services & Product Sales:
Information System Product Sales	$	30	$	46
Other Services		60		64
Total Ancillary Services & Product Sales	$	90	$	110
Corporate		2,610		4,097
Discontinued Operations – Digital Imaging		22		—
Consolidated Total Assets	$	7,532	$	9,787

- 21 -

Independent Accountants’ Report

To the Shareholders of Allin
Corporation and Subsidiaries

We have reviewed the accompanying consolidated balance sheet of Allin Corporation (a Delaware corporation) and Subsidiaries as of June 30, 2003, the related consolidated statements of operations for the three and six months ended June 30, 2003, and the consolidated statement of cash flows for the six months ended June 30, 2003. These financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with U.S. generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole.

Based on our review, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

The consolidated balance sheet for the year ended December 31, 2002 was audited by other auditors whose report, dated February 19, 2003, expressed an unqualified opinion on that statement. The consolidated statements of operations for the three and six months ended June 30, 2002 and the consolidated statement of cash flows for the six months ended June 30, 2002 were reviewed by other accountants whose report dated July 25, 2002, indicated they were not aware of any material modification that needed to be made for these statements to be in conformity with U.S. generally accepted accounting principles.

/s/ MALIN, BERGQUIST & COMPANY, LLP

August 4, 2003

- 22 -

Item 2.

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

         The following discussion and analysis by management provides information with respect to the Company’s financial condition and results of operations for the three- and six-month periods ended June 30, 2003 and 2002. This discussion should be read in conjunction with the information in the consolidated financial statements and the notes pertaining thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002, the information in the consolidated financial statements and the notes pertaining thereto contained in Item 1 – Financial Statements in this Report on Form 10-Q and the information discussed herein under Risk Factors. Unless the context otherwise requires, all references herein to the “Company” refer to Allin Corporation and its subsidiaries.

         In the following Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this quarterly report on Form 10-Q, words such as “estimates,” “expects,” “anticipates,” “believes,” “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, general economic conditions, geopolitical considerations, the Company’s ability to renew or replace key supply and credit agreements, fluctuations in operating results, committed backlog, public market and trading issues, risks associated with dependence on key personnel, competitive market conditions in the Company’s existing lines of business and technological obsolescence, as well as other risks and uncertainties. See Risk Factors below.

Overview of Organization, Products & Markets

         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 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 designed to meet the customer’s particular needs. 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 has been a recipient of Pittsburgh Technology 50 awards annually from 1998 through 2002. The award recognizes demonstrated growth and advancement in product or sales success, financial strength, corporate citizenship, job growth and retention and innovative products or technology. The Company was also a recipient of the Deloitte & Touche Technology Fast 500 award in 2001.

         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 June 30, 2003, the organizational legal structure consists of Allin Corporation and five 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 and systems integration services provided by the Company. Allin Consulting-Pennsylvania also performs outsourced technology-based services. Allin Holdings Corporation (“Allin Holdings”), which was formed in October 1996, is a non-operating subsidiary that provides treasury management services to the Company. Allin Interactive and Allin Holdings are Delaware corporations, Allin Consulting-California and Allin Network are California corporations and Allin Consulting-Pennsylvania is a

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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-Q are the property of their respective owners. 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. Allin Digital ceased performing services for customers in the second quarter of 2002. Wrap-up of residual matters related to Allin Digital was completed in 2002. Allin Digital was merged into Allin Interactive on December 31, 2002. The results of Allin Digital’s operations for the three- and six-month periods ended June 30, 2002 are reflected as income from discontinued operations.

         The Interactive Media Solution Area focuses on interactive media application development and integration services and provides interactive television solutions that management believes enable customers to improve service and increase productivity and revenue. Interactive Media’s customized applications enable end users to access information, services and entertainment on demand. Interactive Media develops applications based on the open architecture of Microsoft BackOffice products such as Windows NT and 2000, SQL Server and Internet Information Server. Management believes that interactive television solutions are cost-effective because they leverage centralized all-digital head-end equipment dynamically allocated to deliver advanced applications across digital networks, radio frequency distribution systems or hybrid systems to end-user monitors or televisions. The centralized head-end architecture also 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 digital video content. The essence 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.

         Interactive Media’s customers have historically been concentrated in the cruise industry and include some of the world’s largest cruise lines, Carnival Corporation (“Carnival”), its affiliate, Costa Crociere S.p.A. (“Costa”), Royal Caribbean Cruise Lines, Ltd. (“Royal Caribbean”) and its affiliate, Celebrity Cruises (“Celebrity”). The Company’s expertise in designing and installing interactive systems has been recognized in the cruise industry. Twenty-five shipboard interactive television systems installed by the Interactive Media Solution Area since 1995 are currently in operation for Carnival, Celebrity, Costa and Royal Caribbean. Six additional system installations are either in process in the third quarter of 2003 or are under contract for 2003 and 2004 for Costa and Royal Caribbean. The Company’s management believes this represents the largest base of interactive television systems installed on cruise ships by any provider of interactive television services. Over thirty applications have been developed by Interactive Media for the cruise industry to generate incremental revenue, promote operating efficiencies and enhance customer service. Among these applications are shore excursion preview and ticketing, pay-per-view movies, in-cabin gaming, meal service ordering, and distribution of activities and informational content. Interactive Media’s management estimates that the revenue producing applications developed for, and implemented on, cruise ships will generate more than $200 million of revenue for the cruise lines in 2003. Interactive Media operational and marketing personnel have extensive experience in the cruise industry. Management believes that Interactive Media’s extensive tenure and unmatched experience in operations and applications development make the Company the industry leader in providing interactive television services to the cruise market. The Company intends to emphasize this industry leadership position in marketing Interactive Media services to 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 Solution Area focuses on customers’ network and application architecture, messaging and collaboration systems and security issues. Technology Infrastructure designs and implements enterprise-quality systems based on Microsoft technology that maximize network availability and efficiency and enable customers to reduce costs and protect vital resources. Technology Infrastructure solutions provide the underlying platforms and operating systems necessary to take advantage of the latest technology capabilities. Services include design, configuration, implementation, evaluation of customer operating systems and database platforms, messaging systems, information system security solutions such as firewalls and proxy servers and application services such as message queing and transaction servers. Technology Infrastructure services focus on Microsoft BackOffice technology including Windows XP, 2000 and 2003 Server, SQL Server, Systems Management Server, Exchange Server and Internet Information Server. Messaging and collaboration projects focus on technologies such as Microsoft Exchange 2000, Active Directory and SharePoint and utilize both Microsoft’s

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Real Time Communication Server and Research in Motion’s Blackberry Server and devices to create mobile solutions. Security-oriented projects often utilize Microsoft Internet Security & Acceleration Server technology as well as NetIQ products designed for network monitoring. The Company believes that Technology Infrastructure services enable its customers to incorporate new applications and new technologies into existing information systems quickly and with minimal disruption.

         The E-Business Solution Area provides solutions based on Microsoft technology focused on application development and integration, business intelligence and information management portals. E-Business solutions enable organizations to evaluate and optimize business processes, streamline information creation, storage, sharing and retrieval and extend the accessibility of corporate messages, products, services and processes to customers, partners and suppliers. E-Business solutions emphasize Internet and intranet capabilities, extranet-based supply chains, electronic commerce sites and interfaces with, or custom development for, business operation transaction systems. 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 Content Management Server, SharePoint, 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 Studio .NET with SQL Server.

         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. The Technology Infrastructure and E-Business Solution Areas utilize dedicated sales personnel based in the Company’s Pittsburgh and Northern California offices to pursue potential sales opportunities. The Company utilizes a variety of resources to help identify potential opportunities, including industry and community networking, existing customers and technology partner channels. Microsoft is an important source of technology partner referrals. Representatives of the Technology Infrastructure and E-Business Solution Areas and marketing personnel also conduct frequent seminars on new technology developments and potential business applications as an integral component of marketing efforts.

         Management believes the solutions offered by the Technology Infrastructure and E-Business Solution Areas allow customers to take advantage of the latest technological capabilities, increase productivity by improving the flow and accessibility of information and empower customer personnel with business intelligence for fast and effective decision making. Technology Infrastructure and E-Business consultants have extensive experience in designing, developing and deploying solutions that enhance accessing, communicating and protecting information. Management also believes Technology Infrastructure and E-Business solutions eliminate inefficiencies and help customers to reduce costs. Management believes these solution areas can effectively compete on the basis of the quality and broad scope of their technological capabilities and on the basis of performance in meeting customer needs. There can be no assurance, however, that the Technology Infrastructure and E-Business Solution Areas will be able to expand or maintain their current levels of business in the future. 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.

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         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 Video Corporation (“On Command”) and Microsoft. On Command’s end-user components and computer hardware platforms and configurations and associated operating software are utilized by the Company 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, end-user components and operating software that facilitate efficient and reliable interactive television operations. The Company has designed and developed unique application software which maximizes the capabilities of the On Command hardware platforms for the Company’s customers. During 2002, Interactive Media began to implement a new generation all-digital head-end On Command hardware platform. The new platform takes advantage of the increased availability of digitally-formatted movie content and offers functionality and reliability improvements and reductions in head-end equipment costs. Allin Interactive entered a new License and Supply Agreement with On Command, effective June 30, 2003, replacing a previously existing Supplier Agreement. The License and Supply Agreement has a term of five years, expiring on June 30, 2008. Under the terms of the License and Supply Agreement, On Command grants Allin Interactive exclusivity in purchasing hardware and end-user components for interactive television systems for the cruise line market. Such exclusivity shall be in effect for the first two years of the term, and for each succeeding year of the term if a minimum threshold for equipment purchases over the preceding two years has been attained. The License and Supply Agreement provides for the grant from On Command to Allin Interactive of a non-exclusive, perpetual license to use, market, distribute and maintain the On Command software as well as rights to modify and sublicense the software. License fees are to be determined by mutual agreement. The License and Supplier Agreement is included as Exhibit 10.1 to this Report on Form 10-Q.

         The Company’s Allin Consulting subsidiaries are designated as Microsoft Gold Certified Partners, Allin Consulting-California for Enterprise Systems and Allin Consulting-Pennsylvania for both Enterprise Systems and Security Solutions. The Microsoft Gold Certified Partner program recognizes the 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 in either of these Microsoft-designated disciplines and was also the first partner in the Pittsburgh area to receive dual designations. Allin Consulting-Pennsylvania is also designated under the Microsoft Project Partner Program for demonstrated capabilities in developing and deploying project management solutions. Allin Consulting-California is a member of Microsoft’s Technical Infrastructure and Business Intelligence Partner Advisory Councils. Council members are a select group of Microsoft Solution Providers from around the world with a successful history of implementing Microsoft 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. Allin Consulting-California’s role as a member of these Advisory Councils has positioned it to quickly develop solutions expertise in new Microsoft technologies. In 2002, Allin Consulting-California was named to the Northern California .NET Blitz team which is a select group of partners that provide custom training on behalf of Microsoft to extend .NET awareness and encourage development on the Microsoft .NET platform. In 2003, Allin Consulting-California is also working with Microsoft as a member of its Rapid Application Deployment teams for both Windows Server 2003 and Office System 2003. Team members will assist Microsoft in building awareness of the capabilities of these new products and in encouraging implementation and applications development associated with these products. Additionally, Allin Consulting-California, Allin Consulting-Pennsylvania and Allin Interactive are certified as Microsoft Solutions Provider Partners. The Company intends to continue its specialization in Microsoft-based technology.

         The Company has developed a solutions framework, the Allin Solutions Framework, for guiding the planning and conduct of the solutions-oriented projects performed by the Interactive Media, Technology Infrastructure and E-Business Solution Areas. 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 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:

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• 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 Interactive Media, Technology Infrastructure and E-Business Media Solution Areas primarily deliver consulting services that are either Allin-managed or co-managed with the customer. 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. The Company is fully or partially responsible for the development and implementation of technology-based solutions under the Allin-managed or co-managed delivery methods. Services delivered under the Allin-managed or co-managed methods are viewed by management as being solutions-oriented due to the Company’s performance of high level managerial tasks. These services are viewed as the most consistent with the Company’s marketing strategy and as offering the potential for higher billing rates and margins. The Technology Infrastructure and E-Business Solution Areas also currently deliver services under the customer-managed delivery method, with the solution area providing 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 delivered on the Allin-managed or co-managed methods. The Company seeks to continue to primarily provide solutions-oriented services.

         The Company’s operating segments fall under two groups, Solution Area Services and Ancillary Services & Product Sales. In addition to the solution areas discussed above, another operating segment, Outsourced Services, is also included under Solution Area Services. Outsourced Services provides resources with varied technical skill sets that customers utilize to complement and assist internal staff in the execution of customer-managed projects. All Outsourced Services engagements utilize the customer-managed delivery method. The technical resources dedicated to Outsourced Services offer capabilities in a broad array of technologies, including services and application development based on Microsoft, Oracle and Informix software and products. Outsourced Services is grouped with Solution Area Services because the 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 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. In connection with its solutions-oriented services, customers will occasionally 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 customer satisfaction, the Company maintains an ancillary capability to provide information system products, including interactive television equipment and computer hardware, software and supplies. The Company also occasionally performs ancillary services resulting in revenue such as website hosting and archival fees, referral commissions or placement fees.

Critical Accounting Policies, Estimates and Judgments

         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 the Company’s Report on Form 10-K for the year ended December 31, 2002 and Note 1 in the Notes to Consolidated Financial Statements included in Part I, Item 1 – Financial Statements in this Report on Form 10-Q. The preparation of financial

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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 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 hours and 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 by Allin Interactive, Allin-Consulting-California and Allin Consulting-Pennsylvania 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 the percentage of completion or proportional performance bases was approximately 58% and 59% of the Company’s total revenue for the three- and six-month periods ended June 30, 2003, respectively, and approximately 46% and 44% of the Company’s total revenue for the three- and six-month periods ended June 30, 2002, respectively. 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 each update of revenue and cost of sales recognition being 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 receivables, 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.

         Goodwill and Intangible Assets.   The Company follows the provisions of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS No. 142”) in amortizing, if applicable, and periodically evaluating potential impairment of intangible assets. The Company’s assets of this type include goodwill associated with the acquisitions of Allin Consulting-California in 1996 and Allin Consulting-Pennsylvania and MEGAbase, Inc. (merged into Allin-Consulting-California) in 1998 and a customer list associated

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with the acquisition of Allin Consulting-Pennsylvania. As of June 30, 2003, recognized balances for the customer list and goodwill were approximately $1,444,000 and $790,000, respectively. The Company performs its annual review for potential impairment of goodwill and other intangible assets as of January 1 each year.

         The Company estimates the fair value of the customer list associated with the acquisition of Allin Consulting-Pennsylvania through an estimate of the undiscounted cash flows attributable to the customers included on the acquired list. This calculation requires the Company’s management to make estimates of future revenue and income from operations of Allin Consulting-Pennsylvania and period-to-period growth-rate assumptions for revenue and expenses. Management utilizes future projections for Allin consulting-Pennsylvania and industry information concerning expected growth in technology consulting to develop assumptions and estimates of future cash flows. Management believes that the customers on the acquired list will account for a diminishing proportion of Allin Consulting-Pennsylvania’s revenue over future periods. Management utilizes historical information related to business derived from customers on the acquired list and future expectations to estimate the proportions of projected cash flows in future periods to attribute to the customer list. Accordingly, management believes customer list is an asset with a definite life and the Company is amortizing the recorded value of the customer list over a useful life extending through 2013, which matches the period of attributed cash flows in the Company’s most recent estimate. Industry analysis as of early 2003 included more conservative growth forecasts for technology consulting services than as of the beginning of 2002. As of January 1, 2003, the estimated fair value of the customer list exceeded the recorded value of the customer list, but by a substantially lower amount than as of January 1, 2002, indicating increasing risk for future impairment if recovery from the current economic downturn occurs later or is weaker than is projected in recent industry forecasts or if the proportion of revenue attributable to customers on the acquired list decreases more rapidly than expected. Due to this, the Company also estimated the fair value the customer list as of March 31, 2003 in a manner consistent with that described above for the 2003 annual test. The estimated fair value of the customer list exceeded the recorded value. The Company will continue to monitor the factors relevant to its fair value estimate for the customer list on an ongoing basis for indicators of potential impairment, and will conduct future tests for potential impairment on an annual basis or more frequently if indicators of potential impairment arise.

         In order to test for potential impairment of goodwill, the Company attributes the recognized assets of the acquired businesses, including cash, accounts receivable, prepaid expenses, property and equipment, customer list and goodwill, net of accounts payable, accrued liabilities and deferred revenue, to reporting units. The reporting units utilized are the Company’s reported segments applicable to the acquired subsidiaries, Technology Infrastructure, E-Business and Outsourced Services, further broken down geographically between northern California-based and Pittsburgh-based operations. Recognized assets are attributed to reporting units in a manner consistent with that used for segment reporting. Management utilizes sources of industry information to develop assumptions for appropriate revenue multiples for estimating the fair values of the reporting units. The industry valuation multiple utilized in the 2003 annual test represented a decrease of over 25% from the multiple used as of January 1, 2002, reflecting lower future growth expectations in the technology consulting industry. The estimated fair value of each reporting unit exceeded the recorded value of the recognized assets plus goodwill, except for the Pittsburgh-based Outsourced Services reporting unit, where the recorded value of recognized assets exceeded the estimated fair value by approximately $11,000. Allin Consulting-Pennsylvania recorded a loss due to impairment of goodwill of approximately $11,000 in January 2003. The Company believed industry conditions were indicative of the potential for further impairment of goodwill and that testing on a more frequent basis than annual was warranted. The Company completed additional estimates of the fair value of goodwill as of March 31, 2003 and as of June 30, 2003 in a manner consistent with that described above for the 2003 annual test. As of March 31, 2003, the estimated fair value of each reporting unit exceeded the recorded value of the recognized assets plus goodwill, except for the Pittsburgh-based Technology Infrastructure reporting unit, where the recorded value of recognized assets exceeded the estimated fair value by approximately $16,000. Allin Consulting-Pennsylvania recorded a loss due to impairment of goodwill of approximately $16,000 in March 2003. As of June 30, 2003, the estimated fair value of each reporting unit exceeded the recorded value of the recognized assets plus goodwill, but the excesses of estimated fair value over recorded value were small for both the Technology Infrastructure and Outsourced Services reporting units. The Company will continue to monitor the factors relevant to its fair value estimate for goodwill and the attribution of assets to reporting units on an ongoing basis for indicators of potential impairment, and will conduct future tests for potential impairment on an annual basis or more frequently if indicators of potential impairment arise.

         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 Statement of Financial Accounting Standards No. 109 – Accounting for Income Taxes. 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 historically did not generate taxable income prior to 2002, valuation allowances were recorded in prior years to

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reduce all deferred tax assets arising from net operating loss carryforwards or any temporary differences in recognition between the financial reporting and tax bases of recorded assets and liabilities. The Company believes that material uncertainty continues to exist as of June 30, 2003 as to the long-term realization of the deferred tax benefits given the Company’s relatively brief history of positive earnings and risks associated with operations including concentration of the Company’s revenue among a small number of customers and concentration of these customers in one industry. However, based on the results of operations over the second half of 2001, 2002 and the first half of 2003, the Company has reduced the valuation allowance for deferred tax assets such that net deferred tax assets of $251,000, including a current portion of $182,000 and a non-current portion of $69,000, are included in the Company’s Consolidated Balance Sheet as of June 30, 2003. The Company expects to realize the benefits from these deferred tax assets over the remainder of 2003 and in 2004. Accounting for income taxes requires management to make estimates of expected results of operations in current and future periods, adjustments to estimated results of operations due to differences in recognition between the financial reporting and tax bases of income, estimates of deferred tax benefits related to net operating loss carryforwards and estimates of temporary differences in recognition between the financial reporting and tax bases of recorded assets and liabilities. In accounting for income taxes, management uses its judgment based on historical experience, terms of existing contracts, expectations regarding future business opportunities with current and potential customers, developments in federal and state corporate income tax statutes and practices, information available from customers, publicly available information and other factors deemed reasonable under the circumstances.

         The Consolidated Statement of Cash Flows for the six-month period ended June 30, 2002 included in this Report on Form 10-Q reflects reclassifications to the statement as previously reported in the Company’s Report on Form 10-Q for the period ended June 30, 2002. The reclassifications have been made to conform the prior period information to the current presentation of this statement. The reclassifications did not impact the Company’s results of operations or earnings per share during the three- or six-month periods ended June 30, 2002 and accordingly, no changes have been made to the Consolidated Statement of Operations for these periods. Separate changes are reflected for costs and estimated gross margins in excess of billings and billings in excess of costs and estimated gross margins under changes in certain assets and liabilities in cash flows from operating activities. Previously, the changes had been presented on a net basis. Also, the provision for uncollectible accounts receivable is reflected as an adjustment to reconcile the net loss to net cash flows from operating activities in cash flows from operating activities. Previously, the provision for uncollectible accounts receivable had been presented as a component of the change in accounts receivable under changes in certain assets and liabilities in cash flows from operating activities. There is no change to the aggregate net cash flows provided by operating activities for the period ended June 30, 2002.

Certain Related Party Transactions

         During the three- and six-month periods ended June 30, 2002 and 2003, 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 $34,000 and $68,000 during the three- and six-month periods ended June 30, 2003, respectively, which represented 2% of selling, general and administrative expenses during each of these periods. Rental expense related to this lease was approximately $47,000 and $81,000 during the three- and six-month periods ended June 30, 2002, respectively, which represented 3% of selling, general and administrative expenses during each of these periods. 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 into 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 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

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within the same building more commensurate with its needs. The Company’s monthly rent expense has been reduced by approximately 51% under the new arrangement reflecting both its reduced requirements for space and real estate market conditions as of the beginning of 2002. 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.

Results of Operations

Three Months Ended June 30, 2003 Compared to Three Months Ended June 30, 2002

Revenue

         The Company’s total revenue for the three months ended June 30, 2003 was $3,533,000, an increase of $97,000, or 3%, from total revenue of $3,436,000 for the three months ended June 30, 2002. The Company’s Interactive Media and E-Business Solution Areas experienced increases in revenue in the second quarter of 2003 as compared to the second quarter of 2002. The increases were partially offset by period-to-period declines in revenue for the Technology Infrastructure Solution Area and the Company’s Outsourced Services operations.

         The Company’s solution area revenue, after elimination of intercompany sales, was $3,440,000 for the three months ended June 30, 2003, including $2,123,000 for Interactive Media, $452,000 for Technology Infrastructure, $684,000 for E-Business and $181,000 for Outsourced Services. Comparable solution area revenue for the three months ended June 30, 2002 was $3,360,000 in total, including $2,033,000 for Interactive Media, $478,000 for Technology Infrastructure, $525,000 for E-Business and $324,000 for Outsourced Services.

         Revenue for the Interactive Media Solution Area for the three months ended June 30, 2003 included $791,000 for interactive media consulting and $1,332,000 for interactive media systems integration. Interactive Media revenue for the three months ended June 30, 2002 included $621,000 for interactive media consulting and $1,412,000 for interactive media systems integration. The period-to-period increase in revenue for the Interactive Media Solution Area was 4%. The period-to-period decline in interactive media systems integration revenue reflected the late 2002 introduction of a new generation all-digital head-end On Command hardware platform for systems integration projects. The new platform offers functionality and reliability improvements and reductions in head-end equipment costs, enabling the Company to reduce interactive television system pricing for its customers. The Interactive Media Solution Area’s consulting and systems integration services have historically been highly concentrated, predominantly with customers in the cruise industry. During the second quarter of 2003, over 99% of Interactive Media revenue was derived from cruise industry customers, primarily Carnival, Costa and Royal Caribbean. The majority of the revenue in both periods related to applications development, technical architecture design, configuration and implementation of interactive television systems aboard cruise ships. These projects are of many months’ duration, but a project will typically experience a period of peak activity coincident with the majority of the on-site labor at the shipyard for newly built ships or on the ship for ships in service. The timing of the peak activity is dependent on many factors including shipyard construction schedules for system installations on new ships and itinerary considerations and cabin availability for installations on ships already in service. Since the Company has limited control of these factors, the degree of activity on shipboard installations can vary substantially from quarter to quarter resulting in significant variation in revenue. The similarity of revenue levels when comparing the second quarter of 2003 to the second quarter of 2002 is therefore coincidental and not necessarily indicative of results in any future period. The second quarter of 2003 included the majority of the peak activity periods for two ship systems and a portion of the peak activity for a third ship system while the second quarter of 2002 included the peak activity periods for two ship systems. Based on the Company’s backlog of Interactive Media projects and current schedule expectations, Interactive Media revenue expected to be realized over the second half of 2003 will be slightly lower than that realized in the first half of 2003. However, this expectation is subject to uncertainty due to several factors. Unanticipated schedule changes may result in project delays that could negatively impact revenue expected to be realized in the second half of 2003. Cruise line passenger levels and revenue have been negatively affected by recent general economic conditions and may be subject to sudden declines as followed the September 2001 incidents of terrorism in the United States. If cruise industry passenger levels and revenue declines, the cruise lines could potentially seek to delay projects currently expected to be performed in 2003. Due to these factors and other considerations 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 the

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second quarter of 2003 or that any increases realized will result in the desired improvement to the Company’s financial condition or results of operations.

         Technology Infrastructure revenue decreased $26,000, or 5%, in the three months ended June 30, 2003 as compared to the three months ended June 30, 2002. Management attributes the decline in period-to-period Technology Infrastructure revenue to a continuation of soft demand for technology consulting services throughout 2002 and the first half of 2003 as a result of recent domestic economic conditions on technology spending. 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. Economic conditions have resulted in a decrease in spending on technology-related services and equipment since early 2001, as compared to prior levels, which has negatively impacted the demand for the services offered by the Technology Infrastructure Solution Area. However, management believes that certain industry trends, as discussed in the Company’s Report on Form 10-K for the year ended December 31, 2002 in Item 1, Business under the caption “Industry Overview – Technology Consulting Services,” including security concerns and expected growth in web services architecture and wireless access to distributed networks, will foster eventual 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 realized a revenue increase of $159,000, or 30%, for the three months ended June 30, 2003, as compared with the three months ended June 30, 2002. Management attributes the increase primarily to several factors. Management believes the impact of the Internet continues to result in businesses seeking seamless access of employees, customers and suppliers to business knowledge capital and transactional systems through company portals, extranet-based supply chains and business intelligence solutions, thereby continuing to drive opportunities for E-Business consulting for the custom development of applications and interfaces with business transaction systems. E-Business projects less frequently involve significant technology hardware upgrades than infrastructure-related projects. Consequently, management believes demand for E-Business projects that may have been delayed with the decline in technology-based spending due to the effect of economic conditions since 2000 may experience recovery earlier than demand for infrastructure-related services. Management believes the need to remain competitive will prompt businesses to undertake technology-based projects that offer functionality improvements and operating efficiencies and that deferred demand for E-Business services contributed to the period-to-period increase in revenue. However, management also believes that early recovery in revenue will result from increased utilization of available consulting resources and that a prolonged increase in demand will be necessary to reverse a downward trend in pricing over the last year resulting from intense competition for available projects. Factors that impact the demand for E-Business services may change in the future. Consequently, there can be no assurance that the Company 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. Another factor contributing to the period-to-period increase in E-Business revenue was a greater number of large customer engagements in the second quarter of 2003 for both the Pittsburgh and Northern California E-Business operations. Four customers individually account for greater than ten percent of E-Business revenue in the second quarter of 2003 as compared with three customers in the second quarter of 2002. The large engagements in the second quarter of 2003 include a customer newly obtained since mid-2002, renewal of activity in a previously existing customer relationship where activity had diminished and increased revenue generation from a technology partner channel. Management believes these are examples of the Company’s effective execution of its marketing strategy, including fostering long-term relationships with customers, reaching new customers and effectively utilizing technology partner channels. There can be no assurance that the Company will be successful in future periods at obtaining large project engagements that would result in significant period-to-period revenue increases.

         Revenue from the Company’s Outsourced Services declined $143,000, or 44%, for the three months ended June 30, 2003, as compared to the three months ended June 30, 2002. Although the Company broadened the scope of services offered on an outsourced basis in 2002 to include applications development based on Microsoft, Oracle and Informix software and products, management believes this will only slow, but not reverse, a long-term trend of reductions in the level of Outsourced Services business for the Company. Management expects the level of Outsourced Services revenue will continue to decline in future periods.

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         The Company recognized revenue for ancillary services & product sales, after elimination of intercompany sales, of $93,000 during the three months ended June 30, 2003, including $69,000 for information system product sales and $24,000 for other services. Ancillary services & product sales revenue of $76,000 was recognized during the three months ended June 30, 2002, including $59,000 for information system product sales and $17,000 for other services. The majority of information system product sales are with the Company’s cruise line customers for replacement interactive television equipment and spare parts for their shipboard interactive television systems. There is substantial period-to-period variability in the level of these sales. Management attributes the increase in sales comparing the second quarter of 2003 to the second quarter of 2002 to this normal variability. Revenue from other services was fairly consistent on a period-to-period basis for website hosting and archival fees, commissions from several vendors related to product referrals and commissions related to the 2000 sale of certain contracts for network monitoring services. Revenue in the second quarter of 2003 also included a small placement fee.

Cost of Sales and Gross Profit

         The Company recognized cost of sales of $1,636,000 during the three months ended June 30, 2003, as compared to $1,811,000 during the three months ended June 30, 2002. The decrease in cost of sales of $175,000, or 10%, occurred despite a 3% period-to-period increase in revenue for the Company’s operations. Gross profit of $1,897,000 was recognized for the three months ended June 30, 2003 as compared to $1,625,000 for the three months ended June 30, 2002, an increase of $272,000, or 17%. Gross profit as a percentage of revenue increased from 47% in the second quarter of 2002 to 54% in the second quarter of 2003. The introduction of a new On Command all-digital hardware platform in late 2002 resulted in equipment cost savings, thereby decreasing cost of sales for interactive media systems integration projects. Although price reductions for customers also resulted in a decline in interactive media systems integration revenue, increases in the Company labor-based consulting services more than offset this decline and resulted in the higher-margin labor-based services representing a greater proportion of overall revenue, resulting in the increase in gross profit as a percent of revenue.

         The Company’s solution areas recorded a total of $1,608,000 for cost of sales during the three months ended June 30, 2003, including $899,000 for Interactive Media, $216,000 for Technology Infrastructure, $353,000 for E-Business and $140,000 for Outsourced Services. Cost of sales for the three months ended June 30, 2002 was $1,765,000 in total, including $1,109,000 for Interactive Media, $196,000 for Technology Infrastructure, $224,000 for E-Business and $236,000 for Outsourced Services. Gross profit for the Company’s solution areas for the three months ended June 30, 2003 was $1,832,000, including $1,224,000 for Interactive Media, $236,000 for Technology Infrastructure, $331,000 for E-Business and $41,000 for Outsourced Services. Gross profit for the three months ended June 30, 2002 was $1,595,000 in total, including $924,000 for Interactive Media, $282,000 for Technology Infrastructure, $301,000 for E-Business and $88,000 for Outsourced Services.

         Cost of sales for the Interactive Media Solution Area for the three months ended June 30, 2003 included $163,000 for interactive media consulting and $736,000 for interactive media systems integration. Interactive Media cost of sales for the three months ended June 30, 2002 included $213,000 for interactive media consulting and $896,000 for interactive media systems integration. Interactive Media Solution Area gross profit for the three months ended June 30, 2003 included $628,000 for interactive media consulting and $596,000 for interactive media systems integration. Interactive Media gross profit for the three months ended June 30, 2002 included $408,000 for interactive media consulting and $516,000 for interactive media systems integration. The period-to-period decrease in consulting cost of sales and increase in consulting gross profit were primarily attributable to enhanced operational efficiency combined with a greater proportion of consulting activity on a fixed-price basis in the second quarter of 2003 than in the second quarter of 2002. Fixed-price projects represent a greater financial risk to the Company because many factors which might increase project-associated labor, such as scheduling and access to ships may be beyond the Company’s control. Fixed-price projects that experience optimal operational efficiency result in a higher proportion of gross profit to revenue than is typical for time-based services. As noted above, the introduction of a new On Command all-digital hardware platform in late 2002 resulted in equipment cost savings decreasing cost of sales for interactive media systems integration projects when comparing the second quarter of 2003 to the second quarter of 2002. The period-to-period increase in gross profit from systems integration resulted from the Interactive Media’s ongoing efforts to control project-associated costs through such means as high-volume purchasing to reduce equipment costs on a unit basis.

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         Technology Infrastructure cost of sales increased $20,000 on a period-to-period basis from the second quarter of 2002 to the second quarter of 2003. Gross profit decreased $46,000, or 16%, for the three months ended June 30, 2003 as compared to the three months ended June 30, 2002. Management attributes the margin erosion to intense competition in the marketplace for available technology-related projects, which has exerted downward pressure on pricing. Management believes the impact of recent domestic economic conditions on technology spending for consulting services or the equipment and software upgrades that will frequently accompany infrastructure solutions continued to negatively impact the Technology Infrastructure Solution Area in the second quarter of 2003. The decline in gross profit of 16% from the second quarter of 2002 to the second quarter of 2003 exceeded the period-to-period decline in revenue of 5%.

         E-Business gross profit increased $30,000, or 10%, in the second quarter of 2003, as compared to the second quarter of 2002, while the corresponding increase in revenue was 30%. The increase in gross profit is attributable to increased revenue resulting from deferred demand for E-Business services improving the utilization of consulting resources and an increase in the number of large engagements in the second quarter of 2003 as compared to the second quarter of 2002. Management believes that the lower rate of growth of gross profit in percentage terms as compared to revenue resulted from downward pressure on E-Business pricing due to the negative impact of recent domestic economic conditions on spending for technology-based services. Management believes improvement in utilization of consulting resources will occur prior to improvement in pricing. However, there can be no assurance that the Company will be able to take advantage of any such improvements, if and when they may occur.

         Gross profit realized on Outsourced Services declined from $88,000 in the second quarter of 2002 to $41,000 in the second quarter of 2003. The rate of decline in Outsourced Services gross profit of 53% exceeded the 44% period-to-period decline in revenue. Management attributes this to downward pressure on pricing due to the continuing negative impact of domestic economic conditions on spending for technology-based services.

         Cost of sales for the Company’s ancillary services and product sales was $28,000 for the three months ended June 30, 2003, with all of the cost of sales attributable to information system product sales. Cost of sales for ancillary services and product sales was $46,000 for the three months ended June 30, 2002, again with all of the cost of sales for information system product sales. Gross profit on ancillary services and product sales was $65,000 for the three months ended June 30, 2003, including $41,000 for information system product sales and $24,000 for other services. Gross profit for ancillary services and product sales was $30,000 for the three months ended June 30, 2002, including $13,000 for information system product sales and $17,000 for other services. There is period-to-period variability in cost of sales associated with information system product sales to cruise industry customers as some of the sales involve replacement parts for older ship systems. The Company is able to fulfill some of these orders with equipment salvaged from ships formerly operated by the Company on an owner-operator model. The Company carries this equipment at a very low inventory value due to its age and the lack of a consistent market.

Selling, General & Administrative Expenses

         The Company recorded $1,366,000 in selling, general & administrative expenses during the three months ended June 30, 2003, including $76,000 for depreciation and amortization and $1,290,000 for other selling, general & administrative expenses. Selling, general & administrative expenses were $1,444,000 during the three months ended June 30, 2002, including $152,000 for depreciation and amortization and $1,292,000 for other selling, general & administrative expenses. The decrease in selling, general & administrative expenses of $78,000 is primarily attributable to a period-to-period reduction in depreciation expense.

         Management implemented expense reduction efforts in the first quarter of 2001 to reduce costs associated with the Company’s personnel resources and other expenses such as rent, travel and entertainment and communications costs. The full benefit of these efforts was realized by early 2002 when expense levels were reached that management believed were appropriate for the Company’s size and scope of operations. The Company has since sought to maintain other selling, general & administrative expenses at consistent levels, resulting in the comparability of expense levels between the second quarters of 2002 and 2003.

         Depreciation and amortization were $76,000 for the three months ended June 30, 2003, as compared to $152,000 for the three months ended June 30, 2002. The decrease of $76,000, or 50%, is due to significant levels of

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fixed assets reaching full depreciation in June and December 2002. The level of assets reaching full depreciation exceeded the level of new assets which were placed in service by the Company and its subsidiaries and which commenced depreciation subsequent to June 30, 2002. Amortization expense related to the customer list associated with the Company’s 1998 acquisition of Allin Consulting-Pennsylvania experienced an $8,000 period-to-period reduction due to a revision in the estimated useful life of the customer list implemented in 2003.

Income from Continuing Operations

         The Company recorded income from continuing operations of $454,000 for the three months ended June 30, 2003, as compared to income from continuing operations of $171,000 for the three months ended June 30, 2002. The $283,000 improvement in results from continuing operations is attributable to the $97,000 period-to-period increase in revenue and the $175,000 and $78,000 period-to-period decreases in cost of sales and selling, general & administrative expenses, respectively, as a result of the factors discussed above. During the second quarter of 2003, the Company recorded a provision for income taxes of $70,000, partially offsetting the profitability improvement. The tax expense is the net of a provision related to second quarter 2003 operations and an increase in the estimate of deferred tax assets related to net operating loss carryforwards expected to be realized over the second half of 2003 and in 2004. As of June 30, 2002, the Company had not recorded deferred tax assets for net operating loss carryforwards expected to be realized in future periods due to the Company’s earnings history at that point in time. Consequently, the income tax provision related to operating results for the second quarter of 2002 was offset by the benefit from net operating loss carryforwards realized in that quarter.

Loss from Discontinued Operations

         During the three months ended June 30, 2002, the Company recorded a loss of $12,000 from its discontinued digital imaging operations. Activity in the second quarter of 2002 included sales of remaining inventory, fulfillment of technical support obligations and website hosting services. All digital imaging operations ceased in the second quarter of 2002 so no results from discontinued operations have been recognized in 2003.

Net Income

         The Company realized net income for the three months ended June 30, 2003 of $454,000 as compared to net income of $159,000 for the three months ended June 30, 2002. The significant factors in the profitability improvement were the period-to-period changes in revenue, gross profit and selling, general & administrative expenses, as discussed above.

Results of Operations

Six Months Ended June 30, 2003 Compared to Six Months Ended June 30, 2002

Revenue

         The Company’s total revenue for the six months ended June 30, 2003 was $6,778,000, an increase of $525000, or 8%, from total revenue of $6,253,000 for the six months ended June 30, 2002. The Company’s Interactive Media and E-Business Solution Areas experienced increases in revenue in the first half of 2003 as compared to the first half of 2002. The increases were partially offset by period-to-period declines in revenue for the Technology Infrastructure Solution Area and the Company’s Outsourced Services operations.

         The Company’s solution area revenue, after elimination of intercompany sales, was $6,611,000 for the six months ended June 30, 2003, including $4,095,000 for Interactive Media, $787,000 for Technology Infrastructure, $1,365,000 for E-Business and $364,000 for Outsourced Services. Comparable solution area revenue for the six months ended June 30, 2002 was $6,032,000 in total, including $3,489,000 for Interactive Media, $840,000 for Technology Infrastructure, $1,022,000 for E-Business and $681,000 for Outsourced Services.

         Revenue for the Interactive Media Solution Area for the six months ended June 30, 2003 included $1,549,000 for interactive media consulting and $2,546,000 for interactive media systems integration. Interactive Media revenue for the six months ended June 30, 2002 included $1,126,000 for interactive media consulting and

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$2,363,000 for interactive media systems integration. The period-to-period increase in revenue for the Interactive Media Solution Area was 17%. During the first half of 2003, over 99% of Interactive Media revenue was derived from cruise industry customers, primarily Carnival, Costa and Royal Caribbean. The majority of the revenue in both periods related to applications development, technical architecture design, configuration and implementation of interactive television systems aboard cruise ships. As discussed above, the timing of the peak activity related to shipboard system projects is dependent on many factors including shipyard construction schedules, itinerary considerations and cabin availability. Since the Company has limited control of these factors, the degree of activity on shipboard installations can vary substantially from period to period resulting in significant variation in revenue. The first half of 2003 included the majority of the peak activity periods for four ship systems and a portion of the peak activity for a fifth ship system while the first half of 2002 included the peak activity periods for two ship systems and portions of the peak activity period for two additional systems. The period-to-period change in project activity levels is the primary reason for the increase in Interactive Media revenue.

         Technology Infrastructure revenue decreased $53,000, or 6%, in the six months ended June 30, 2003, as compared to the six months ended June 30, 2002. The comparative decline for the six-month periods is consistent in percentage terms with the quarterly period-to-period decline discussed above. Management attributes the decline in Technology Infrastructure revenue to a continuation of soft demand for technology consulting services throughout 2002 and the first half of 2003 due to the impact of recent domestic economic conditions on technology spending. Economic conditions have resulted in a decrease in spending on technology-related services and equipment since early 2001, as compared to prior levels, which has negatively impacted the demand for the services offered by the Technology Infrastructure Solution Area.

         The E-Business Solution Area realized a revenue increase of $343,000, or 34%, for the six months ended June 30, 2003, as compared with the six months ended June 30, 2002. The comparative increase for the six-month periods is consistent in percentage terms with the quarterly period-to-period increase discussed above. Management attributes the six-month period increase to the same factors as discussed above related to the quarterly periods. Management believes the need to remain competitive will prompt businesses to undertake technology-based projects that offer functionality improvements and operating efficiencies and that deferred demand for E-Business services, resulting from the effect of economic conditions on the demand for technology-based services in 2001 and 2002, contributed to the period-to-period increase in revenue. However, as noted above, management believes that early recovery in revenue will result from increased utilization of available consulting resources and that a prolonged increase in demand will be necessary to reverse a downward trend in pricing over the last year resulting from intense competition for available projects. Another factor contributing to the period-to-period increase in E-Business revenue was a greater number of large customer engagements in the first half of 2003 for both the Pittsburgh and Northern California E-Business operations. Four customers individually account for greater than ten percent of E-Business revenue in the first half of 2003 as compared with two customers in the first half of 2002. Factors that impact the demand for E-Business services may change in the future. Consequently, there can be no assurance that the Company will be successful in future periods at obtaining large project engagements, 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 the Company’s Outsourced Services declined $317,000, or 47%, for the six months ended June 30, 2003, as compared to the six months ended June 30, 2002. Although the Company broadened the scope of services offered on an outsourced basis in 2002 to include applications development based on Microsoft, Oracle and Informix software and products, management believes this will only slow, but not reverse, a long-term trend of reductions in the level of Outsourced Services business for the Company. Management expects the level of Outsourced Services revenue will continue to decline in future periods.

         The Company recognized revenue for ancillary services & product sales, after elimination of intercompany sales, of $167,000 during the six months ended June 30, 2003, including $121,000 for information system product sales and $46,000 for other services. Ancillary services & product sales revenue of $221,000 was recognized during the six months ended June 30, 2002, including $185,000 for information system product sales and $36,000 for other services. The majority of information system product sales are with the Company’s cruise line customers for replacement interactive television equipment and spare parts for their shipboard interactive television systems. There is substantial period-to-period variability in the level of these sales. Management attributes the decline in sales, comparing the first half of 2003 to the first half of 2002, to this normal variability.

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Cost of Sales and Gross Profit

         The Company recognized cost of sales of $3,145,000 during the six months ended June 30, 2003, as compared to $3,286,000 during the six months ended June 30, 2002. The decrease in cost of sales of $141,000, or 4%, occurred despite a 8% period-to-period increase in revenue for the Company’s operations. As noted above, the introduction of a new On Command all-digital hardware platform in late 2002 resulted in equipment cost savings decreasing cost of sales for interactive media systems integration projects. Gross profit of $3,633,000 was recognized for the six months ended June 30, 2003, as compared to $2,967,000 for the six months ended June 30, 2002, an increase of $666,000, or 22%. Gross profit as a percentage of revenue increased from 47% in the first half of 2002 to 54% in the first half of 2003.

         The Company’s solution areas recorded a total of $3,085,000 for cost of sales during the six months ended June 30, 2003, including $1,738,000 for Interactive Media, $379,000 for Technology Infrastructure, $683,000 for E-Business and $285,000 for Outsourced Services. Cost of sales for the six months ended June 30, 2002 was $3,166,000 in total, including $1,884,000 for Interactive Media, $360,000 for Technology Infrastructure, $424,000 for E-Business and $498,000 for Outsourced Services. Gross profit for the Company’s solution areas for the six months ended June 30, 2003 was $3,526,000, including $2,357,000 for Interactive Media, $408,000 for Technology Infrastructure, $682,000 for E-Business and $79,000 for Outsourced Services. Gross profit for the six months ended June 30, 2002 was $2,866,000 in total, including $1,605,000 for Interactive Media, $480,000 for Technology Infrastructure, $598,000 for E-Business and $183,000 for Outsourced Services.

         Cost of sales for the Interactive Media Solution Area for the six months ended June 30, 2003 included $358,000 for interactive media consulting and $1,380,000 for interactive media systems integration. Interactive Media cost of sales for the six months ended June 30, 2002 included $401,000 for interactive media consulting and $1,483,000 for interactive media systems integration. Interactive Media Solution Area gross profit for the six months ended June 30, 2003 included $1,191,000 for interactive media consulting and $1,166,000 for interactive media systems integration. Interactive Media gross profit for the six months ended June 30, 2002 included $725,000 for interactive media consulting and $880,000 for interactive media systems integration. The period-to-period decrease in consulting cost of sales and increase in consulting gross profit were primarily attributable to enhanced operational efficiency combined with a greater proportion of consulting activity on a fixed-price basis in the first half of 2003 than in the first half of 2002. Fixed-price projects represent a greater financial risk to the Company because many factors which might increase project-associated labor may be beyond the Company’s control. Accordingly, fixed-price projects that experience optimal operational efficiency, including most of those performed in the first half of 2003, result in a higher proportion of gross profit to revenue than is typical for time-based services. Also as noted above, the introduction of a new On Command all-digital hardware platform in late 2002 resulted in equipment cost savings, thereby decreasing cost of sales for interactive media systems integration projects when comparing the first half of 2003 to the first half of 2002. The period-to-period increase in gross profit from systems integration resulted from the Interactive Media’s ongoing efforts to control project associated costs through such means as high volume purchasing to reduce equipment costs on a unit basis.

         Technology Infrastructure cost of sales increased $19,000 from the first half of 2002 to the first half of 2003. Gross profit decreased $72,000, or 15%, for the six months ended June 30, 2003 as compared to the six months ended June 30, 2002. Management attributes the margin erosion to intense competition in the marketplace for available technology-related projects, which has exerted downward pressure on pricing. In percentage terms, the period-to-period decline in gross profit from the first half of 2002 to the first half of 2003 exceeded the decline in revenue, 15% to 9%.

         E-Business gross profit increased $84,000, or 14%, in the first half of 2003 as compared to the first half of 2002, while the corresponding increase in revenue was 34%. The increase in gross profit is attributable to increased revenue resulting from deferred demand for E-Business services improving the utilization of consulting resources and an increase in the number of large engagements in the first half of 2003, as compared to the first half of 2002. Management believes that the lower rate of growth of gross profit in percentage terms as compared to revenue resulted from downward pressure on E-Business pricing due to the negative impact of recent domestic economic conditions on spending for technology-based services. Management believes improvement in utilization of consulting resources will occur prior to improvement in pricing.

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         Gross profit realized on Outsourced Services declined from $183,000 in the first half of 2002 to $79,000 in the first half of 2003. The rate of decline in Outsourced Services gross profit of 57% exceeded the 43% period-to-period decline in revenue. Management also attributes this to downward pressure on pricing due to the continuing negative impact of domestic economic conditions on spending for technology-based services.

         Cost of sales for the Company’s ancillary services and product sales was $60,000 for the six months ended June 30, 2003, with all of the cost of sales attributable to information system product sales. Cost of sales for ancillary services and product sales was $120,000 for the six months ended June 30, 2002, including $119,000 for information system product sales and $1,000 associated with other services. Gross profit on ancillary services and product sales was $107,000 for the six months ended June 30, 2003, including $61,000 for information system product sales and $46,000 for other services. Gross profit for ancillary services and product sales was $101,000 for the six months ended June 30, 2002, including $66,000 for information system product sales and $35,000 for other services. There is period-to-period variability in cost of sales associated with information system product sales to cruise industry customers as some of the sales involve replacement parts for older ship systems. The Company is able to fulfill some of these orders with equipment salvaged from ships formerly operated by the Company on an owner-operator model. The Company carries this equipment at a very low inventory value due to its age and the lack of a consistent market.

Selling, General & Administrative Expenses

         The Company recorded $2,858,000 in selling, general & administrative expenses during the six months ended June 30, 2003, including $150,000 for depreciation and amortization, $27,000 for losses from impairment or disposal of assets and $2,681,000 for other selling, general & administrative expenses. Selling, general & administrative expenses were $2,995,000 during the six months ended June 30, 2002, including $301,000 for depreciation and amortization and $2,694,000 for other selling, general & administrative expenses. The decrease in selling, general & administrative expenses of $137,000 is primarily attributable to a period-to-period reduction in depreciation expense.

         Management implemented expense reduction efforts in the first quarter of 2001 to reduce costs associated with the Company’s personnel resources and other expenses such as rent, travel and entertainment and communications costs. The full benefit of these efforts was realized by early 2002 when expense levels were reached that management believed were appropriate for the Company’s size and scope of operations. The Company has since sought to maintain other selling, general & administrative expenses at consistent levels, resulting in the comparability of expense levels between the first halves of 2002 and 2003.

         The Company recorded $27,000 for losses due to impairment or disposal of assets during the six months ended June 30, 2003, principally from impairment of goodwill associated with Allin Consulting-Pennsylvania’s Technology Infrastructure and Outsourced Services reporting units. See Goodwill and Intangible Assets under the caption Critical Accounting Policies, Estimates and Judgments above in this Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional information concerning the impairment of goodwill. No losses due to impairment or disposal of assets were recorded in the six months ended June 30, 2002.

         Depreciation and amortization were $150,000 for the six months ended June 30, 2003 as compared to $301,000 for the six months ended June 30, 2002. The decrease of $151,000, or 50%, is due to significant levels of fixed assets reaching full depreciation in June and December 2002. The level of assets reaching full depreciation exceeded the level of new assets which were placed in service by the Company and its subsidiaries and which commenced depreciation subsequent to June 30, 2002. Amortization expense related to the customer list associated with the Company’s 1998 acquisition of Allin Consulting-Pennsylvania experienced an $16,000 period-to-period reduction due to a revision in the estimated useful life of the customer list implemented in 2003.

Income (Loss) from Continuing Operations

         The Company recorded income from continuing operations of $700,000 for the six months ended June 30, 2003, as compared to a loss from continuing operations of $37,000 for the six months ended June 30, 2002. The $737,000 improvement in results from continuing operations is attributable to the $525,000 period-to-period

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increase in revenue and the $141,000 and $137,000 period-to-period decreases in cost of sales and selling, general & administrative expenses, respectively, as a result of the factors discussed above. During the first half of 2003, the Company recorded a provision for income taxes of $55,000, partially offsetting the profitability improvement. The tax expense is the net of a provision related to first half 2003 operations and an increase in the estimate of deferred tax assets related to net operating loss carryforwards expected to be realized over the second half of 2003 and in 2004. As of June 30, 2002, the Company had not recorded deferred tax assets for net operating loss carryforwards expected to be realized in future periods due to the Company’s earnings history at that point in time. Consequently, the income tax provision related to operating results for the first half of 2002 was offset by the benefit from net operating loss carryforwards realized in that period.

Loss from Discontinued Operations

         During the six months ended June 30, 2002, the Company recorded a loss of $5,000 from its discontinued digital imaging operations. Activity in the first half of 2002 included sales of remaining inventory, fulfillment of technical support obligations and website hosting services. All digital imaging operations ceased in the second quarter of 2002 so no results from discontinued operations have been recognized in 2003.

Net Income (Loss)

         The Company realized net income for the six months ended June 30, 2003 of $700,000 as compared to a net loss of $42,000 for the six months ended June 30, 2002. The significant factors in the profitability improvement were the period-to-period changes in revenue, gross profit and selling, general & administrative expenses, as discussed above.

Liquidity and Capital Resources

         At June 30, 2003, the Company had cash and liquid cash equivalents of $4,241,000 available to meet its working capital and operational needs. The net change in cash from December 31, 2002 was an increase of $2,346,000, which resulted primarily from cash flows provided by operations.

         The Company recognized net income for the six months ended June 30, 2003 of $700,000. The Company recorded net non-cash expenses of $198,000, including $150,000 for depreciation of property and equipment and amortization of intangible assets, $27,000 for losses from impairment or disposal of assets and $21,000 related to the provision for income taxes, resulting in net cash provided of $898,000 related to the income statement. Working capital adjustments resulted in net cash provided of $1,662,000. Major working capital adjustments resulting in cash provided included a decrease in accounts receivable of $2,797,000 and an increase in billings in excess of costs and estimated gross margins of $674,000. These were partially offset by working capital adjustments resulting in cash used, which included decreases in accounts payable and accrued liabilities of $1,648,000 and $101,000, respectively, and an increase in costs and estimated gross margins in excess of billings of $241,000. The net result of the income statement activity and working capital adjustments was net cash provided of $2,556,000 related to operating activities.

         Investing activities resulted in a net cash use of $38,000 for the six months ended June 30, 2003 for capital expenditures for leasehold improvements to the Company’s Ft. Lauderdale office and the periodic upgrading of the Company’s computer hardware. Financing activities resulted in a net cash use of $176,000 for the six months ended June 30, 2003 for preferred stock dividends.

         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.

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Should quotation of the common stock on the OTC Bulletin Board or a similar facility 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 in each of the five succeeding years. The current expiration date of the S&T Loan Agreement is September 30, 2004. 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. 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 June 30, 2003, maximum borrowing availability under the S&T Loan Agreement was approximately $1,261,000. There was no outstanding balance under the S&T Loan Agreement as of June 30, 2003 and there have been no borrowings subsequent to that date. As of July 25, 2003, maximum borrowing availability under the S&T Loan Agreement was approximately $1,020,000.

         Borrowings may be made under the S&T Loan Agreement for general working capital purposes. Loans made under the S&T Loan Agreement bear interest at the bank’s prime interest rate plus one percent. The interest rate in effect as of December 31, 2002, 5.25%, remained unchanged until June 27, 2003, when the interest rate was lowered to 5.00%. There have been no subsequent changes to the interest rate. 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 did not record any interest expense related to this revolving credit loan during the three months ended March 31, 2003. 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, 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 and the Letter Agreement and Change in Terms Agreement should be singular filed as Exhibits 4.1 and 4.2, respectively, to this Report on Form 10-Q. The covenant concerning dividends and purchases of stock prohibits the Company from 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. In May 2003, S&T Bank agreed to a modification of the S&T Loan Agreement that removed a prior prohibition of declaration, but not payment, of dividends related to the Company’s Series C Redeemable Preferred Stock. The prohibition concerning payment of dividends for the Series C preferred stock remains in effect under the S&T Loan Agreement. 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. The Company was in compliance with the cash flow covenant for the fiscal quarter ended June 30, 2003. The Company was in compliance with all other covenants as of June 30, 2003 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 June 30, 2003, 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; however, the Company may redeem shares of Series C preferred stock at any time. There are no sinking fund provisions applicable to the Series C preferred stock. 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 legally obligated to pay accrued dividends, subject to legally available funds for the payment of

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dividends as prescribed by the Delaware General Corporation Law. Any accrued and unpaid dividends as of June 30, 2006 on Series C preferred stock are a legally enforceable obligation of the Company, whether the dividends have been declared or not. Accordingly, dividends are accrued on an ongoing basis. On May 15, 2003, following modification of the S&T Loan Agreement to remove a prohibition of declaration of dividends for Series C preferred stock, the Company’s Board of Directors declared dividends which had been accrued since issuance of the preferred stock in 1996 or that would subsequently be accrued through May 31, 2003. Accrued but unpaid dividends on the Series C preferred stock were approximately $1,810,000 as of June 30, 2003 and approximately $1,851,000 as of August 12, 2003. Any accrued dividends on the Series C preferred stock not paid by June 30, 2006 will compound thereafter at a rate of 12% of the liquidation value thereof per annum. After June 30, 2006, further 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. The Company intends to seek elimination of this prohibition for the Series C preferred stock prior to the scheduled payment of accrued and unpaid dividends on June 30, 2006 and to commence thereafter the payment of scheduled quarterly dividend payments.

         As of June 30, 2003, 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 January, April, July and October, subject to legally available funds. Accrued but unpaid dividends on Series D preferred stock were approximately $28,000 as of June 30, 2003 and approximately $5,000 as of August 12, 2003. 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 June 30, 2003, 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 into shares of 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. Each share of Series F preferred stock is convertible into 508 shares of 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 15^th of January, April, July and October, 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 June 30, 2003 and approximately $49,000 as of August 12, 2003. 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.

         As of June 30, 2003, 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

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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 June 30, 2003 and approximately $14,000 as of August 12, 2003.

         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 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. The warrants will expire December 29, 2005, unless exercised earlier.

         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 warrants will expire August 13, 2003, unless exercised earlier.

         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 15^th of January, April, July and October. 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 June 30, 2003 and approximately $66,000 as of August 12, 2003.

         Capital expenditures during the three months ended June 30, 2003 were approximately $38,000 and included leasehold improvements for the Company’s Ft. Lauderdale office and computer hardware for the Company’s periodic upgrading of technology. Management forecasts that capital expenditures will not exceed $160,000 for the final two quarters of 2003, and will be for computer hardware, software and communications equipment for the Company’s periodic upgrading of technology. Business conditions and management’s plans may change during the remainder of 2003 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

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operations for at least the next twelve months. As discussed above, the S&T Loan Agreement expires September 30, 2004. If currently available funds and cash generated by operations were insufficient to satisfy the Company’s ongoing cash requirements thereafter or if the Company was unable to renew or replace the current credit facility after its expiration in September 2004, 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.

Risk Factors

         Certain matters in this quarterly Report on Form 10-Q, including, without limitation, certain matters discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections of this report constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbors created thereby. 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. These statements are based on a number of assumptions that could ultimately prove inaccurate, and, therefore there can be no assurance that they will prove to be accurate. 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. Among the factors that could affect performance are those risks and uncertainties discussed below, which are representative of factors which could affect the outcome of the forward-looking statements as well as the Company’s overall future performance. In addition, such statements and the Company’s overall future performance could be affected by general industry and market conditions and growth rates, general domestic and international economic conditions and geopolitical considerations or other events that may negatively impact the markets where the Company competes. The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

         General Economic Conditions.   Management attributes the declines in Technology Infrastructure revenue experienced in 2001, 2002 and the first half of 2003 to a softening of the demand for technology consulting services resulting from the negative impact of domestic economic conditions since late 2000 on technology-based spending. 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, which has compounded the negative impact of the economic downturn on this solution area. Management believes the economic uncertainty also slowed demand for E-Business services during 2001 and 2002, although to a lesser degree than the negative impact on Technology Infrastructure. Management believes domestic economic conditions will likely continue to negatively impact the Technology Infrastructure Solution Area for at least the remainder of 2003. There can be no assurance that the effects of the economic uncertainty will not worsen or extend beyond December 31, 2003, which would negatively impact the Company’s results of operations and financial condition in future periods. To the extent that the current economic conditions persist, the cruise industry and any other businesses that are current or potential customers for the Interactive Media and E-Business Solution Areas may also be negatively impacted. The Company’s future results of operations and financial condition would be negatively impacted from any resulting decline in demand for the Company’s services.

         Solution Area and Customer Concentration.   Interactive Media consulting and systems integration services accounted for approximately 58% and 60% of the Company’s revenue for the year ended December 31, 2002 and the six months ended June 30, 2003, respectively. Interactive Media services also accounted for 57% and 65% of the Company’s gross profit for these respective periods. Interactive Media revenue is highly concentrated among a few customers in the cruise industry. During 2002, two significant Interactive Media customers operating in the cruise industry, Carnival and Royal Caribbean, accounted for 29% and 22%, respectively, of the Company’s consolidated revenue. Another customer, Celebrity, which is affiliated with Royal Caribbean, accounted for another 9% of the Company’s consolidated revenue in 2002. During the six months ended June 30, 2003, three significant Interactive Media customers operating in the cruise industry, Carnival, Costa and Royal Caribbean, accounted for

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27%, 20% and 14%, respectively, of the Company’s consolidated revenue. Carnival and Costa are affiliated companies. Interactive Media projects also represent a substantial majority of the Company’s committed backlog for remainder of 2003 and 2004. The loss of any of these customers could negatively impact the Company’s future results of operations and financial condition.

         Geopolitical Considerations.    Following the terrorist attacks in the United States in September 2001, the cruise industry experienced declines in passenger occupancy and revenue. Through 2002, passenger occupancy substantially recovered from this decline, but fare discounting persisted, negatively impacting cruise industry revenue. In early 2003, cruise bookings were below cruise line expectations during a period of the year when a significant portion of reservations are typically made. Industry analysts attributed the weak bookings in part to concerns over the potential impact of war and possible retaliatory terrorist attacks. Should any future war or incidents of terrorism 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 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 war or terrorism or other geopolitical considerations negatively impact the economy in general or any businesses that are current or potential Technology Infrastructure, E-Business or Outsourced Services customers, the Company’s future results of operations and financial condition may also be negatively impacted.

         Backlog.   As of June 30, 2003, the Company’s total committed backlogs for the second half of 2003 and for 2004 were approximately $4,364,000 and $1,761,000, respectively. Revenue for the first half of 2003 plus committed backlog for solution area services expected to be performed in the second half of 2003, and committed backlog for 2004, approximate 88% and 15%, respectively, of 2002 solution area revenue. First half 2003 revenue plus committed backlog for the Interactive Media Solution Area for the second half of 2003 is approximately 99% of 2002 Interactive Media revenue. However, the backlog principally consists of a small number of large projects. Unexpected schedule delays or project cancellations would likely negatively impact the Company’s results of operations and financial condition since any lost business would be difficult to replace given Interactive Media’s concentration on the cruise industry and history of long lead times associated with obtaining new engagements. First half 2003 revenue plus second half 2003 backlog for the Company’s Technology Infrastructure and E-Business Solution Areas approximates 73% of 2002 revenue for those solution areas. Management believes that the backlog levels reflect the impact that recent domestic economic conditions have had on technology-based spending, particularly for Technology Infrastructure. The Company’s future success is dependent on its ability to continue to identify and obtain engagements from customers for the Company’s services. General economic conditions and other risk factors such as geopolitical considerations may make future business more difficult to obtain, which would negatively impact the Company’s future results of operations and financial condition.

         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 scheduling, or 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.

         Historical Net Losses and Accumulated Deficit.   The Company sustained substantial net losses during the years from 1996 through 2001. As of June 30, 2003, the Company had a retained deficit of $43,619,000. Net income was recognized for the third and fourth quarters of 2001, the final three quarters of 2002 and the first and second quarters of 2003. Currently, the Company’s management anticipates that net income will be recognized for the full year of 2003. However, losses may be incurred in 2003 and future periods due to a variety of factors including the risk factors described herein. 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 general working capital needs. The Company’s revolving credit

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facility expires September 30, 2004. Failure of the Company to renew its existing credit facility beyond September 30, 2004 or replace it with another facility with similar terms may adversely impact the Company’s operations in the future.

         Credit Risk.   A significant portion of the Company’s assets consist of cash and accounts receivable. Cash balances are maintained in several domestic banks and are subject to credit risk to the extent that balances in the Company’s various bank accounts exceed available banking system insurance coverage. Accounts receivable are subject to credit risk from customers failing to make full or timely payment for the amounts billed by the Company for services or products. Any losses incurred by the Company could negatively impact the Company’s results of operations and financial condition.

         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 reduced 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 or a similar facility 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.

         Competitive Market Conditions.   The technology consulting industry remains fragmented with a large number of smaller-sized participants despite a recent trend toward consolidation in the industry. 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 requires 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 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 Company’s interactive media consulting and systems integration services are currently provided to a limited market of cruise lines. The types of interactive television systems and applications offered by the Company are significant capital expenditures for potential customers. The Company utilizes end-user components and computer hardware platforms and configurations developed by On Command for its interactive television systems integration projects. The Company has developed software interfaces and modifications for the On Command components and hardware platforms. The Company believes its application development expertise and the On Command hardware platform offer cost-effective, flexible solutions with a broad range of functionality. However, 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. There can also be no assurance that competitors will not develop systems and products with superior functionality or cost advantages over the Company’s products and applications.

         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.

         Decline in Outsourced Services.   Revenue and gross profit derived from Outsourced Services declined during 2000, 2001, 2002 and the first half of 2003. The decline is attributable to both industry trends and the Company’s marketing focus on solutions-oriented services over that period. The Company experienced a substantial decline, from 1999 through 2001, in demand for Outsourced Services resources for projects related to mainframe systems and specialized Hogan IBA software products for the banking industry, which were technologies in which Outsourced Services specialized. In order to attempt to preserve its customer relationships that had

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primarily utilized customer-managed resources, in 2002, the Company transitioned its remaining Outsourced Services consultants to a broader array of technology, including services and applications development based on Microsoft, Oracle and Informix technology. Other factors such as the prolonged economic downturn continue to negatively impact demand for technology-based services, including the Company’s Outsourced Services. Management expects Outsourced Services revenue and gross profit will continue to decline over the remainder of 2003.

         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 the Company’s or customers’ 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 their 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. The Sarbanes-Oxley Act of 2002 and related SEC regulations have resulted in the implementation of increased financial reporting requirements and disclosure requirements and new requirements for corporate governance. Some of these requirements are currently in effect and others will become effective later in 2003 or thereafter. Management believes compliance with the legislation and regulations has resulted in additional costs to the Company associated with professional services including legal and accounting, regulatory reporting and investor information distribution. Management believes these costs will likely continue to increase with the pending implementation of additional provisions of the Sarbanes-Oxley Act of 2002 and related SEC regulations.

Effect of Recently Issued Accounting Standards

         In April 2002, the Financial Accounting Standards Board (“FASB”) published Statement of Financial Accounting Standards (“SFAS”) No. 145, Recission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections (“SFAS No. 145”). SFAS No. 145 rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt (an amendment of APB Opinion No. 30), and SFAS No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements (an amendment of SFAS No. 4), which address the accounting for gains and losses from the extinguishment of debt. SFAS No. 145 also rescinds SFAS No. 44, Accounting for Intangible Assets of Motor Carriers (an amendment of Chapter 5 of ARB No. 43 and an

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interpretation of APB Opinions No. 17 and 30), which addressed the accounting for intangible assets of motor carriers. SFAS No. 145 also amends SFAS No. 13, Accounting for Leases, to eliminate inconsistencies between the accounting for sale-leaseback transactions and the accounting for certain lease modifications that have economic effects similar to sale-leaseback transactions. Certain of the provisions of SFAS No. 145 were applicable for transactions occurring after May 15, 2002 and certain provisions were to be applied as of the beginning of the next fiscal year after May 15, 2002. The Company’s adoption of SFAS No. 145 did not have a material effect on its results of operations or financial position.

         In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit of Disposal Activities. SFAS No. 146 nullifies Emerging Issues Task Force (“EITF”) No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity, which had required that costs associated with an exit or disposal activity be recorded as liabilities as of the date the exit or disposal plan was approved by management. SFAS No. 146 requires a liability for a cost associated with an exit or disposal activity be recognized at fair value on the date the liability is incurred. The Company’s adoption of SFAS No. 146 did not have a material effect on its results of operations or financial position.

         In November 2002, the FASB issued Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, which elaborates on the existing disclosure requirements for most guarantees, including loan guarantees. Interpretation No. 45 also clarifies that at the time an organization issues a guarantee, an initial liability must be recognized for the fair value, or market value, of the obligations the company is assuming under the guarantee. Disclosure of information related to guarantees is also required in the organization’s interim and annual financial statements. The initial recognition and initial measurement provisions apply on a prospective basis to guarantees issued or modified after December 31, 2002. The Company's adoption of Interpretation No. 45, effective as of January 1, 2003, did not have a material effect on its results of operations or financial position.

         In December 2002, the FASB published SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure, which amends SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair-value based method of accounting for stock-based employee compensation. The alternate transition methods reflect the full amount of stock-based compensation expense under the fair-value method immediately upon adoption of SFAS No. 148. SFAS No. 123 had required prospective application of fair-value based accounting to new awards of stock options. SFAS No. 148 also amends the annual disclosure requirements concerning the pro forma effects of fair-value based accounting for stock-based compensation and requires future disclosure in interim reports in addition to annual statements. The transition guidance and annual disclosure provisions of SFAS No. 148 are effective for fiscal years ending after December 15, 2002. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. The Company implemented SFAS No. 148 on January 1, 2003. The Company continues to account for stock-based compensation plans under Accounting Principles Board Opinion (“APB”) No. 25, Accounting for Stock Issued to Employee, as permitted under SFAS Nos. 123 and 148. Accordingly, adoption of SFAS No. 148 did not have an effect on the Company’s results of operations or financial position, but primarily impacts the Company by increasing the frequency of disclosures regarding stock-based employee compensation plans.

         In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities. In general, a variable interest entity is a corporation, partnership, trust, or any other legal structure used for business purposes that either does not have equity investors with voting rights or has equity investors that do not provide sufficient financial resources for the entity to support its activities. Interpretation 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest’s activities or is entitled to receive a majority of the entity’s residual returns or both. The consolidation requirements of Interpretation 46 apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period beginning after June 15, 2003. Certain of the disclosure requirements apply in all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The Company adopted Interpretation No. 46 as of July 1, 2003. The Company does not expect that Interpretation No. 46 will have a material effect on the Company’s results of operations or financial condition as the Company does not currently utilize or have interests in any variable interest entities.

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         In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. SFAS No. 149 amends accounting and reporting of derivative instruments and hedging activities under SFAS No. 133. SFAS No. 149 is effective for contracts entered into or modified and for hedging relationships designated after June 30, 2003. The Company does not expect that the adoption of SFAS No. 149 will have a material effect on the Company’s results of operations or financial condition as the Company does not currently invest excess funds in derivative financial instruments or other market rate sensitive instruments.

         In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, except for mandatorily redeemable financial instruments. Mandatorily redeemable financial instruments are subject to the provisions of SFAS No. 150 beginning as of January 1, 2004. The Company does not expect that the adoption of SFAS No. 150 will have a material effect on the Company’s results of operations or financial condition.

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Item 3.      Quantitative and Qualitative Disclosure about Market Risk

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

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Item 4.      Controls and Procedures

                   Prior to the filing of this Report on Form 10-Q, an evaluation was performed under the supervision of and with the participation of the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures as of June 30, 2003. Based on the evaluation, the CEO and CFO have concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. During the fiscal quarter ended June 30, 2003, there were no significant changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Part II

Item 3.   Defaults Upon Senior Securities

               To date, the Company has paid all dividends required and legally and contractually permissible under the terms of each of the Certificates of Designation governing the Company’s Series C, D, F and G preferred stock. Significant arrearages of dividends have accrued on certain of these series, as discussed in the following paragraphs, because dividends accrued to date or for certain periods of time are not required to be paid until a future date or until redemption of the preferred stock, if any. Each of the Certificates of Designation 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. 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 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.

               As of June 30, 2003, the Company had outstanding 25,000 shares of the Company’s Series C Redeemable Preferred Stock, having a liquidation preference of $100 per share. Accrued but unpaid dividends on the Series C preferred stock were approximately $1,810,000 as of June 30, 2003 and approximately $1,851,000 as of August 12, 2003. 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 legally obligated to pay accrued dividends, subject to legally available funds for the payment of dividends as prescribed by the Delaware General Corporation Law. Any accrued and unpaid dividends as of June 30, 2006 on Series C preferred stock are a legally enforceable obligation of the Company, whether the dividends have been declared or not. Accordingly, dividends are accrued on an ongoing basis. On May 15, 2003 following modification of the S&T Loan Agreement to remove a prohibition of declaration, but not payment, of dividends for Series C preferred stock, the Company’s Board of Directors declared dividends which had been accrued since issuance of the preferred stock in 1996, or that would subsequently be accrued through May 31, 2003. 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. 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.

               As of June 30, 2003, 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. 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 January, April, July and October, subject to legally available funds. To date, all required payments of dividends on Series D preferred stock have been made. Accrued but unpaid dividends on Series D preferred stock were approximately $28,000 as of June 30, 2003 and approximately $5,000 as of August 12, 2003. 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.

                As of June 30, 2003, 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. 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 15^th of January, April, July and October, 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. To date, all required payments of dividends on Series F preferred stock have been made. Accrued but unpaid dividends on Series F preferred stock were approximately $59,000 as of June 30, 2003 and approximately $49,000 as of August 12, 2003. 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.

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               As of June 30, 2003, 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. Unless redeemed or converted to common stock sooner, Series G preferred stock 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. To date, all required payments of dividends on Series G preferred stock have been made. Accrued but unpaid dividends on the Series G preferred stock were approximately $30,000 as of June 30, 2003 and approximately $14,000 as of August 12, 2003. There is no mandatory redemption date for the Series G preferred stock; however, the Company may redeem Series G shares after December 29, 2005.

               See Part I – Item 2 of this Report on Form 10-Q, Management’s Discussion and Analysis of Financial Condition and Results of Operations, under the caption “Liquidity and Capital Resources” for more information about the Company’s outstanding preferred stock.

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

(a) The Annual Meeting of the Stockholders of the Company was held on Thursday, May 15 2003.

(b) Not applicable.

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

(1) Election of Directors for one year terms to hold office until the next Annual Meeting of the Stockholders following election and until their successors are duly elected and qualified. Results were as follows:

Nominee	Votes For	Votes Against	Votes Abstaining	Votes Withheld
Richard W. Talarico	7,046,915	0	0	4,417
Brian K. Blair	7,026,915	0	0	24,417
Anthony L. Bucci	7,026,915	0	0	24,417
William C. Kavan	7,026,915	0	0	24,417
James S. Kelly, Jr.	7,026,915	0	0	24,417
Anthony C. Vickers	7,026,915	0	0	24,417

There were a total of 6,967,339 shares of the Company’s common stock and 150 shares of the Company’s Series G preferred stock (having voting rights equivalent to a total of 794,250 shares of common stock) eligible to vote at the Annual Meeting.

(d) Not applicable.

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

(a) Exhibits.

Exhibit Number	Description of Exhibit
4.1	Letter Agreement dated as of May 28, 2003 by and between Allin Corporation and S&T Bank, a Pennsylvania banking association
4.2	Change in Terms Agreement dated as of June 30, 2003 by and between Allin Corporation and S&T Bank, a Pennsylvania banking association
10.1	License and Supply Agreement dated as of June 30, 2003 between On Command Video Corporation and Allin Interactive Corporation (subject to request for confidential treatment)
11	Computation of Earnings per Share
31.1	Rule 13a-14(a) Certification of Richard W. Talarico, Chief Executive Officer
31.2	Rule 13a-14(a) Certification of Dean C. Praskach, Chief Financial Officer
32	Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

           (b) Reports on Form 8-K.

On April 9, 2003, Allin Corporation filed with the Securities and Exchange Commission a Current Report on Form 8-K (date of earliest event reported – April 2, 2003) to report that the Company had been notified by Hill, Barth & King LLC that it would not be able to serve as the Company’s independent auditors for the year ending December 31, 2003.

On May 12, 2003, Allin Corporation furnished to the Securities and Exchange Commission a Current Report on Form 8-K (date of earliest event reported – May 8, 2003) to which a copy of the Company’s Press Release of May 8, 2003 announcing financial results for the fiscal quarter ended March 31, 2003 was attached as an exhibit.

On June 3, 2003, Allin Corporation filed with the Securities and Exchange Commission a Current Report on Form 8-K (date of earliest event reported – May 29, 2003) to report that the Audit Committee of the Company’s Board of Directors had approved the engagement of Malin, Bergquist & Company, LLP as independent accountants for the Company for the current fiscal year ending December 31, 2003.

On June 13, 2003, the Company filed with the Securities and Exchange Commission a Current Report on Form 8-K/A (date of earliest event reported – April 2, 2003) amending its prior Report on Form 8-K filed on April 9, 2003 to report that on May 29, 2003, the Company dismissed Hill, Barth & King LLC as independent auditors for the year ending December 31, 2003.

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Signatures

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

ALLIN CORPORATION

(Registrant)

Date:  August 12, 2003	By:	/s/ RICHARD W. TALARICO
		Richard W. Talarico
		Chairman and Chief Executive Officer

Date:  August 12, 2003	By:	/s/ DEAN C. PRASKACH
		Dean C. Praskach
		Chief Financial Officer and Chief Accounting Officer

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Allin Corporation
Form 10-Q
June 30, 2003
Exhibit Index

Exhibit Number	Description of Exhibit
4.1	Letter Agreement dated as of May 28, 2003 by and between Allin Corporation and S&T Bank, a Pennsylvania banking association
4.2	Change in Terms Agreement dated as of June 30, 2003 by and between Allin Corporation and S&T
	Bank, a Pennsylvania banking association
10.1	License and Supply Agreement dated as of June 30, 2003 between On Command Video Corporation and
	Allin Interactive Corporation (subject to request for confidential treatment)
11	Computation of Earnings per Share
31.1	Rule 13a-14(a) Certification of Richard W. Talarico, Chief Executive Officer
31.2	Rule 13a-14(a) Certification of Dean C. Praskach, Chief Financial Officer
32	Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

EX-4.1

Exhibit 4.1

May 28, 2003
 
Allin Corporation
Allin Corporation of California
Allin Corporation of Pennsylvania, Inc.
Allin Interactive Corporation
Allin Digital Imaging Corp.
Allin Network Products, Inc.
Allin Holdings Corporation
381 Mansfield Ave., suite 400
Pittsburgh, PA
 
Dear Richard and Timothy:

         I am pleased to inform you that S & T Bank (hereinafter the “Bank”) has approved a $5,000,000 following financing request for Allin Corporation, Allin Corporation of California, Allin Corporation of Pennsylvania, Inc., Allin Interactive Corporation, Allin Digital Imaging Corp., Allin Network Products, Inc., Allin Holdings Corporation (hereinafter the “Borrower”). This offer is subject to the terms and conditions in the documents signed by the parties to evidence the loan transaction and includes, but is not limited to, the following terms and conditions:

Borrower:	Allin Corporation
	Allin Corporation of California
	Allin Corporation of Pennsylvania. Inc.
	Allin Interactive Corporation
	Allin Network Products, Inc.
	Allin Holdings Corporation
Amount:	$ 5,000,000
Rate:	Prime + 1
Repayment:	Interest monthly
Maturity Date:	9/30/04
Security:	1st lien UCC-1’s filed on all business assets.

Allin Corporation
May 29, 2003
Page 2

Guarantors:	None
Purpose:	To reaffirm the subject’s existing $5,000,000 asset-based line of credit
Conditions:	1.	Annual CPA audited financial statements on the borrower.
	2.	Monthly consolidated management prepared financial statements on the borrower.
	3.	Hazard insurance on the collateral with S&T Bank named as loss payee.
	4.	Borrowing base certificate with each advance and on a weekly basis.
	5.	Advances limited to 80% of eligible accounts receivable (0-60 days from date of invoice).
	6.	Monthly accounts aging schedule.
	7.	Minimum cash flow coverage ratio of 1.0 to 1.0.
	8.	Series C Preferred Stock dividends be allowed to accrue without payment.
	9.	The borrower will reimburse the Bank for all expenses in connection with the documentation, closing and collection of  this loan.
	10.	Borrower shall further provide any additional information that the Bank shall reasonably request.
	11.	Contingent upon receipt of an executed commitment letter and appropriate loan documents as determined by the Bank.

Allin Corporation
May 29, 2003
Page 3

                             The Borrower agrees to execute and deliver such instruments, documents, certificates, opinions, assurances, and actions as the Bank may request, to effect the purpose of the transaction described in this commitment letter. The Bank’s obligation to make the loan shall be subject to receipt by the Bank of properly executed documents in form and substance satisfactory to the Bank and Bank’s counsel. All proceedings, agreements, instruments, documents, and other matters relating to the making of the loan, and all other transactions herein contemplated, shall be satisfactory to the Bank and to Bank’s counsel. While our mutual efforts will be directed toward the closing of this transaction, we may require that the transaction be restructured or otherwise modified.

                             This commitment is issued in reliance on, and the validity and binding effect of this commitment shall be subject to, the accuracy of all information, representations, schedules, and other materials or data submitted by the Borrower on the Borrower’s financial standing and the financial standing of the principals of the Borrower as set forth in the financial statements and other information submitted by the Borrower to the Bank and in reliance on the Borrower’s statements as to the value of the Collateral and its intended usage, all of which is deemed material. Any misrepresentation of a material fact, whether intentional or otherwise, made prior to issuance of this commitment or any change of any material fact (in the business, assets, operations, or conditions, financial or otherwise, of Borrower and/or any other party guarantying or pledging collateral on behalf of the Borrower) after the issuance hereof shall, at the Bank’s sole option, render this commitment void without further notice to the Borrower. In such event, the Bank, at its sole option, may elect not to close the loan.

                             If the terms of this loan are satisfactory, please sign, date and return the enclosed copy of this letter in the envelope provided. This commitment is effective for thirty (30) days from the date of this letter. This offer will expire if we have not closed the loan within ninety (90) days of the commitment letter date. If you have any questions or desire clarification on the conditions, please give me a call at (724) 465-1430.

                             This commitment cannot be assigned to any other party without the express written consent of S&T Bank.

                             I appreciate the opportunity to be of service to you and look forward to a mutually beneficial relationship.

Sincerely,

/s/ DAVID G. ANTOLIK

David G. Antolik
Senior Vice President

DGA/mam

Allin Corporation
May 29,
2003 Page 4

                             Agreed to this 31st day of July, 2003 with the intent of being legally bound; the undersigned hereby accepts the foregoing Commitment and agrees to the terms and conditions here.

	Allin Corporation Allin Corporation of California Allin Corporation of Pennsylvania, Inc. Allin Interactive Corporation Allin Network Products, Inc. Allin Holdings Corporation
By:	/s/ RICHARD W. TALARICO
	Richard W. Talarico, Chairman & CEO
By:	/s/ DEAN C. PRASKACH

EX-4.2

[LOGO OF S&T BANK]

Exhibit 4.2

CHANGE IN TERMS AGREEMENT

Borrower:	Allin Corporation; Allin Interactive Corporation;	Lender:	S&T Bank
	Allin Corporation of		Main Office
	California d/b/a Allin Consulting; Allin Network		800 Philadelphia St
	Products, Inc.; Allin Holdings Corporation; and Allin		Indiana, PA 15701
	Consulting of Pennsylvania, Inc.		(800) 325-2265
	381 Mansfield Ave, Ste 400
	Pittsburgh, PA 15220-2751

Principal Amount: $5,000,000.00      Initial Rate: 5.250%      Date of Agreement: June 30, 2003

DESCRIPTION OF EXISTING INDEBTEDNESS.  A revolving line of credit Promissory Note dated October 1, 1998, as amended, in the original maximum available principal amount of Five Million & 00/100 Dollars (5,000,000.00), together with a variable interest rate of S&T Bank Prime plus 1.000% per annum and a current maturity date of September 30, 2003.

DESCRIPTION OF COLLATERAL.  Loan and Security Agreement, as amended, and UCC-1 Financing Statements filed on collateral, which is referenced hereby, and as is more fully described in the Loan and Security Agreement dated October 1,1998.

DESCRIPTION OF CHANGE IN TERMS.  Extend the maturity date to September 30, 2004.

PROMISE TO PAY.  Allin Corporation; Allin Interactive Corporation; Allin Corporation of California d/b/a Allin Consulting; Allin Network Products, Inc., Allin Holdings Corporation; and Allin Consulting of Pennsylvania, Inc (“Borrower”) jointly and severally promise to pay to S&T Bank (“Lender”), or order, in lawful money of the United States of America, the principal amount of Five Million & 00/100 Dollars ($5,000,000.00) or so much as may be outstanding, together with interest on the unpaid outstanding principal balance of each advance. Interest shall be calculated from the date of each advance until repayment of each advance.

PAYMENT.  Borrower will pay this loan in one payment of all outstanding principal plus all accrued unpaid interest on September 30, 2004. In addition, Borrower will pay regular monthly payments of all accrued unpaid interest due as of each payment date, beginning July 30, 2003, with all subsequent interest payments to be due on the same day of each month after that. Interest on this Agreement is computed on a 365/360 simple interest basis; that is, by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. Borrower will pay Lender at Lender’s address shown above or at such other place as Lender may designate in writing.

VARIABLE INTEREST RATE.  The interest rate on this Agreement is subject to change from time to time based on changes in an index which is Lender’s Prime Rate (the “Index”). This is the rate Lender charges, or would charge, on 90-day unsecured loans to the most creditworthy corporate customers. This rate may or may not be the lowest rate available from Lender at any given time. Lender will tell Borrower the current Index rate upon Borrower’s request. The interest rate change will not occur more often than each day. Borrower understands that Lender may make loans based on other rates as well. The Index currently is 4.250% per annum. The interest rate to be applied to the unpaid principal balance of the Note will be at a rate of 1.000 percentage point over the Index, resulting in an initial rate of 5.750% per annum. NOTICE: Under no circumstances will the interest rate on the Note be more than the maximum rate allowed by applicable law.

PREPAYMENT.  Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower’s obligation to continue to make payments of accrued unpaid interest. Rather, early payments will reduce the principal balance due. Borrower agrees not to send Lender payments marked “paid in full”, “without recourse”, or similar language. If Borrower sends such a payment, Lender may accept it without losing any of Lender’s rights under this Agreement, and Borrower will remain obligated to pay any further amount owed to Lender. All written communications concerning disputed amounts, including any check or other payment instrument that indicates that the payment constitutes “payment in full” of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to: S&T Bank, Main Office, 800 Philadelphia St, Indiana, PA 15701.

LATE CHARGE.  If a payment is 16 days or more late, Borrower will be charged 5.000% of the regularly scheduled payment or $20.00, whichever is greater.

INTEREST AFTER DEFAULT.  Upon default, including failure to pay upon final maturity, Lender, at its option, may, if permitted under applicable law, increase the variable interest rate on this Agreement to 4.000 percentage points over the index. The interest rate will not exceed the maximum rate permitted by applicable law. If a judgment is entered in connection with this Agreement, interest will continue to accrue on this Agreement after judgment at the interest rate applicable to this Agreement at the time judgment is entered.

DEFAULT.  Each of the following shall constitute an event of default under this Agreement:

Payment Default. Borrower fails to make any payment when due under the indebtedness.

Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower.

Default in Favor of Third Parties. Borrower defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower’s property or Borrower’s ability to perform Borrower’s obligations under this Agreement or any of the Related Documents.

False Statements. Any warranty, representation or statement made or furnished to Lender or Borrower or on Borrower’s behalf under this Agreement or Related Documents is false or misleading in any material respect, either now or at the time made ot furnished or becomes false or misleading at any time thereafter.  

Insolvency.  The dissolution or termination of the Borrower’s existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of the Borrower’s property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.

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Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or other method, by any creditor of Borrower or by any governmental agency against any collateral securing the indebtedness. This includes a garnishment of any of Borrower’s accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.

Events Affecting Guarantor. Any of the preceding events occurs with respect to any guarantor, endorser, surety, or accommodation party of any of the Indebtedness or any guarantor, endorser, surety, or accommodation party dies or becomes incompetent, or revokes or disputes the validity of , or liability under, any Guaranty of the indebtedness evidenced by this Note.

Change in Ownership. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower.

Adverse Change. A material adverse change occurs in Borrower’s financial condition, or Lender believes the prospect of payment ot performance of the Indebtedness is impaired. 

Insecurity.  Lender in good faith believes itself insecure.

LENDER’S RIGHTS.  Upon default, Lender may, after giving such notices as required by applicable law, declare the entire unpaid principal balance on this Agreement and all accrued unpaid interest immediately due, and then Borrower will pay that amount.

ATTORNEYS’ FEES; EXPENSES. Lender may hire or pay someone else to help collect this Agreement if Borrower does not pay. Borrower will pay Lender that amount. This includes, subject to any limits under applicable law, Lender’s attorneys’ fees and Lender’s legal expenses, whether or not there is a lawsuit, including attorneys’ fees, expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), and appeals. If not prohibited by applicable law, Borrower will also pay any court costs, in addition to all other sums provided by law.

JURY WAIVER. Lender and Borrower hereby waive the right to any jury trial In any action, proceeding, or counterclaim brought by either Lender or Borrower against the other.

GOVERNING LAW. This Agreement will be governed by, construed and enforced In accordance with federal law and the laws of the Commonwealth of Pennsylvania. This Agreement has been accepted by Lender In the Commonwealth of Pennsylvania.

CHOICE OF VENUE.  If there is a lawsuit, Borrower agrees upon Lender’s request to submit to the jurisdiction of the courts of Indiana County, Commonwealth of Pennsylvania.

RIGHT OF SETOFF.. To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower’s accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open in the future. However, this does not include any IRA or Keough accounts, or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the debt against any and all such accounts.

LINE OF CREDIT. This Agreement evidences a revolving line of credit. Advances under this Agreement may be requested orally by Borrower or by Borrower or as provided in this paragraph. Lender may, but need not, request that all oral requests shall be confirmed in writing. All communications, instructions, or directions by telephone or otherwise to Lender are to be directed to Lender’s office shown above. Borrower agrees to be liable for all sums either: (A) advanced in accordance with the instructions of an authorized person or (B) credited to any of Borrower’s accounts with Lender. The unpaid principal balance owing on this Agreement at any time may be evidenced by endorsement on this Agreement or by Lender’s internal records, including daily computer print-outs. Lender will have no obligation to advance funds under this Agreement if: (A) Borrower or any guarantor is in default under the terms of this Agreement or any agreement that Borrower or any guarantor has with Lender, including any agreement made in connection with the signing of this Agreement; (B) Borrower or any guarantor ceases doing business or is insolvent; (C) any guarantor seeks, claims or otherwise attempts to limit, modify or revoke such guarantor’s guarantee of this Agreement or any other loan with Lender; (D) Borrower has applied funds provided pursuant to this Agreement for purposes other than those authorized by Lender; or (E) Lender in good faith believes itself insecure.

CONTINUING VALIDITY. Except as expressly changed by this Agreement, the terms of the original obligation or obligations, including all agreements evidenced or securing the obligation(s), remain unchanged and in full force and effect. Consent by Lender to this Agreement does not waive Lender’s right to strict performance of the obligations) as changed, nor obligate Lender to make any future change in terms. Nothing in this Agreement will constitute a satisfaction of the obligation(s). It is the intention of Lender to retain as liable parties all makers and endorsers of the original obligation(s), including accommodation parties, unless a party is expressly released by lender in writing. Any maker or endorser, including accommodation makers, will not be released by virtue of this Agreement. If any person who signed the original obligation does not sign this Agreement below, then all persons signing below acknowledge that this Agreement is given conditionally, based on the representation to Lender that the non–signing party consents to the changes and provisions of this Agreement or otherwise will not be released by it. This waiver applies not only to any initial extension, modification or release, but also to all such subsequent actions.

PRIOR NOTE. This Change in Terms is an amended and restated renewal of the Revolving Credit Note in the original principal amount of $5,000,000.00 from Allin Communications Corporation, Allin Interactive Corporation, Allin Digital Imaging Corp., Kent Consulting Group, Inc., Netright, Inc., Allin Holdings Corporation and KCS Computer Services, Inc. to S&T Bank dated October 1, 1998. This Change in Terms is intended to amend and restate, and is not intended to be in substitution for or a novation of the Revolving Credit Note dated October t, 1998.

SUCCESSOR INTERESTS. The terms of this Agreement shall be binding on the Borrower, and upon Borrower’s heirs, personal representatives, successors, and assigns, and shall be enforceable by Lender and its successors and assigns.

MISCELLANEOUS PROVISIONS. Lender may delay or forgo enforcing any of its rights or remedies under this Agreement without losing them. Each Borrower understands and agrees that, with or without notice to Borrower, Lender may with respect to any other Borrower (a) make one or more additional secured or unsecured loans or otherwise extend additional credit; (b) alter, compromise, renew, extend, accelerate, or otherwise change one or more times the time for payment or other terms any indebtedness, including increases and decreases of the rate of interest on the indebtedness; (c) exchange, enforce, waive, subordinate, fail or decide not to perfect, and release any security, with or without the substitution of new collateral; (d) apply such security and direct the order or manner of sale thereof, including without limitation, any non-judicial sale permitted by the terms of the controlling security agreements, as Lender in its discretion may determine; (e) release, substitute, agree not to sue, or deal with any one or more of Borrower’s sureties, endorsers, or other guarantors on any terms or in any manner Lender may choose; and (f) determine how, when and what application of payments and credits shall be made on any other indebtedness owing by such other Borrower. Borrower and any other person who signs, guarantees or endorses this Agreement, to the extent allowed by law, waive presentment, demand far payment, protest and notice of dishonor. Upon

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any change in the terms of this Agreement, and unless otherwise expressly stated in writing, no party who signs this Agreement, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan, or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender’s security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. The obligations under this Agreement are joint and several. If any portion of this Agreement is for any reason determined to be unenforceable, it will not affect the enforceability of any other provisions of this Agreement.

CONFESSION OF JUDGMENT. BORROWER HEREBY IRREVOCABLY AUTHORIZES AND EMPOWERS ANY ATTORNEY OR THE PROTHONOTARY OR CLERK OF ANY COURT IN THE COMMONWEALTH OF PENNSYLVANIA, OR ELSEWHERE, TO APPEAR AT ANY TIME FOR BORROWER AFTER A DEFAULT UNDER THIS AGREEMENT, AND WITH OR WITHOUT COMPLAINT FILED, CONFESS OR ENTER JUDGMENT AGAINST BORROWER FOR THE ENTIRE PRINCIPAL BALANCE OF THIS AGREEMENT AND ALL ACCRUED INTEREST, LATE CHARGES, AND ANY AND ALL AMOUNTS EXPENDED OR ADVANCED BY LENDER RELATING TO ANY COLLATERAL SECURING THE INDEBTEDNESS, TOGETHER WITH COST OF SUIT, AND AN ATTORNEY’S COMMISSION OF TEN PERCENT (10%) OF THE UNPAID PRINCIPAL BALANCE AND ACCRUED INTEREST FOR COLLECTION, BUT IN ANY EVENT NOT LESS THAN FIVE HUNDRED DOLLARS ($500) ON WHICH JUDGMENT OR JUDGMENTS ONE OR MORE EXECUTIONS MAY ISSUE IMMEDIATELY; AND FOR SO DOING, THIS AGREEMENT OR A COPY OF THIS AGREEMENT VERIFIED BY AFFIDAVIT SHALL BE SUFFICIENT WARRANT. THE AUTHORITY GRANTED IN THIS AGREEMENT TO CONFESS JUDGMENT AGAINST BORROWER SHALL NOT BE EXHAUSTED BY ANY EXERCISE OF THAT AUTHORITY, BUT SHALL CONTINUE FROM TIME TO TIME AND AT ALL TIMES UNTIL PAYMENT IN FULL OF ALL AMOUNTS DUE UNDER THIS AGREEMENT. BORROWER HEREBY WAIVES ANY RIGHT BORROWER MAY HAVE TO NOTICE OR TO A HEARING IN CONNECTION WITH ANY SUCH CONFESSION OF JUDGMENT AND STATES THAT EITHER A REPRESENTATIVE OF LENDER SPECIFICALLY CALLED THIS CONFESSION OF JUDGMENT PROVISION TO BORROWER’S ATTENTION OR BORROWER HAS BEEN REPRESENTED BY INDEPENDENT LEGAL COUNSEL.

CONTINUED ON NEXT PAGE

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PRIOR TO SIGNING THIS AGREEMENT, EACH BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS AGREEMENT, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. EACH BORROWER AGREES TO THE TERMS OF THE AGREEMENT.

THIS AGREEMENT IS GIVEN UNDER SEAL AND IT IS INTENDED THAT THIS AGREEMENT IS AND SHALL CONSTITUTE AND HAVE THE EFFECT OF A SEALED INSTRUMENT ACCORDING TO LAW.

BORROWER:

ALLIN CORPORATION
By:	/s/ DEAN C. PRASKACH
		(Seal)
	Dean C. Praskach, V P/Finance Sec./Treas. of Allin
	Corporation
ALLIN INTERACTIVE CORPORATION
By:	/s/ DEAN C. PRASKACH
		(Seal)
	Dean C. Praskach, V P/Finance Sec./Treas. of Allin
	Interactive Corporation
ALLIN CORPORATION OF CALIFORNIA D/B/A ALLIN CONSULTING
By:	/s/ DEAN C. PRASKACH
		(Seal)
	Dean C. Praskach, V P/Finance Sec./Treas. of Allin
	Corporation of California d/b/a Allin Consulting
ALLIN NETWORK PRODUCTS, INC.
By:	/s/ DEAN C. PRASKACH
		(Seal)
	Dean C. Praskach, V P/Finance Sec./Treas. of Allin
	Network Products, Inc.
ALLIN HOLDINGS CORPORATION
By:	/s/ DEAN C. PRASKACH
		(Seal)
	Dean C. Praskach, V P/Finance Sec./Treas. of Allin
	Holdings Corporation
ALLIN CONSULTING OF PENNSYLVANIA, INC.
By:	/s/ DEAN C. PRASKACH
		(Seal)
	Dean C. Praskach, V P/Finance Sec./Treas. of Allin
	Consulting of Pennsylvania, Inc.

EX-10.1

Exhibit 10.1

THE MARKED PORTIONS OF THIS AGREEMENT HAVE BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT

LICENSE AND SUPPLY AGREEMENT
between
ON COMMAND VIDEO CORPORATION
and
ALLIN INTERACTIVE CORPORATION
JUNE 30, 2003

SUPPLY AND LICENSE AGREEMENT

         This SUPPLY AND LICENSE AGREEMENT together with its Schedules (the “Agreement”) is entered into this 30th day of June 2003 (the “Effective Date”) by ALLIN INTERACTIVE CORPORATION, a Delaware corporation having its principal office at 381 Mansfield Avenue, Suite 400, Pittsburgh, PA 15220 (“Allin”), and ON COMMAND VIDEO CORPORATION, a Delaware corporation with offices at 4610 South Ulster, Suite 600, Denver, Colorado 80237 (“OCV”). For the purpose of this Agreement, Allin and OCV are each a “Party” and are collectively, the “Parties.”

RECITALS

         WHEREAS, Allin is in the business of, among other things, designing, developing, licensing and supporting computer software products and providing custom software development, system planning and migration, training and other consulting services;

         WHEREAS, OCV is in the business of, among other things, supplying equipment and licensing software for in-room entertainment in the hospitality industry; and

         WHEREAS, Allin desires to engage OCV to supply equipment and license software for use in its business on the terms and conditions of this Agreement.

         NOW, THEREFORE, in consideration of the foregoing and the covenants, agreements and conditions set forth herein, the Parties hereby agree as follows:

AGREEMENT

Section  1.    Definitions.

As used in this Agreement, the following terms shall have the following meanings:

        1.1     “Affiliate”  of any specified person means any other person directly or indirectly Controlling, Controlled by or under common Control with, such specified person.

        1.2      “Change of Control”  means a change in control of a Party after the date hereof in any circumstance where a Party is a party to a merger, consolidation, sale of assets or other reorganization, as a consequence of which thirty percent (30%) or more of the control, ownership or management of either of the Party or the parent corporation of such Party, as it was prior to such event occurring, changes.

        1.3      “Control”  (including the terms “Controlled by” and “under common Control with”) means the possession, direct or indirect, of the affirmative power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract or otherwise.

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        1.4     “Derivative Software”  means Software as modified or enhanced by Allin, which modification or enhancement shall be the joint property of the Parties. The Parties shall jointly own all right, title and interest to Derivative Software, exclusive of the Software.

        1.5     “Equipment”  means any items listed on Schedule A, including, without limitation, all Software in the Equipment, as such Schedule is updated by OCV in its sole discretion on an annual basis or upon 90 days prior written notice.

        1.6     “Event of Insolvency”  means an event when an order is made or a resolution is passed for the winding up of a person, or a provisional liquidator is appointed in respect of such person, or an administration order is made in respect of such person, or a receiver (which expression shall include an administrative receiver) is appointed in respect of such person or all or any of its assets and is not discharged within a period of 30 days, or such person is unable to pay its debts as due, or such person is the object of any petition or proceeding (whether voluntary or involuntary) for bankruptcy or judicial liquidation or other law for relief of creditors before any competent court or any event occurs which under the laws of any relevant country has an analogous effect to any of the foregoing.

        1.7     “Excluded Software”  means Software in Equipment that provides games, internet access or music content functionality or any other functionality that OCV provides in hotel rooms, except that Excluded Software shall not include Software needed to communicate from the in-room device to the head end and Software to view movies and similar programming.

        1.8     “Intellectual Property Rights”  means any:

        (a)     patents whether registered or unregistered;

        (b)     inventions whether or not capable of protection by patent or registration;

        (c)     rights in commercial information and technical information, including know-how, research and development data, manufacturing methods and data, specifications and drawings, formulas, trade secrets, algorithms, prototypes and research materials;

        (d)     copyrights (including without limitation any application, registration or renewal related thereto), registered designs or design rights (whether or not capable of protection by registration), trademarks (including without limitation service marks, logos, sound logos, certification marks, and trade names, together with any applications, registrations and renewals for any of the foregoing and the goodwill associated with each), mask work rights, database rights, and moral rights;

        (e)     applications for the grant of rights of the foregoing descriptions; and

        (f)     rights of a similar or analogous nature to any of the foregoing whether in existence now or in the future and wherever located in the world.

        1.9     “Island Hotels”  means the hotels set forth on Schedule B. OCV must approve in writing the addition of any hotels to Schedule B.

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        1.10     “Losses”  means all losses, costs, expenses, liabilities and damages reasonably incurred, resulting from or relating to any settlement, litigation or final judgment, and all related reasonable costs and expenses, including reasonable legal fees, fines, interest and penalties.

        1.11     “Markets”  means cruise lines, hospital and educational facilities and Island Hotels.

        1.12     “Order”  means a non-cancelable purchase order issued by Allin to OCV confirming the purchase of Equipment specified in the Order and providing pricing, delivery destination and other applicable delivery instructions.

        1.13     “Software”  means (i) all object code software that is owned by OCV and necessary for the operation or maintenance of or resident on the Equipment; (ii) all object code software that is owned by OCV and required, used and/or made available to Allin to operate and maintain the Equipment as of the date immediately prior to the Effective Date; (iii) any modifications, updates or bug fixes in object code form of the Software which OCV may provide to Allin; (iv) third party software, if any, in the Equipment or Software to which OCV has the right to sublicense to Allin and for which OCV has paid pursuant to such terms of the third party licensor; or (v) any Software contained in Derivative Software (but excluding the remaining portion of Derivative Software).

        1.14     “Source Code”  means any human readable code transferred to Allin by OCV pursuant to this Agreement.

        1.15     “Source Code License”  is defined in Section 4.1.

        1.16     “Spare Parts”  means spare parts for Equipment.

        1.17     “Sublicensee”  means a third party in the Markets with which Allin enters into an Operating Agreement (as defined in Section 4.4).

        1.18     “Supplier Agreement”  means the Supplier Agreement between Allin and On Command Corporation, dated January 24, 1999, as amended.

        1.19     “Technology”  means algorithms, designs, drawings, formulae, know-how, ideas, mask works, inventions, data, programs, improvements, developments, discoveries, concepts, methodologies, techniques, processes, software, specifications, and other forms and types of intangible property, in each case whether or not patentable.

        1.20     “Trademarks”  means the marks “On Command,” “Roommate,” “TeleMate,” and “MiniMate” and any additional trademarks that are used by OCV on or in connection with the Equipment and Software and provided to Allin under this Agreement.

Section  2.   Term.

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The term of this Agreement begins on the Effective Date and expires five years after the Effective Date (the “Term”).

Section  3.    Supply of Equipment.

        3.1     Ordering.  To order Equipment, Allin shall place an Order with OCV. Any term or condition set forth in an Order that is inconsistent with or in addition to this Agreement will be of no force or effect, unless mutually and expressly agreed by the Parties in writing. Subject to the terms of this Agreement and the reasonable availability of the Equipment to OCV, OCV shall accept all Orders; provided, however, OCV shall not be obligated to accept Orders more than two years prior to the required delivery date. If OCV is unable to fulfill the terms of the Order, OCV shall notify Allin of such fact within ten business days after receipt of the Order.

        3.2     Packaging.  OCV shall ensure that all Equipment is packaged and shipped with due care and in such a manner as to prevent damage during transit and in accordance with industry standards.

        3.3     Shipment.  The Equipment shall be delivered to Allin’s designated shipping address FOB OCV’s facilities unless otherwise agreed by the Parties in writing. Risk of loss shall pass to Allin upon delivery to the carrier at OCV’s facility, at which time Allin shall acquire good and marketable title to the Equipment.

        3.4     Discontinuation of Equipment.  OCV may from time to time change its product line and/or discontinue providing Equipment upon 6 months prior written notice to Allin. If OCV is manufacturing or sourcing alternatives to discontinued Equipment on an ongoing basis for its other non-hotel distributors, OCV shall make such alternatives available to Allin.

        3.5     Delinquent Payment by Allin.  After prior written notification to Allin of intent to suspend shipments, OCV shall be entitled to suspend all shipments of Equipment at any time when amounts owing under this Agreement, that have not been put in reasonable dispute by Allin (provided Allin timely pays all undisputed amounts of the invoice at issue), are past due. In addition, should Allin fail to make any undisputed payment within 30 days of its due date, as determined in Section 5.2, all future payments for Equipment shall be made as follows (assuming OCV has not terminated this Agreement pursuant to Section 12): Allin shall pay [REDACTED – CONFIDENTIAL TREATMENT REQUESTED] percent ([REDACTED – CONFIDENTIAL TREATMENT REQUESTED]%) of the purchase price of any Order upon placing the Order, and OCV shall invoice Allin for the remaining [REDACTED – CONFIDENTIAL TREATMENT REQUESTED] percent ([REDACTED – CONFIDENTIAL TREATMENT REQUESTED]%) of the purchase price in accordance with Section 5.2.

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Section  4.    Grant of Licenses.

        4.1     Grant of License to Allin.  Subject to the terms and conditions of this Agreement and in consideration of the fees payable by Allin to OCV, OCV hereby grants to Allin a (i) non-exclusive, perpetual license to use, market, distribute and maintain the Software in the Markets in connection with the Equipment to Sublicensees; (ii) a nonexclusive license for the Term to modify the Source Code of the Software into Derivative Software solely for distribution to Sublicensees in accordance with the terms and conditions of this Agreement (“Source Code License”); and (iii) the right to grant to Sublicensees in the Markets a perpetual sublicense to use the Software in the Equipment for in-room entertainment. Notwithstanding the foregoing, Allin shall have no rights under subsections (i) and (iii) above as to Excluded Software unless Allin complies with the conditions set forth in Section 4.6.

        4.2     Prohibition.  Allin expressly acknowledges and agrees that only those Allin employees directly involved in making modifications to the Source Code shall have access to the Source Code, provided, however, that consultants working on-site at Allin’s offices who meet the following requirements shall be permitted to make modifications to the Source Code:

        (a)     Such third party programmer (“Programmer”) is not currently an existing supplier, or an employee or consultant for an existing supplier, of pay-per-view systems; and

        (b)     Allin obtains a confidentiality agreement from Programmer, which confidentiality agreement shall be in a form approved by OCV in its reasonable discretion.

        4.3     Breach of Source Code Obligations.  Allin acknowledges that any unauthorized use or disclosure of any portion of the Source Code of the Software will cause irreparable injury to OCV and that no adequate or complete remedy will be available to OCV to compensate for such injury. Accordingly, Allin also acknowledges that OCV will be entitled to injunctive relief in the event of such unauthorized use or disclosure by Allin, any of its employees or agents, in addition to whatever remedies OCV might have at law. The terms of Section 11 shall not apply to any breach by Allin of its obligations relating to the Source Code of the Software.

        4.4     Execution of Sublicensee Agreement.  As a condition precedent to Allin’s right to grant the sublicense in Section 4.1(iii), Allin shall execute an agreement as set forth in this subsection (“Operating Agreement”) with each intended Sublicensee prior to distributing any Equipment. In such Operating Agreement, Allin shall sublicense the use of the Software to each Sublicensee to enable it to use the Equipment. Allin shall ensure that the terms of any and all Operating Agreements shall be in accordance with

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this Agreement. At a minimum, each Operating Agreement must contain the following terms:

(a) Sublicensee may not reverse engineer or decompile the Software.

(b) Sublicensee acquires no title to or ownership of the Software, other than ownership of the physical media.

(c) Any third-party software or content supplier, if applicable, named in the copyright notices included with the Software is authorized to hold Sublicensee responsible for any copyright infringement or any violation of the Operating Agreement as it relates to sublicensing.

(d) Sublicensee may not transfer any rights granted herein without the express written consent of OCV.

4.5      Expiration of Source Code License.   Upon expiration or termination of this Agreement for any reason under its terms, the license granted to Allin under Section 4.1(ii) shall immediately terminate. Within seven calendar days after such expiration or termination, Allin shall transfer to OCV or destroy (at OCV’s option) all Source Code for Software in its possession and shall comply with all reasonable directions by OCV relating to the Source Code. An officer of Allin shall certify Allin’s compliance with this subsection to OCV.

4.6      Excluded Software.   If Allin wishes to grant a license permitting Sublicensees to use the Excluded Software, Allin shall notify OCV in writing of the identity of such Sublicensees and the nature of the intended use. Upon such notification, OCV shall grant Allin the right to exercise the license rights granted in Section 4.1(i) and (iii) as to Excluded Software. Allin’s exercise of its license as to Excluded Software pursuant to this subsection or any Sublicensee’s use of Excluded Software shall obligate Allin to pay the Excluded Software License Fee set forth in Section 5.3.

4.7      Derivative Software.   The Parties acknowledge and agree that (i) the definition of “New Software” in the Supplier Agreement was intended to have. the definition of “Derivative Software” in this Agreement, except that if the modifications constituting Derivative Software were made for a Sublicensee as a work-for-hire, then Allin shall individually own such Derivative Software; and (ii) the definition of “Software” in the Supplier Agreement was intended to have the meaning of the definition of “Software” in this Agreement. To the extent the terms of this subsection conflict with any prior oral or written agreement or understanding between the Parties, the terms of this subsection control and any interpretation of the terms “Software” and “New Software” in the Supplier Agreement shall be governed by the terms of this subsection.

4.8      Grant of Trademark License.   OCV hereby grants to Allin a non-exclusive license to use the Trademarks in connection with the Equipment

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and the Software in accordance with the terms and conditions of this Agreement. Allin shall submit representative samples of any marketing, promotional, or other materials bearing or using the Trademarks to OCV for approval before distribution. Such materials shall state “Allin Interactive Corporation is an authorized distributor of On Command Video Corporation.” Allin recognizes the substantial goodwill associated with the Trademarks and will not permit the quality of the services with which OCV uses the Trademarks to deteriorate so as to adversely affect the goodwill associated with the Trademarks. Allin agrees to cooperate with OCV in maintaining OCV’s control of the nature and quality of goods and services rendered by Allin in connection with the Trademarks and to supply to OCV on request specimens of use of the Trademarks, if applicable.

4.9      Quarterly Updates.   Within 30 days after the beginning of each calendar quarter, Allin shall provide a written summary detailing any exercise of the Source Code License (“Quarterly Report”). The Quarterly Report may be submitted via e-mail and shall contain, at a minimum, the following information: (i) the purpose for the modification or enhancement to the Source Code; (ii) identification of the portion of the Software modified; and (iii) timeline for completion of project. Upon completion of any work identified in a Quarterly Report, Allin shall transfer a copy of the Derivative Software and Source Code for such Derivative Software to OCV.

4.10      Grant of License to OCV.   Allin grants OCV a nonexclusive, fully paid-up world-wide license to use, market, distribute and maintain the Derivative Software, including its Source Code, in connection with the Equipment, except that OCV may not use such license in connection with distribution of Equipment in Markets.

Section 5.       Payment and Invoicing.

5.1      Pricing.   Allin shall pay the price for Equipment as set forth on Schedule A in effect at the time the Order is placed.

5.2      Invoicing.   Upon shipment of Equipment, OCV will invoice Allin for amounts due pursuant to this Agreement for such Equipment. Such invoice shall include invoice date, Allin Order number, quantities, unit prices and total amount due. Payment shall be due net 30 days from the receipt of invoice. If the Equipment is delivered in installments, Allin shall pay for each installment in accordance with the terms of payment set forth in this Section.

5.3      Excluded Software License Fee.   Allin shall pay OCV a license fee as mutually agreed by the Parties for each functionality of Excluded Software used by any Sublicensee (“Excluded Software License Fee”). For purposes of this subsection, “Sublicensee” shall mean the individual cruise ship, hotel, hospital or physical location using the functionality of the

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Excluded Software. Payment shall be within 30 days after the first date of use by such Sublicensee of any functionality of Excluded Software. “Functionality” as used in this subsection shall mean, individually, games, internet access or music capability. If the Parties cannot agree upon the terms of the license fee for any functionality of Excluded Software, then Allin shall have no right to exercise any rights under Section 4.1 as to Excluded Software or its Source Code.

5.4      Taxes.   Unless otherwise agreed to by the Parties in an Order, the Parties’ respective responsibilities for taxes arising under or in connection with this Agreement shall be as follows:

(a)      Each Party shall be responsible for any personal property taxes on property it owns or leases, for franchise and privilege taxes on its business, and for taxes based on its net income or gross receipts.

(b)      Allin shall be responsible for any sales, use, excise, value-added, services, consumption, or other tax, customs and duties assessed on any particular Equipment or service purchased by Allin and delivered by OCV to Allin or designee hereunder. Such taxes are in addition to the prices set forth herein and shall be identified separately on invoices.

(c) The Parties agree to cooperate with each other to enable each to more accurately determine its own tax liability and to minimize such liability to the extent legally permissible. Prices do not include any taxes, now or hereafter enacted, applicable to the Equipment sold, which taxes will be added by OCV to the sales price when OCV is required by law to collect the same, and such taxes are to be paid by Allin unless Allin provides OCV with a proper tax-exemption certificate. OCV’s invoices shall separately state the amounts of any taxes OCV is collecting from Allin.

5.5      Account.   Payments to OCV shall be made in U.S. Dollars via check or wire transfer to the following account:

If mailed:	On Command Video Corporation
	Department 1112
	Denver, CO 80256
Wire Transfer:	On Command Video Corporation
	US Bank
	950 17th Street
	Denver, CO 80202
	Acct No.
	ABA: 102000021

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Section 6.        Allin Obligations.

6.1      Accurate and Complete Records.   Allin shall keep accurate and complete records relating to its use of the Equipment and shall provide OCV with copies of the relevant sections of any and all Operating Agreements promptly upon OCV’s request to demonstrate compliance with the terms of this Agreement, and in particular the terms of Section 4.4. If Allin is unable disclose the terms of any Operating Agreement due to confidentiality restrictions, then Allin shall (i) seek the consent of the Sublicensee party to the Operating Agreement to disclose the relevant sections of the Agreement; or (ii) provide OCV with reasonable assurances that such Operating Agreements are in compliance with this Agreement (such as providing a letter to OCV from Sublicensee acknowledging the specific requirements of this Agreement)

6.2      Right to Audit.   OCV shall have the right to audit compliance with this Agreement, at OCV’s expense, at any time or times during the Term of this Agreement and for a period of one year thereafter. Each audit will take place upon not less than ten business days notice to Allin, and in a manner that does not interfere unreasonably with Allin’s operations. . If any audit reveals a breach of this Agreement and/or a discrepancy in the determination of fees payable to OCV, Allin shall reimburse OCV for the underpayment plus interest at the annual rate of 18% or the highest rate allowable under law, whichever is less. If any audit reveals a discrepancy of [REDACTED – CONFIDENTIAL TREATMENT REQUESTED]% or more in the determination of fees payable to OCV, Allin shall also pay all reasonable out of pocket costs and expenses incurred by OCV in connection with the audit, including but not limited to payment of all fees charged by any auditor retained by OCV. OCV and its auditors will use the information obtained in compliance verification only to enforce this Agreement and to determine whether Allin is in compliance with the terms hereof.

Section 7.       Representations and Warranties.

7.1      Mutual Representations and Warranties.     Each Party represents and warrants to the other that it has the full power and authority to enter into this Agreement and to carry out its obligations under this Agreement.

7.2      OCV Representations and Warranties.

(a)      Limited Warranty.   OCV warrants that the during the applicable Warranty Period (set forth below) the hardware components of the Equipment will conform with any applicable specifications in all material respects and will be free from material defects in workmanship and materials during normal use.

(b)      Warranty Period.   The applicable Warranty Period starts on the date OCV ships the Equipment to Allin and ends upon the expiration of the number of days specified below:

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Type of Deliverable	Warranty Period
Equipment, excluding Spare Parts	150 days
Software	150 days
Spare Parts	120 days

(c)      Title.   OCV warrants that at the time of delivery to the carrier for shipment, OCV has title to the Equipment free and clear of any and all liens and encumbrances.

7.3      No Additional Warranties.   The warranties contained in this Section 7 are the only warranties made by OCV and can be amended only by a written instrument signed by an officer of OCV. OCV makes NO WARRANTY as to Software, which is supplied “AS-IS”, or as to Equipment not manufactured by OCV, provided that as to Equipment not manufactured by OCV, OCV, to the extent permitted by OCV’s contract with its supplier, shall assign to Allin any rights OCV may have under any warranty of the supplier thereof. OCV’s warranties under this Agreement shall not be enlarged, diminished or affected by, and no obligation or liability shall arise or grow out of, OCV’s rendering of technical advice or service in connection with Allin’s order of the Equipment.

7.4      Compliance with Laws.   OCV represents and warrants that in the performance of is obligations hereunder, it shall comply with all applicable laws, rules, regulations, statutes and ordinances of all governmental entities including local, state, federal or international, now or hereafter enacted.

7.5      Limitation of Liability.     If OCV breaches its warranties as contained in this Section 7, OCV’s sole and exclusive maximum liability shall be (at OCV’s option) to replace the Equipment under warranty with conforming Equipment, or to credit Allin’s account for the amount paid by Allin for the Equipment under warranty.

7.6      Replacement Under Warranty.   OCV agrees to replace or credit Allin for defective Equipment provided that (a) OCV is promptly notified in writing or e-mail upon discovery by Allin that such Equipment failed to conform to this Agreement with a detailed explanation of any alleged deficiencies and such notification occurs during the applicable warranty period, (b) such Equipment is returned to OCV, F.O.B. OCV’s plant from which the Equipment were shipped, and (c) OCV’s examination of such Equipment shall disclose that such alleged deficiencies actually exist and were not caused by accident, misuse, neglect, alteration, improper installation, unauthorized repair or improper testing. If such Equipment fails to conform to the warranty, OCV shall reimburse Allin for the transportation charges paid by Allin for such Equipment. If OCV elects to replace such Equipment, OCV shall have a reasonable time to replace such Equipment. Such replacement or credit shall constitute fulfillment of all liability of OCV to Allin whether based in contract, tort, indemnity, statutory provision or otherwise.

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Section 8.        Exclusivity.

8.1      OCV’s Obligations.   During the Term, Allin shall be OCV’s exclusive distributor of Equipment to end-users in the cruise ship market. As of the date that is two years after the Effective Date (and on such date on each year thereafter during the Term), OCV shall have no obligations under this Section 8.1 unless Allin has paid an aggregate of $[REDACTED – CONFIDENTIAL TREATMENT REQUESTED] for Equipment under this Agreement in the preceding two years.

8.2      Allin’s Obligations.   During the Term, Allin shall not, directly or indirectly, purchase any interactive television equipment for the hospitality and cruise ship markets (except for research, development and testing purposes) that provides similar services or functionality as the Equipment from any entity or person other than OCV, provided, however, that (i) Allin may purchase servers and other equipment not listed on Schedule A as of the Effective Date (“Initial Schedule A”) from other providers; and (ii) Allin -may purchase Equipment or items similar to the Equipment from other providers to the extent: (a) a particular piece or type of OCV Equipment is not competitive in its functionality or price with equipment offered by other providers to Allin; or (b) OCV services and support for its Equipment is not competitive with other providers’ services and support for their equipment.

Section 9.        Intellectual Property.

9.1 OCV Property.   Allin expressly acknowledges OCV’s exclusive ownership of the Trademarks, Software, and all Intellectual Property Rights embodied in the Software and the Equipment and agrees that it shall do nothing inconsistent with such ownership, except as expressly permitted under this Agreement. OCV shall exercise full control over its Intellectual Property Rights, including but not limited to decisions as to whether to register or otherwise apply for formal protection of its Intellectual Property Rights.

9.2      No Impairment of Rights.   Allin shall not claim or assert any right of ownership in or to OCV’s Intellectual Property Rights and shall not initiate any litigation, administrative proceeding or regulatory or other action that could destroy, damage, or impair in any way the ownership or rights of OCV in and to such Intellectual Property Rights and shall not assist any other person in doing the same

9.3 Allin Property.   Subject to Section 9.4, Allin shall retain all right, title and interest in and to all of the Intellectual Property Rights developed by or for Allin prior to the Effective Date or developed by or for Allin at any time independent of this Agreement, and all Technology developed solely by Allin during the Term.

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9.4      Jointly Owned Property.   Allin and OCV shall have and retain joint ownership of all Derivative Software (unless Section 4.7 provides that Allin has individual ownership) without any appropriate right or obligation of accounting to the other Party for profits from exploitation of the rights, but subject to all other rights and obligations of the Parties under this Agreement relating to Derivative Software.

9.5 Duty to Notify, Etc.   If Allin learns that the Software has been modified or reproduced by a third party without authorization by OCV (including any modification by Sublicensees), or that the Trademarks or any other OCV Intellectual Property Rights are being infringed by a third party, it shall notify OCV promptly. OCV shall decide in its sole and exclusive discretion what action to take or not to take in response, and Allin shall take no action in this regard unless instructed in writing to do so by OCV. OCV shall have the right to act to terminate any infringement, including, without limitation, prosecuting a lawsuit or other legal proceeding at its own expense, and, OCV may retain any and all recovery it may receive as a result of its actions to terminate such infringement. Allin shall fully cooperate with OCV in any such action taken by OCV including without limitation agreeing to be joined as party plaintiff and approving any reasonable settlement agreement achieved by OCV. OCV shall reimburse on demand all reasonable out of pocket costs and expenses incurred in connection therewith by Allin, excluding any attorneys fees not previously approved by OCV.

Section 10.     Confidentiality.

The Parties are each a Party to a Non-Disclosure Agreement dated as of the Effective Date and attached hereto as Schedule C (the “NDA”). The Parties agree that the terms and conditions of the NDA shall be incorporated by reference and form part of this Agreement. If there is a conflict between this Agreement and the NDA, the NDA shall take priority with regard to the creation, maintenance, use and protection of Confidential Information (as defined in the NDA) to the extent of the conflict. In the event the term of the NDA expires prior to the expiration or termination of this Agreement, the Parties agree that the term of the NDA shall automatically extend through the term of this Agreement.

Section 11.     Escalation; Dispute Resolution.

11.1      Informal Dispute Resolution.   Prior to the initiation of formal dispute resolution procedures, the Parties shall first attempt to resolve their dispute informally pursuant to this Section. Upon the written request of a Party, each Party shall appoint a designated representative who does not devote substantially all of his or her time to performance under this Agreement, whose task it will be to meet for the purpose of endeavoring to resolve such dispute.

(a)      The designated representatives shall meet as often as the Parties reasonably deem necessary in order to gather and furnish to the other all information with respect to the matter in issue which the

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Parties believe to be appropriate and germane in connection with its resolution. The representatives shall discuss the problem and attempt to resolve the dispute without the necessity of any formal proceeding.

(b)      During the course of discussion, all reasonable requests made by one Party to another for non-privileged information, reasonably related to this Agreement, shall be honored in order that each of the Parties may be fully advised of the other’s position.

(c)      The specific format for the discussions shall be left to the discretion of the designated representatives.

(d)      If the designated representatives fail to resolve the dispute, the Parties agree to escalate the dispute resolution process to a higher executive level, and then to the CEO level. Each level of informal dispute resolution will be allowed no more than fifteen (15) days, unless otherwise mutually agreed by the Parties.

11.2      Arbitration.

(a)      If the Parties fail to resolve a dispute pursuant to Section 11.1 above, either Party may then refer such dispute to be settled by submission to the CPR Institute for Dispute Resolution (“CPR”) for binding arbitration in Denver, Colorado if OCV is demanding such arbitration and Pittsburgh, PA if Allin is demanding such arbitration under the then current CPR “Non-Administered Arbitration Rules” or any successor CPR rules, and the procedures specified under this Section 11.2. Each Party consents to the enforcement of any such arbitration award or judgment in its home jurisdiction. Any arbitration shall be conducted and enforced in accordance with Sections 11.2(b) through 11.2(h).

(b)      Selection of Arbitrators. Arbitration shall be conducted by three (3) arbitrators with each Party to this Agreement selecting one arbitrator each and the two selected arbitrators then selecting the third arbitrator. Each arbitrator shall be independent of the Parties and shall have at least ten (10) years of experience in commercial transactions, including transactions involving communications technology companies.

(c)      Limited Discovery.  Prior to the commencement of the arbitration, each Party shall be entitled to take limited discovery, including the rights to request a reasonable number of documents, to serve no more than twenty (20) interrogatories and to take no more than three (3) depositions. Each Party may seek the right to serve additional interrogatories and to take additional depositions upon a showing of good faith to the arbitrators, who can grant or deny any such request, in whole or part, in their sole discretion. This limited discovery shall be conducted in accordance with the Federal Rules

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of Civil Procedure, which shall be interpreted and enforced by the arbitrators. Any disputes regarding whether a Party has requested a “reasonable” number of documents shall be determined by the arbitrators in their sole discretion.

(d) Hearing and Decision.  The arbitrators shall, as soon as practicable and upon thirty (30) days written notice to each Party, conduct an arbitration hearing and proceeding on the merits of the dispute giving effect to this Agreement as interpreted under Delaware law and thereafter shall issue a preliminary written decision citing the basis for the decision, including findings of fact and conclusions of law. The Parties shall have five (5) business days to file a written response to such preliminary decision, and thereafter the arbitrators shall as soon as practicable issue a final and binding decision. The decision of the arbitrators shall be based on a majority vote.

(e) Costs and Expenses.  The arbitrators may award to the prevailing Party all reasonable fees, costs and expenses of the arbitration, including, without limitation, such reasonable fees and expenses of attorneys and experts.

(f) Consolidation and Joinder.   Any arbitration arising out of or relating to this Agreement or breach thereof may include by consolidation, joinder or other manner any other person or persons which or whom a Party to the arbitration reasonably believes to be substantially involved in a common question of fact or law.

(g) Enforcement.  The agreement to arbitrate shall be specifically enforceable under prevailing arbitration law. Any award rendered by the arbitrators shall be final, binding and enforceable by any Party to the arbitration, and judgment may be rendered upon it in accordance with applicable law in a court of competent jurisdiction.

(h) United States Arbitration Act.   The Parties acknowledge that this Agreement evidences a transaction involving interstate commerce. The United States Arbitration Act shall govern the enforcement of any arbitration awards entered pursuant to this Section.

Section 12.        Termination.

12.1 Termination for Cause.  A Party may immediately terminate this Agreement, without payment of compensation or other damages caused to the other Party by such termination, by giving notice in writing to the other Party if the other Party fails actively and diligently to take steps to remedy, where capable of remedy, or fails to take active and diligent steps to prevent the recurrence of any material breach of any of its obligations under this Agreement, in each case, within a period of 30 days after having been required by the non-breaching party in writing in either case

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to remedy or desist from such breach. This Section 12.1 does not apply to any breach which is addressed in Section 12.2.

12.2 Termination by OCV.  Notwithstanding anything contained in this Agreement to the contrary, OCV may immediately terminate this Agreement for any one or more of the following reasons:

(a) by giving notice to Allin if Allin fails to pay within 30 days of a demand an overdue amount payable to OCV, except that OCV shall not be entitled to terminate this Agreement if Allin has provided notice to OCV of a reasonable dispute regarding the payment and Allin has paid any undisputed portion of the invoice at issue. ; or

(b) if Allin shall undertake or cause any action or permit any action that reasonably could be deemed to injure, harm or dilute the Trademarks or the goodwill therein and has not taken steps to remedy or desist from such action within 30 days of being required to do so by the OCV in writing; or

(c) if OCV discovers a [REDACTED – CONFIDENTIAL TREATMENT REQUESTED]% or more variance in a verification or self-audit conducted under Section 6.2 of this Agreement; or

(d) in the Event of Insolvency of Allin; or

(e) if Allin assigns its rights or this Agreement and OCV has reasonably withheld consent to such assignment.

12.3 Termination by Allin.  Notwithstanding anything contained in this Agreement to the contrary, Allin may immediately terminate this Agreement in the Event of Insolvency of OCV.

12.4 Effect of Termination.  Upon termination of this Agreement, Allin shall immediately (i) cease and discontinue all use of the Trademarks and (ii) comply with the requirements of Section 4.5 of this Agreement. Notwithstanding any term to the contrary, all sublicenses properly granted to Sublicensees pursuant to Allin’s rights under Section 4.1 shall continue in perpetuity.

Section 13.        Indemnification and Substitution of Equipment.

13.1 Indemnification by OCV.  OCV agrees to indemnify and hold Allin and its Affiliates harmless against any Losses arising from any material breach by OCV of its obligations or warranties under this Agreement.

13.2 Substitution of Equipment.   If any Equipment manufactured and supplied by OCV to Allin shall be held to infringe any Intellectual Property Right of a third party and Allin shall be enjoined from using same, OCV will exert all reasonable efforts, at its option and at its

16

expense, (a) to procure for Allin the right to use such Equipment free of any liability for patent infringement, or (b) to replace such Equipment with a noninfringing substitute otherwise complying substantially with Allin’s requirements and the terms and conditions of this Agreement, or (c) refund the purchase price and the transportation costs of such Equipment. If the infringement by Allin is alleged prior to completion of delivery of the Equipment under this contract, OCV may decline to make further shipments without being in breach of this contract

13.3 No Patent Rights Granted.   The sale by OCV of the Equipment ordered hereunder does not grant to, convey, or confer upon Allin or Allin’s customers, or upon anyone claiming under Allin, a license, express or implied, under any patent rights of OCV covering or relating to any combination, machine or process in which said items might be or are used. The foregoing states the sole and exclusive liability of the Parties hereto for patent infringement and is in lieu of all warranties, express, implied, or statutory, in regard thereto.

13.4 Indemnification by Allin.   Allin shall indemnify, defend and hold harmless OCV, its shareholders, directors, officers, employees, affiliates, sales representatives and customers from any and all Losses resulting or arising from (i) any claim that the Derivative Software infringes or violate any patent, trademark, trade secret or copyright of any third party, (ii) any claim that the Derivative Software or Source Code of the Derivative Software infringes or violates any patent, trademark, trade secret or copyright of any third party, (iii) OCV’s compliance with Allin’s directions or instructions relating to the Software, or (iv) any material breach by Allin of its obligations or warranties under this Agreement.

Section 14.        Disclaimer of Damages

Except for Allin’s payment obligations and liability for breach of OCV’s Intellectual Property Rights (including obligations relating to Source Code), each Party’s maximum aggregate liability under this Agreement shall be $[REDACTED – CONFIDENTIAL TREATMENT REQUESTED]. In no event shall either Party be liable to anyone for special, collateral, indirect, exemplary, incidental or consequential damages for breach of any of the provisions of this contract, including without limitation, provisions regarding warranties, guarantees, indemnities, and patent infringement, such damages to include but not be limited to, costs of removal and reinstallation of Equipment or items, loss of goodwill, loss of profits, or loss of use.

Section 15.       Assignment

15.1 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Parties hereto, and the legal representatives, permitted successors in interest and permitted assigns, respectively, of each such Party.

15.2 Assignment.  Without the prior written consent of the other Party, such consent not to be unreasonably withheld, this Agreement may not be

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assigned, in whole or in part, and whether arising by contract, by operation of law, by court order or by other means within or beyond the control of the assigning party. OCV will be deemed to be acting reasonably in withholding consent to an assignment of this Agreement if, among other things: (i) any assignment by Allin is to a person which is, at the time of the proposed assignment, in the reasonable judgment of OCV, engaged in (or publicly proposed to be engaged in) a line of business which is similar to or in competition with a business then being engaged in (or publicly proposed to be engaged in) by OCV or (ii) in the reasonable judgment of OCV the assignment would have an adverse effect upon OCV’s ability to perform its obligations under this Agreement; or (iii) the proposed assignee has in the past, or has a reputation for, infringing third party Intellectual Property Rights or OCV otherwise has reasonable grounds to believe will infringe the Intellectual Property Rights of OCV; or (iv) the proposed assignee is subject to an Event of Insolvency. Notwithstanding the foregoing, OCV may assign or otherwise transfer all of its rights and obligations under this Agreement to an Affiliate or upon a Change in Control, upon prior written notice to Allin (a “Permitted Transfer”). In the event of a Permitted Transfer, the assignee will unconditionally assume in writing the obligations under this Agreement and OCV will be released from further liability hereunder except for liabilities accrued prior to assignment. OCV will notify Allin of the occurrence of any Permitted Transfer promptly, but in no event later than 30 days thereafter, and provide the transferee with a copy of the fully executed documents evidencing the assignment and assumption.

Section 16.        General Provisions.

16.1 Survival.  Sections 1 (Definitions), 2 (Term), 4 (Grant of Licenses) 5 (Payment and Invoicing), 13 (Indemnification and Substitution of Equipment), 14 (Disclaimer of Damages) and 16 (General Provisions) shall survive the expiration or termination of this Agreement for any reason.

16.2 Force Majeure. OCV is not liable, either wholly or in part, for nonperformance or a delay in performance due to force majeure or contingencies or causes beyond the reasonable control of OCV, including but not limited to shortage of labor, fuel, raw material or machinery where OCV has exercised reasonable care in the prevention thereof. OCV may allocate production and deliveries in a reasonable manner in the event of shortage of Equipment.

16.3 Release Of Information.  Neither OCV nor Allin shall publicly announce or disclose the terms and conditions of this Agreement, or advertise or release any publicity regarding this Agreement, without the prior written consent of the other Party, such consent not to be unreasonable withheld, except that Allin may disclose the terms of this Agreement (i) as required to meet regulatory requirements, provided that Allin gives OCV written notice at least 48 hours prior to any such disclosure and Allin seeks

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confidential treatment of the information to the extent allowed by applicable laws and regulations; and (ii) to bona fide potential investors who have executed an agreement with Allin prohibiting further disclosure or use of any such disclosed terms, except in connection with evaluating an investment in Allin. This provision shall survive the expiration, termination or cancellation of this contract.

16.4 Modification.  This contract constitutes the entire agreement between the Parties relating to the sale of the Equipment and services described on the face hereof and supersedes all previous communications, representations, or agreements, either oral or written, with respect to the subject matter hereto, and no representations or statements of any kind made by a representative of a Party, which are not stated herein, shall be binding on the Party unless made in writing and signed by a duly authorized representative of such Party. No course of dealing or usage of trade or course of performance shall be relevant to explain or supplement any term expressed in this contract.

16.5 Relationship of Parties.  The Parties are independent contractors and nothing in this Agreement shall be construed as creating any agency, partnership, or other form of joint enterprise between the Parties. Neither Party will have the authority to act or create any binding obligation on behalf of the other Party.

16.6 Import and Export.   OCV and Allin shall comply at all times with all applicable federal, state, and local laws and regulations. The products covered by this contract are subject to export license control by the U.S. Government. Therefore, prior to exportation, Allin is required to obtain any licenses that may be required under the applicable laws of the U.S. including the Export Administration Act and Regulations. OCV shall provide Allin, within ten (10) days after Allin’s request, all information in its possession or under its control which may be necessary or useful to Allin in obtaining export or import licenses related to the Equipment, including, but not limited to, certificates of origin, manufacturer’s affidavits and U.S. Federal Communications Commissions identifiers, if applicable.

16.7 Force Majeure; Time is of the Essence.   Neither Party shall be liable for any delay or failure in the performance of its obligations hereunder due to causes beyond its control, including but not limited to, fire, strike, war, riots, judicial action or acts of God; provided, however, that the Party prevented from performing its obligations due to any such event or circumstance shall use reasonable efforts under the circumstances to notify the other Party and to resume performance as soon as reasonably possible. OCV may allocate production and deliveries in a reasonable manner in the event of a shortage of Equipment. Time is of the essence in the performance of this Agreement.

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16.8 Notices.  All notices required or permitted under this Agreement will be in writing and will be deemed delivered (a) when actually delivered if delivered in person, (b) one (1) day after being deposited in a recognized express, overnight delivery service, (c) when actually received if received by confirmed facsimile and such facsimile transmission is followed by a mailed copy, or (d) three (3) days after being deposited in the United States mail service, postage prepaid, addressed to the Party as follows:

If to Allin:	If to OCV:
Allin Interactive Corporation	On Command Video Corporation
381 Mansfield Avenue	4610 South Ulster Street, Suite 600
Suite 400	Denver, Colorado 80237
Pittsburgh, PA 15220	Facsimile:      (720) 873-3397
Attn: Richard W. Talarico	Attention:      Laurence M. Smith
	Copy to: Pamela Strauss

16.9 Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado, without reference to its conflict of laws principles.

16.10 Entire Agreement.   The parties agree that the Supplier Agreement is hereby terminated and superseded by this Agreement. This Agreement, including its Schedules, constitutes the entire agreement between the Parties with respect to the subject matter hereof, and supersedes any prior or contemporaneous written or oral agreements or understandings between the Parties with respect to the subject matter hereof. No amendment or modification to this Agreement will be effective unless made in writing and signed by both Parties.

16.11 Waiver.  Failure by either Party to exercise any rights under this Agreement in any one or more instances will not constitute a waiver of such rights in any other instance. Waiver by a Party of any default under this Agreement will not be deemed a waiver of any other default. If Allin defaults in making payments under this contract and OCV elects to continue to make shipments, OCV’s action shall not constitute a waiver of any default by Allin or in any way affect OCV’s legal remedies for any such default.

16.12 Severability.  If any provision of this Agreement shall be declared illegal, invalid or unenforceable, in whole or in part, by a court of competent jurisdiction, all other provisions of this Agreement shall remain in full force and effect.

16.13 Headings.  Headings used in this Agreement are for convenience of reference only and shall not be used to interpret any aspect of this Agreement.

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16.14 Counterparts.  This Agreement may be executed in counterparts, each of which will be considered an original, and all of which together will constitute one and the same instrument.

         IN WITNESS WHEREOF, the Parties, by their duly authorized representatives, have executed this Agreement as of the Effective Date.

ON COMMAND VIDEO CORPORATION
By:	/s/  LAURENCE M. SMITH
	SENIOR VICE PRESIDENT - SALES AND DISTRIBUTION

ALLIN INTERACTIVE CORPORATION
By:	/s/  RICHARD W. TALARICO
	CHAIRMAN AND CHIEF EXECUTIVE OFFICER

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SCHEDULE A

Equipment and Pricing -- 2003

Item	Description	Price [REDACTED – CONFIDENTIAL TREATMENT REQUESTED]
10-00788	CORD PWR SUPLY U/L REQ
1010-1520	SPLITTER 2 WAY VERTICAL
1010-1549	SPLITTER 8 WAY PSA (TRU-SPEC) SAME AS 17-02203
17-02166	SPLITTER 1GHZ V 2 WAY
17-02203	SPLITTER 8 WAY PSA TRU-SPEC OBSOLETE USE 1010-1549
25-02526	BATTERY AA 1.5 ALKALINE   UL APPROVED
25-04495	POWER SUPPLY SWITCHER 5VIA 12V.5A 33V&-5V.01A  UL APPROVED
26-04738	EMITTER INFRARED MINI
28-06394	DISK DRIVE HD IDE ATA-100 7200RPM
30-05073	ADAPTER RCA F TO F-MALE
36-00367	WASHER #4 SPLIT LOCK
36-00692	SCREW 4-40X1/4" TRUSS PHIL ZINC
36-02148	FASTENER TUFLOCK 1/4"
36-02655	STANDOFF 4-40X7/16 HEX
43-00094	MANUAL OCX PLATFORM REF ALT IS 63-05500
45-05203	TOOL SUPERLATCH BATTERY COVER
49-00296	FILTER AIR POLYSTER MEDIA
51-00221-01	LBL VCP IDENT
51-00221-09	LBL VCP IDENT
51-00221-10	LBL VCP IDENT

1

51-00221-12	LBL VCP IDENT
51-00221-13	LBL VCP IDENT
51-00765	EXTRACTOR MODULATOR CARD
51-01744	COVER TOP SW CONC SKII
51-03907-01	SHIELD SINGLE ROUTER RX
51-03908-01	SHIELD SINGLE ROUTER TX
51-03930	BRKT 19-24 EXP 4U NP1 EQ CAB
51-03931-01	BRKT 19-24 EXP 3U NP1 EQ CAB
51-04382-01	SHIELD DIPLEXER ROUTER SINGLE TRUNK
51-04711-01	PLATE COVER MISC EQ DFE
51-04836-01	BRKT EXPANSION 1U
51-06105-01	SHELF 1U 19" GEN2
52-03712-011	LBL REMOTE OCC SLEEP CH GDE
60-04273	DISKETTE MO 640 REWRITE (100 PER BOX)
76-03550-01	COVER BTRY TV REMOTE CONTROL GRY OCV
79-00005	MODULATOR AGILE 40-450     UL REQ
79-00514	TAP WALLPLATE 9 DB
79-00515	TAP WALLPLATE 12 DB
79-00516	TAP WALLPLATE 16 DB
79-00517	TAP WALLPLATE 20 DB
79-01999	VCP NTSC OCV BY PANASONC     UL REQ
79-03507	SMART LOADER FOR ZENITH
79-03773-57	MOD MINI DIG/DSS/GAMES     UL REQ
79-03773-58	MOD MINI DIG/DSS/GAMES     UL REQ
79-03773-59	MOD MINI DIG/DSS/GAMES     UL REQ
79-03773-60	MOD MINI DIG/DSS/GAMES     UL REQ
79-03773-61	MOD MINI DIG/DSS/GAMES     UL REQ
79-03773-62	MOD MINI DIG/DSS/GAMES     UL REQ
79-03773-63	MOD MINI DIG/DSS/GAMES     UL REQ
79-03773-64	MOD MINI DIG/DSS/GAMES     UL REQ
79-03773-65	MOD MINI DIG/DSS/GAMES     UL REQ
79-03773-66	MOD MINI DIG/DSS/GAMES     UL REQ

79-03773-67	MOD MINI DIG/DSS/GAMES     UL REQ
79-03773-68	MOD MINI DIG/DSS/GAMES     UL REQ
79-03773-69	MOD MINI DIG/DSS/GAMES     UL REQ
79-03773-70	MOD MINI DIG/DSS/GAMES     UL REQ
79-03773-71	MOD MINI DIG/DSS/GAMES     UL REQ
79-03773-72	MOD MINI DIG/DSS/GAMES     UL REQ
79-03773-75	MOD MINI DIG/DSS/GAMES     UL REQ
79-03773-76	MOD MINI DIG/DSS/GAMES     UL REQ
79-03773-77	MOD MINI DIG/DSS/GAMES     UL REQ
79-03773-78	MOD MINI DIG/DSS/GAMES     UL REQ
79-03773-79	MOD MINI DIG/DSS/GAMES     UL REQ
79-03773-80	MOD MINI DIG/DSS/GAMES     UL REQ
79-03773-81	MOD MINI DIG/DSS/GAMES     UL REQ
79-03773-82	MOD MINI DIG/DSS/GAMES     UL REQ
79-03773-83	MOD MINI DIG/DSS/GAMES     UL REQ
79-03773-84	MOD MINI DIG/DSS/GAMES     UL REQ
79-03773-85	MOD MINI DIG/DSS/GAMES     UL REQ
79-03773-86	MOD MINI DIG/DSS/GAMES     UL REQ
79-03773-87	MOD MINI DIG/DSS/GAMES     UL REQ
79-03773-88	MOD MINI DIG/DSS/GAMES     UL REQ
79-03773-89	MOD MINI DIG/DSS/GAMES     UL REQ
79-03773-90	MOD MINI DIG/DSS/GAMES     UL REQ
79-03773-91	MOD MINI DIG/DSS/GAMES     UL REQ
79-03773-92	MOD MINI DIG/DSS/GAMES     UL REQ
79-03775	COMBINER 16:1 HYB DIGS 750 MHZ     UL REQ
79-04329-01	DISK DRIVE HD SCSI 4.5GB SEAGATE BARRACUDA UW     UL REQ
79-04672	CYCLADES 16 PORT SW RJ45 Use BOM for needed parts
79-04677	CMPTR HOST/PROXY
79-04679	ASSY CARD M/B PENTIUM II DUAL BX CHPST UW SCSI     UL REQ
79-05124	SWITCH LAN 12 PORT 100MB 19" RACK MOUNT     UL REQ

79-05125	SWITCH LAN 24 PORT 100MB 19" RACK MOUNT     UL REQ
79-05307	BOX SERIAL RJ45 PORT PART OF 79-04672
79-05308	ASSY CARD SERIAL PCI PART OF 79-04672     UL REQ
79-05412	ASSY CARD LONTALK ADPTR RS485     UL REQ
79-05437-01	ASSY KYBD IR BLK W/LOCK BATT COVER USE 79-06012
79-05437-03	ASSY KYBD IR BLK W/LOCK BATT COVER ALLIN@HOSPITL     UL REQ
79-05698	SMART LOADER BOX PHILIPS
79-05766	CMPTR CLIENT IM3000A W/128MB RAM     UL REQ
79-05767	CMPTR CLIENT IM3000 W/64MB RAM Use 81-05772-01 REWORK INSTRUCTIONS
79-05786	SWITCH LAN 48 PORT 100MB CISCO 2948 & RACK MTG     UL REQ
79-05926	ASSY CARD WAN INTERFACE CARD CSU/DSU     UL REQ
79-05934	ASSY CHASSIS MODULAR DIGI SERVER W/COMBINER     UL REQ
79-06163	ASSY CARD 4 PORT MPEG2 DECODER PCI     UL REQ
80-01380	ASSY V DATA CONTROL SK II REF TP-01380
80-01470	ASSY PCB VIDEO SW CNTLR SK2 HAS SCH REF SD-2068
80-01470-02	ASSY PCB V DATA SW CNTLR CARD SKII HAS AI-01470 REF TP-1470-02
80-02511-60	ASSY PCB MOD SSB CH60 NTSC UHF USE 80-04511-XXX
80-03797-02	ASSY PCB KEYBD SIM MODULE-IM2000
80-03910-01	ASSY PCB ROUTER SINGLE TRUNK HAS
80-04381-02	ASSY PCB DIPLEXER ROUTER SINGLE TRUNK DFE REF TP-04381
80-04391-01	ASSY PCB 16X A/V CMBNR PROGENY DFE NTSC REF TP-04391-01
80-04511-42	ASSY PCB MOD SSB CH 42 NTSC
80-04511-45	ASSY PCB MOD SSB CH 45 NTSC UHF
80-04511-46	ASSY PCB MOD SSB CH 46 NTSC UHF
80-04511-47	ASSY PCB MOD SSB CH 47 NTSC UHF

80-04511-48	ASSY PCB MOD SSB CH 48 NTSC UHF
80-04511-49	ASSY PCB MOD SSB CH 49 NTSC UHF
80-04511-50	ASSY PCB MOD SSB CH 50 NTSC UHF
80-04511-51	ASSY PCB MOD SSB CH 51 NTSC UHF
80-04511-52	ASSY PCB MOD SSB CH 52 NTSC UHF
80-04511-53	ASSY PCB MOD SSB CH 53 NTSC UHF
80-04511-54	ASSY PCB MOD SSB CH 54 NTSC UHF
80-04511-55	ASSY PCB MOD SSB CH 55 NTSC UHF
80-04511-56	ASSY PCB MOD SSB CH 56 NTSC UHF
80-04511-57	ASSY PCB MOD SSB CH 57 NTSC UHF
80-04511-58	ASSY PCB MOD SSB CH 58 NTSC UHF
80-04511-59	ASSY PCB MOD SSB CH 59 NTSC UHF
80-04511-60	ASSY PCB MOD SSB CH 60 NTSC UHF
80-04511-61	ASSY PCB MOD SSB CH 61 NTSC UHF
80-04511-62	ASSY PCB MOD SSB CH 62 NTSC UHF
80-04511-63	ASSY PCB MOD SSB CH 63 NTSC UHF
80-04511-64	ASSY PCB MOD SSB CH 64 NTSC UHF
80-04511-65	ASSY PCB MOD SSB CH 65 NTSC UHF
80-04511-66	ASSY PCB MOD SSB CH 66 NTSC UHF
80-04511-67	ASSY PCB MOD SSB CH 67 NTSC UHF
80-04511-68	ASSY PCB MOD SSB CH 68 NTSC UHF
80-04511-69	ASSY PCB MOD SSB CH 69 NTSC UHF
80-04511-70	ASSY PCB MOD SSB CH 70 NTSC UHF
80-04511-71	ASSY PCB MOD SSB CH 71 NTSC UHF
80-04511-72	ASSY PCB MOD SSB CH 72 NTSC UHF
80-04511-73	ASSY PCB MOD SSB CH 73 NTSC UHF
80-04511-74	ASSY PCB MOD SSB CH 74 NTSC UHF
80-04511-75	ASSY PCB MOD SSB CH 75 NTSC UHF
80-04511-76	ASSY PCB MOD SSB CH 76 NTSC UHF
80-05141-01	ASSY PCB WB VCP CTRLR BACKPLANE ISA 2 SLOT 12V REF TP-05141-01
80-05303-01	ASSY PCB RESET CLIENT REF TP-05303-01

80-05764-01	ASSY PCB ALL MUTE GENRTR ALLIN REF TP-05764-01
81-00338	ASSY CBL STACK INPUT 19"     UL REQ
81-00630	ASSY CHASSIS 2 MODULATOR     UL REQ
81-01024-02	ASSY CBL VCP HARNESS REAR SK11     UL REQ
81-01348-01	ASSY DC VCP NTSC OCV BY PAN
81-01501-01	ASSY CBL 422 SK II     UL REQ
81-02411-01	ASSY MOD BKPLANE +12V SKII
81-02457-01	ASSY LONTALK ADPTR RS485 GAME MONSTER HAS INSTR REF TP-02457-01     UL REQ
81-02457-02	ASSY LONTALK ADPTR RS485 HOST/PROXY CMPTR
81-03571-025	ASSY RMT GST OCC/PHIL HYBRID
81-03571-036	ASSY REMOTE GST OCX/PHIL W/SLEEP NO KEYUP SINGLE
81-03571-052	ASSY REMOTE GUEST OCC ONLY MKD/SKU
81-03571-065	ASSY RMT GUEST OCC ZENITH 38KHZ
81-03572-009	ASSY REMOTE SETUP OCC/PHIL HYBRID
81-03572-011	ASSY REMOTE SETUP HYBRID PHILIPS/RCA Use 81-05972-011
81-03572-015	ASSY REMOTE SETUP CNV OCC GNR SETTOP GENERIC NO KEYUP
81-03572-020	ASSY REMOTE SETUP OCC ONLY MKD/SKU W/BTRY LK
81-03572-026	ASSY RMT SETUP OCC ZENITH 38KHZ
81-03622-01	ASSY SINGLE TRUNK ROUTER DIGITAL SERVER
81-03818-03	ASSY KEYBOARD SIM XGIA
81-04451-21	ASSY BOX CONV NTSC FSK
81-04613-04	ASSY STUD FINDER REF TP-04613-04
81-04801-03B	ASSY SYS EQ CABINET DFE IPS ALLIN
81-05014-001L	ASSY RMT GST RC INTL LK ROYAL CARIBBEAN INTL-RCI
81-05014-002L	ASSY RMT GST IRU-2 ALLIN GRY NO LOGO LATCHING
81-05014-003L	ASSY RMT GST OCX/PHILLIPS LATCHING @HOSPITAL ALLIN
81-05116-01	ASSY SYS EQ CAB DFE LPS SKII JR BLK
81-05167-01	ASSY COMPUTER HOST/PROXY USE 81-05998-01 & 88-06001-01
81-05573-21	ASSY BOX CONV PLASMA SCREEN NTSC FSK
81-05772-01	ASSY COMPUTER CLIENT CLONED IM3000 W/64MG RAM DOMESTIC NTSC

81-05773-01	ASSY COMPUTER CLIENT CLONED IM3000 W/128MB RAM
81-05971-025	ASSY REMOTE UEI GUEST OCC PHIL HYBRIO UNIVERSAL
81-05971-035	ASSY REMOTE UEI GUEST OCC IRU 2 GNR NO KEYUP SGL KEYDOWN UNIVERSAL
81-05971-601	ASSY RMT UEI GUEST FOR ALLIN OCC PHILLIPS HYB
81-05971-602	ASSY RMT UEI GUEST FOR ALLIN OCC IRU 2 GNR
81-05972-009	ASSY REMOTE UEI SETUP OCC/PHIL HYBRID
81-05972-011	ASSY REMOTE UEI SETUP HYBRID PHILIPS/RCA OCC
81-05972-015	ASSY REMOTE UEI SETUP CNV OCC GNR SETTOP GENERIC NO KEYUP
81-06136-01	ASSY CMPTR CLIENT BLADE OCC8000 CLONED
82-03683-01	ASSY CBL PROGRAMMING 11"     UL REQ
82-04309	ASSY CBL RCA AUDIO/VIDEO 5FT FREE STOCK     UL REQ
82-04322-01	ASSY CBL DSS PHONE 6COND 36"     UL REQ
82-04322-02	ASSY CBL DSS PHONE 6COND 62"
82-04663-01	ASSY CBL CLIENT RESET CONTROL     UL REQ
82-04667-01	ASSY CBL MOD DC POWER     UL REQ
82-04707-05	ASSY CBL TW/PR 16P 1DC TO RCA A/V FOR DFE     UL REQ
82-04707-11	ASSY CBL TW/PR 16P 1DC TO RCA A/V FOR DFE     UL REQ
82-04707-12	ASSY CBL TW/PR 16P IDC TO RCA     UL REQ
82-04740-01	ASSY CBL IM2000 CLIENT TO KB SIM NO BOM
82-04760-01	ASSY CBL IR TRANSCEIVER     UL REQ
82-04956-08	ASSY CBL CONC OUTPUT 44"     UL REQ
82-04956-09	ASSY CBL CONC OUTPUT 44"     UL REQ
82-05420-01	ASSY CBL RJ45 TO 3PIN TB     UL REQ
82-05420-02	ASSY CBL RJ45 TO 3PIN TB ORN LONTALK CONN
82-05705-12	ASSY CBL RJ45-RJ45 CAT-5 12"     UL REQ
82-05705-96	ASSY CBL RJ45-RJ45 CAT-5 96"     UL REQ
82-05709-01	ASSY CBL PWR INPUT 20A L5     UL REQ
82-06165-01	ASSY CBL A/V RCA 3.5MM PLUG RCA/RCA 4 FT     UL REQUIRED

88-02330	KIT TV CMNDR NO REMOTE OR CNTRL
88-03791	KIT REMOTE OCC PRGMR
88-04120-06	KIT XGIA II PAN/ZEN/MITS
88-04540-01	KIT SETTOP CLONE BOX
88-04610-11	KIT IRU II NTSC FSK OBS USE 88-04610-21
88-04610-44	KIT IRU 2 PAL B/G HI1 BAND
88-04612-01	KIT IR TRANSCEIVER
88-04615-05	KIT PICKUP COIL 15.75KHZ LOW SENSITIVITY
88-05063-01	KIT TV CMDR 2 SYNC TV 120V PWR REPLACED WITH 88-05063-13 P/N IS INACTIVE
88-05063-05	KIT TV CMDRII SYNC TV 120V
88-05063-07	KIT TV CMDRII ASYNC TV 120V
88-05063-09	KIT TV CMDR 2 SYNC TV 120V ALLIN
88-05063-10	KIT TV CMDRII SYNC TV 120V PWR ALLIN REPLACED WITH 88-05063-17
88-05063-11	KIT TV CMDRII SYNC TV 120V PWR ALLIN 36" DATA CBL REPLACED W/88-05063-18
88-05063-12	KIT TV CMDR 2 SYNC TV 120V PWR ALLIN 36" DATA CBL
88-05063-15	KIT TV CMDR 2 ASYNC TV 120V PWR W/10K PULLUP
88-05063-17	ASSY TV CMDR 2 SYNC TV 120V PWR ALLIN W/10K PULLUP
88-05063-18	ASSY TV CMDR 2 SYNC TV 120V PWR Use 88-05063-12
88-05063-23	KIT TV CMDR 2 ASYNC TV 120V PWR W/VCP FUNCTION
88-05572-11	KIT IRU II ALLIN NTSC FSK
88-05572-21	KIT IRU II PLASMA SCREEN NTSC FSK
88-05980-21	KIT IRU ALLIN PLASMA SCREEN NTSC FSK
88-06206-01	ASSY SYS SHIP KIT GEN2
91-00581	MAJOR ASSY V DATA SWITCH SR SKII
91-00633-01	MAJOR ASSY PWR SUPPLY AC/DC 115V
91-00641-01	MAJOR ASSY POWER SUPPLY SKII
91-00658-01	MAJOR ASSY PWR SUPPLY GEN2
94-00053-01	TOP ASSY RACK SERVER ALLIN
94-00054-01	TOP ASSY RACK CLIENTS ALLIN

IRU REPAIR	IRU REPAIR
VCP REPAIR	VCP REPAIR
REMOTE REPAIR	REMOTE REPAIR
COMMANDER REPAIR	COMMANDER REPAIR

SCHEDULE B

ISLAND HOTELS

NONE

SCHEDULE C

NON-DISCLOSURE AGREEMENT

CONFIDENTIALITY AGREEMENT

         This Confidentiality Agreement (this “Agreement”) is made and entered into this ____ day of June 2003 (“Effective Date”), by and between ON COMMAND CORPORATION, a Delaware corporation, with principal offices at 4610 South Ulster Street, Sixth Floor, Denver, CO 80237 and its subsidiaries (collectively “OCC”) and Allin Communications Corporation, a Delaware corporation, with principal offices at 400 Greentree Commons, 381 Mansfield Ave., Pittsburgh, PA 15220 (“Company”).

R E C I T A L S

A.       OCC is in the business of providing entertainment and technology to the lodging industry on a worldwide basis.

B.       Company is in the business of multimedia and video on-demand services for the hospitality industry.

C.       The parties desire to engage in discussions related to the License and Supply Agreement (the “Transaction”), and to provide for the confidentiality of those discussions and the information relayed during such discussions.

         Therefore, in consideration of the representations, warranties and covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, OCC and Company agree as follows:

         1.           Confidential Information.   This Agreement shall apply to all information disclosed by either party to the other during the term of this Agreement relating to either party’s financial or business plans and affairs, financial statements, internal management tools and systems, marketing plans, clients, contracts, products and programs, product and program development plans, hardware, firmware, software programs and other technology (“Confidential Information”) which information is deemed by the disclosing party as confidential. No formal identification of information as “Confidential Information” shall be required by the disclosing party.

         2.           Non-Disclosure.   Each party represents and warrants to the other that: (i) it shall not use, copy or reproduce any of the Confidential Information of the other without the express written consent of the other; (ii) it agrees to use the same care and discretion to avoid disclosure, publication, or dissemination of Confidential Information of the other party, except for disclosure to or use by its employees, attorneys, accountants and other advisors of the party and those of its subsidiaries and parent companies (“Agents”), who have a need to know and use such Confidential Information for purposes of this Agreement, as it employs with similar information of its own which it does not desire to publish, disclose or disseminate; (iii) it will inform any Agents to which it discloses Confidential Information of the confidentiality provisions of this

Agreement and obtain written agreement to abide by such provisions, except where such obligation exists by reason of a prior agreement or relationship; and (iv) it will not make any public statement or comment on the existence or provisions of this Agreement, or the existence or content of the discussions with respect to the Transaction, without the prior written consent of the other except as may be required in the reasonable opinion of its legal counsel.

         3.           Limitations.   Notwithstanding the foregoing, neither party shall be under any obligation to maintain the confidentiality of any Confidential Information of the other which it can demonstrate: (i) was known by it prior to the disclosure thereof by the other party; (ii) properly comes into its possession from a third person which is not under any obligation to maintain the confidentiality of such Confidential Information; and/or (iii) has become part of the public domain other than through its fault.

         4.           Equitable Relief.   Each party acknowledges and agrees that the Confidential Information of the other is deemed by the other to constitute valuable trade secrets of such other party, and that any unauthorized use or disclosure of such information by it may cause the other party irreparable harm for which its remedies at law may be inadequate. Each party hereby agrees that the other may be entitled, in addition to any other remedies available to it at law or in equity, to injunctive relief to prevent the breach or threatened breach of the other’s obligations hereunder.

         5.           No Impairment.   Each party agrees that it will not use any Confidential Information, copyrights, trademarks, trade secrets or patents of the other to which it has been granted access pursuant to this Agreement except for the sole purpose of evaluating the Transaction. However, nothing in this Agreement will impair the right of either party to use, develop or market technologies, ideas, programs or products similar to those of the other so long as such use, development or marketing does not infringe on the copyrights, trademarks, trade secrets or patents of the other and so long as the party does not use the Confidential Information of the other party.

         6.           No Representations.   Although each party will use reasonable efforts to ensure the accuracy of Confidential Information disclosed to the other, neither party makes any representation or warranty as to the accuracy or completeness of such Confidential Information. Neither party will have any liability to the other under this Agreement for the accuracy or completeness of Confidential Information.

         7.           No Obligation to Complete Transactions.   Nothing herein shall imply any obligation of either party to proceed with the Transaction or any other transaction between the parties, and each party explicitly reserves the right to terminate the discussions contemplated by this Agreement for any reason or no reason, without liability for such termination.

         8.           Governing Law.   This Agreement will be deemed entered into in Denver, Colorado and will be governed by and interpreted in accordance with the substantive laws of the State of Colorado. The parties agree that any dispute arising under this Agreement will be resolved in the state or federal courts in Denver, Colorado and each party expressly consents to jurisdiction therein.

         9.           No Assignment.   Neither party may assign this Agreement, nor may any of the rights hereunder be assigned or otherwise transferred to any third party, without the prior written consent of the other party. Any attempted or purported assignment or other such transfer by either party to any third party without such consent having first been obtained shall be void.

         10.           Term.   This Agreement shall be in effect for a period of one year from the Effective Date; provided however, that the obligations of the parties with respect to any Confidential Information shall continue until the third anniversary of the Effective Date.

         11.           Return of Records.   Upon the request of the disclosing party, the receiving party shall return to the disclosing party all tangible copies of Confidential Information, or shall destroy the same and certify to the disclosing party that such destruction has occurred. Upon such return or destruction, the receiving party shall not retain any copies of Confidential Information of the other.

         12.           Entire Agreement.   This Agreement constitutes the entire agreement and understanding between the parties with respect to the subject matter hereof, and supersedes all prior and contemporaneous negotiations, discussions and understandings of the parties, whether written or oral, between the parties. Should any provision of this Agreement be determined to be void, invalid or otherwise unenforceable by any court or tribunal of competent jurisdiction, such determination shall not affect the remaining provisions hereof which shall remain in full force and effect. No waiver or modification of any of the provisions of this Agreement shall be valid unless in writing and signed by officers both of the parties.

         In Witness Whereof, the parties have executed this Agreement as of the date first written above.

ON COMMAND CORPORATION	ALLIN COMMUNICATIONS CORPORATION
By:	By:
Name:  Chris Sophinos	Name:
Title:  President and Chief Executive Officer	Title:

EX-11

Exhibit 11

ALLIN CORPORATION

CALCULATION OF NET LOSS PER COMMON SHARE

         (Dollars in thousands, except per share data)

	Three Months Ended June 30, 2002			Three Months Ended June 30, 2003		Six Months Ended June 30, 2002			Six Months Ended June 30, 2003
Income (loss) from continuing operations	$	171		$	454	$	(37	)	$	700
Loss from discontinued operations		12			—		5			—
Net income (loss)		159			454		(42	)		700
Accretion and dividends on preferred stock		170			176		336			349
Net (loss) income attributable to common shareholders	$	(11	)	$	278	$	(378	)	$	351
Income (loss) per common share from continuing operations - basic	$	0.00		$	0.04	$	(0.05	)	$	0.05
Loss per common share from discontinued operations - basic	$	0.00		$	0.00	$	0.00		$	0.00
Net (loss) income per common share - basic	$	0.00		$	0.04	$	(0.05	)	$	0.05
Income (loss) per common share from continuing operations - diluted	$	0.00		$	0.03	$	(0.05	)	$	0.04
Loss per common share from discontinued operations - diluted	$	0.00		$	0.00	$	0.00		$	0.00
Net (loss) income per common share - diluted	$	0.00		$	0.03	$	(0.05	)	$	0.04
Weighted average shares outstanding - basic and diluted		6,967,339			6,967,339		6,967,339			6,967,339
Weighted average shares outstanding - basic and diluted		6,967,339			11,262,163		6,967,339			11,257,959

EX-31.1

Exhibit 31.1

Certification

I, Richard W. Talarico, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Allin Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods so presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 12, 2003

/s/ RICHARD W. TALARICO

Richard W. Talarico

Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification

I, Dean C. Praskach, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Allin Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods so presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 12, 2003

/s/ DEAN C. PRASKACH

Dean C. Praskach

Chief Financial Officer

EX-32

Exhibit 32

Certification

         Each of the undersigned officers of Allin Corporation (the “Company”), certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. the Company’s report on Form 10-Q for the quarterly period ended June 30, 2003, as filed with the United States Securities and Exchange Commission (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. the information in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

         This Certification accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” by the Company for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

August 12, 2003	/s/ RICHARD W. TALARICO
	Chief Executive Officer
August 12, 2003	/s/ DEAN C. PRASKACH
	Chief Financial Officer

         A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.