The following discussion and analysis by management provides information with respect to the financial condition and results of operations of Allin Corporation (the "Company") for the three- and six-month periods ended June 30, 2008 and 2007. This discussion should be read in conjunction with the information contained in Part I, Item 1A - Risk Factors and Part II, Item 8 - Financial Statements and Supplementary Data in the Company's Annual Report on Form 10-K for the year ended December 31, 2007, and the information contained in Part I, Item 1 - Financial Statements and Part II, Item 1A - Risk Factors in this Quarterly Report on Form 10-Q. Unless the context otherwise requires, all references herein to the "Company" refer to Allin Corporation and its subsidiaries. All references to "Microsoft" refer to Microsoft Corporation.

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 "believes," "expects," "intends," "will," "seek," "continue," "estimate," "likely," "anticipate," "may," "could," "future," "project" 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, dependence on key personnel, general economic conditions, committed backlog, practice area and customer concentration, project schedule delays by customers, risks associated with significant suppliers, fluctuations in operating results, integration of recently acquired businesses, competitive market conditions in the Company's existing lines of business, geopolitical considerations, liquidity and credit risk, public market and trading issues and technological obsolescence, as well as other risks and uncertainties. See Part II, Item 1A - Risk Factors below.

Executive Summary

Overview of Services and Organization

The Company is a leading provider of Microsoft-focused information technology and interactive media-based consulting and systems integration services. The Company designs, develops and deploys enterprise-quality applications, solutions and platforms that provide customers with the agility necessary to compete in today's fast-paced business climate. The Company's consulting services include four practice areas: Technology Infrastructure, Collaborative Solutions, Business Process and Interactive Media. The Company leverages its experience in these areas through a disciplined project framework to deliver technology solutions that address customer needs on time and within budget.

The Company recently enhanced its presence in the growing software as a service ("SaaS") technology space through Allin Consulting of Pennsylvania, Inc.'s ("Allin Consulting-Pennsylvania") May 2008 acquisition of the SharePointHosting.com domain, a provider of hosting solutions based on Microsoft Windows SharePoint Services and Microsoft Office SharePoint Server.
SharePointHosting.com multi-tenant and dedicated SaaS environments are currently utilized by more than eight hundred domestic and international customers. The Company's management believes SharePointHosting.com's ability to offer secure, dependable and cost-effective SharePoint SaaS environments gives the Company the opportunity to alleviate one of our customers' largest obstacles to deploying SharePoint as a key platform for business communication, collaboration and enterprise search.

The Company is headquartered in Pittsburgh, Pennsylvania with additional offices located in Northern California in San Jose and Walnut Creek, in the Boston area in Wakefield, Massachusetts, in Ft. Lauderdale, Florida and, following the acquisition of SharePointHosting.com, in Philadelphia, Pennsylvania.

Revenue, cost of sales and gross profit derived for the four practice areas is collectively reflected as Consulting Services on the Company's Consolidated Statements of Operations in Item 1 - Financial Statements. A brief description of the Company's practice areas follows:

• The Technology Infrastructure Practice Area focuses on customers' network and application architecture, messaging and collaboration systems, operations management and security issues. Technology Infrastructure designs and implements enterprise-quality Microsoft technology that maximizes network availability and efficiency and enables customers to reduce costs and protect vital resources. Services include network architecture and application design, evaluation of customer operating systems and database platforms, design and

• The Collaborative Solutions Practice Area provides customized application development based on the Microsoft .NET framework, portals and information workflow solutions, business intelligence solutions and enterprise project management solutions. Collaborative Solutions enables organizations to evaluate and streamline key business activities and optimize the creation, storage, sharing and retrieval of information. Collaborative Solutions' customized application development addresses customers' needs for automated processes and streamlined workflows to gain cost, time and quality improvements. Portal and workflow solutions ensure optimal delivery of information to employees, customers, partners and suppliers. Business intelligence solutions organize data into understandable information for strategic decision making. Enterprise project management solutions enable customers to optimize use of resources, improve communication and collaboration among team members and improve project performance. Collaborative Solutions services are provided from the Company's Northern California, Pittsburgh and Boston offices. Collaborative Solutions revenue represented 31% and 38% of the Company's consolidated revenue during the six months ended June 30, 2008 and the year ended December 31, 2007, respectively.

• The Business Process Practice Area provides services that help organizations across a broad array of industries automate processes, make more profitable decisions, and accelerate growth. Business Process customizes and implements the full range of Microsoft Dynamics software including Dynamics GP, Dynamics SL and Dynamics CRM. Dynamics GP-based solutions provide outstanding financial tools to enhance the visibility and control of business information and the back office modules necessary to unify an organization's business processes. The Business Process Practice Area maximizes Dynamics SL's project-centric back office capabilities by using its customization and integration tools to help customers implement project accounting best practices. Business Process designs and deploys Dynamics CRM to assist businesses in the development of profitable customer relationships through lead and opportunity management, incident management, a searchable knowledgebase and integrated reporting tools. Business Process services are provided from the Company's Pittsburgh, Northern California and Boston offices. Business Process revenue represented 7% and 12% of the Company's consolidated revenue during the six months ended June 30, 2008 and the year ended December 31, 2007, respectively.

• The Interactive Media Practice Area offers innovative solutions including technology architecture design and applications development for the on-demand delivery of media rich video content. Interactive Media customers have historically been concentrated in the cruise industry. The Company's customers include premiere operating brands from the world's largest cruise organizations, Carnival Corporation & Plc. ("Carnival"), Royal Caribbean Cruises, Ltd. ("Royal Caribbean"), MSC Crociere S.p.A. ("MSC") and NCL Corporation ("NCL"), as well as smaller cruise lines serving distinct markets. The Company's DigiMix™ and DigiRF™ interactive television solutions support cruise lines' onboard operations and enhance passenger amenities by providing in-cabin entertainment, shore excursion preview and ordering, real-time ship-to-cabin communication, information and other services, including food and wine orders, spa/salon information and shopping. Interactive Media's solutions enable customers to generate incremental revenue, promote operating efficiencies and enhance customer service. Interactive Media solutions are Internet accessible, highly-functional applications utilizing high-end graphics and digital video content. Interactive Media activities are provided from the Company's Ft. Lauderdale office, which is located near the most active concentration of cruise line operations in the United States. Interactive Media revenue represented 13% and 9% of the Company's consolidated revenue during the six months ended June 30, 2008 and the year ended December 31, 2007, respectively.

In addition to the practice areas described above, the Company's operations include three other segments, Systems Integration, Information System Product Sales and Other Services:

• Systems Integration operations focus on the implementation of specialized technology platforms that provide flexible, scalable solutions meeting customers' technology needs and preferences. Historically, Systems Integration revenue has been concentrated among cruise industry customers in projects related to the services provided by the Interactive Media Practice Area. The Company's flexible DigiMix™ and DigiRF™ interactive television platform offers solutions for digital networks and hybrid distribution systems. Forty-nine shipboard

• Information System Product Sales reflects the Company's sales of computer software and other technology products. The Company actively promotes the sale of Microsoft Dynamics software and related products in association with the services of the Business Process Practice Area. The Company also sells interactive television equipment and other products based on customer needs. Information System Product Sales represented 4% of the Company's consolidated revenue during each of the six-month period ended June 30. 2008 and the year ended December 31, 2007, respectively.

• The Other Services segment reflects revenue derived from software license fees, website hosting services, amounts billed for out-of-pocket costs, fees for resources outsourced for customer-managed projects, and other activities peripheral to the Company's operations, including referral commissions or placement fees. Other Services revenue represented 7% and 8% of the Company's consolidated revenue during the six months ended June 30, 2008 and the year ended December 31, 2007, respectively.

The Company was organized as a Delaware corporation in July 1996 to act as a holding company. As of June 30, 2008, the organizational legal structure consists of Allin Corporation and six subsidiaries. Allin Interactive Corporation ("Allin Interactive"), Allin Corporation of California ("Allin Consulting-California"), Allin Consulting-Pennsylvania, CodeLab Technology Group, Inc. ("CodeLab") and Allin Network Products, Inc. ("Allin Network") are operating subsidiaries that focus on the Company's consulting and systems integration services. Allin Holdings Corporation ("Allin Holdings") is a non-operating subsidiary that provides treasury management services to the Company. The Company utilizes the trade-names Allin Interactive, Allin Consulting, CodeLab Technology Group and SharePointHosting.com in its operations. Management believes the trade names are recognized in the markets the Company serves. All trade- and brand-names included in this Quarterly Report on Form 10-Q are the property of their respective owners.

Financial Overview

The following table provides a summary of key financial information from the
Company's Statements of Operations for the three-month periods ended June 30,
2008 and 2007, as well as period-to-period percentage changes.



                                                   Three Months Ended
                                                        June 30,
  (Dollars in thousands)                            2008         2007     % Increase
  Statement of Operations Data:
  Revenue                                        $    7,938    $  6,786           17 %
  Gross profit                                        4,154       3,401           22 %
  Selling, general and administrative expenses        3,596       2,921           23 %
  Net income                                            981         402          144 %

Comparing the three-month periods ended June 30, 2008 and 2007, the Company experienced period-to-period increases in revenue of $1,152,000 and gross profit of $753,000. The Company's aggregate consulting services realized increases of $85,000 (2%) in revenue and $89,000 (4%) in gross profit. Significant period-to-period improvements in revenue and gross profit were realized by the Collaborative Solutions, Interactive Media, Systems Integration and Other Services segments. However, the Business Process segment experienced significant period-to-period declines in revenue and gross profit that partially offset the increases. The period-to-period changes in revenue or gross profit for the Technology Infrastructure and Information System Product Sales segments were relatively small and did not significantly impact the period-to-period changes in total revenue or gross profit.

Collaborative Solutions revenue and gross profit increased by $163,000 (7%) and $130,000 (10%), comparing the three-month periods ended June 30, 2008 and 2007. Management attributes the period-to-period increases primarily to continued strong demand for solutions based on Microsoft SharePoint technology.

Period-to-period changes in Interactive Media included increases in revenue of $133,000 (18%) and gross profit of $42,000 (10%), comparing the three-month periods ended June 30, 2008 and 2007. Management attributes the increases to a greater number of active large projects for shipboard interactive television systems in the second quarter of 2008 than in the second quarter of 2007. Comparing the three-month periods ended June 30, 2008 and 2007, Systems Integration revenue and gross profit increased by $798,000 (52%) and $413,000 (57%), respectively. Management also attributes the period-to-period increases in Systems Integration revenue and gross profit to the higher level of activity on shipboard interactive television systems during the second quarter of 2008, on projects related to those noted above for Interactive Media consulting. Management expects that the levels of Interactive Media and Systems Integration revenue and gross profit realized during each of the third and fourth quarters of 2008 will be less than the levels realized during the second quarter of 2008 due to the timing of delivery of new ships for which the Company is providing systems and due to continuing economic weakness.

Comparing the second quarters of 2008 and 2007, Business Process revenue and gross profit declined by $146,000 (21%) and $86,000 (21%), respectively. Management attributes the changes primarily to the inclusion of activity for one unusually large project during the second quarter of 2007. There were no projects with a comparable level of activity during the second quarter of 2008.

Other Services revenue and gross profit increased by $251,000 (69%) and $234,000 (160%), respectively, comparing the three-month periods ended June 30, 2008 and 2007. During the second quarter of 2008, other services revenue and gross profit increased primarily due to growth in software licensing revenue associated with the Company's DigiMix™ software applications utilized for shipboard interactive television platforms and the inclusion of hosting fees associated with SharePointHosting.com operations for a portion of the quarter. Management believes the May 2007 introduction of a new generation of DigiMix™ software applications has stimulated demand for the Company's interactive television solutions.

The increase in selling, general and administrative expenses for the three-month period ended June 30, 2008, as compared to the three-month period ended June 30, 2007, was $675,000. Period-to-period increases were realized in compensation for additions to the Company's technical consulting staff and sales and marketing personnel, rent expense due to expansion of the Boston and Ft. Lauderdale offices as well as the acquisition of SharePointHosting.com and depreciation and amortization.

The Company recognized a gain of $609,000 during June 2008 from the extinguishment of a liability for goods purchased and utilized in the Company's operations. The gain recognized was due to the expiration of the statutory period for a commercial claim under the sales terms of the arrangement.

The following table provides a summary of key financial information from the Company's Statements of Operations for the six-month periods ended June 30, 2008 and 2007, as well as period-to-period percentage changes.

                                                    Six Months Ended
                                                        June 30,
   (Dollars in thousands)                           2008        2007     % Increase
   Statement of Operations Data:
   Revenue                                        $  16,114   $ 12,966           25 %
   Gross profit                                       8,498      6,851           24 %
   Selling, general and administrative expenses       7,019      5,540           27 %
   Net income                                         1,809      1,194           52 %

Comparing the six-month periods ended June 30, 2008 and 2007, the Company experienced period-to-period increases in revenue of $3,148,000 and gross profit of $1,647,000. The Company's aggregate consulting services realized increases of $352,000 (4%) in revenue and $122,000 (2%) in gross profit. Significant period-to-period improvements in revenue and gross profit were realized by the Interactive Media, Systems Integration and Other Services segments. However, the Business Process segment experienced significant period-to-period declines in revenue and gross profit that partially offset the increases. The period-to-period changes in revenue or gross profit for the Technology Infrastructure, Collaborative Solutions and Information System Product Sales segments were relatively small and did not significantly impact the period-to-period changes in total revenue or gross profit.

Period-to-period changes in Interactive Media included increases in revenue of $682,000 (50%) and gross profit of $319,000 (35%), comparing the six-month periods ended June 30, 2008 and 2007. Management attributes the increases to a greater number of active large projects for shipboard interactive television systems in the first half of 2008 than in the first half of 2007. Comparing the six-month periods ended June 30, 2008 and 2007, Systems Integration revenue and gross profit increased by $2,292,000 (81%) and $1,068,000 (79%), respectively. Management also attributes the period-to-period increases in Systems Integration revenue and gross profit to the higher level of activity on large shipboard interactive television systems during the first half of 2008, on projects related to those noted above for Interactive Media consulting.

Comparing the six-month periods ended June 30, 2008 and 2007, Business Process revenue and gross profit declined by $389,000 (27%) and $261,000 (30%), respectively. Management attributes the changes primarily to the inclusion of activity for three unusually large projects during the first half of 2007. There were no projects with a comparable level of activity during the first half of 2008.

Other Services revenue and gross profit increased by $465,000 (74%) and $437,000 (197%), respectively, comparing the six-month periods ended June 30, 2008 and 2007. Other services revenue and gross profit during the first half of 2008 increased in part due to software licensing revenue associated with the Company's DigiMix™ software applications utilized for shipboard interactive television platforms and the inclusion of hosting fees for SharePointHosting.com for a portion of the first half of 2008.

The increase in selling, general and administrative expenses for the six-month period ended June 30, 2008, as compared to the six-month period ended June 30, 2007, was $1,479,000. Period-to-period increases were realized in compensation for additions to the Company's technical consulting staff and sales and marketing personnel, rent, travel and research and development expenses, as well as the acquisition of SharePointHosting.com and depreciation and amortization.

The Company's cash balance decreased from $900,000 as of December 31, 2007 to $830,000 as of June 30, 2008, a decrease of $70,000. The overall change in cash reflects the netting of significant cash flows provided by operating activities, primarily from current operations, and cash flows provided by financing activities, primarily borrowing on the Company's line of credit, with cash flows used for investing activities, primarily for consideration related to acquisitions and capital expenditures. Operating activities resulted in net cash provided of $436,000 during the six-month period ended June 30, 2008. Cash generated from operations was $1,849,000, while changes in working capital resulted in a net use of $1,413,000. Working capital changes using cash included significant decreases in accounts payable and billings in excess of costs and estimated gross margins of $954,000 and $512,000, respectively, along with increases in accounts receivable and costs and estimated gross margins in excess of billings of $726,000 and $106,000, respectively. Working capital changes providing cash included significant increases in other accrued liabilities, customer deposits and accrued compensation and payroll taxes of $298,000, $251,000 and $140,000, respectively. Management believes the changes in working capital reflect significant outlays for project-related materials, including computer hardware and interactive television equipment necessary for the high level of project activity related to shipboard interactive television systems. Investing activities resulted in net cash used of $1,346,000, primarily $1,212,000 for consideration related to acquisitions, including both initial consideration related to the acquisition of SharePointHosting.com and contingent consideration related to the acquisitions in 2004 and 2005, respectively, of Accounting Technology Professionals L.L.C. d/b/a Jimary Business Systems ("Jimary Business Systems") and CodeLab, and $138,000 for capital expenditures. Financing activities resulted in net cash provided of $840,000, primarily from net borrowings on the Company's line of credit, net of preferred stock dividend payments.

As discussed above, in May 2008, the Company, through its subsidiary Allin Consulting-Pennsylvania, acquired certain assets utilized in the operations of SharePointHosting.com from SmithBridge Technology Group, Inc. ("SmithBridge") under an Asset Purchase Agreement among the parties, including internet domain properties, a customer list and customer agreements, and computer hardware, software, switches and other technical infrastructure supporting the operations of SharePointHosting.com. Initial consideration paid at closing included a cash payment of $235,000 and the issuance of 150,000 shares of the Company's common stock. The Asset Purchase Agreement includes provisions for potential contingent consideration in the form of two "Earn Out Payments," as defined in and calculated by formulas set forth in the Asset Purchase Agreement. The first Earn Out Payment will be based on annualizing revenue realized during the quarterly calendar period ending December 31, 2008 and will consist of a maximum cash payment of $270,000 and the

issuance of shares of the Company's stock as determined by dividing a maximum of $200,000 by the greater of (a) $1.00 per share or (b) the average of the high and low trading prices of shares of the Company's common stock for the five trading days preceding the date on which the payment is made. The second Earn Out Payment will be based on annualizing revenue realized during the quarterly calendar period ending March 31, 2009 and will consist of a maximum cash payment of $270,000 and the issuance of shares of the Company's stock as determined by dividing a maximum of $150,000 in the manner described above for the first Earn Out Payment. The formulas set forth in the Asset Purchase Agreement provide threshold levels for annualized revenue during each period, below which no consideration is due and contemplate the calculation of contingent consideration on a sliding scale up to the maximum amounts noted above based on the actual levels of annualized revenue realized in the respective periods. Any contingent consideration due under the Asset Purchase Agreement shall be due upon the earlier of thirty days after the completion of a review or audit of the results for the relevant fiscal period by the Company's independent accountants or ninety days following the end of the applicable quarterly calendar period.

Operational Focus, Marketing Strategy and Delivery Framework and Methods

The Company's operations are focused on providing Microsoft-based technology solutions. The Company is a Microsoft Gold Certified Partner designated with the following Microsoft Competencies in recognition of the attainment of rigorous certification criteria and demonstrated technical competency in providing complex business solutions:

• Advanced Infrastructure Solutions, with specializations in Active Directory and Identity Management and Systems Management,

• Business Intelligence Solutions, with specializations in Business Intelligence Platform and Performance Management,

• Custom Development Solutions, with specializations in Smart Client Development and Web Development,

• Information Worker Solutions, with specializations in Search, Portals and Collaboration and Enterprise Content Management and Forms,

. . .