<PAGE>
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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

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

                                   FORM 10-Q

  /X/         QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                          SECURITIES EXCHANGE ACT OF 1934

               FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
                                       OR

  / /        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                          SECURITIES EXCHANGE ACT OF 1934

        For the transition period from ______________ to ______________

                       Commission File Number: 000-26263

                                  APPNET, INC.
                 ---------------------------------------------
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                            <C>
                  DELAWARE                                      52-2077860
         --------------------------                          ----------------
       (State or other jurisdiction of                       (I.R.S. Employer
       incorporation or organization)                       Identification No.)
</TABLE>

                            6707 DEMOCRACY BOULEVARD
                               BETHESDA, MD 20817
               --------------------------------------------------
          (Address of principal executive offices including zip code)

                                 (301) 493-8900
                 ----------------------------------------------
              (Registrant's telephone number, including area code)

                              APPNET SYSTEMS, INC.
                    ---------------------------------------
                  (Former name, if changed since last report.)

    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.

                                Yes /X/  No / /

    As of October 25, 1999, there were 31,085,119 outstanding shares of the
Registrant's Common Stock, $0.0005 par value.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
                                  APPNET, INC.

                         QUARTERLY REPORT ON FORM 10-Q

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                                PAGE
                                                                                                             -----------
<S>                                                                                                          <C>
PART I. FINANCIAL INFORMATION

Item 1. Unaudited Consolidated Financial Statements

Consolidated Balance Sheets at September 30, 1999 and December 31, 1998....................................           3

Consolidated Statements of Operations for the three months ended September 30, 1999 and 1998 and the nine
  months ended September 30, 1999 and 1998.................................................................           4

Consolidated Statements of Cash Flows for the nine months ended September 30, 1999
  and 1998.................................................................................................           5

Notes to Consolidated Financial Statements.................................................................           6

Item 2. Management's Discussion and Analysis of Financial Condition and
  Results of Operations....................................................................................          14

Item 3. Quantitative and Qualitative Disclosure About Market Risk..........................................          20

PART II. OTHER INFORMATION

Item 2. Changes in Securities and Use of Proceeds..........................................................          21

Item 4. Submission of Matters to a Vote of Security Holders................................................          21

Item 6. Exhibits and Reports on Form 8-K...................................................................          21

Signature..................................................................................................          22
</TABLE>

                                       2
<PAGE>
PART I. FINANCIAL INFORMATION

ITEM I. FINANCIAL STATEMENTS

                                  APPNET, INC.
                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                      SEPTEMBER 30,  DECEMBER 31,
                                                                                          1999           1998
                                                                                      -------------  -------------
                                                                                       (UNAUDITED)     (AUDITED)
<S>                                                                                   <C>            <C>
ASSETS
Current assets:
  Cash and cash equivalents.........................................................   $ 3,236,000   $   2,447,000
  Accounts receivable, net of allowance for doubtful accounts of $1,597,000 and
    $1,124,000, respectively........................................................    27,010,000      11,238,000
  Other current assets..............................................................     1,428,000       1,118,000
                                                                                       -----------   -------------
    Total current assets............................................................    31,674,000      14,803,000
Property and equipment, net.........................................................     7,359,000       3,012,000
Intangible assets, net..............................................................   102,028,000      99,380,000
Other assets........................................................................     1,867,000       1,175,000
                                                                                       -----------   -------------
Total assets........................................................................   $142,928,000  $ 118,370,000
                                                                                       ===========   =============
LIABILITIES, REDEEMABLE STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..................................................................   $ 5,665,000   $   2,737,000
  Accrued expenses..................................................................    28,925,000       6,911,000
  Current portion of convertible notes and long-term debt...........................     1,610,000       2,426,000
                                                                                       -----------   -------------
    Total current liabilities.......................................................    36,200,000      12,074,000
Credit facilities...................................................................     3,660,000      37,461,000
Convertible notes, net of current portion...........................................     8,800,000       2,706,000
Other long-term debt, net of current portion........................................     3,515,000       1,199,000
Other long-term liabilities.........................................................     1,066,000       3,398,000
                                                                                       -----------   -------------
    Total liabilities...............................................................    53,241,000      56,838,000
                                                                                       -----------   -------------
Class A Preferred Stock, $.01 par value, 96,621 shares authorized, zero and 38,093
  shares issued and outstanding as of September 30, 1999 and December 31, 1998,
  respectively, liquidation value $1,000 per share..................................            --      37,646,000
Common stock subject to put rights, $.0005 par value, zero and 48,771 shares issued
  and outstanding as of September 30, 1999 and December 31, 1998, respectively......            --         278,000
Stockholders' equity:
  Class B Preferred Stock, $.01 par value, 20,000 shares authorized, zero and 11,576
    shares issued and outstanding as of September 30, 1999 and December 31, 1998,
    respectively, liquidation value $1,000 per share................................            --      11,576,000
  Common stock, $.0005 par value; 75,000,000 shares authorized, 31,162,465 shares
    issued and 30,997,027 shares outstanding as of September 30, 1999 and 19,504,173
    shares issued and outstanding as of December 31, 1998...........................        16,000          10,000
  Additional paid in capital........................................................   165,135,000      27,222,000
  Treasury stock....................................................................       (50,000)
  Notes receivable from management..................................................      (617,000)       (821,000)
  Deferred compensation.............................................................      (414,000)             --
  Accumulated deficit...............................................................   (74,383,000)    (14,379,000)
                                                                                       -----------   -------------
    Total stockholders' equity......................................................    89,687,000      23,608,000
                                                                                       -----------   -------------
Total liabilities, redeemable stock and stockholders' equity........................   $142,928,000  $ 118,370,000
                                                                                       ===========   =============
</TABLE>

        The accompanying notes are an integral part of these statements.

                                       3
<PAGE>
                                  APPNET, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                          THREE MONTHS ENDED              NINE MONTHS ENDED
                                                             SEPTEMBER 30,                  SEPTEMBER 30,
                                                     -----------------------------  -----------------------------
                                                          1999           1998            1999           1998
                                                     --------------  -------------  --------------  -------------
<S>                                                  <C>             <C>            <C>             <C>
Revenues...........................................  $   30,096,000  $   2,488,000  $   74,802,000  $   3,508,000
Cost of revenues...................................      16,528,000      2,221,000      42,205,000      3,252,000
                                                     --------------  -------------  --------------  -------------
  Gross profit.....................................      13,568,000        267,000      32,597,000        256,000
Operating expenses:
  Selling and marketing............................       3,048,000        206,000       5,832,000        218,000
  General and administrative.......................       8,636,000      1,433,000      23,347,000      2,349,000
  Stock-based and other acquisition-related
    compensation...................................       7,779,000             --      15,730,000             --
  Depreciation and amortization....................      15,018,000      1,240,000      42,857,000      1,669,000
                                                     --------------  -------------  --------------  -------------
    Total operating expenses.......................      34,481,000      2,879,000      87,766,000      4,236,000
                                                     --------------  -------------  --------------  -------------
Loss from operations...............................     (20,913,000)    (2,612,000)    (55,169,000)    (3,980,000)
  Interest expense.................................         206,000        165,000       3,948,000        289,000
  Other expense, net...............................           1,000        387,000         559,000        387,000
                                                     --------------  -------------  --------------  -------------
Loss before income taxes...........................     (21,120,000)    (3,164,000)    (59,676,000)    (4,656,000)
Income tax provision (benefit).....................         178,000        (70,000)        328,000        (70,000)
                                                     --------------  -------------  --------------  -------------
Net loss...........................................     (21,298,000)    (3,094,000)    (60,004,000)    (4,586,000)
Dividends on and accretion of preferred stock......              --       (110,000)     (2,139,000)      (110,000)
                                                     --------------  -------------  --------------  -------------
Net loss attributable to common stockholders.......  $  (21,298,000) $  (3,204,000) $  (62,143,000) $  (4,696,000)
                                                     ==============  =============  ==============  =============
Basic and diluted net loss per share...............  $        (0.68) $       (0.19) $        (2.57) $       (0.59)
                                                     ==============  =============  ==============  =============
Weighted average common shares outstanding.........      31,124,225     17,176,937      24,200,397      8,018,434
                                                     ==============  =============  ==============  =============
</TABLE>

        The accompanying notes are an integral part of these statements.

                                       4
<PAGE>
                                  APPNET, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                         NINE MONTHS ENDED
                                                                                           SEPTEMBER 30,
                                                                                  -------------------------------
                                                                                       1999             1998
                                                                                  ---------------  --------------
<S>                                                                               <C>              <C>
Cash flows from operating activities:
  Net loss......................................................................  $   (60,004,000) $   (4,586,000)
  Adjustments to reconcile net loss to net cash used in operating activities:
    Amortization................................................................       40,893,000       1,611,000
    Depreciation................................................................        1,964,000          57,000
    Stock-based and other acquisition-related compensation......................       15,730,000              --
    Write-off of deferred financing costs.......................................          559,000              --
    Beneficial conversion charge................................................        1,052,000              --
    Changes in operating assets and liabilities:
      Accounts receivable, net..................................................      (13,143,000)       (520,000)
      Other current assets......................................................           86,000         182,000
      Accounts payable..........................................................        1,579,000        (138,000)
      Accrued liabilities.......................................................        7,327,000         215,000
                                                                                  ---------------  --------------
        Net cash used in operating activities...................................       (3,957,000)     (3,179,000)
Cash flows from investing activities:
  Purchase of property and equipment, net.......................................       (5,109,000)       (378,000)
  Cash paid for acquired businesses, net of cash acquired.......................      (26,381,000)    (12,877,000)
  Other assets..................................................................         (885,000)       (454,000)
                                                                                  ---------------  --------------
        Net cash used in investing activities...................................      (32,375,000)    (13,709,000)
Cash flows from financing activities:
  Proceeds from long-term debt..................................................               --         351,000
  Repayments of long-term debt..................................................         (203,000)       (268,000)
  Borrowings under credit facilities............................................       74,000,000      10,374,000
  Repayments of credit facilities...............................................     (107,801,000)     (1,081,000)
  Debt issue costs..............................................................         (621,000)       (194,000)
  Proceeds from issuance of common stock........................................          375,000       3,015,000
  Net proceeds from initial public offering.....................................       64,119,000              --
  Repurchase of common stock....................................................          (22,000)       (789,000)
  Proceeds from issuance of preferred stock.....................................        7,046,000       6,122,000
  Proceeds from exercise of stock options.......................................          228,000              --
                                                                                  ---------------  --------------
        Net cash provided by financing activities...............................       37,121,000      17,530,000
Net increase in cash and cash equivalents.......................................          789,000         642,000
Cash and cash equivalents at beginning of period................................        2,447,000              --
                                                                                  ---------------  --------------
Cash and cash equivalents at end of period......................................  $     3,236,000  $      642,000
                                                                                  ===============  ==============
Cash paid for income taxes......................................................  $       181,000  $           --
                                                                                  ===============  ==============
Cash paid for interest..........................................................  $     2,212,000  $      298,000
                                                                                  ===============  ==============
</TABLE>

        The accompanying notes are an integral part of these statements.

                                       5
<PAGE>
                                  APPNET, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  (UNAUDITED)

1.  BASIS OF PRESENTATION

    The accompanying consolidated financial statements of AppNet, Inc. (formerly
AppNet Systems, Inc.) and its subsidiaries (the "Company") are unaudited and
include all normal recurring adjustments which are, in the opinion of
management, necessary for a fair presentation of the results for the periods
presented pursuant to the instructions to Form 10-Q and Article 10 of
Regulation S-X. Certain information and footnote disclosures normally included
in the consolidated financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. These consolidated financial statements should be read in
conjunction with the Company's Registration Statement on Form S-1, which
includes consolidated financial statements and the notes thereto for the year
ended December 31, 1998 and for the three months ended March 31, 1998 and 1999.
The consolidated operating results of operations for the three- and nine-month
periods ended September 30, 1999 are not necessarily indicative of the results
that may be expected for the entire year ending December 31, 1999.

    On June 15, 1999, the Company declared a 2.85-for-one reverse stock split.
All share and per-share amounts, including stock option information, have been
restated in these notes and the accompanying consolidated financial statements
to reflect this reverse stock split.

2.  INITIAL PUBLIC OFFERING

    On June 23, 1999, the Company completed its initial public offering of
securities and issued 6,000,000 shares of common stock at $12.00 per share,
which generated proceeds, net of issuance costs, of approximately
$64.1 million. The proceeds of the offering were used to repay outstanding
borrowings under various credit facilities and other outstanding debt, as well
as fund general corporate purposes, including working capital expenditures.

3.  ACQUISITIONS

    From March 1998 through March 29, 1999, the Company acquired 12 businesses
in the Internet and electronic commerce professional services industry.
Collectively, these entities are referred to as the "Acquired Businesses." The
accounts of the Acquired Businesses are included in the accompanying
consolidated financial statements from the date of their respective
acquisitions. The five acquisitions occurring during 1999 (collectively, these
entities are referred to as the "1999 Acquired Businesses") are described as
follows:

    On January 8, 1999, the Company acquired all the outstanding stock of i33
communications corp. ("i33"), which is based in New York City. i33 provides
media buying and planning services, and, specializes in the design of creative
Internet solutions to its customers. The aggregate purchase price was
approximately $21.6 million, plus transaction costs, consisting of
$10.3 million paid in cash and $11.3 million paid in the form of convertible
notes to the previous i33 shareholders.

    On March 4, 1999, the Company acquired all of the issued and outstanding
stock of Sigma6, Inc. ("Sigma6"), which is based in Michigan and specializes in
providing brand identity services to its customers. The aggregate purchase price
was approximately $2.5 million, plus transaction costs, consisting of
$1.25 million paid in cash and $1.25 million paid in shares of Company Common
Stock. If certain performance criteria are met during the 12-month period ending
December 31, 1999, the former

                                       6
<PAGE>
                                  APPNET, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                  (UNAUDITED)

3.  ACQUISITIONS (CONTINUED)

stockholders of Sigma6 are entitled to a contingent payment of up to
$2.8 million consisting of cash and Company Common Stock.

    On March 15, 1999, the Company acquired certain assets of Salzinger &
Company, Inc. ("Salzinger"). The aggregate purchase price was approximately
$8.5 million, plus transaction costs, consisting of $5.0 million in cash and
$3.5 million in Company Common Stock. If certain performance criteria are met
during the period ending September 30, 2000, Salzinger is entitled to a
contingent payment of up to $5.0 million in cash or, cash and Company Common
Stock. Salzinger is based in Vienna, Virginia and provides business-level
strategic consulting services.

    On March 26, 1999, the Company acquired all of the issued and outstanding
stock of Internet Outfitters, Inc. ("Internet Outfitters"), which is based in
Santa Monica, California and provides localization and creative Web-development
services. The aggregate purchase price was approximately $9.5 million, plus
transaction costs, consisting of cash, $2.7 million in Company Common Stock, and
the issuance of 22,300 options to purchase Company Common Stock. If certain
performance criteria are met during the year ending December 31, 1999, the
former stockholders are entitled to a contingent payment of up to $3.5 million
in cash and Company Common Stock.

    On March 29, 1999, the Company acquired certain assets of Transform IT,
Incorporated ("Transform IT") which is based in Alexandria, Virginia and
provides process-level strategic consulting services. The aggregate purchase
price was approximately $5.1 million, plus transaction costs, consisting of
$3.5 million in cash and $1.6 million in Company Common Stock. If certain
performance criteria are met during the twelve-month period ending March 31,
2000, Transform IT is entitled to a contingent payment of up to $3.5 million in
cash.

ALLOCATION OF PURCHASE CONSIDERATION

    The acquisitions have been accounted for using the purchase method of
accounting and, accordingly, the recognized purchase price has been allocated,
based on preliminary estimates of fair value, to the tangible assets acquired
and liabilities assumed and, with the advice of independent valuation experts,
to the identifiable intangible assets, on the acquisition dates.

    In the nine month period ended September 30, 1999, the Company recorded
identifiable intangibles related to the 1999 Acquired Businesses of
approximately $2.9 million. This purchase price allocation also resulted in the
allocation of approximately $43.0 million to goodwill. During the nine months
ended September 30, 1999, management revised certain estimates related to
certain tax contingencies which resulted in a reduction of goodwill of
approximately $2.6 million. As of September 30, 1999, the purchase price in
excess of identified tangible and intangible assets and liabilities assumed for
the Acquired Businesses in the amount of $135.0 million was allocated to
goodwill. As a result of the early stage of development of the Internet and
electronic commerce, the dynamics of this rapidly evolving industry and the
expectation of increasing competition, the recorded goodwill is being amortized
on a straight-line basis over three years, the estimated period of its benefit.

CONTINGENT PAYMENTS

    The Company may be required to make contingent payments through
November 2000 to some of the businesses it acquired. These contingent payments
are payable in cash and stock, in one case at the option

                                       7
<PAGE>
                                  APPNET, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                  (UNAUDITED)

3.  ACQUISITIONS (CONTINUED)

of the selling stockholders. The amount of these payments will depend on the
level of achievement of the operating targets and the market price of the
Company's common stock. The majority of the former stockholders must remain
employed by the Company in order to remain eligible to receive these payments.
The maximum aggregate amount of the cash portion of these payments, assuming the
operating targets are fully met, is approximately $20.2 million of which $0.2
million was paid during the nine months ended September 30, 1999.

    The following unaudited pro forma consolidated amounts give effect to the
1999 acquisitions as if they had occurred on January 1, 1999, by consolidating
the results of operations of the Acquired Businesses with the results of AppNet
for the nine months ended September 30, 1999. The pro forma amounts do not
purport to be indicative of the results of operations that would have been
achieved had the transactions been consummated as of the beginning of 1999 and
are not necessarily representative of future results of operations.

<TABLE>
<CAPTION>
                                                             FOR THE NINE MONTHS
                                                             ENDED SEPTEMBER 30,
                                                             -------------------
                                                                    1999
                                                             -------------------
<S>                                                          <C>
Revenues...................................................      $ 77,430,000
Net loss attributable to common stockholders...............       (53,182,000)
Basic and diluted net loss per share.......................      $      (2.54)
</TABLE>

4.  ACCRUED LIABILITIES

    Accrued liabilities consist of the following:

<TABLE>
<CAPTION>
                                                              SEPTEMBER 30,   DECEMBER 31,
                                                                  1999            1998
                                                              -------------   ------------
<S>                                                           <C>             <C>
Accrued compensation and benefits...........................   $ 4,103,000     $2,590,000
Accrued dividends on Class A Preferred Stock and Class B
  Preferred Stock...........................................            --        689,000
Payments due to former shareholders of Acquired
  Businesses................................................     1,600,000      1,500,000
Accrued stock-based and other acquisition-related
  compensation..............................................    14,072,000             --
Other accrued liabilities...................................     9,150,000      2,132,000
                                                               -----------     ----------
Accrued liabilities.........................................   $28,925,000     $6,911,000
                                                               ===========     ==========
</TABLE>

5.  DEBT

    In connection with the initial public offering, the Company converted
promissory notes of approximately $0.7 million plus accrued interest into 75,129
shares of the Company's common stock at a conversion price at 80% of the $12.00
initial public offering price. The Company recognized an interest charge of
$1.1 million related to this conversion as the notes contained beneficial
conversion features, which allowed the holders to convert at a discount from the
initial public offering price of the common stock.

    During May 1999 and August 1999, the Company converted promissory notes of
approximately $1.5 million plus accrued interest to former owners of an acquired
business into 185,429 shares of the

                                       8
<PAGE>
                                  APPNET, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                  (UNAUDITED)

5.  DEBT (CONTINUED)

Company's common stock at a conversion price of $8.55 per share. During
October 1999, an additional $0.5 million of promissory notes to former owners of
an acquired business plus accrued interest were converted based on a conversion
price of $8.55 per share into 60,082 shares of common stock.

    On January 8, 1999, the Company replaced its two existing credit agreements
("the 1998 Credit Facilities") with two credit agreements (together the "1999
Credit Facilities") entered into with a syndicate of lenders providing for
$55.0 million in borrowings. The 1999 Credit Facilities consisted of
$40.0 million in credit loans (the "Guaranteed Loans"), which were guaranteed by
a significant stockholder and $15.0 million of additional credit loans (the
"Unguaranteed Loans"). On March 10, 1999, the Company amended the Unguaranteed
Loans increasing available borrowings from $15.0 million to $26.0 million. On
June 23, 1999, in connection with the initial public offering, the Company
terminated the Guaranteed Loans and amended the Unguaranteed Loans decreasing
available borrowings from $26.0 million to $20.0 million (the "Amended 1999
Credit Facility"). The Amended 1999 Credit Facility matures on August 24, 2001.

    The Amended 1999 Credit Facility includes certain restrictive covenants,
which require the Company, among other things, to maintain minimum levels of
earnings before interest, taxes, depreciation, and amortization, ratios of cash
flow to debt service, place limits on capital expenditures.

    In conjunction with the modification of the credit facilities during June
1999, a charge of $0.6 million was recorded to write-off financing costs related
to the facilities.

    The Unguaranteed Loans bear interest, at the Company's option, at various
LIBOR rates or the lenders' base rate plus an applicable margin, as determined
by the Company's operating performance.

    Debt consists of the following:

<TABLE>
<CAPTION>
                                                              SEPTEMBER 30,   DECEMBER 31,
                                                                  1999            1998
                                                              -------------   ------------
<S>                                                           <C>             <C>
Credit facilities:

Credit facility, bearing interest at the lender's prime rate
  plus .5% (8.25% at December 31, 1998), interest due
  monthly...................................................   $        --    $19,730,000

Credit facility, bearing interest at the lender's prime rate
  (7.75% at December 31, 1998), interest due monthly........            --     17,731,000

Credit facility, bearing interest at the lender's prime rate
  plus .25% to 1.5% or various LIBOR rates plus 2.25% to
  3.5%, interest due at varying monthly intervals, interest
  rate of 9.75% at September 30, 1999.......................     3,660,000             --
                                                               -----------    -----------

                                                                 3,660,000     37,461,000
</TABLE>

                                       9
<PAGE>
                                  APPNET, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                  (UNAUDITED)

5.  DEBT (CONTINUED)

<TABLE>
<CAPTION>
                                                              SEPTEMBER 30,   DECEMBER 31,
                                                                  1999            1998
                                                              -------------   ------------
<S>                                                           <C>             <C>
Convertible notes:

Note payable, principal and interest due October 13, 1999,
  bearing interest at 7%, convertible at the option of the
  holder for common stock at $8.55 per share................       485,000      2,000,000

Note payable, principal and interest due June 29, 2003,
  bearing interest at 5%, convertible at 80% of common stock
  price upon a sale of Company or an initial public
  offering..................................................            --        406,000

Notes payable, principal and interest due December 14, 2001,
  bearing interest at 8%, convertible at the option of the
  holder for common stock at $11.40 per share...............     2,000,000      2,000,000

Note payable, principal and interest due April 30, 2003,
  bearing interest at the prime rate (7.75% at December 31,
  1998), interest payable quarterly at July 31, October 31,
  January 31 and April 30, convertible at the option of the
  holder at 80% of common stock price on a sale of Company
  or an initial public offering.............................            --        300,000

Note payable, principal and interest due January 8, 2002,
  bearing interest at 4.3%, two notes totaling $6,800,000
  convertible at the option of the holder for common stock
  at $11.40 per share.......................................     6,800,000             --
                                                               -----------    -----------

                                                                 9,285,000      4,706,000
Other long-term debt:
Note payable, principal and interest due January 8, 2002,
  bearing interest at 6%....................................     3,500,000             --
Notes payable, principal and interest due January 1, 2000,
  bearing interest at 6%....................................     1,000,000      1,000,000
Note payable to Smart Technology, L.L.C., due the earlier of
  an initial public offering or June 29, 2000, bearing
  interest at 12%...........................................            --        150,000
Other notes payable.........................................       140,000        475,000
                                                               -----------    -----------
                                                                 4,640,000      1,625,000
                                                               -----------    -----------
    Total debt..............................................    17,585,000     43,792,000
Less current portion........................................    (1,610,000)    (2,426,000)
                                                               -----------    -----------
    Long-term debt, net of current portion..................   $15,975,000    $41,366,000
                                                               ===========    ===========
</TABLE>

6.  CAPITAL STOCK

COMMON STOCK SUBJECT TO PUT RIGHTS

    In conjunction with a business acquisition in 1998, the Company issued
266,796 shares of Series A-1 Convertible Preferred Stock with a liquidation
value of $1.1 million. Pursuant to their terms, these shares

                                       10
<PAGE>
                                  APPNET, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                  (UNAUDITED)

6.  CAPITAL STOCK (CONTINUED)

were converted into 187,225 shares of Company Common Stock at the time of the
GTCR Investment. As part of the GTCR Investment, the Board of Directors
authorized the repurchase of 138,455 shares of the common stock issued upon the
conversion for $5.70 per share, which provided the holders a return equivalent
to the liquidation value of the Series A-1 Convertible Preferred Stock. In
addition, the Board of Directors agreed to grant the holders of the remaining
48,771 shares of Company Common Stock the right to require the Company to
repurchase their shares for cash at $5.70 per share beginning on March 11, 1999,
and extending for thirty days. The Company repurchased 3,889 shares and the put
rights on the remaining 44,882 shares expired in April 1999.

CLASS A AND CLASS B PREFERRED STOCK

    In connection with the initial public offering, the Company exchanged 45,430
shares of Class A Preferred Stock and 11,576 shares of Class B Preferred Stock,
including accrued dividends, for 4,936,808 shares of common stock at an exchange
rate based on the initial public offering price of $12.00 per share. Of the
4,936,808 shares of common stock, 3,813,864 shares of common stock were issued
to GTCR Golder Rauner, L.L.C. ("GTCR"), a significant investor of the Company.

    The dividends and accretion of financing costs associated with the Class A
and Class B Preferred Stock was $2.1 million for the nine months ended
September 30, 1999 and is classified as Dividends on and accretion of preferred
stock in the accompanying statements of operations.

STOCK WARRANTS

    The Company has issued warrants to purchase 84,795 shares of Company Common
Stock at $0.3007 per share, of which Smart Technology, L.L.C., a party related
to the Company's President and Chief Executive Officer held 70,175. In
July 1999, a holder of a warrant for 14,620 shares exercised its warrants. The
values attributable to these warrants at the time of issuance are not
significant and, therefore, have not been separately presented in the
consolidated financial statements.

RESERVED STOCK

    At the time of the GTCR Investment, the Company's President and Chief
Executive Officer purchased 1,251,228 shares of Company Common Stock (the
"Reserved Stock") from the Company at a price of $0.3007 per share in exchange
for cash equal to the aggregate par value of the Reserved Stock and a promissory
note for the balance of the aggregate purchase price. The Company and the
Company's President and Chief Executive Officer are parties to a Senior
Management Agreement, dated June 29, 1998. The Senior Management Agreement
provides that the Company may repurchase any or all of the Reserved Stock at the
original purchase price in order to issue a corresponding number of shares and
options to purchase Company Common Stock to certain employees. This repurchase
right terminated upon the closing of the Company's initial public offering, at
that time 210,119 shares of Reserved Stock had not been repurchased by the
Company.

    The Company recognized a compensation charge of $2.5 million, recorded as
stock-based and acquisition-related compensation expense, upon completion of the
initial public offering in connection with the termination of the Company's
right to repurchase the remaining shares. The amount of the compensation charge
was determined based on the number of common shares that the Company could

                                       11
<PAGE>
                                  APPNET, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                  (UNAUDITED)

6.  CAPITAL STOCK (CONTINUED)

have repurchased and the difference between $0.3007, the repurchase price, and
the initial public offering price of $12.00 per share.

DEFERRED COMPENSATION

    In March 1999, the Company issued 337,776 stock options to a member of
management. These options have an exercise price of $12.83 and vest ratably over
4 years. As a result of this grant, the Company recorded deferred compensation
expense of $481,000. The amount of deferred compensation expense was based on
the difference between the estimated fair market value of the Company Common
Stock at the date of grant, as determined by the most recent third party stock
transaction, and the stated exercise price. The Company amortized $67,000 of the
deferred compensation expense for the nine months ended September 30, 1999 in
the unaudited consolidated statement of operations.

7.  EARNINGS PER SHARE

    SFAS No. 128 "Earnings Per Share," requires the presentation of basic and
diluted earnings per share. Basic net income (loss) per share is computed by
dividing income (loss) attributable to common stockholders by the weighted
average number of common shares outstanding for the period. The diluted net
income (loss) per share data is computed using the weighted average number of
common shares outstanding plus the dilutive effect of common stock equivalents,
unless the common stock equivalents are antidilutive. Approximately 157,000
shares of common stock which are contingently payable pursuant to the
acquisition agreements are not included in the calculation of weighted average
shares outstanding for the period presented, as circumstances may arise in which
the shares would not be issued. In addition, the impact of potentially dilutive
securities are excluded from diluted earnings per share due to their
antidilutive effect as of September 30, 1999 as follows:

<TABLE>
<S>                                                           <C>
Stock options outstanding...................................  2,557,000
Warrants....................................................     70,000
Convertible notes...........................................    829,000
Contingent shares...........................................    655,000
</TABLE>

8.  SEGMENT INFORMATION

    The Company currently operates in two operating segments: professional
services and electronic commerce processing. For the nine months ended
September 30, 1999 and 1998, the electronic commerce processing segment was not
significant to the overall financial statements.

9.  SUBSEQUENT EVENTS

    On September 30, 1999, the stockholders of the Company approved the adoption
of the 1998 Employee Stock Purchase Plan ("ESPP"). The purpose of the Plan is to
enhance stockholder value and promote the attainment of significant business
objectives of the Company by allowing employees to purchase the Company's Common
Stock at a discount of 15%, thereby giving employees an interest in common with
that of the stockholders. The number of shares available for purchase under the
ESPP is 250,000. The purchase price of shares under the plan is the lower of 85%
of the share price on the first day

                                       12
<PAGE>
                                  APPNET, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                                  (UNAUDITED)

9.  SUBSEQUENT EVENTS (CONTINUED)

of the plan quarter or the share price on the plan quarter close. All employees
are eligible to participate except (i) those employed for less than 20 hours per
week; (ii) employees who, as a result of participation in the ESPP, would own
stock or hold options to purchase stock possessing five percent or more of the
total combined voting power or value of all classes of stock of the Company; and
(iii) if such right would permit the employee to purchase stock under the Plan
and any other stock purchase plans of the Company and its subsidiaries in effect
from time to time with a fair market value in excess of $25,000 (determined as
of the first day of each plan quarter) for each calendar year. Participants can
contribute from 1% to 10% of their annual salary. The plan became effective on
October 1, 1999.

    In connection with the acquisition of New Media Publishing, Inc. ("NMP"),
contingent purchase payments based upon the achievement of certain operating
targets during the year ended October 1, 1999 are payable in January 2000. Based
on the preliminary results of NMP's operating performance during the period of
performance, 100% of the contingent consideration, or $14.0 million, is payable
to the former shareholders, of which $8.4 million is payable in cash and $5.6
million is payable in stock based on $8.55 per share or 654,971 shares. The fair
value of the stock portion totalled approximately $17.2 million as of
October 1, 1999.

                                       13
<PAGE>
                                  APPNET, INC.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
  OF OPERATIONS

    The following discussion and analysis compares the three- and nine-month
periods ended September 30, 1999 to the corresponding periods ended
September 30, 1998 for AppNet, Inc. (formerly AppNet Systems, Inc.) and its
subsidiaries ("AppNet," the "Company," "we," "us" and "our") and should be read
in conjunction with the Company's consolidated financial statements and notes
thereto appearing elsewhere in this Form 10-Q and in conjunction with the
Company's March 29, 1999 Registration Statement on Form S-1, as amended. The
matters discussed herein and elsewhere in this 10-Q may include forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Forward-looking statements include, without limitation, any statement that
may predict, forecast, indicate or imply future results, performance or
achievements and may contain the words "believe," "anticipate," "expect,"
"estimate," "project," "will be," "will continue," "will likely result" or
similar words or phrases. The matters discussed herein involve risks and
uncertainties which could result in operating performance that is materially
different from that implied in the forward-looking statements. Risks that could
cause actual results to differ materially from those in the forward-looking
statements include, but are not limited to, risks related to government
regulation of the Internet and electronic commerce, risks related to increased
competition in the Internet and electronic commerce industry, the need to
respond to rapid technological advances in the Internet and electronic commerce
industry, risks posed by the Year 2000 problem for the Internet and electronic
commerce industry and general economic conditions. Additional information
concerning these and other risks and uncertainties is contained from time to
time in the Company's filings with the Securities and Exchange Commission. New
risk factors emerge from time to time, and it is not possible for management to
predict all such risk factors nor can it assess the impact of all such risk
factors on the Company's business or the extent to which any factor or
combination of factors may cause actual results to differ materially from those
contained in any forward-looking statements. Given these risks and
uncertainties, investors should not place undue reliance on forward-looking
statements as a prediction of actual results.

OVERVIEW

    AppNet provides Internet and electronic commerce professional services and
solutions to medium-sized and large businesses. We develop end-to-end electronic
commerce solutions that improve communication and commerce between businesses
and consumers as well as among businesses and their trading partners. Through
strategic acquisitions and internal growth, we have built a company with the
ability to design, develop, implement and manage end-to-end Internet and
electronic commerce solutions.

    From the Company's inception in November 1997 through March 1998, AppNet's
operating activities primarily consisted of developing a preliminary business
plan, recruiting personnel, engaging in discussions with prospective lenders and
strategic investors, identifying potential acquisition targets and developing
preliminary technical and marketing materials. Our strategic plan identified the
specific professional services which are required to provide clients with
end-to-end solutions. We then identified a group of companies which focused on
providing services in one or more of these professional services areas. After
reviewing and evaluating over 100 companies, we ultimately acquired a set of
companies that we believe fit together strategically and culturally and which,
when integrated with one another, could design, develop, implement and manage
end-to-end solutions. In March 1998, we completed our first acquisition. Since
that time, AppNet has completed 11 additional acquisitions.

    On June 15, 1999, AppNet declared a 2.85-for-one reverse stock split. All
share and per-share amounts, including stock option information, have been
restated to reflect this reverse stock split.

    On June 23, 1999, the Company completed its initial public offering of
securities and issued 6,000,000 shares of common stock at $12.00 per share,
which generated proceeds, net of issuance costs, of approximately
$64.1 million. The proceeds of the offering were used to repay outstanding
borrowings

                                       14
<PAGE>
under various credit facilities and other outstanding debt, as well as fund
general corporate purposes, including working capital expenditures.

    Operating results may fluctuate from quarter to quarter and from year to
year based on such factors as the number, size, type and profitability of
projects in which we are engaged. Other factors that could cause our quarterly
results to fluctuate include:

    - effectiveness of integrating acquisitions with existing operations;

    - our ability to attract, train and retain skilled management, technical and
      creative personnel;

    - the entrance of new competitors; and

    - timing and size of acquisition-related compensation expense charges which
      fluctuate based on the market price of our stock and the level of
      achievement of the agreed upon operating targets.

RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE THREE MONTHS ENDED
  SEPTEMBER 30, 1998

    REVENUES.  Revenue for the three months ended September 30, 1999 increased
$27.6 million to $30.1 million from $2.5 million for the three months ended
September 30, 1998 due to acquisitions the Company made during the third quarter
of 1998 and the third quarter of 1999, as well as internal growth.

    COST OF REVENUES.  Cost of revenues for the three months ended
September 30, 1999 increased $14.3 million to $16.5 million from $2.2 million
for the three months ended September 30, 1998. The increase in cost of revenues
was primarily driven by an increase in average billable headcount resulting from
the acquisitions that occurred during 1998 and 1999, as well as internal growth.
As a percentage of revenues, cost of revenues for the three months ended
September 30, 1998 decreased to 54.9% from 89.3% for the three months ended
September 30, 1998.

    OPERATING EXPENSES.  Operating expenses for three months ended
September 30, 1999 increased by $31.6 million to $34.5 million from
$2.9 million for the three months ended September 30, 1998. The increase in
operating expenses for the three months ended September 30, 1999 was
attributable primarily to an increase in selling and marketing, general and
administrative, and stock-based and other acquisition-related compensation
expense as well as depreciation and amortization expenses.

    SELLING AND MARKETING.  Selling and marketing expenses for the three months
ended September 30, 1999 increased $2.8 million to $3.0 million from
$0.2 million for the three months ended September 30, 1998. As a percentage of
revenue, selling and marketing expenses for the three months ended
September 30, 1999 increased to 10.1% from 8.3% for the three months ended
September 30, 1998. The increase in selling and marketing expenses is a result
of the acquisitions we completed during the nine months ended 1998 and the nine
months ended 1999 and the development of our corporate sales and marketing
staff. Selling and marketing expenses could continue to increase as a percentage
of our revenues in future periods as we continue to build our corporate sales
team and expand our marketing strategy.

    GENERAL AND ADMINISTRATIVE.  General and administrative expenses for the
three months ended September 30, 1999 increased $7.2 million to $8.6 million
from $1.4 million for the three months ended September 30, 1998. The increase in
general and administrative expenses is a result of the build up of corporate
infrastructure through 1998 and into 1999 to assist in the integration of
acquisitions. As a result of anticipated additional hiring costs associated with
the integration of the businesses we acquired in 1998 and 1999, our general and
administrative expenses are expected to continue to increase, although they may
decline as a percentage of our revenues. As a percentage of revenue, general and
administrative expenses for the three months ended September 30, 1999 decreased
to 28.7% from 57.6% for the three months ended September 30, 1998.

                                       15
<PAGE>
    STOCK-BASED AND OTHER ACQUISITION-RELATED COMPENSATION.  Stock-based and
other acquisition-related compensation expenses for the three months ended
September 30, 1999 was $7.8 million. The compensation charge during the three
months ended September 30, 1999 is attributable to the contingent payments due
to former shareholders of businesses acquired that must remain employed by
AppNet to receive the contingent payments. The amount is computed based on the
fair market value of our common stock at the end of the reporting period and
assumes that operating targets will be fully met. The amount of this
compensation expense may fluctuate in future reports based on the probability of
achievement of the operating targets by each of the acquired businesses and the
market price of our common stock at the end of each reporting period.

    DEPRECIATION AND AMORTIZATION.  Depreciation and amortization expense for
the three months ended September 30, 1999 increased $13.8 million to
$15.0 million from $1.2 million for the three months ended September 30, 1998.
The increase is primarily due to the amortization of intangible assets resulting
from the acquisitions made during the nine months ended 1998 and the nine months
ended 1999. Our goodwill and related amortization may increase in future periods
if AppNet is required to pay additional consideration for its acquisitions.

    INTEREST EXPENSE.  Interest expense for the three months ended
September 30, 1999 decreased $0.1 million to $0.3 million from $0.4 million for
the three months ended September 30, 1998 due to additional borrowings under our
credit facilities and issuance of notes payable to sellers of businesses
acquired during the nine months ended 1998 and the nine months ended 1999.

    INCOME TAX PROVISION.  The provision for income taxes was $178,000 for the
three months ended September 30, 1999 and is related to state income taxes.

NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE NINE MONTHS ENDED
  SEPTEMBER 30, 1998

    REVENUES.  Revenue for the nine months ended September 30, 1999 increased
$71.3 million to $74.8 million from $3.5 million for the nine months ended
September 30, 1998 due to acquisitions we made during the second half of 1998
and the first quarter of 1999, as well as internal growth.

    COST OF REVENUES.  Cost of revenues for the nine months ended September 30,
1999 increased $38.9 million to $42.2 million from $3.3 million for the nine
months ended September 30, 1998. The increase in cost of revenues was primarily
driven by an increase in average billable headcount resulting from the
acquisitions that occurred during 1998 and 1999, as well as internal growth.

    OPERATING EXPENSES.  Operating expenses for the nine months ended
September 30, 1999 increased $83.6 million to $87.8 million from $4.2 million
for the nine months ended September 30, 1998. The increase in operating expenses
for the nine months ended September 30, 1999 was attributable primarily to an
increase in selling and marketing, general and administrative, and stock-based
and other acquisition-related compensation expenses as well as depreciation and
amortization expenses.

    SELLING AND MARKETING.  Selling and marketing expenses for the nine months
ended September 30, 1999 increased $5.6 million to $5.8 million from $0.2 for
the nine months ended September 30, 1998. As a percentage of revenues, selling
and marketing expenses for the nine months ended September 30, 1999 increased to
8% from 6% for the nine months ended September 30, 1998. The increase in selling
and marketing expenses is a result of the acquisitions we completed during the
second half of 1998 and the first quarter of 1999 and the development of our
corporate sales and marketing staff.

    GENERAL AND ADMINISTRATIVE.  General and administrative expenses for the
nine months ended September 30, 1999 increased $21.0 million to $23.3 million
from $2.3 million for the nine months ended September 30, 1998. The increase in
general and administrative expenses is a result of the build up of corporate
infrastructure through 1998 and into 1999 to assist in the integration of
acquisitions. As a result of anticipated additional hiring costs associated with
the integration of the businesses we acquired in the

                                       16
<PAGE>
second half of 1998 and the first quarter of 1999, our general and
administrative expenses are expected to continue to increase, although they may
decline as a percentage of our revenues. As a percentage of revenue, general and
administrative expenses for the nine months ended September 30, 1999 decreased
to 31% from 67% for the nine months ended September 30, 1998.

    STOCK-BASED AND OTHER ACQUISITION-RELATED COMPENSATION.  Stock-based and
other acquisition-related compensation expenses for the nine months ended
September 30, 1999 was $15.7 million. Approximately $12.6 million is
attributable to the contingent payments due to former shareholders of businesses
acquired that must remain employed by AppNet to receive the contingent payments.
The amount is computed based on the fair market value of our common stock at the
end of the reporting period and assumes that operating targets will be fully
met. The amount of this compensation expense may fluctuate in future periods
based on the probability of achievement of the operating targets by each of the
acquired businesses and the market price of our common stock at the end of each
reporting period. In addition, we recognized a compensation charge of
$2.5 million during the nine months ended September 30, 1999, recorded as
stock-based and acquisition-related compensation expense, upon completion of the
initial public offering in connection with the termination of our right to
repurchase shares of our common stock from one of our officers. The amount of
the compensation charge was determined based on the number of common shares that
we could have repurchased from the officer and the difference between $0.3007,
the repurchase price, and the initial public offering price of $12.00 per share.

    DEPRECIATION AND AMORTIZATION.  Depreciation and amortization expense for
the nine months ended September 30, 1999 increased $41.2 million to
$42.9 million from $1.7 million for the nine months ended September 30, 1998.
The increase is primarily due to the amortization of intangible assets resulting
from the acquisitions made during the second half of 1998 and the first quarter
of 1999. Our goodwill and related amortization may increase in future periods if
AppNet is required to pay additional consideration for its acquisitions based on
attainment of certain operating targets.

    INTEREST EXPENSE.  Interest expense for the nine months ended September 30,
1999 increased $3.6 million to $3.9 million from $0.3 for the nine months ended
September 30, 1998 due to additional borrowings under our credit facilities and
issuance of notes payable to former owners of businesses acquired during the
second half of 1998 and the first quarter of 1999. In connection with our
initial public offering, we had an interest charge of $1.1 million during the
nine months ended September 30, 1999 related to beneficial conversion rights of
notes which contained conversion features at a discount from the initial public
offering price of the common stock.

    OTHER EXPENSE, NET.  Other expense of $0.6 million for the nine months ended
September 30, 1999 includes the write-off of deferred financing costs in
connection with the refinancing of our credit facilities during the period.
During the nine months ended September 30, 1998, other expense of $0.4 million
included the write-off of approximately $0.3 million related to an investment in
a joint venture that was deemed to have no value due to the failure of the
venture to generate a customer base and to generate sufficient revenues to cover
operating expenses, which resulted in the abandonment of operations of the
venture.

    INCOME TAX PROVISION.  The provision for income taxes was $0.3 million for
the nine months ended September 30, 1999 and is related to state income taxes.

LIQUIDITY AND CAPITAL RESOURCES

    At September 30, 1999, we had approximately $3.2 million in cash and cash
equivalents. We have financed our operations and acquisitions primarily through
the issuance of common stock, borrowings under credit facilities and the
issuance of preferred stock. For the nine months ended September 30, 1999, cash
used in operations was $4.0 million and $32.4 million was used in investing
activities. The principal use of cash in investing activities was to finance
acquisitions. As we continue to grow our business and

                                       17
<PAGE>
integrate the businesses we have acquired, we expect to use cash from operations
to fund these activities and to fund selling and marketing activities.

    Net cash provided by financing activities was $37.1 million for the nine
months ended September 30, 1999. Financing activities included net proceeds from
the initial public offering of $64.1 million, proceeds from issuance of
preferred stock, common stock and exercise of stock options of $7.6 million,
additional borrowings of $74.0 million, offset, in part, by debt repayments of
$107.8 million.

    In connection with our initial public offering, we issued 4,936,808 shares
of common stock in exchange for 45,430 shares of Class A Preferred Stock and
11,576 shares of Class B Preferred Stock, including accrued dividends, at an
exchange rate based on the initial public offering price of $12.00 per share. We
also issued 123,210 shares of common stock on conversion of promissory notes of
approximately $1.0 million plus accrued interest at a conversion price of $8.55
per share and issued 75,129 shares of common stock on conversion of promissory
notes of approximately $0.7 million plus accrued interest at a conversion price
at 80% of our June 1999 initial public offering price of $12.00 per share.

    In connection with certain acquisitions, we issued notes to the selling
stockholders some of which are convertible into shares of our common stock. The
balance of the notes at September 30, 1999 was approximately $13.8 million,
$9.3 million of which is convertible into shares of our common stock. These
notes have varying maturities, from October 1999 through April 2003, and bear
interest at rates between 4.3% and 8.0% as of September 30, 1999.

    In June 1999, we terminated one of our credit facilities that provided for a
revolving line of credit up to $40.0 million, which was guaranteed by an
affiliate, and decreased the available borrowings from $26.0 million to
$20.0 million on our other unguaranteed facility. The amended unquaranteed
credit facility expires on August 24, 2001, and bears interest, at our option,
at LIBOR or the lenders' prime rate, plus an applicable margin based on our
operating performance. The credit facility is secured by all of our assets and
contains various restrictive covenants that, among other things, require us to
maintain specified financial ratios, restrict us from paying dividends to our
common stockholders. At September 30, 1999, approximately $11.8 million remained
available for borrowing under our credit facility based on the level of
financial ratios, as set forth in the credit facility.

    Our capital expenditures for the nine months ended September 30, 1999 were
approximately $5.1 million. Historically, capital expenditures have been used to
make leasehold improvements to our leased office space and to purchase computer
hardware and software and furniture and fixtures. We do not have any material
commitments for capital expenditures for the foreseeable future. However, we do
plan to make capital expenditures, which may include office space, over the next
two years to further develop our electronic commerce outsourcing and internet
professional services.

    We may be required to make contingent payments through November 2000 to some
of the businesses we acquired. These contingent payments are payable in cash and
stock, in one case at the option of the former stockholders. The amount of these
payments will depend on the level of achievement of the operating targets and
the market price of our common stock. The majority of the former stockholders
must remain employed by us in order to remain eligible to receive these
payments. The maximum aggregate amount of the cash portion of these payments,
assuming the operating targets are fully met, is approximately $11.5 million.

    In connection with our acquisition of New Media Publishing, contingent
purchase payments based upon the achievement of certain operating targets during
New Media Publishing's 12 months ended October 1, 1999 are payable in
January 2000. Based on the preliminary results of New Media Publishing's
operating performance during the applicable period, we expect to pay contingent
consideration, of approximately $8.4 million in cash and 654,971 shares of our
common stock.

    Based upon current expectations, we believe amounts which may be borrowed
under our credit facility and cash flow from operations will be adequate for us
to meet our capital requirements, to finance the cash

                                       18
<PAGE>
portion of our contingent payments and pursue our business strategy for the next
18 months. To the extent AppNet is unable to fund its operations from cash flows
and existing credit facilities during or following the next 18 months, it may
need to obtain financing from external sources either by issuing additional
equity or incurring additional indebtedness.

RECENT ACCOUNTING PRONOUNCEMENTS

    In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives and Hedging Activities", which establishes
accounting and reporting standards for derivative instruments, including
derivative instruments embedded in other contracts, and for hedging activities.
SFAS No. 133, as amended, is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. We have determined that the adoption of SFAS
No. 133 will not have a material effect on our results of operations, financial
position or cash flows.

YEAR 2000

    We have completed an assessment of our Year 2000 readiness and have made
substantial progress in making our systems Year 2000 compliant. The risks posed
by the Year 2000 issue could adversely affect our business in a number of
significant ways. Many of our clients and potential clients maintain their
operations on systems that could be impacted by Year 2000 problems. If our
clients fail to ensure their systems are Year 2000 compliant and Year 2000
problems materially adversely affect them, our business could be adversely
affected, particularly if demand for our services declines as companies spend
their resources to upgrade their computer systems. We rely on our suppliers for
hardware, software and services. Our business could be adversely affected if we
cannot obtain products, services or systems that are Year 2000 compliant when we
need them. We also depend on the availability of the Internet infrastructure to
conduct our business and provide services to our clients. Disruptions in the
Internet infrastructure arising from Year 2000 problems could materially
adversely affect our business, financial condition and results of operations. In
addition, our solutions are sometimes dependent upon third-party products and
components. Failure of a third party whose products or services we employ to
adequately address Year 2000 issues could result in our involvement in
litigation concerning our products and services or those of a third party.
Futhermore, because we provide computer-related services, the risk we will be
involved in a lawsuit relating to Year 2000 issues is likely to be greater than
that of companies in other industries. We sometimes provide express warranties
to clients that our work is Year 2000 compliant.

    We have received assurances from all of our major suppliers that they are
Year 2000 compliant. We have established a Year 2000 Executive Steering
Committee, appointed a Year 2000 Compliance Program Manager and adopted a formal
compliance program to oversee and coordinate our Year 2000 compliance efforts
throughout our organization. This program is designed to ensure consistency and
minimize the impact of Year 2000 problems on our operations. Our Year 2000
compliance program consists of the following five phases: awareness, assessment,
remediation, testing and implementation. We have completed the awareness and
assessment phases of our Year 2000 compliance program. We estimate that we are
approximately 90% complete in our Year 2000 remediation efforts across the
entire organization. We have completed our testing and implementation phases at
a number of our locations and have begun this process at several others.

    In the event we do not complete the phases of our program, we may fail to
meet contractual obligations, provide adequate service or meet customer
requirements. The result of such failures could subject us to litigation for
which the amount of potential liability and lost revenue cannot be reasonably
estimated at this time.

    Our costs in connection with Year 2000 compliance to date have been
approximately $0.4 million. At this time, we estimate the potential additional
costs of becoming Year 2000 compliant to be between $0.2 million and $0.4
million, which includes the cost to replace hardware and software, outside
consulting

                                       19
<PAGE>
services and some internal labor costs. However, as we continue to implement our
Year 2000 compliance program, these cost estimates may need to be significantly
revised, which could have a material adverse effect on our business, financial
condition or results of operations.

    As part of our plan to integrate the back-office functions of the businesses
we have acquired, we are implementing new, uniform internal information systems,
such as general ledger, billing, accounts payable and payroll, throughout our
organization. Although we have received assurances from our vendors that these
new systems are Year 2000 compliant, our internal systems may experience
operational difficulties because of undetected errors or defects in the
technology used.

    If we fail to address a Year 2000 compliance problem in one of our systems,
the result could be a failure or interruption of normal business operations. We
believe that our Year 2000 compliance program, when fully implemented, should
minimize the risk of significant interruptions to our operations. Currently, we
do not have an expected completion date for our compliance program. At this
point, we believe that the most reasonably likely worst case scenario may
involve circumstances we do not directly control, such as:

    - Our suppliers may provide inaccurate or misleading information to us with
      respect to their products' and/or services' Year 2000 compliance. If we
      had to replace every information technology system developed by a third
      party throughout our organization, we estimate the cost to be $7.2 million
      and that it would result in significant interruption of our operations.

    - Our clients may fail to ensure that their systems are Year 2000 compliant,
      which may cause the Year 2000 problem to materially adversely affect them.
      If this did occur, demand for our services could decline as companies
      spend their resources to upgrade their computer systems.

    - The failure of third-party products and components upon which our
      solutions are sometimes dependent could result in our involvement in
      litigation concerning our solutions or the products and components of
      third parties. We cannot accurately predict the outcome of any legal
      claims in which we may become involved as a result of such failure.

    - Critical utilities such as electrical power and telecommunications may be
      interrupted for a significant and protracted period of time. We have taken
      steps to mitigate these risks by installing back-up power supplies and
      redundant telecommunications. However, we could still be adversely
      impacted by failures at companies that provide us with Internet services.

    We currently do not have contingency plans in place in the event we do not
complete all phases of our Year 2000 compliance program. If we do not develop
our contingency plans, our potential Year 2000 liabilities may be materially
increased.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    We are exposed to market risk related to changes in interest rates on our
long-term credit facility. We are able to manage our interest rate risk to some
degree through management's option to select the factor used to determine its
interest rate. Our credit facility is a variable rate credit facility and bears
interest, at our option, at LIBOR or the lenders' prime rate plus an applicable
margin based on our operating performance. The balance outstanding as of
September 30, 1999 was $3.7 million, which bears interest at a rate of 9.75%.
Assuming the amount outstanding at September 30, 1999, which was $3.7 million,
was outstanding for the entire year, we estimate that a one percentage point
change to the weighted average interest rate at September 30, 1999 would equal a
$0.1 million change in interest expense.

PART II. OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

    On June 23, 1999, AppNet issued 4,936,808 shares of its common stock in
exchange for 45,430 shares of its Class A Preferred Stock and 11,576 shares of
its Class B Preferred Stock at an exchange rate of

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<PAGE>
$12.00 per share. These securities were issued without registration under the
Securities Act of 1933, as amended, in reliance upon an exemption from
registration under Section 3(a)(9).

    On June 23, 1999, AppNet issued 75,129 shares of its common stock upon the
conversion of promissory notes of approximately $0.7 million plus accrued
interest at a conversion price of $9.60 per share. These securities were issued
without registration under the Securities Act of 1933, as amended, in reliance
upon an exemption from registration under Section 3(a)(9).

    The Company used the net proceeds from its initial public offering to repay
outstanding borrowings under various credit facilities and other outstanding
debt in an amount aggregating $62.4 million and for general corporate purposes,
including working capital expenditures, in an amount aggregating $1.7 million.
Except for a repayment of approximately $3,300 to Smart Technology, L.L.C., an
associate of our Chief Executive Officer, none of the net proceeds were used to
make direct or indirect payments to directors or officers of AppNet, their
associates or to others, or to persons owning ten (10) percent or more of any
class of equity securities of AppNet or to affiliates of AppNet.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

    Certain stockholders of the Company holding an aggregate of 16,731,741
shares, or approximately 53.7%, of the Company's issued and outstanding Common
Stock, acting by written consent in accordance with Delaware law and the
Company's By-laws, approved the following effective September 30, 1999:

        1. An amendment to the Company's Restated Certificate of Incorporation
    pursuant to which the Company's Board of Directors authorized the changing
    of the Company's corporate name from AppNet Systems, Inc. to AppNet, Inc.;
    and

        2. The adoption of the Company's 1999 Employee Stock Purchase Plan.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

       10.1 Recapitalization Agreement, dated as of June 16 , 1999, by and among
           AppNet Systems, Inc. and the holders of its Class A Preferred Stock
           and the holders of its Class B Preferred Stock.

       10.2 AppNet, Inc. 1999 Stock Incentive Plan.

       10.3 Limited Consent Letter Agreement, dated August 16, 1999, by Bank
           Boston, N.A., Antares Capital Corporation, and AppNet, Inc. and
           certain of its subsidiaries, relating to the Revolving Credit
           Agreement, dated as of January 8, 1999.

       27  Financial Data Schedule

       (b) Reports on Form 8-K during the three months ended September 30, 1999:

          None.

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<PAGE>
SIGNATURE

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

<TABLE>
<S>                             <C>  <C>
                                APPNET, INC.

                                By:             /s/ JACK PEARLSTEIN
                                     -----------------------------------------
                                                  Jack Pearlstein
                                       SENIOR VICE PRESIDENT, CHIEF FINANCIAL
                                                      OFFICER
Date: October 28, 1999                             AND TREASURER
</TABLE>

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