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 March 31, 2000
                                  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)



                 Delaware                                 52-2077860
                 --------                                 ----------
      (State or other jurisdiction of                  (I.R.S. Employer
       incorporation or organization)                  Identification No.)


                            6707 Democracy Boulevard
                               Bethesda, MD 20817
                               ------------------
           (Address of principal executive offices including zip code)

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


          Indicate  by check  mark  whether  the  registrant  (1) has  filed all
reports  required to be filed by Section 13 or 15(d) of the Securities  Exchange
Act of 1934 during the preceding 12 months (or for such shorter  period that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

                             Yes [X]    No [ ]

          As of April 6, 2000, there were 33,945,874  outstanding  shares of the
Registrant's Common Stock, $0.0005 par value.

<PAGE>

                             APPNET, INC.

                     QUARTERLY REPORT ON FORM 10-Q

                           TABLE OF CONTENTS


                                                                         Page
                                                                         ----
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Consolidated Financial Statements
Consolidated Balance Sheets at March 31, 2000 and December 31, 1999        3
Consolidated Statements of Operations for the three months ended
       March 31, 2000 and 1999                                             4
Consolidated Statements of Cash Flows for the three months ended
       March 31, 2000 and 1999                                             5
Notes to Consolidated Financial Statements                                 6
Item 2. Management's Discussion and Analysis of Financial Condition
          and Results of Operations                                       10

PART II. OTHER INFORMATION
Item 1. Legal Proceedings                                                 13
Item 6. Exhibits and Reports on Form 8-K                                  14
Signature                                                                 15



          Unless otherwise indicated, all references to "AppNet," "we," "us" and
"our"  refer  to  AppNet,  Inc.  and,  after  our  respective   acquisitions  or
formations, its subsidiaries.

                                CAUTIONARY NOTICE
                      REGARDING FORWARD-LOOKING STATEMENTS

          This report contains  statements that we believe are  "forward-looking
statements" within the meaning of the Private  Securities  Litigation Reform Act
of 1995. All statements other than statements of historical fact in this report,
including  statements  regarding our competitive  strengths,  business strategy,
expected  benefits  of any  acquisition,  future  financial  position,  budgets,
projected  costs and plans and  objectives  of  management  are  forward-looking
statements. In addition,  forward-looking statements generally can be identified
by the use of  forward-looking  terminology  such as  "may,"  "will,"  "expect,"
"should," "intend," "estimate,"  "anticipate,"  "believe," "plan," "continue" or
similar terminology. We undertake no obligation to publicly update or revise any
forward-looking  statements  contained  in this  report.  These  forward-looking
statements  are not guarantees of future  performance  and are subject to risks,
uncertainties  and other  factors,  some of which are beyond our  control,  that
could cause actual results to differ  materially  from those we express or imply
in those forward-looking statements.  These factors include those we describe in
"Risk  Factors" in our 1999  Annual  Report on Form 10-K and  elsewhere  in this
report, and these factors expressly qualify all written and oral forward-looking
statements attributable to us.


                                       2
<PAGE>

PART I. FINANCIAL INFORMATION

Item I. Financial Statements

                             APPNET, INC.
                      CONSOLIDATED BALANCE SHEETS
                 (in thousands, except share and per share data)

                                                       March 31,    December 31,
                                                          2000           1999
                                                      -----------   ------------
ASSETS                                                (Unaudited)
Current assets:
     Cash and cash equivalents                         $  55,105     $ 66,549
     Accounts receivable, net                             36,010        31,661
     Other current assets                                  3,255         1,300
                                                       ---------     ---------
        Total current assets                              94,370        99,510

Property and equipment, net                               10,585         8,958
Intangible assets, net                                    83,517        97,247
Other assets                                               2,636         2,111
                                                       ---------     ---------
Total assets                                           $ 191,108     $ 207,826
                                                       =========     =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Accounts payable                                  $   4,331     $   4,830
     Accrued liabilities                                  30,940        32,311
     Current portion  long-term debt                         838         1,063
                                                       ---------     ---------
        Total current liabilities                         36,109        38,204

Long-term debt, net of current portion                     3,516         3,516
Other long-term liabilities                                1,406         1,264
                                                       ---------     ---------
Total liabilities                                         41,031        42,984
                                                       ---------     ---------

Stockholders' equity:

Common  stock, $.0005 par value; 75,000,000 shares
authorized, 34,102,712 shares issued and 33,9601709
shares outstanding as of March 31, 2000 and
33,625,175 shares issued and 33,454,474 shares
outstanding as of December 31, 1999                           17            17
Additional paid-in capital                               262,126       257,542
Treasury stock                                               (43)          (51)
Notes receivable from management                            (503)         (503)
Deferred compensation                                       (351)         (383)
Accumulated deficit                                     (111,169)      (91,780)
                                                       ---------     ---------
Total stockholders' equity                               150,077       164,842

Total liabilities and stockholders' equity             $ 191,108     $ 207,826
                                                       =========     =========

        The accompanying notes are an integral part of these statements.

                                        3
<PAGE>

                                  APPNET, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (Unaudited)
                 (in thousands, except share and per share data)

                                                    Three months ended March 31,
                                                          2000           1999
                                                      -----------   ------------

Revenues                                              $   44,731        19,643
Cost of revenues                                          24,762        11,457
                                                      ----------    ----------

    Gross profit                                          19,969         8,186
Operating expenses:
    Selling and marketing                                  3,536         1,190
    General and administrative                            16,297         6,754
    Stock-based and acquisition-related compensation       5,115         2,487
    Depreciation and amortization                         14,847        12,735
                                                      ----------    ----------

             Total operating expenses                     39,795        23,166
                                                      ----------    ----------

Loss from operations                                     (19,826)      (14,980)

Interest income                                             (873)           (4)

Interest expense                                             167         1,266
                                                      ----------    ----------
Loss before income taxes                                 (19,120)      (16,242)
Income tax provision                                         270           100
                                                      ----------    ----------

Net loss                                                 (19,390)      (16,342)
Dividends on and accretion of preferred stock                  -        (1,039)
                                                      ----------    ----------
Net loss attributable to common stockholders          $  (19,390)   $  (17,381)
                                                      ==========    ==========

Basic and diluted net loss per common share           $    (0.57)   $    (0.88)
                                                      ==========    ==========

Weighted average common shares outstanding            33,841,997    19,722,559


        The accompanying notes are an integral part of these statements.


                                       4
<PAGE>
<TABLE>

                                                     APPNET, INC.
                                        CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                     (Unaudited)
                                                    (in thousands)
<CAPTION>

                                                                                        Three months ended March 31,
                                                                                           2000              1999
                                                                                        ----------         ---------
Cash flows from operating activities:
<S>                                                                                     <C>                <C>
     Net loss                                                                           $  (19,390)        $ (16,342)
     Adjustments to reconcile net loss to net cash (used in)
         provided by operating activities:
         Amortization                                                                       13,730            12,289
         Depreciation                                                                        1,117               446
         Stock-based and acquisition-related compensation                                    5,115             2,487
         Change in assets and liabilities:
             Accounts receivable, net                                                       (4,349)           (3,131)
             Other current assets                                                           (1,955)              336
             Accounts payable                                                                 (499)           (1,106)
             Accrued liabilities                                                               457             6,524
                                                                                        ----------         ---------
                Net cash (used in) provided by operating activities                         (5,774)            1,503
                                                                                        ----------         ---------
Cash flows from investing activities:
     Purchase of property and equipment                                                     (2,538)             (923)
     Cash paid for acquired businesses, net of cash acquired                                (1,600)          (26,109)
     Payment of contingent consideration                                                    (2,343)                -
     Other assets                                                                             (732)             (218)
                                                                                        ----------         ---------
                Net cash used in investing activities                                       (7,213)          (27,250)
                                                                                        ----------         ---------
Cash flows from financing activities:
     Repayments of long-term debt                                                           (1,041)                -
     Borrowings under credit facilities                                                          -            59,400
     Repayments of credit facilities                                                             -           (37,461)
     Debt issue costs                                                                            -              (621)
     Proceeds from issuance of common stock                                                      -               375
     Proceeds from issuance of preferred stock                                                   -             7,046
     Proceeds from Employee Stock Purchase Plan                                                855                 -
     Proceeds from exercise of stock options                                                 1,729               215
                                                                                        ----------         ---------
                Net cash provided by financing activities                                    1,543            28,954
                                                                                        ----------         ---------
Net (decrease) increase in cash                                                            (11,444)            3,207
Cash and cash equivalents, beginning of period                                              66,549             2,447
                                                                                        ----------         ---------

Cash and cash equivalents, end of period                                                $   55,105         $   5,654
                                                                                        ==========         =========
Supplementary information:
     Cash paid for income taxes                                                         $      804         $       -
                                                                                        ==========         =========
     Cash paid for interest                                                             $       52         $     157
                                                                                        ==========         =========

                           The accompanying notes are an integral part of these statements.
</TABLE>

                                       5
<PAGE>

                             AppNet, Inc.

              Notes to Consolidated Financial Statements

                              (Unaudited)

1.   Basis Of Presentation

          The accompanying consolidated financial statements of AppNet, 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 1999 Annual Report on Form 10-K, which includes consolidated financial
statements and the notes thereto for the years ended December 31, 1999 and 1998.
The  consolidated  operating  results of operations for the  three-month  period
ended March 31, 2000 are not  necessarily  indicative of the results that may be
expected for the entire year ending December 31, 2000.

2.   Acquisitions

          During the three  months ended March 31,  1999,  the Company  acquired
five businesses,  which included:  i33  communications  corp. for  approximately
$21.6  million  with a  combination  of cash  and  promissory  notes  that  were
converted  into shares of Company common stock in December  1999;  Sigma6,  Inc.
("Sigma6") for approximately  $2.5 million with a combination of cash and shares
of our common stock;  Salzinger & Company  ("Salzinger") for approximately  $8.5
million  with a  combination  of cash and shares of our common  stock;  Internet
Outfitters,  Inc. for  approximately  $9.5 million with a  combination  of cash,
shares of our common stock and options to purchase  shares of our common  stock;
and TransForm IT, Incorporated for approximately $5.1 million with a combination
of cash and shares of our common stock. The accounts of the businesses  acquired
are included in the accompanying consolidated financial statements from the date
of their respective acquisitions. The following unaudited pro forma consolidated
amounts  give effect to the five  acquisitions  that  occurred  during the three
months  ended March 31,  1999,  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 three  months  ended  March 31,  1999 (in  thousands,
except per share data). The pro forma amounts do not purport to be indicative of
the results of  operations  that would have been  achieved had the  transactions
been in effect as of the  beginning of 1999 and should not be construed as being
representative of future results of operations.
                                                              For the three
                                                              months ended
                                                              March 31, 1999
                                                              --------------
Revenues                                                         $ 22,271
Net loss  attributable to common stockholders                     (17,731)
Basic and diluted net loss per share                                (0.87)

Contingent Payments

          In  January  2000,  the  Company  paid a  portion  of  the  contingent
consideration related to its acquisition of New Media Publishing,  Inc. ("NMP").
Of the portion  paid,  $5.1 million was paid in cash to the former  shareholders
and  employees,  a note payable of  approximately  $0.8  million,  which accrues
interest  at 9% and is due  January  2001,  was  issued for the  remaining  cash
portion payable to a former shareholder,  334,762 shares of the Company's common
stock were issued to the former  shareholders  and  options to  purchase  88,523
shares of the Company's  common stock at $11.70 per share were issued to certain
employees. Of the remaining portion payable in cash,  approximately $0.8 million
will be paid in May 2000 and  approximately  $2.4  million,  including  the note
payable  discussed  above,  will be paid in January  2001 if certain  former NMP
employees  remain  employed by AppNet  through  September  2000.  The  remaining
portion  payable  in  stock,  approximately  255,000  shares,  will be issued in
January 2001 if certain former NMP employees  remain  employed by AppNet through
September  2000.  During the three  months  ended  March 31,  2000,  the Company
incurred approximately $2.8 million in stock-based  compensation expense related
to these contingent payments.


                                       6
<PAGE>

                             AppNet, Inc.

        Notes to Consolidated Financial Statements (continued)

                              (Unaudited)

2.   Acquisitions (continued)

          In connection with the Company's  acquisition of Sigma6 in March 1999,
the former Sigma6  stockholders  were also  entitled to a contingent  payment of
$2.8 million based on the achievement of agreed-upon performance criteria during
the 12-month  period ending on December 31, 1999. The contingent  payment,  $1.4
million in cash and $1.4  million  in Company  common  stock,  or  approximately
65,000 shares,  was made in April 2000.  During the three months ended March 31,
2000,   the  Company   incurred   approximately   $0.6  million  in  stock-based
compensation expense related to this contingent payment.

          The Company may be required to make contingent  payments of up to $5.0
million in cash or, at the seller's  option,  cash and Company common stock,  to
the former  stockholders  of Salzinger if certain  performance  criteria are met
during any consecutive  twelve-month period during the period from April 1, 1999
to September  30,  2000.  The amount of this payment will depend on the level of
achievement  of the  operating  targets  and the market  price of the  Company's
common  stock.  Further,  the former  stockholders  must remain  employed by the
Company in order to remain eligible to receive these payments.  During the three
months ended March 31, 2000, the Company incurred  approximately $1.3 million in
stock-based compensation expense related to this contingent payment.

3.   Accounts Receivable

      Accounts receivable consist of the following (in thousands):

                                                      March 31,    December 31,
                                                        2000           1999
                                                      ---------    ------------
Accounts receivable                                   $28,309         $24,777
Unbilled accounts receivable                           13,447           8,831
Allowance for doubtful accounts                        (5,746)         (1,947)
                                                      -------         -------
     Accounts receivable, net                         $36,010         $31,661
                                                      =======         =======

          In  March  2000,  as a  result  of the  parent  company  of one of the
Company's customers  discontinuing the operations of that customer,  the Company
recorded a reserve of $3.4 million  against  amounts  outstanding  due from that
customer.  The Company  intends to aggressively  pursue all legal  opportunities
available to collect the receivable.

4.  Accrued Liabilities

      Accrued liabilities consist of the following (in thousands):

                                                      March 31,    December 31,
                                                        2000           1999
                                                      ---------    ------------
Accrued compensation and benefits                     $ 5,600         $ 4,851
Payments due to former shareholders of
 Acquired Businesses                                       --           1,600
Accrued stock-based and acquisition-related
 compensation                                          13,867          16,816
Other accrued liabilities                              11,473           9,044
                                                      -------         -------
     Total accrued liabilities                        $30,940         $32,311
                                                      =======         =======


                                       7
<PAGE>

                             AppNet, Inc.

        Notes to Consolidated Financial Statements (continued)

                              (Unaudited)

5.   Earnings Per Share

          Statement of Financial Accounting Standards ("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 Company common
stock that 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,  which
include approximately 1,057,000 stock options outstanding (on an incremental and
weighted average basis),  approximately 64,000 contingent shares to be issued in
January  2001 and  approximately  70,000  warrants  are  excluded  from  diluted
earnings per share due to their antidilutive effect as of March 31, 2000.

6.   Segment Information

          During  1998,  the Company  adopted SFAS No. 131,  "Disclosures  about
Segments of an Enterprise and Related  Information"  ("SFAS No. 131").  SFAS No.
131  requires  a  business  enterprise,  based upon a  management  approach,  to
disclose  financial and descriptive  information  about its operating  segments.
Operating  segments  are  components  of  an  enterprise  about  which  separate
financial  information  is  available  and  regularly  evaluated  by  the  chief
operating decision maker(s) of an enterprise. Under this definition, the Company
operated as a single segment for all periods presented.

7.   Litigation and Claims

          The Company is subject to lawsuits,  investigations and claims arising
out of the ordinary  course of business,  including  those related to commercial
transactions,  contracts,  government regulation and employment matters. Certain
claims, suits and complaints have been filed or are pending against the Company.
In the opinion of management,  based on all known facts, all matters are without
merit, and except as related to the claims mentioned below, are of such kind, or
involve  such  amounts,  as would not have a  material  effect on the  financial
position or results of operations of the Company if disposed of unfavorably.

          In connection with the Company's  acquisition of Internet  Outfitters,
Inc., approximately $1.45 million of the purchase price in the form of shares of
Company common stock,  based upon the fair value of $17.10 per share at the date
of  acquisition,  was  pledged to the Company and  escrowed to be  available  to
satisfy any  potential  liability  in  connection  with a license  dispute.  The
Company also held back $750,000 of the cash purchase price to be used to satisfy
this and any other  indemnification  claims. During the three months ended March
31, 2000, the license dispute was settled with no financial  consequences to the
Company.  The shares of Company  common stock  pledged and escrowed and the cash
purchase  price held back in connection  with the license  dispute are no longer
escrowed and were released in March 2000.

          In November 1999, a former employee filed suit against the Company and
its Chief Executive Officer in state court in Michigan.  The case was removed to
the United  States  District  Court for the Eastern  District of  Michigan.  The
plaintiff  alleges a breach of contract and fraud in connection  with the former
employee's employment agreement with the Company, and improper interference with
the former employee's  efforts to sell shares of the Company's common stock. The
former employee is seeking monetary damages in connection with these claims.  On
March 21, 2000,  the court  dismissed some of the former  employee's  claims and
tentatively  dismissed  the fraud claims while  allowing the former  employee to
replead.  The court  indicated  that the former  employee  will be  permitted to
pursue  the  claim  for  interference  with the  effort  to sell  shares  of the
Company's common stock. The Company intends to contest the claims vigorously. At
this time, the Company is not able to reasonably estimate the amount of loss, if
any, that will be incurred as a consequence of this lawsuit.


                                       8
<PAGE>

                             AppNet, Inc.

        Notes to Consolidated Financial Statements (continued)

                              (Unaudited)

7.   Litigation and Claims (continued)

          In February 2000, a former  customer of the Company filed suit against
the Company,  one of its  subsidiaries  and a former and current employee of the
Company in the Supreme Court of the State of New York,  County of New York.  The
plaintiff in the suit alleges breach of contract and  misrepresentation  related
to services  performed by the  Company.  The former  customer is seeking  direct
damages,  plus  punitive  damages,  costs  and  fees.  The  Company  intends  to
vigorously  contest  these  claims  and  has  filed  counterclaims  against  the
defendants alleging monies due for services  performed.  The Company is not able
to  reasonably  estimate the amount of loss,  if any, that will be incurred as a
consequence of this lawsuit.



                                       9
<PAGE>

Item 2. Management's  Discussion And Analysis Of Financial Condition And Results
        Of Operations

          The following  discussion and analysis compares the three-month period
ended  March 31,  2000 to the  corresponding  period  ended  March 31,  1999 for
AppNet, Inc. and its subsidiaries ("AppNet," the "Company," "we," "us" or "our")
and should be read in  conjunction  with the  Company's  consolidated  financial
statements and notes thereto  appearing  elsewhere in this report.  You are also
encouraged  to  review  the  information  contained  in  the  Cautionary  Notice
Regarding  Forward-Looking  Statements  on the  Table of  Contents  page of this
report.

Overview

          AppNet  provides  end-to-end  e-business   professional  services  and
solutions to Global 1000 and dot.com companies. We develop end-to-end e-business
solutions that improve  communication and commerce between  businesses and their
trading  partners as well as among  businesses and consumers.  Through  internal
growth and strategic  acquisitions,  we have built a company with the ability to
design, develop, implement and manage end-to-end e-business solutions.

          The goal in founding  AppNet was to build a company that could offer a
comprehensive range of e-business  professional services. We began by developing
a detailed  strategic plan that  identified the specific  professional  services
that are required to provide clients with end-to-end e-business solutions. These
services were strategy consulting, interactive marketing, e-business application
development,   e-business  integration  and  e-business  outsourcing.   We  then
identified a group of companies  that  excelled in 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 fit together
strategically  and culturally and that, as integrated with one another,  design,
develop, implement and manage end-to-end e-business solutions.

          We acquired five  companies  during the first  quarter of 1999,  which
included:  i33  communications  corp.  for  approximately  $21.6  million with a
combination of cash and  promissory  notes that were converted in December 1999;
Sigma6,  Inc.  ("Sigma6") for  approximately  $2.5 million with a combination of
cash and shares of our  common  stock;  Salzinger  & Company  ("Salzinger")  for
approximately  $8.5 million with a combination  of cash and shares of our common
stock;  Internet  Outfitters,   Inc.  for  approximately  $9.5  million  with  a
combination of cash,  shares of our common stock and options to purchase  shares
of our common stock;  and  TransForm IT,  Incorporated  for  approximately  $5.1
million with a combination of cash and shares of our common stock.


Results Of Operations

Three Months  Ended March 31, 2000  Compared To The Three Months Ended March 31,
1999

          Revenues.  Revenue for the three months ended March 31, 2000 increased
$25.1  million to $44.7  million  from $19.6  million for the three months ended
March 31, 1999,  primarily  due to internal  growth and the  inclusion of a full
three months of operations of the companies we acquired during the first quarter
of 1999.

          Cost of  revenues.  Cost of revenues  for the three months ended March
31, 2000  increased  $13.3  million to $24.8  million from $11.5 million for the
three  months  ended  March 31,  1999.  The  increase  in cost of  revenues  was
primarily  driven  by an  increase  in  billable  headcount  resulting  from the
acquisitions that occurred during 1998 and 1999, as well as internally generated
headcount.  As a percentage  of revenues,  cost of revenues for the three months
ended March 31, 2000  decreased to 55% from 58% for the three months ended March
31, 1999 due to an increase  in  utilization  and hourly bill rates in the first
quarter of 2000 compared to the first quarter of 1999.


                                       10
<PAGE>

          Selling and  marketing.  Selling and marketing  expenses for the three
months  ended March 31, 2000  increased  $2.3  million to $3.5 million from $1.2
million for the three months ended March 31, 1999.  As a percentage  of revenue,
selling  and  marketing  expenses  for the three  months  ended  March 31,  2000
increased to 8% from 6% for the three months ended March 31, 1999.  The increase
in  selling  and  marketing  expenses  is a  result  of the  development  of our
corporate sales and marketing staff, the expansion of our marketing strategy and
the promotion of our brand identity during the first quarter of 2000, as well as
the  inclusion of a full three months of operations of the companies we acquired
in the first quarter of 1999.

          General and  administrative.  General and administrative  expenses for
the three months ended March 31, 2000  increased  $9.5 million to $16.3  million
from $6.8 million for the three  months  ended March 31,  1999.  The increase in
general and  administrative  expenses  is a result of the build up of  corporate
infrastructure  in the  first  quarter  of 2000 to  support  the  growth  of the
Company.  Further,  in  March  2000,  AppNet  recognized  a bad debt  charge  of
approximately  $3.4 million related to a receivable due from a customer  because
the parent company of the customer  discontinued the operations of the customer.
We intend to aggressively  pursue all legal  opportunities  available to collect
the receivable.  As a result of anticipated  additional  hiring costs associated
with the  continued  growth of our  business,  our  general  and  administrative
expenses are expected to continue to increase  during  2000,  although  they may
decline as a percentage of our revenues. As a percentage of revenue, general and
administrative expenses for the three months ended March 31, 2000, excluding the
$3.4  million bad debt  charge,  decreased  to 29% from 34% for the three months
ended March 31, 1999.

          Stock-based  and  acquisition-related  compensation.  Stock-based  and
acquisition-related  compensation  expense for the three  months ended March 31,
2000  increased  $2.6  million to $5.1  million  from $2.5 million for the three
months ended March 31, 1999.  The  compensation  charge  during the three months
ended March 31, 2000 is primarily attributable to the contingent payments due to
former  shareholders of businesses  acquired that must remain employed by AppNet
to receive the contingent payments.

          Depreciation and amortization.  Depreciation and amortization  expense
for the three  months  ended  March 31,  2000  increased  $2.1  million to $14.8
million  from $12.7  million  for the three  months  ended March 31,  1999.  The
increase is primarily due to the  amortization  of intangible  assets  resulting
from the acquisitions  made during 1999.  Further,  the increase in amortization
expense for the three  months of March 31, 2000 as compared to the three  months
of March 31, 1999 is due to an increase in goodwill  related to the recording of
certain  contingent  payments as  additional  purchase  price.  Our goodwill and
related amortization may increase in future periods if AppNet is required to pay
additional consideration for its acquisitions based on the attainment of certain
operating targets.

          Interest income.  Interest income for the three months ended March 31,
2000 was $0.9 million and is attributable to higher cash balances during 2000 as
a result of our public stock offerings in June and November 1999.

          Interest  expense.  Interest  expense for the three months ended March
31, 2000  decreased $1.1 million to $0.2 million from $1.3 million for the three
months ended March 31, 1999 due to the repayment of borrowings  under our credit
facility with proceeds from our public stock offerings in June and November 1999
and the  repayment or  conversion  during 1999 and the first  quarter of 2000 of
notes payable issued to sellers of businesses acquired.

          Income tax  provision.  The  provision  for income taxes for the three
months  ended March 31, 2000  increased  $0.2  million to $0.3 million from $0.1
million for the three  months  ended March 31, 1999.  The  provision  for income
taxes for the three months ended March 31, 2000 and 1999 relates to state income
taxes and the  increase for the three months ended March 31, 2000 from the three
months ended March 31, 1999 is attributable to the growth of our business.


                                       11
<PAGE>

Liquidity And Capital Resources

          At March 31, 2000, we had approximately $55.1 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 three  months ended March 31, 2000,  cash
used by operations was $5.8 million.  For the three months ended March 31, 1999,
cash provided by operations was $1.5 million.

          For the  three  months  ended  March 31,  2000 and 1999,  cash used in
investing  activities  was $7.2  million and $27.3  million,  respectively.  The
principal use of cash in investing  activities  during the three months of March
31, 2000 was as follows:  to make  approximately  $5.1  million in payments  for
contingent  consideration  related to our  acquisition of New Media  Publishing,
Inc. ("NMP"),  of which $2.3 million is included in investing  activities due to
it considered as additional purchase price and the remaining $2.8 is included in
accrued liabilities in operating activities; to repay $1.6 million withheld from
owners of other acquired  businesses due to the resolution of certain employment
contingencies;  and to make  purchases  of property  and  equipment to build the
infrastructure  to support our growth.  The  principal  use of cash in investing
activities  during  the  three  months  of March  31,  1999 was to  finance  the
acquisitions  that occurred in the first quarter of 1999. As we continue to grow
our business and build the  infrastructure  to support our growth,  we expect to
use cash from  operations to fund the  continued  growth and to fund selling and
marketing activities.

          Net cash provided by financing  activities  was $1.5 million and $29.0
million for the three months ended March 31, 2000 and 1999, respectively. During
the first  quarter  of 1999,  we  received  proceeds  of $7.6  million  from the
issuance of our preferred stock, common stock and the exercise of stock options.
We had  borrowings  under our  credit  facilities  of $59.4  million,  offset by
repayments  of $37.5  million  and debt issue costs of $0.6  million  during the
three months ended March 31, 1999. During the first quarter of 2000, we received
proceeds of $1.7  million  from the  exercise of stock  options and $0.9 million
related to our Employee Stock Purchase Plan,  offset by debt  repayments of $1.0
million.

          In January  2000,  we paid a portion of the  contingent  consideration
related to our acquisition of NMP. Of the portion paid, $5.1 million was paid in
cash to the former  shareholders and employees,  a note payable of approximately
$0.8 million,  which accrues  interest at 9% and is due January 2001, was issued
for the remaining cash portion payable to a former  shareholder,  334,762 shares
of the our common  stock were issued to the former  shareholders  and options to
purchase  88,523  shares of the our common stock at $11.70 per share were issued
to certain  employees.  Of the remaining portion payable in cash,  approximately
$0.8 million will be paid in May 2000 and approximately $2.4 million,  including
the note payable discussed above, will be paid in January 2001 if certain former
NMP employees  remain  employed by AppNet through  September 2000. The remaining
portion  payable  in  stock,  approximately  255,000  shares,  will be issued in
January 2001 if certain former NMP employees  remain  employed by AppNet through
September  2000.  During the three  months  ended  March 31,  2000,  we incurred
approximately $2.8 million in stock-based  compensation expense related to these
contingent payments. We expect to incur approximately $3.3 million in additional
stock-based  compensation  expense  during  2000  related  to  these  contingent
payments.

          In  connection  with our  acquisition  of Sigma6,  the  former  Sigma6
stockholders were also entitled to a contingent payment of $2.8 million based on
the achievement of agreed-upon  performance  criteria during the 12-month period
ending on December 31, 1999.  The contingent  payment,  $1.4 million in cash and
$1.4 million in our common stock, or  approximately  65,000 shares,  was made in
April  2000.  During  the  three  months  ended  March  31,  2000,  we  incurred
approximately $0.6 million in stock-based  compensation  expense related to this
contingent payment.

          We may be required to make  contingent  payments of up to $5.0 million
in cash or, at the seller's  option,  cash and our common  stock,  to the former
stockholders  of  Salzinger if certain  performance  criteria are met during any
consecutive  twelve-month  period  during  the  period  from  April  1,  1999 to
September  30,  2000.  The amount of this  payment  will  depend on the level of
achievement  of the operating  targets and the market price of our common stock.
Further, the former stockholders must remain employed by AppNet in


                                       12

<PAGE>

order to remain  eligible to receive  these  payments.  During the three  months
ended March 31, 2000,  we incurred  approximately  $1.3  million in  stock-based
compensation  expense related to this contingent  payment.  At this time, we are
not  able  to  reasonably   estimate  the   additional   amount  of  stock-based
compensation  expense to be  incurred  during  2000  related to this  contingent
payment due to possible  future  fluctuations  in the market price of our common
stock and the level of achievement of the operating targets.

          Our capital expenditures for the three months ended March 31, 2000 and
1999  were   approximately   $2.5  million  and  $0.9   million,   respectively.
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  expenditures  for  leasehold  improvements  to
office space, computer equipment, software and furniture and fixtures.

          Based  upon  current  expectations,  we  believe  our  available  cash
balances,  amounts that may be borrowed under our credit facility ($20.0 million
as of March 31, 2000) and cash flow from our operations  will be adequate for us
to meet our capital requirements,  to finance the cash portion of our contingent
payments and pursue our business  strategy for the next 18 months. To the extent
we are unable to fund our  operations  from our available  cash  balances,  cash
flows and existing credit  facility  during or following the next 18 months,  we
may need to obtain financing from external sources either by issuing  additional
equity or incurring additional  indebtedness,  although additional financing may
not be available.


PART II. OTHER INFORMATION

Item 1. Legal Proceedings

          We are subject to lawsuits,  investigations  and claims arising out of
the ordinary  course of our  business,  including  those  related to  commercial
transactions,  contracts,  government regulation and employment matters. Certain
claims, suits and complaints have been filed or are pending against the Company.
In the opinion of management,  based on all known facts, all matters are without
merit, and except as related to the claims mentioned below, are of such kind, or
involve  such  amounts,  as would not have a  material  effect on the  financial
position or results of operations of the Company if disposed of unfavorably.

          On November 11, 1999,  Robert Harvey filed suit against  AppNet,  Inc.
and Ken Bajaj (our Chief Executive Officer) in state court in Michigan. The case
has been removed to the United States District Court for the Eastern District of
Michigan.  The  plaintiff  alleges a breach of contract and fraud in  connection
with his employment  agreement with AppNet,  and improper  interference with his
efforts  to sell  shares of our common  stock.  Mr.  Harvey is seeking  monetary
damages in connection with these claims.  On March 21, 2000, the court dismissed
some of Mr. Harvey's  claims,  and tentatively  dismissed the fraud claims while
allowing Mr.  Harvey to replead.  The court  indicated  that Mr.  Harvey will be
permitted to pursue his claim for interference with his effort to sell shares of
our common stock. We intend to contest the claims  vigorously.  At this time, we
are not able to  reasonably  estimate the amount of loss,  if any,  that will be
incurred as a consequence of this lawsuit.

          On February 4, 2000, Counsel Corporation (US) and JewelryOnly.com, LLC
filed suit against AppNet Inc., one of its  subsidiaries,  Drew Rayman (a former
employee) and David Levin (a current employee) in the Supreme Court of the State
of New York,  County of New York.  The  plaintiffs  in the suit allege breach of
contract and misrepresentation related to services performed by AppNet. They are
seeking  direct  damages,  plus punitive  damages,  costs and fees. We intend to
vigorously  contest  these  claims  and have  filed  counterclaims  against  the
defendants  alleging  monies  due for  services  performed.  We are not  able to
reasonably  estimate  the amount of loss,  if any,  that will be  incurred  as a
consequence of this lawsuit.


                                       13
<PAGE>

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

          (a)  Exhibits:

               Exhibit      Description
               -------      -----------

               10.1      Third Amendment to Revolving Credit Agreement, dated as
                         of October 25, 1999,  by and among AppNet,  Inc.,  Bank
                         Boston, N.A. and Antares Capital Corporation.

               10.2      Fourth Amendment to Revolving Credit  Agreement,  dated
                         as of March 31, 2000, by and among AppNet,  Inc., Fleet
                         National Bank (formerly known as Bank Boston, N.A.) and
                         Antares Capital Corporation.

               27        Financial Data Schedule.

          (b)  Reports on Form 8-K filed during the three months ended March 31,
               2000:

               The  Company  filed a Form 8-K dated  March 30,  2000 to file the
               audited  financial   statements  of  i33  communications   corp.,
               Salzinger & Company,  Inc. and Internet  Outfitters,  Inc., which
               were acquired by AppNet in 1999. These financial  statements were
               filed under Item 7 of Form 8-K  pursuant to the  requirements  of
               Staff Accounting  Bulletin No. 80 ("SAB No. 80"). As permitted by
               SAB  No.  80,  the  audited   financial   statements   for  these
               corporations  for the periods from January 1, 1999 through  their
               respective  acquisition  dates were not included in the Company's
               Registration  Statement on Form S-1 filed in connection  with the
               Company's June 1999 initial public offering.


                                       14
<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  on its  behalf  by the  undersigned  thereunto  duly
authorized.

                                        APPNET, INC.


Date:  May 5, 2000                      By: /s/ Jack Pearlstein
                                        --------------------------------------
                                        Jack Pearlstein
                                        Senior Vice President,
                                        Chief Financial Officer and Treasurer
                                        (On behalf of the registrant and
                                        as principal financial officer)


                                       15
<PAGE>

                                  APPNET, INC.

                       Exhibit Index to Quarterly Report
                     On Form 10-Q for the Quarterly Period
                              Ended March 31, 2000


               Exhibit      Description
               -------      -----------

               10.1      Third Amendment to Revolving Credit Agreement, dated as
                         of October 25, 1999,  by and among AppNet,  Inc.,  Bank
                         Boston, N.A. and Antares Capital Corporation.

               10.2      Fourth Amendment to Revolving Credit  Agreement,  dated
                         as of March 31, 2000, by and among AppNet,  Inc., Fleet
                         National Bank (formerly known as Bank Boston, N.A.) and
                         Antares Capital Corporation.

               27        Financial Data Schedule.



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