<PAGE>

                      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 July 31, 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 0-20835


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



             Delaware                                        36-4079500
   (State or other jurisdiction of                        (I.R.S. Employer
    incorporation or organization)                       Identification No.)


        22 West Hubbard Street, Chicago, Illinois 60610, (312) 494-0300
  (Address, including  zip code, and telephone number, including  area code,
                 of registrant's principal executive offices)

                                      N/A
                                      ---
(Former Name, Former Address & Former Fiscal Year, 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 periods as 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_____
                                            ---------


                     APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.

                                                     Outstanding Shares at
                      Class                           September 14, 1999
         ----------------------------------      -----------------------------

           Common Stock - $0.01 par value                  14,153,062
<PAGE>

                                 LEAPNET, INC.

                                   FORM 10-Q
                             FOR THE PERIOD ENDED
                                 JULY 31, 1999

                                     INDEX


PART I.        FINANCIAL INFORMATION

     ITEM 1.   Financial Statements:

               Consolidated Balance Sheets --
                    July 31, 1999 (Unaudited)
                    and January 31, 1999                                   3

               Consolidated Statements of Operations --
                    Three Months Ended and Six Months Ended
                    July 31, 1999 and 1998 (Unaudited)                     5

               Consolidated Statements of Cash Flows --
                    Six Months Ended
                    July 31, 1999 and 1998 (Unaudited)                     6

               Notes to Consolidated Financial Statements                  7


     ITEM 2.   Management's Discussion and Analysis of
               Financial Condition and Results of Operations               9


PART II.       OTHER INFORMATION

     ITEM 1.   Legal Proceedings                                           14

     ITEM 4.   Submission of Matters to a Vote of Securities Holders       15

     ITEM 6.   Exhibits and Reports on Form 8-K                            15


SIGNATURES                                                                 15

                                       2
<PAGE>

PART I.   FINANCIAL INFORMATION


ITEM 1.   Financial Statements


                        LEAPNET, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                             July 31,      January 31,
                                                             --------      -----------
                                                               1999           1999
                                                               ----           ----
                                                            (unaudited)
<S>                                                         <C>            <C>
                              ASSETS

Current Assets
   Cash and cash equivalents.............................   $13,190,821    $14,076,379
   Short-term investments (Note 4).......................       454,099              0
   Accounts receivable (net of allowance of
      $756,579 and $470,750, respectively)...............     6,006,628      6,433,214
     Costs in excess of billings (net of allowance of
      $47,000 and $10,374, respectively).................       374,284        339,907
   Prepaid expenses......................................       274,682        262,970
                                                            -----------    -----------
        Total current assets.............................    20,300,514     21,112,470
Property and Equipment
   Land..................................................       158,921        158,921
   Building and building improvements (Note 6)...........     1,153,684        493,473
   Leasehold improvements................................       731,186        716,656
   Computer equipment....................................     1,390,603      1,172,305
   Furniture and equipment...............................       860,705        853,517
                                                            -----------    -----------
                                                              4,295,099      3,394,872
   Less accumulated depreciation.........................    (1,379,678)      (910,811)
                                                            -----------    -----------
        Net property and equipment.......................     2,915,421      2,484,061

Other Assets.............................................       676,585        136,839
                                                            -----------    -----------

Total Assets.............................................   $23,892,520    $23,733,370
                                                            ===========    ===========
</TABLE>

                                       3
<PAGE>

                        LEAPNET, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                             July 31,       January 31,
                                                                             --------       -----------
                                                                               1999            1999
                                                                               ----            ----
                                                                            (unaudited)
<S>                                                                        <C>             <C>
                     LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
   Accounts payable...................................................     $  3,102,362    $  2,652,819
   Accrued expenses...................................................          853,874       1,120,724
   Billings in excess of costs........................................          548,198       1,331,279
   Notes payable......................................................        4,092,892       4,073,000
   Current portion of long-term liabilities...........................          248,707         374,611
                                                                           ------------    ------------
       Total current liabilities......................................        8,846,033       9,552,433
Long-Term Liabilities
   Long-term mortgage payable.........................................        1,025,543         640,445
   Capital lease obligations..........................................                0          52,908
                                                                           ------------    ------------
       Total long-term liabilities....................................        1,025,543         693,353

Total Liabilities.....................................................     $  9,871,576    $ 10,244,786

Commitments and Contingencies (Notes 6 and 8)

Stockholders' Equity
   Preferred stock, $.01 par value, 20,000,000 shares authorized,
     no shares issued or outstanding..................................                0               0
   Common stock, $.01 par value; 100,000,000 shares authorized,
     14,153,062 and 14,131,785 shares issued and outstanding as of
     July 31, 1999 and January 31, 1999, respectively.................          141,531         141,318
   Unrealized gain on marketable securities (Note 4)..................          128,019               0
   Additional paid in capital.........................................       36,606,127      36,566,638
   Retained earnings..................................................      (22,703,603)    (23,068,242)
   less cost of 50,000 shares of common stock held in treasury........         (151,130)       (151,130)
                                                                           ------------    ------------
       Total Stockholders' Equity.....................................     $ 14,020,944    $ 13,488,584
                                                                           ------------    ------------

Total Liabilities and Stockholders' Equity............................     $ 23,892,520    $ 23,733,370
                                                                           ============    ============
</TABLE>



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

                                       4
<PAGE>

                        LEAPNET, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                           Three Months Ended             Six Months Ended
                                                           ------------------             ----------------
                                                                July 31,                      July 31,
                                                                --------                      --------
                                                           1999          1998           1999            1998
                                                       -----------    -----------    -----------    -----------
                                                              (unaudited)                    (unaudited)
<S>                                                    <C>            <C>            <C>            <C>
Revenues.......................................        $ 9,824,844    $ 8,990,943    $17,734,106    $19,366,006

Operating expenses:
   Direct costs and related expenses...........          4,064,675      3,193,429      7,160,669      6,336,049

   Salaries and related expenses...............          3,648,528      4,718,918      6,925,530      9,736,636

   General and administrative expenses.........          1,644,966      2,076,274      3,572,339      4,161,910
                                                       -----------    -----------    -----------    -----------

       Total operating expenses................          9,358,169      9,988,621     17,658,538     20,234,595
                                                       -----------    -----------    -----------    -----------

Operating income / (loss)......................            466,675       (997,678)        75,568       (868,589)

   Gain on Sale of Building....................               -         1,154,588           -         1,154,588
   Interest income / (expense), net............            109,651        (22,094)       289,072       (119,051)
                                                       -----------    -----------    -----------    -----------

       Income before income taxes..............            576,326        134,816        364,640        166,948

Income tax provision...........................                  0        (60,922)             0        (78,068)
                                                       -----------    -----------    -----------    -----------

Net income.....................................        $   576,326    $    73,894    $   364,640    $    88,880
                                                       ===========    ===========    ===========    ===========

Per share data:
   Net income per share:
          Basic................................        $      0.04    $      0.01    $      0.03    $      0.01
                                                       ===========    ===========    ===========    ===========
          Diluted .............................        $      0.04    $      0.01    $      0.03    $      0.01
                                                       ===========    ===========    ===========    ===========

   Weighted average number of shares used in
          Basic per share computation..........         14,138,877     13,640,866     14,135,331     13,644,866
          Diluted per share computation........         14,191,251     13,989,668     14,187,704     13,993,668
</TABLE>



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

                                       5
<PAGE>

                         LEAPNET, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                            Six Months Ended
                                                                                            ----------------
                                                                                                July 31,
                                                                                                --------
                                                                                           1999            1998
                                                                                           ----            ----
                                                                                               (unaudited)
<S>                                                                                   <C>              <C>
Cash flows from operating activities:
   Net income.....................................................................    $     364,640    $      88,880
   Adjustments to reconcile net income to Net cash used in operating activities:
        Depreciation and amortization.............................................          499,219        1,093,718
        Deferred income taxes.....................................................                0           78,068
        Gain on sale of building..................................................                0       (1,154,588)
        Changes in operating assets and liabilities:
          Accounts receivable.....................................................           100,506       1,498,210
          Costs in excess of billings.............................................          (34,377)      (1,205,181)
          Prepaid expenses........................................................          (11,712)         (84,286)
          Other assets............................................................         (246,630)         (56,047)
          Accounts payable........................................................           449,543      (1,678,049)
          Accrued expenses........................................................         (266,850)        (850,285)
          Billings in excess of costs.............................................         (783,081)       1,033,430
                                                                                      --------------   -------------
   Net cash provided by / (used in) operating activities..........................            71,258      (1,236,130)
                                                                                      --------------   -------------

Cash flows from investing activities:
   Capital expenditures...........................................................         (979,161)         (67,101)
   Capitalized software development costs.........................................         (244,533)        (120,986)
   Issuance of notes receivable...................................................                0        1,819,770
   Proceeds from sale of building.................................................                0        3,476,277
    Release of escrow monies in connection
        with YAR acquisition, net of expenses.....................................                0        2,725,186
                                                                                      --------------   -------------

   Net cash (used in) / provided by investing activities..........................        (1,223,694)      7,833,146
                                                                                      --------------   -------------

Cash flows from financing activities:
   Net outlays related to common stock issuance...................................            39,701          79,999
   Net borrowings/(repayments) on:
         Notes payable............................................................            19,890      (1,655,478)
         Mortgage payable.........................................................           393,486          659,025
         Repayment of capital lease financing.....................................          (186,199)        (185,816)
                                                                                      --------------   --------------
   Net cash provided by / (used in) financing activities..........................           266,878       (1,102,270)
                                                                                      --------------   --------------

Net (decrease) / increase in cash and cash equivalents............................          (885,558)       5,494,746
Cash and cash equivalents, at beginning of period.................................        14,076,379        7,214,261
                                                                                      --------------   --------------
Cash and cash equivalents, at end of period.......................................    $   13,190,821   $   12,709,007
                                                                                      ==============   ==============

Supplementary disclosure of cash paid during the period:
   Interest paid..................................................................    $      106,618   $      279,789
   Taxes paid.....................................................................    $        4,518   $      271,400


Supplementary disclosure of noncash investing and financing activities:
   Securities received from client for services rendered,
    stated at fair market value (Note 4)..........................................    $      454,099    $           0
</TABLE>

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

                                       6
<PAGE>

                         LEAPNET, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 -- Basis of Presentation

The accompanying  unaudited  consolidated financial statements and related notes
to the consolidated  financial  statements include the results of Leapnet,  Inc.
(the "Company") and its wholly-owned subsidiaries.

On October  22,  1998,  the  Company  sold  various  assets of its  wholly-owned
subsidiary,  One World Communications,  Inc. ("One World"), as described further
in Note 3. As such, the historical  operating  results of One World are included
within the  financial  statements  for the three and six  months  ended July 31,
1998, but are not included for the three and six months ended July 31, 1999.

The unaudited  consolidated financial statements for the six month periods ended
July 31,  1999 and 1998  reflect  all  adjustments  (consisting  only of  normal
recurring adjustments) which are, in the opinion of management,  necessary for a
fair  presentation  of the  financial  position  and  operating  results for the
interim periods.

The  consolidated  financial  statements  should be read in conjunction with the
consolidated financial statements and notes thereto,  together with management's
discussion  and  analysis of  financial  condition  and  results of  operations,
contained  in the  Company's  Annual  Report  on Form  10-K as  filed  with  the
Securities and Exchange Commission on April 30, 1999.

The results of  operations  for the three and six month  periods  ended July 31,
1999 are not necessarily  indicative of the results of operations to be expected
for the entire fiscal year ending January 31, 2000.

Certain amounts previously reported have been reclassified to conform to current
year classifications.


NOTE 2 --  Net Income Per Share

The  Company  computes  earnings  per share in  accordance  with  SFAS No.  128,
Earnings Per Share. Under SFAS 128, the weighted average number of common shares
used in determining basic and diluted earnings per share  attributable to common
stockholders  for the three and six months  ended  July 31,  1999 and 1998 is as
follows:

<TABLE>
<CAPTION>
                                                     Three Months Ended July 31,         Six Months Ended July 31,
                                                     ---------------------------         -------------------------
                                                         1999              1998             1999            1998
                                                         ----              ----             ----            ----
<S>                                                  <C>               <C>               <C>            <C>
Common shares outstanding--Basic                     14,138,877        13,640,866        14,135,331     13,644,866
Common stock equivalents                                 52,248           348,802            52,373        348,802
                                                     ----------        ----------        ----------     ----------
Common shares outstanding--Diluted                   14,191,125        13,989,668        14,187,704     13,993,668
</TABLE>

NOTE 3 -- Divestitures

On October 22, 1998, the Company  closed on the sale to Young and Rubicam,  Inc.
of  various  assets of its One World  subsidiary  and the  transfer  of the AT&T
account of YAR Communications,  Inc. ("YAR"). As consideration for the sale, the
Company  received  $5.3  million on October 22,  1998,  and an  additional  $1.1
million in April 1999.


NOTE 4 -- Short Term Investments

The Company accounts for equity  investments using SFAS No. 115,  Accounting for
Certain  Investments  in  Debt  and  Equity  Securities.  Under  SFAS  No.  115,
management  determines the proper  classifications of investments at the time of
receipt and reevaluates such designations as of each balance sheet date. At July
31, 1999,  all securities  covered by SFAS No. 115 were  designated as available
for sale. Accordingly,  these  equity  securities  are  stated at fair value of
$454,099  on the  balance  sheet with  comprehensive  income  resulting  from an
unrealized  gain of  $128,019  which is  reported  as a  separate  component  of
stockholder's equity.

                                       7
<PAGE>

NOTE 5 -- Line of Credit

On February 24, 1999, the Company obtained a new $10 million secured revolving
line of credit from American National Bank which replaced an existing $5 million
line of credit. The new line of credit is renewable each year and will bear
interest at a rate of 1.5% above the bank's highest CD rate. Borrowings are
collateralized by substantially all the assets of the Company, and the line of
credit agreement requires the Company to maintain certain minimum levels of
working capital and net worth. At July 31, 1999, the interest rate was 7% and
the outstanding balance on the line was $4,093,000.


NOTE 6 -Purchase of Real Estate and Mortgage

On July 2, 1999, Quantum Leap Communications, Inc. ("QLC"), a wholly-owned
subsidiary of the Company, entered into contracts to purchase a 35,000 square
foot building for $2.8 million. The purchase of the building is scheduled to
occur in three phases. As of July 31, 1999, the first portion of the building
was purchased for $500,000, of which, 20% was paid in cash and 80% was financed
as described below. The second phase of the purchase is scheduled to occur in
October 1999, at which time an additional section of the building will be
purchased for $1.3 million. The final phase of the purchase is scheduled to
occur no later than October 2000, when the remaining portion of the building is
expected to be purchased for $1 million.

On June 29, 1999, the Company obtained a 5 year $2.24 million multi-draw
mortgage loan which is secured by substantially all the assets of the Company as
the mortgage is cross-collateralized with the line of credit that is described
in Note 5. At July 31, 1999, the outstanding balance this loan was $400,000.

QLC has leased the portions of the building that it does not presently own, and
QLC is in the process of negotiating a contract to remodel the building.


NOTE 7 -- Income Taxes

As of July 31, and January 31, 1999, the Company had deferred tax assets of
approximately $8.6 million. Approximately $4.5 million of the deferred tax asset
relates to operating loss carryforwards for federal and state income tax
purposes which begin to expire in fiscal year 2011. The most significant of the
other deferred tax assets is approximately $3.3 million related to goodwill,
which was written off for financial reporting purposes during the quarter ended
October 31, 1998. This goodwill continues to have tax basis and the Company will
continue to amortize the goodwill for tax purposes.

The Company has provided a full valuation reserve against the net deferred tax
asset due to its limited operating history, recent operating losses, the
difficulty and significant judgment in projecting future operating results, the
volatility of the industry, and the transfer of the AT&T account, which had
previously provided substantial taxable income (See Note 3). Consequently, as
the Company achieves future taxable income, no income tax provision will be
recorded until the deferred taxes related to the operating loss carryforwards
have been fully utilized.


NOTE 8 -- Litigation

In November 1998, the Company filed a complaint in the Supreme court of the
State of New York against Finkle, Ross & Rost, LLP ("Finkle"), the former
accountants for Yurianna, Inc., the company from which the Company acquired
various assets of YAR, alleging breach of contract and accountant malpractice.
The action seeks damages believed to exceed $13,500,000 and such other relief as
the court deems just and equitable. In December 1998, Finkle filed a complaint
in the Supreme Court of the State of New York against the Company for $28,750
for accounting services rendered. The amount was reduced to $11,250 by Finkle.
Although Finkle had performed services for the Company, the Company intends to
vigorously oppose this claim due to the quality of services provided.

See Item 3 of the 10-K for the fiscal year ended January 31, 1999 for additional
disclosures regarding pending matters.

                                       8
<PAGE>

NOTE 9 -- Acquisition

On June 5, 1999, the Company signed a letter of intent to acquire Nine Dots
Corporation. Nine Dots is an interactive marketing services firm specializing in
digital branding, online advertising and promotion, strategic consulting and Web
site development. The Company is conducting due diligence.


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

The following presentation of management's discussion and analysis of the
Company's financial condition and results of operations should be read in
conjunction with the Company's consolidated financial statements, accompanying
notes thereto and other financial information appearing in the Company's Annual
Report on Form 10-K which was filed with the Securities and Exchange Commission
on April 30, 1999.

In reviewing the Company's consolidated financial statements and the discussion
of the Results of Operations that appears below, the following should be taken
into consideration.

On October 22, 1998, the Company sold various assets of its wholly-owned
subsidiary, One World Communications, Inc. ("One World") and the AT&T account of
YAR Communications, Inc. ("YAR"), as further described in Note 3 to the
Consolidated Financial Statements. As such, the historical operating results of
One World are included within the results of operations for the three and six
months ended July 31, 1998, but are not included within the three and six months
ended July 31, 1999.


Results of Operations


THREE MONTHS ENDED JULY 31, 1999 AND JULY 31, 1998

Revenues
--------

Revenues increased to $9.8 million for the three months ended July 31, 1999 from
$9.0 million for the three months ended July 31, 1998, an increase of
approximately $0.8 million or 9%. The $0.8 million increase in revenue was
primarily due to an increase of $5.1 million in increased work with new and
existing clients as the Company continues to expand its business and clients.
Of the $5.1 million increase, approximately $361,000 or 16% stemmed from YAR's
non-AT&T related new and existing accounts. The increases were offset by
decreases in revenue primarily due to the October 1998 sale of One World and the
AT&T account of YAR which resulted in decreased revenue during the three months
ended July 31, 1999 of approximately $4.3 million.

Direct Costs and Related Expenses
---------------------------------

Direct Costs and Related Expenses generally consist of production costs which
include services such as filming, animation, editing, special effects,
photography and illustrations, artwork, computer design and various related
production services which are generally outsourced, along with contracted talent
and other costs related to creative executions which may include traditional
media as well as new technologies and multimedia. Direct Costs and Related
Expenses increased to $4.1 million for the three months ended July 31, 1999 from
$3.2 million for the three months ended July 31, 1998, an increase of $0.9
million or 28%. The increase is primarily due to the increased production for
both new and existing clients.

Salaries and Related Expenses
-----------------------------

Salaries and Related Expenses consist primarily of salaries and wages for
employees, related payroll tax expenses, group medical and dental coverages,
freelance and contract labors, and recruiting expenses. Salaries and Related
Expenses decreased to $3.6 million for the three months ended July 31, 1999 from
$4.7 million for the three months ended July 31, 1998, a decrease of $1.1
million or 23%. The decrease was primarily due to the sale of One World and
restructuring efforts at YAR which together resulted in a decrease in Salaries
and Related Expenses of $2.1 million from the prior year quarter. This decrease
was offset in part by $1.0 million in salary increases primarily related to new
hires at

                                       9
<PAGE>

the Company. As a percentage of revenue, Salaries and Related Expenses decreased
to 37% for the three months ended July 31, 1999, from 52% for the three months
ended July 31, 1998.

General and Administrative Expenses
-----------------------------------

General and Administrative Expenses include space and facilities expenses,
corporate expenses, depreciation, insurance, legal and accounting fees and
management information system expenses. General and Administrative Expenses
decreased to $1.6 million for the three months ended July 31, 1999, from $2.1
million for the three months ended July 31, 1998, a decrease of $0.5 million or
24%. The decrease was primarily due to the sale of One World and restructuring
efforts at YAR which together resulted in a decrease of $622,000 from the prior
year quarter. The decreases were offset by $189,000 of increases at the
remaining subsidiaries as a result of increased legal costs and increased
reserves for accounts receivable and unbilled work in progress. As such, as a
percentage of revenue, General and Administrative Expenses decreased to 17% for
the three months ended July 31, 1999, from 23% for the prior year quarter.

Other Income and Expense
------------------------

On July 17, 1998, the Company sold a building which housed the Los Angeles
office of The Leap Partnership, Inc., a wholly-owned subsidiary of the Company.
The building was sold for $3.48 million which resulted in a $1.15 million pre-
tax gain as reported.

Interest income totaled $181,640 and $124,698 for the three months ended July
31, 1999 and 1998, respectively, and, was generated from short-term US Treasury
Notes, certificates of deposit, money market account and short-term Eurodollar
currency investments. The interest income was offset in part by interest expense
of $71,989 and $146,792, respectively, resulting in net interest income of
$109,651 and net interest expense of $22,094 for the three months ended July 31,
1999 and 1998, respectively. The Company incurred interest expense on debt that
totaled approximately $5 million as of July 31, 1999, and $7.2 million as of
July 31, 1998.

Income Taxes
------------

The Company's combined federal and state effective income tax rates were 0% and
45.2% for the three months ended July 31, 1999 and 1998, respectively. The 0%
effective rate for the three months ended July 31, 1999 is due to the Company's
use of previously reserved tax assets resulting from net operating losses.

As of July 31, 1999, the Company has a deferred tax asset of approximately $8.6
million. Approximately $4.5 million of the deferred tax asset relates to
operating loss carryforwards for federal and state income tax purposes which
begin to expire in fiscal year 2011. The Company had provided a full valuation
reserve against the net deferred tax asset due to its limited operating history,
recent operating losses, the difficulty and significant judgment involved in
projecting future operating results, the volatility of the industry, and the
transfer of YAR's AT&T Account. To the extent that the Company achieves future
taxable income, no provision will be recorded until the operating losses have
been fully utilized.

As of July 31, 1998, the higher effective tax rate was primarily due to higher
state and local tax rates applied to a higher level of taxable income in those
tax jurisdictions.


SIX MONTHS ENDED JULY 31, 1999 AND JULY 31, 1998

Revenues
--------

For the six months ended July 31, 1999, revenues were $17.7 million, compared to
$19.4 million for the six months ended July 31, 1998, a decrease of $1.7 million
or 9%. The net decrease of $1.7 million is primarily due to the October 1998
Sale of One World and the AT&T account of YAR which resulted in decreased
revenue for the six months ended July 31, 1999 of approximately $8.8 million.
This decrease is offset in part by increases in revenue from new and existing
accounts at the Company of $7.1 million. During the six months ended July 31,
1999, YAR's non-AT&T related revenue remained substantially unchanged, as
compared with the six months ended July 31, 1998. There was a decrease in
revenues during the first quarter, which was offset by increased revenues from
new clients during the quarter ended July 31, 1999.

                                       10
<PAGE>

Direct Costs and Related Expenses
---------------------------------

Direct Costs and Related Expenses increased to $7.2 million for the six months
ended July 31, 1999 from $6.3 million for the six months ended July 31, 1998, an
increase of $0.9 million or 14%. The net increase was primarily attributable to
the increased production with new and existing accounts.

Salaries and Related Expenses
-----------------------------

Salaries and Related Expenses decreased to $6.9 million for the six months ended
July 31, 1999, from $9.7 million for the six months ended July 31, 1998, a
decrease of $2.8 million or 29%. The decrease was primarily due to the sale of
One World and restructuring efforts at YAR which together resulted in a decrease
of $4.3 million in Salaries and Related Expenses from the prior year six months.
The decrease was offset in part by $1.5 million in salary increases primarily
related to new hires at the Company. As a percentage of revenue, Salaries and
Related Expenses decreased to 39% for the six months ended July 31, 1999, from
50% for the prior year six months.

General and Administrative Expenses
-----------------------------------

General and Administrative Expenses decreased to $3.6 million for the six months
ended July 31, 1999 from $4.2 million for the six months ended July 31, 1998, an
decrease of $600,000 or 14%. The decrease was primarily due to the sale of One
World and restructuring efforts at YAR which together resulted in a decrease of
$1.4 million in General Administrative Expenses from the prior year six months.
The decrease was offset by increases in General and Administrative Expenses of
approximately $800,000 for the Company for the six months ended July 31, 1999,
which consist of additional professional services, costs associated with the
Company's annual report and meeting, legal and accounting services, and
depreciation and amortization, including goodwill amortization, and increased
facilities costs. As a percentage of revenue, General and Administrative
Expenses decreased to 20% for the six months ended July 31, 1999, from 21% for
the prior year six months.

Other Income and Expense
------------------------

On July 17, 1998, the Company sold a building which housed the Los Angeles
office of The Leap Partnership, Inc., a wholly-owned subsidiary of the Company.
The building was sold for $3.48 million which resulted in a $1.15 million pre-
tax gain as reported.

Interest income totaled approximately $455,000 and $228,000 for the six months
ended July 31, 1999 and 1998, respectively, and, was generated from short-term
US Treasury Notes, certificates of deposit, money market account and short-term
Eurodollar currency investments. The interest income was offset in part by
interest expense of approximately $166,000 and $347,000, respectively, resulting
in net interest income of $289,000 and net interest expense of $119,000,
respectively. The Company incurred interest expense on debt that totaled
approximately $5 million and $7.2 million as of July 31, 1999 and 1998,
respectively.

Income Taxes
------------

Combined federal and state income tax rates were 0.0% and 46.8% for the six
months ended July 31, 1999 and 1998, respectively. The 0% effective rate for the
six months ended July 31, 1999 is due to the Company's use of previously
reserved tax assets resulting from net operating losses.

As of July 31, 1999, the Company has a deferred tax asset of approximately $8.6
million. Approximately $4.5 million of the deferred tax asset relates to
operating loss carryforwards for federal and state income tax purposes which
begin to expire in fiscal year 2011. The Company has provided a full valuation
reserve against the net deferred tax asset due to its limited operating history,
recent operating losses, the difficulty and significant judgment involved in
projecting future operating results, the volatility of the industry, and the
transfer of YAR's AT&T Account. To the extent that the Company achieves future
taxable income, no provision will be recorded until the operating losses have
been fully utilized.

As of July 31, 1998, the higher effective tax rate was primarily due to higher
state and local tax rates applied to a higher level of taxable income in those
tax jurisdictions

                                       11
<PAGE>

Liquidity and Capital Resources

Since its inception, the Company has primarily financed its operations and
investments in property and equipment through cash generated from bank
borrowings and equipment leases, proceeds from the Initial Public Offering,
loans from a former officer of the Company and cash generated from operations.

At July 31, 1999, the Company had $11.5 million of working capital, inclusive of
approximately $13.2 million in cash and cash equivalents. Cash and cash
equivalents decreased $885,000 for the six months ended July 31, 1999. The
$885,000 decrease resulted primarily from approximately $1.2 million of
investments in capital expenditures and software development, offset by cash
generated from financing of $266,000 and from operations of $71,000.

In July 1999, Quantum Leap Communications, Inc., ("QLC"), a wholly-owned
subsidiary of the Company, entered into contracts to purchase a 35,000 square
foot building for $2.8 million to provide office facilities for its expanding
business. The purchase of the building is scheduled to occur in three phases. As
of July 31, 1999, the first portion of the building was purchased for $500,000,
of which, 20% was paid in cash and 80% was financed as described below. The
second phase of the purchase is scheduled to occur in October 1999, at which
time an additional section of the building will be purchased for $1.3 million.
The final phase of the purchase is scheduled to occur no later than October
2000, when the remaining portion of the building is expected to be purchased for
$1 million. On June 29, 1999, the Company obtained a 5 year $2.24 million multi-
draw mortgage loan which is secured by substantially all the assets of the
Company as the mortgage is cross-collateralized with the line of credit that is
described in Note 5. At July 31, 1999, the outstanding balance on this loan was
$400,000. QLC has leased the portions of the building that it does not presently
own, and QLC is in the process of negotiating a contract to remodel the
building.

On February 24, 1999, the Company obtained a new $10 million secured revolving
line of credit from American National Bank which replaced an existing $5 million
line of credit. On July 31, 1999 approximately $4.1 million was outstanding
under the facility. The new line of credit is renewable each year and bears
interest at a variable rate of 1.5% above the bank's highest CD rate. On July
31, 1999, the interest rate was 7%. Borrowings are collateralized by
substantially all the assets of the Company, and the line of credit agreement
requires the Company to maintain specified minimum levels of working capital and
net worth.

On October 22, 1998, the Company received $5.3 million in cash from the sale of
various assets of One World and the transfer of the YAR AT&T account. (See Note
3). Additional consideration of $1.1 million in cash was received on April 13,
1999.

On April 30,1998, in connection with the YAR acquisition, the Company received
$3 million in cash before related expenses, due to the release of escrowed
funds. The funds reduced the purchase price of the acquisition and the amount of
recorded goodwill.

On February 2, 1998, the Company received proceeds from a $665,000 bank loan.
The three-year balloon note bears interest at the rate of 9%, and is payable in
monthly principal and interest installments of $5,992 through January 27, 2001,
with a balloon payment of approximately $626,563 due in January 2001. The loan
is secured by a mortgage on the building in which the Company's current
principal offices are located and is personally guaranteed by an officer of the
Company.

The Company believes that the existing and future credit facilities, funds from
capital markets, funds from operations, and the cash received as discussed above
will be sufficient to meet the Company's cash requirements for at least the next
twelve months. The Company's capital requirements will depend on numerous
factors, including the rates at which the Company grows, expands its personnel
and infrastructure to accommodate growth and invests in new technologies. The
Company has various ongoing needs for capital, including working capital for
operations, project development costs and capital expenditures to maintain and
expand its operations. In addition, as part of its strategy, the Company
evaluates potential acquisitions of, or alliances with, businesses that extend
or complement the Company's business. The Company may in the future consummate
acquisitions or alliances which may require the Company to make additional
capital expenditures, and such expenditures may be significant. Future
acquisitions and alliances may be funded with available cash from seller
financing, institutional financing, issuance of common stock of the Company
and/or additional equity or debt offerings. There can be no assurance that the
Company will be able to raise any additional required capital on favorable
terms, or at all.

                                       12
<PAGE>

Seasonality

Depending upon its client mix at any time, the Company could experience
seasonality in its business. Such seasonality arises from the timing of product
introductions and business cycles of the Company's clients and could be material
to the Company's interim results. Such cycles vary from client to client, and
the overall impact on the Company's results of operations cannot be reasonably
predicted. In addition, the advertising industry as a whole exhibits
seasonality. Typically, advertising expenditures are highest in the fourth
calendar quarter and lowest in the first calendar quarter, particularly in
January. Although the Company has too limited an operating history to exhibit
any discernible seasonal trend, as the Company matures, Management believes that
the business and results of operations could be affected by the overall
seasonality of the industry.


Dependence on Key Clients and Projects

An important part of the Company's strategy is to develop in-depth, long-term
relationships with a select group of clients in a variety of industries.
Consistent with such a strategy, a large portion of the Company's revenues has
been, and is expected to continue to be, concentrated among a relatively limited
number of nationally recognized clients. For the quarter ended July 31, 1999,
two clients accounted for 37.9% and 13.9% of consolidated revenues.

Due to the nature of the advertising business, any of the Company's clients
could at any time in the future, and for any reason, reduce its marketing
budget, alter the timing of projects, engage another entity or take in-house all
or part of the business performed by the Company. Even though the Company has
taken steps to add new accounts, diversify its client base, negotiate a greater
percentage of retainer and fixed fee arrangements with clients, diversify
through acquisitions, and develop new potential revenue streams from licensing
of proprietary software and other content, these steps may not fully mitigate
the impact that the loss of any significant account may have on the Company's
operations.

Management believes that the loss of other key clients and varying effects of
seasonality, as described above, could also have an adverse impact on the
Company's business, results of operations and financial condition, particularly
in the short term.


Year 2000

The Company's Year 2000 Task Force has completed an inventory of the hardware
and software used in its operations and has assessed its Year 2000 readiness.
Based on this effort, the Company has identified only non-material Year 2000
issues and has remedied them at little cost.

Additionally, the Company has been communicating with significant vendors and
other critical service providers to determine if such parties are Year 2000
compliant or have effective plans in place to address the Year 2000 issue and to
determine the extent of the Company's vulnerability to the failure of such
parties to remediate such issues. Based upon the responses that the Company has
received from these third parties, no material Year 2000 issues have been
identified.

The Company does not expect the impact of the Year 2000 to have a material
adverse impact on the Company's business or results of operations. However, no
assurances can be given that any unanticipated or undiscovered Year 2000
compliance problems, will not have a material adverse effect on the Company's
business and results of operations. In addition, there can be no assurance that
Year 2000 non-compliance by any of the Company's clients or significant
suppliers or vendors will not have a material adverse effect on the Company's
business or results of operations.

                                       13
<PAGE>

Note Regarding Forward-Looking Statements

This report contains forward-looking statements (within the meaning of the
Private Securities Litigation Reform Act of 1995) that involve risks and
uncertainties. When used in this report, words such as "anticipates,"
"believes," "continues," "estimates," "expects," "goal," "may," "opportunity,"
"plans," "potential," "projects," "will," and similar expressions as they relate
to the Company or its Management are intended to identify such forward-looking
statements. A number of important factors could cause the Company's actual
results, performance or achievements for fiscal 1999 and beyond to differ
materially from that expressed in such forward-looking statements. These factors
are set forth in the Company's Registration Statement on Form S-1 (File No. 333-
05051) under the heading "Risk Factors" and also include, without limitation,
material changes in economic conditions in the markets served by the Company's
clients; changes in government regulation and legal uncertainties; competition
in the Company's industry; uncertainties relating to the developing market for
new media; changing technologies and Year 2000 compliance issues; any inability
to meet expectations in the performance of services which could lead to claims
or liabilities; seasonality; costs and uncertainties relating to establishing
new offices and bringing new or existing offices to profitability; any inability
of the Company to raise additional financing in the future on favorable terms,
or at all; potential adverse effects of litigation; the Company's dependence on
key personnel and vendors; the Company's dependence on key clients and projects
(as discussed further above under "Dependence on Key Clients and Projects"); and
possible continued volatility and wide fluctuations in the price of the
Company's stock. While the Company reduced certain expenses in fiscal 1999, as
the Company works to grow and expand the business, management will need to
increase expenses to expand operations. Management will continue to assess its
overall cost structure in relation to existing and anticipated revenues. Due to
the nature of client contracts, which are difficult to forecast precisely or for
any extended period of time, if, the Company experiences declines in client
demand, or if significant expenses precede or are not immediately followed by
increased revenues, the results of operations and financial condition may
suffer.


Item 3.   Quantitative and Qualitative Disclosures about Market Risks

The Company's market risk exposures are set forth in its Annual Report on Form
10-K for the year ended January 31, 1999, and have not changed significantly,
except as follows.

In March 1999, one of the Company's subsidiaries received stock from a client in
exchange for services. The stock has appreciated through July 31, 1999 (See Note
4 to the Consolidated Financial Statements). However, the value of the equity
securities may fluctuate based on the volatility of the client's stock price and
other general market conditions. To mitigate the market risk on the equity
securities, the stock has been classified as `available for sale' as management
anticipates selling the stock within the next year and at a time when a gain may
be recorded.


PART II.  OTHER INFORMATION

ITEM 1.        Legal Proceedings

               In November 1998, the Company filed a complaint in the Supreme
               Court of the State of New York against Finkle, Ross & Rost,
               L.L.P.("Finkle"), the former accountants for Yurianna, Inc., the
               company from which the Company acquired various assets of YAR,
               alleging breach of contract and accountant malpractice. The
               action seeks damages believed to exceed $13,500,000 and such
               other relief as the court deems just and equitable. In December
               1998, Finkle filed a complaint in the Supreme Court of the State
               of New York against the Company for $28,750 for accounting
               services rendered. The amount was reduced to $11,250 by Finkle.
               Although Finkle had performed services for the Company, the
               Company intends to vigorously oppose this claim due to the
               quality of services provided.

               See Note 8 of the Notes to the Consolidated Financial Statements
               and Item 3 of the 10-K for the fiscal year ended January 31, 1999
               for additional disclosures regarding pending matters.

               There are no other significant  claims or lawsuits against the
               Company.

                                       14
<PAGE>

ITEM 4.     Submission Of Matters To A Vote Of Securities Holders

        a.  The  Company  held an  Annual  Meeting  of  Stockholders  (the
            "Meeting")  on June 15, 1999.  Proxies were  solicited for the
            Meeting.
        b.  There were three matters proposed and voted on at the Meeting. All
            proposals were approved by a majority of the vote. Of the 14,089,785
            shares eligible to vote at the Meeting, 12,518,800 were voted at the
            Meeting.
        c.  The first proposal at the meeting was for the election of directors
            (Messrs. Gregory J. Garville and Charles J. Ruder). Of the shares
            voted at the Meeting, Gregory J. Garville received 12,131,135 votes
            in favor of his election, and Charles J. Ruder received 12,131,135
            votes in favor of his election. As each nominee received a majority
            of votes, each nominee was elected as a Director to the Company's
            Board of Directors.
        d.  The second proposal was for the amendment of the Employee Incentive
            Compensation Plan to increase the number of shares reserved under
            the plan from 3.5 to 5 million shares. Of the shares voted at the
            Meeting, 7,569,944 were voted in favor of this proposal, 469,423
            were voted against the proposal, and 8,934 abstained from voting.
        e.  The third proposal was for the ratification of the appointment the
            Company's auditors, Arthur Andersen LLP for fiscal year 2000. Of the
            shares voted at the Meeting, 12,489,537 were voted in favor of this
            proposal, 15,741 were voted against the proposal, and 13,522
            abstained from voting.


ITEM 6.    Exhibits and Reports on Form 8-K

           a.  Exhibits
                10.1   Installment Note, dated June 29, 1999, issued by Quantum
                       Leap Communications, Inc. ("QLC"), a wholly owned
                       subsidiary of the Company, to American National Bank and
                       Trust Company of Chicago ("ANB").
                10.2   Mortgage Agreement, dated June 29, 1999, between QLC and
                       ANB.
                10.3   Security Agreement, dated June 29, 1999, between QLC and
                       ANB.
                10.4   Guaranty Agreement, dated June 29, 1999, between QLC and
                       ANB.
                10.5   Second Amendment, dated June 15, 1999, to the Leapnet,
                       Inc. (formerly "The Leap Group, Inc."), Employee
                       Incentive Compensation Plan.
                10.6   Real Estate Sale Contract, Unit 1, dated May 27, 1999,
                       between QLC and FTI, Inc.
                10.7   Real Estate Sale Contract, Unit 2, dated May 27, 1999,
                       between QLC and FTI, Inc.
                10.8   Real Estate Sale Contract, Unit 3, dated May 27, 1999,
                       between QLC and NanoFast, Inc.
                10.9   Real Estate Sale Contract, Unit 4, dated May 27, 1999,
                       between QLC and FTI, Inc.
                11.    Statement Regarding Computation of Per-Share Earnings.
                27.    Financial Data Schedule.
                                            .........
           b.   Reports on Form 8-K
                None.


Items 2, 3 And 5 Are Not Applicable And Have Been Omitted.



                                  SIGNATURES

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

                                        LEAPNET, INC.
                                        -------------
                                        (Registrant)


Date:    September 14, 1999             By: /s/ FREDERICK A. SMITH
                                        ---------------------------------------
                                        Frederick A. Smith, Chairman and Chief
                                        Executive Officer
                                        (principal executive, financial and
                                         accounting officer)

                                       15
<PAGE>

                                 LEAPNET, INC.
                                 EXHIBIT INDEX


Exhibit
Number       Exhibits
------       --------

10.1         Installment Note, dated June 29, 1999, issued by Quantum Leap
             Communications, Inc. ("QLC"), a wholly owned subsidiary of the
             Company to American National Bank and Trust Company of Chicago
             ("ANB").

10.2         Mortgage Agreement, dated June 29, 1999, between QLC and ANB.

10.3         Security Agreement, dated June 29, 1999, between QLC and ANB.

10.4         Guaranty Agreement dated June 29, 1999, between QLC and ANB.

10.5         Second Amendment, dated June 15, 1999, to the Leapnet, Inc.
             (formerly "The Leap Group, Inc."), Employee Incentive Compensation
             Plan.

10.6         Real Estate Sale Contract, Unit 1, dated May 27, 1999, between QLC
             and FTI, Inc.

10.7         Real Estate Sale Contract, Unit 2, dated May 27, 1999, between QLC
             and FTI, Inc.

10.8         Real Estate Sale Contract, Unit 3, dated May 27, 1999, between QLC
             and NanoFast, Inc.

10.9         Real Estate Sale Contract, Unit 4, dated May 27, 1999, between QLC
             and FTI, Inc.

11.          Statement Regarding Computation of Per-Share Earnings

27.          Financial Data Schedules

                                      16