<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 October 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                             November 30, 1999
     ----------------------------------       ------------------------------
     Common Stock - $0.01 par value                    14,212,895
<PAGE>

                                 LEAPNET, INC.

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

                                     INDEX

<TABLE>
<S>                                                                          <C>
PART I.               FINANCIAL INFORMATION

   ITEM 1.  Financial Statements:

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

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

            Consolidated Statements of Cash Flows --
               Nine Months Ended
               October 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

   ITEM 3.  Quantitative and Qualitative Disclosures about Market
            Risks                                                             15

PART II.    OTHER INFORMATION

   ITEM 1.  Legal Proceedings                                                 15

   ITEM 6.  Exhibits and Reports on Form 8-K                                  17



SIGNATURES                                                                    17
</TABLE>

                                       2
<PAGE>

PART I.   FINANCIAL INFORMATION

ITEM 1.   Financial Statements


                        LEAPNET, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                          October 31,    January 31,
                                                                                          -----------    -----------
                                                                                              1999           1999
                                                                                              ----           ----
                                                                                          (unaudited)
                                                     ASSETS
<S>                                                                                       <C>            <C>
Current Assets
     Cash and cash equivalents...........................................                 $12,673,844    $14,076,379
     Short-term investments (Note 4).....................................                     307,640              -
     Accounts receivable (net of allowance of
            $756,579 and $470,750, respectively).........................                   6,529,265      6,433,214
        Costs in excess of billings (net of allowance of
            $47,000 and $10,374, respectively)...........................                     994,799        339,907
     Prepaid expenses....................................................                     254,896        262,970
                                                                                          -----------    -----------
          Total current assets...........................................                  20,760,444     21,112,470
Property and Equipment
     Land................................................................                     878,921        158,921
     Building and building improvements (Note 6).........................                   2,066,754        493,473
     Leasehold improvements..............................................                     745,161        716,656
     Computer equipment..................................................                   1,617,974      1,172,305
     Furniture and equipment.............................................                   1,078,733        853,517
                                                                                          -----------    -----------
                                                                                            6,387,543      3,394,872
     Less accumulated depreciation.......................................                  (1,627,733)      (910,811)
                                                                                          -----------    -----------
          Net property and equipment.....................................                   4,759,810      2,484,061

Other Assets.............................................................                     643,051        136,839
                                                                                          -----------    -----------

Total Assets.............................................................                 $26,163,305    $23,733,370
                                                                                          ===========    ===========
</TABLE>

                                       3
<PAGE>

                         LEAPNET, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                                          October 31,   January 31,
                                                                                          ----------    ----------
                                                                                              1999          1999
                                                                                              ----          ----
                                                                                          (unaudited)
                                         LIABILITIES AND STOCKHOLDERS' EQUITY
<S>                                                                                         <C>            <C>
Current Liabilities
     Accounts payable.....................................................                 $ 2,616,128    $ 2,652,819
     Accrued expenses.....................................................                   1,041,143      1,120,724
     Billings in excess of costs..........................................                     685,851      1,331,279
     Notes payable........................................................                   5,117,892      4,073,000
     Current portion of long-term liabilities.............................                     155,753        373,611
                                                                                           -----------    -----------
          Total current liabilities.......................................                   9,616,767      9,551,433
Long-Term Liabilities
     Long-term mortgage payable...........................................                   2,062,214        640,445
     Capital lease obligations............................................                           -         52,908
                                                                                           -----------    -----------
          Total long-term liabilities.....................................                   2,062,214        693,353

Total Liabilities.........................................................                 $11,678,981    $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...................................                           -              -
     Common stock, $.01 par value; 100,000,000 shares authorized,
        14,156,562 and 14,131,785 shares issued and outstanding as of
        October 31, 1999 and January 31, 1999, respectively...............                     141,566        141,318
     Unrealized loss on marketable securities (Note 4)....................                     (18,440)             0
     Additional paid in capital...........................................                  36,615,714     36,566,638
     Retained earnings....................................................                 (22,103,386)   (23,068,242)
     less cost of 50,000 shares of common stock held in treasury..........                    (151,130)      (151,130)
                                                                                           -----------    -----------
          Total Stockholders' Equity......................................                 $14,484,324    $13,488,584
                                                                                           -----------    -----------

Total Liabilities and Stockholders' Equity................................                 $26,163,305    $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                  Nine Months Ended
                                                        ------------------                  -----------------
                                                            October 31,                         October 31,
                                                            -----------                         -----------
                                                      1999             1998              1999             1998
                                                  ------------     ------------      ------------     ------------
                                                           (unaudited)                         (unaudited)
<S>                                               <C>              <C>               <C>              <C>
Revenues......................................... $   9,514,069    $   8,410,295     $  27,248,175    $  27,776,301

Operating expenses:
    Direct costs and related expenses............     2,764,625        2,805,781         9,925,294        9,140,830

    Salaries and related expenses................     4,302,304        4,550,978        11,227,834       14,288,614

    General and administrative expenses..........     1,861,980        2,533,471         5,434,319        6,695,381

    Impairment of long-term assets...............             -        9,239,814                 -        9,239,814

    Restructuring expenses.......................             -          738,494                 -          738,494
                                                   ------------     ------------      ------------     ------------

         Total operating expenses................     8,928,909       19,868,538        26,587,447       40,103,133
                                                   ------------     ------------      ------------     ------------


Operating income / (loss) .......................       585,160      (11,458,243)          660,728      (12,326,832)

      Loss on divestiture........................             -       (1,802,306)                -       (1,802,306)
      Gain on sale of building...................             -                -                 -        1,154,588
      Interest income / (expense), net...........        15,055          (27,074)          304,127         (146,125)
                                                   ------------     ------------      ------------     ------------

         Income / (Loss) before income taxes.....       600,215      (13,287,623)          964,855      (13,120,675)

Income tax provision.............................             -       (3,306,988)                -       (3,385,056)
                                                   ------------     ------------      ------------     ------------

Net income /(loss)...............................  $    600,215     $(16,594,611)     $    964,855     $(16,505,731)
                                                   ============     ============      ============     ============

Per share data:
    Net income / loss per share:
         Basic...................................  $       0.04     $      (1.22)     $       0.07     $      (1.21)
                                                   ============     ============      ============     ============
         Diluted .....................
                                                   $       0.04     $      (1.22)     $       0.07     $      (1.21)
                                                   ============     ============      ============     ============

    Weighted average number of shares used in
         Basic per share computation.............    14,154,229       13,648,866        14,145,772       13,646,199
         Diluted per share computation...........    14,846,918       13,648,866        14,838,461       13,646,199
</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>
                                                                                        Nine Months Ended
                                                                                        -----------------
                                                                                            October 31,
                                                                                            -----------
                                                                                        1999              1998
                                                                                    ------------      ------------
                                                                                             (unaudited)
<S>                                                                                 <C>              <C>
Cash flows from operating activities:
   Net income / (loss)..........................................................    $    964,855     ($ 16,505,731)
   Adjustments to reconcile net income / (loss) to
        Net cash used in operating activities:
        Depreciation and amortization...........................................         792,888         2,743,424
        Deferred income taxes...................................................               -         2,960,061
        Loss on divestiture.....................................................               -         1,802,306
        Restructuring reserves..................................................               -           738,494
        Gain on sale of building................................................               -        (1,154,588)
        Impairment of long-term assets..........................................               -         9,239,814
        Changes in operating assets and liabilities:
          Accounts receivable...................................................        (422,131)         (805,638)
          Costs in excess of billings...........................................        (654,892)         (295,036)
          Prepaid expenses......................................................           8,074           (98,372)
          Other assets..........................................................         (90,003)          (76,172)
          Accounts payable......................................................         (36,691)       (2,876,255)
          Accrued expenses......................................................         (79,580)          744,209
          Billings in excess of costs...........................................        (645,428)         (390,900)
                                                                                    ------------      ------------
   Net cash used in operating activities........................................        (162,908)       (3,974,384)
                                                                                    ------------      ------------

Cash flows from investing activities:
   Capital expenditures.........................................................      (3,127,675)       (1,009,185)
   Capitalized software development costs.......................................        (357,171)         (119,283)
   Business divestiture.........................................................               -         5,300,000
   Issuance of notes receivable.................................................               -         1,819,770
   Proceeds from sale of building...............................................               -         3,476,277
   Release of escrow monies in connection
        with YAR acquisition, net of expenses...................................               -         2,725,186
                                                                                    ------------      ------------
   Net cash (used in) / provided by investing activities........................      (3,484,846)       12,192,765
                                                                                    ------------      ------------

Cash flows from financing activities:
   Net outlays related to common stock issuance.................................          49,324            80,002
   Net borrowings/(repayments) on:
        Notes payable...........................................................       1,044,892        (2,884,292)
        Mortgage payable........................................................       1,430,363                 0
        Repayment of capital lease financing....................................        (279,360)         (281,975)
                                                                                    ------------      ------------
   Net cash provided by / (used in) financing activities........................       2,245,219        (3,086,265)
                                                                                    ------------      ------------

Net (decrease) / increase in cash and cash equivalents..........................      (1,402,535)        5,132,116
Cash and cash equivalents, at beginning of period...............................      14,076,379         7,214,261
                                                                                    ------------      ------------
Cash and cash equivalents, at end of period.....................................    $ 12,673,844      $ 12,346,377
                                                                                    ============      ============

Supplementary disclosure of cash paid during the period:
   Interest paid................................................................    $    266,343      $    432,571
   Taxes paid...................................................................    $      4,518      $    299,418

Supplementary disclosure of noncash investing and financing activities:
   Securities received from client for services rendered,
   stated at fair market value (Note 4).........................................    $    307,640      $          -
</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 nine months ended October 31,
1998, but are not included for the three and nine months ended October 31, 1999.

The unaudited consolidated financial statements for the nine month periods ended
October 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 nine month periods ended October 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 nine months ended October 31, 1999 and 1998 is as
follows:

<TABLE>
<CAPTION>
                                                Three Months Ended October 31,         Nine Months Ended October 31,
                                                -----------------------------        ------------------------------
                                                      1999          1998                 1999              1998
                                                      ----          ----                 ----              ----
<S>                                               <C>              <C>               <C>                <C>
Common shares outstanding--Basic                  14,154,229       13,648,866        14,145,772         13,646,199
Common stock equivalents                             692,689                0           692,689                  0
                                                  ----------       ----------        ----------         ----------
Common shares outstanding--Diluted                14,846,918       13,648,866        14,838,461         13,646,199

</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
October 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 $307,640 on the balance sheet with comprehensive income resulting from
an unrealized loss of $18,440 which is reported as a separate component of
stockholder's equity.

                                       7
<PAGE>

NOTE 5 -- Line of Credit

The Company obtained a $10 million secured revolving line of credit from
American National Bank which replaced an existing $5 million line of credit. The
line of credit is due February 24, 2000, and 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 October 31, 1999, the interest rate was 7% and
the outstanding balance on the line was $5.1 million (See Note 10).


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 October 31, 1999, the first and second portions of
the building were purchased for $1.8 million, of which, 20% was paid in cash and
80% was financed as described below. 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 $1.0 million.

On June 29, 1999, the Company obtained a five-year $2.24 million multi-draw
mortgage which is secured by substantially all the assets of the Company and the
mortgage is cross-collateralized with the line of credit that is described in
Note 5. The interest rate on the loan is a fixed 8.5% and the loan is calculated
over a 20 year amortization period. At October 31, 1999, the outstanding balance
on this loan was $1.44 million.

QLC has leased the portion of the building that it does not presently own. On
September 28, 1999, QLC entered into a contract to remodel the building. The
remodeling cost is approximately $2 million.

NOTE 7 -- Income Taxes

As of January 31, 1999 and October 31, 1999, respectively, the Company had
deferred tax assets of approximately $8.6 million and $7.6 million.
Approximately $4.1 million of the deferred tax asset as of October 31, 1999,
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 $3.1 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.

                                       8
<PAGE>

In October 1999, The Crystal Juke Box, Inc., Wixen Music Publishing, Inc.,
Charles McCormick, Charles Love, Willis Draffen, Jr., Harry Williams,
individually and doing business as the group Bloodstone, a recording and
performing group, (collectively, the "Plaintiffs") filed a lawsuit against a
subsidiary of the Company, The Leap Partnership, Inc. ("Leap"), Anheuser-Busch
Corporation, and Andy Milburn, an individual and doing business as Tomandandy,
(collectively, the "Defendants") in the United States District Court, for the
Central District of California. The complaint alleges copyright infringement,
statutory and common law violation of the right of publicity, violation of
section 43 of the Lanham Act, unfair competition, and misappropriation stemming
from the airing of a television commercial created by Leap for a client. The
suit has been referred to the Company's insurance carrier and legal counsel.
Leap intends to vigorously defend its position and to pursue all remedies
available to it. It is difficult to ascertain the ultimate outcome of this
litigation. An adverse determination and an award of damages not covered by
insurance or by a co-defendant could have a material adverse effect on Leap's
results of operations.

In November 1999, POW, Inc., doing business as Tomandandy, filed a lawsuit
against Leap in the United States District Court, Southern District of New York
seeking damages in the amount of $285,228 plus interest for failure to pay for
work performed by POW, Inc. Leap intends to vigorously defend its position and
to pursue all remedies available to it.

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


NOTE 9 -- Acquisitions

After discussions with Nine Dots Corporation and after conducting due diligence,
both parties intend not to proceed with a potential acquisition.


NOTE 10 -- Subsequent Events

Line of Credit
--------------
On November 10, 1999, the Company obtained a new $15 million secured two year
revolving line of credit from American National Bank which replaced an existing
$10 million revolving line of credit that matures on February 24, 2000. The new
line of credit matures on November 10, 2001, and bears interest at a variable
rate of 1.5% above the Bank's highest CD rate. In addition, there is an unused
facility fee of ten basis points per year on the average amount of the unused
facility.

Significant Client Account
--------------------------
On November 23, 1999, The Leap Partnership, Inc. was informed by Hardee's Food
Systems, Inc. that it was terminating its National Advertising Agency Agreement
effective February 22, 2000. For the three months and the nine months ended
October 31, 1999, this client accounted for 24% and 34% of consolidated
revenues, respectively.

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 nine
months ended October 31, 1998, but are not included within the three and nine
months ended October 31, 1999.

                                       9
<PAGE>

Results of Operations

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

Revenues
--------
Revenues increased to $9.5 million for the three months ended October 31, 1999
from $8.4 million for the three months ended October 31, 1998, an increase of
approximately $1.1 million or 13%. This increase was primarily due to
approximately $4.4 million in increased work with new and existing clients as
the Company continues to expand its business and clients. This increase was
partly offset by approximately $3.3 million loss in revenue due to the October
1998 sale of One World and the AT&T account of YAR.

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 decreased slightly for the three months ended October 31, 1999 from the
three months ended October 31, 1998. An increase in production for both new and
existing clients during 1999 was offset by the absence of expenses related to
One World.

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 $4.3 million for the three months ended October 31, 1999
from $4.5 million for the three months ended October 31, 1998, a decrease of
approximately $0.2 million or 5%. The decrease was primarily due to the sale of
One World and restructuring efforts at YAR which together resulted in decreased
Salaries and Related Expenses of approximately $1.6 million from the prior year
quarter. This decrease was offset in part by approximately $1.4 million in
salary increases primarily related to new hires at the Company. As a percentage
of revenue, Salaries and Related Expenses decreased to approximately 45% for the
three months ended October 31, 1999, from approximately 54% for the three months
ended October 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 $1.8 million for the three months ended October 31, 1999, from $2.5
million for the three months ended October 31, 1998, a decrease of approximately
$0.7 million or 26%. The decrease was primarily due to the sale of One World and
restructuring efforts at YAR which together resulted in a decrease of
approximately $0.9 million from the prior year quarter. As a percentage of
revenue, General and Administrative Expenses decreased to approximately 20% for
the three months ended October 31, 1999, from approximately 30% for the prior
year quarter.

Other Income and Expense
------------------------
Interest income totaled $155,357 and $68,640 for the three months ended October
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. Interest income was offset in part by interest expense of
$140,302 and $95,714, respectively, resulting in net interest income of $15,055
and net interest expense of $27,074 for the three months ended October 31, 1999
and 1998, respectively. The Company incurred interest expense on debt that
totaled approximately $7.3 million as of October 31, 1999, and approximately
$5.2 million as of October 31, 1998.

                                      10
<PAGE>

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

The Company's combined federal and state effective income tax rates were 0% and
24.9% for the three months ended October 31, 1999 and 1998, respectively. The 0%
effective rate for the three months ended October 31, 1999 is due to the
Company's use of previously reserved tax assets resulting from net operating
losses.

As of October 31, 1999, the Company has a deferred tax asset of approximately
$7.6 million which begins 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.


NINE MONTHS ENDED OCTOBER 31, 1999 AND OCTOBER 31, 1998

Revenues
--------

For the nine months ended October 31, 1999, revenues were $27.2 million,
compared to $27.8 million for the nine months ended October 31, 1998, a decrease
of approximately $0.6 million or 2%. This net decrease 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 nine months ended October 31, 1999 of approximately
$12.1 million. This decrease is offset in part by increases in revenue from new
and existing accounts at the Company of approximately $11.5 million. During the
nine months ended October 31, 1999, YAR's non-AT&T related revenue remained
substantially unchanged, as compared with the nine months ended October 31,
1998.

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

Direct Costs and Related Expenses increased to $9.9 million for the nine months
ended October 31, 1999 from $9.1 million for the nine months ended October 31,
1998, an increase of approximately $0.8 million or 9%. 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 $11.2 million for the nine months
ended October 31, 1999, from $14.3 million for the nine months ended October 31,
1998, a decrease of approximately $3.1 million or 21%. This decrease was
primarily due to the sale of One World and restructuring efforts at YAR which
together resulted in a decrease of approximately $6.0 million in Salaries and
Related Expenses from the prior year nine months. This decrease was offset in
part by approximately $2.9 million in salary increases primarily related to new
hires at the Company. As a percentage of revenue, Salaries and Related Expenses
decreased to approximately 41% for the nine months ended October 31, 1999, from
approximately 51% for the prior year nine months.

                                      11
<PAGE>

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

General and Administrative expenses decreased to $5.4 million for the nine
months ended October 31, 1999 from $6.7 million for the nine months ended
October 31, 1998, a decrease of approximately $1.3 million or 19%. This decrease
was primarily due to the sale of One World and restructuring efforts at YAR
which together resulted in a decrease of approximately $2.4 million in General
and Administrative Expenses from the prior year nine months. This decrease was
offset by increases in General and Administrative Expenses of approximately $1.1
million for the Company for the nine months ended October 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
approximately 20% for the nine months ended October 31, 1999, from approximately
24% for the prior year nine 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 $610,200 and $296,538 for the nine months ended October
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. Interest income was offset in part by interest expense of
approximately $306,073 and $442,663, respectively, resulting in net interest
income of $304,127 and net interest expense of $146,125, for the nine months
ended October 31, 1999 and 1998, respectively. The Company incurred interest
expense on debt that totaled approximately $7.3 million and $5.2 million as of
October 31, 1999 and 1998, respectively.

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

Combined federal and state income tax rates were 0.0% and 24.9% for the nine
months ended October 31, 1999 and 1998, respectively. The 0% effective rate for
the nine months ended October 31, 1999 is due to the Company's use of previously
reserved tax assets resulting from net operating losses.

As of October 31, 1999, the Company has a deferred tax asset of approximately
$7.6 million which begins 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.

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 its initial public offering,
loans from a former officer of the Company and cash generated from operations.

At October 31, 1999, the Company had $11.1 million of working capital, inclusive
of approximately $12.7 million in cash and cash equivalents. Cash and cash
equivalents decreased $1.4 million for the nine months ended October 31, 1999.
This decrease resulted primarily from investments of approximately $3.5 million
in capital expenditures and software development, offset by $2.2 million in cash
provided by financing activities.

                                      12
<PAGE>

On November 10, 1999, the Company obtained a new $15 million secured two year
revolving line of credit from American National Bank which replaced an existing
$10 million revolving line of credit that matures on February 24, 2000. The new
line of credit matures on November 10, 2001, and bears interest at a variable
rate of 1.5% above the Bank's highest CD rate. In addition, there is an unused
facility fee of ten basis points per year on the average amount of the unused
facility.

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 October 31, 1999, the first and second portions of
the building were purchased for $1.8 million, of which, 20% was paid in cash and
80% was financed as described below. 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 $1.0 million.

On June 29, 1999, the Company obtained a five-year $2.24 million multi-draw
mortgage 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. The interest rate on the loan is a fixed 8.5% and is calculated over a
20 year amortization period. At October 31, 1999, the outstanding balance on
this loan was $1.44 million.

QLC has leased the portions of the building that it does not presently own. On
September 28, 1999, QLC entered into a contract to remodel the building. The
remodeling cost is approximately $2 million.

On February 24, 1999, the Company obtained a $10 million secured revolving line
of credit from American National Bank which replaced an existing $5 million line
of credit. The line of credit is due February 24, 2000, and 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 October 31, 1999, the
interest rate was 7% and the outstanding balance on the line was $5.1 million.

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.

                                      13
<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. On November 23, 1999, The Leap
Partnership, Inc. was informed by Hardee's Food Systems, Inc., a client
accounting for 24% of consolidated revenue for the three months ended October
31, 1999, that it was terminating its National Advertising Agency Agreement
effective February 22, 2000.

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.

                                      14
<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 2000 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 2000, 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 October 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.

                                      15
<PAGE>

              In October, 1999, The Crystal Juke Box, Inc., Wixen Music
              Publishing, Inc., Charles McCormick, Charles Love, Willis Draffen,
              Jr., Harry Williams, individually and doing business as the group
              Bloodstone, a recording and performing group, (collectively, the
              "Plaintiffs") filed a lawsuit against a subsidiary of the Company,
              The Leap Partnership, Inc. ("Leap"), Anheuser-Busch Corporation,
              and Andy Milburn, an individual and doing business as Tomandandy,
              (collectively, the "Defendants") in the United States District
              Court, for the Central District of California. The complaint
              alleges copyright infringement, statutory and common law violation
              of the right of publicity, violation of section 43 of the Lanham
              Act, unfair competition, and misappropriation stemming from the
              airing of a television commercial created by Leap for a client.
              The suit has been referred to the Company's insurance carrier and
              legal counsel. Leap intends to vigorously defend its position and
              to pursue all remedies available to it. It is difficult to
              ascertain the ultimate outcome of this litigation. An adverse
              determination and an award of damages not covered by insurance or
              by a co-defendant could have a material adverse effect on Leap's
              results of operations.

              In November, 1999, POW, Inc., doing business as Tomandandy, filed
              a lawsuit against Leap, in the United States District Court,
              Southern District of New York seeking damages in the amount of
              $285,228 plus interest for failure to pay for work performed by
              POW, Inc. Leap intends to vigorously defend its position and to
              pursue all remedies available to it.

              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.

                                      16
<PAGE>

ITEM 6.       Exhibits and Reports on Form 8-K

              a.  Exhibits
                  10.1    Promissory Note Agreement, dated November 10, 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    Cross-Collateralization and Cross-Default, dated
                          November 10, 1999, between QLC and ANB.
                  11.     Statement Regarding Computation of Per-Share Earnings.
                  27.     Financial Data Schedule.

              b.  Reports on Form 8-K
                  None.


Items 2, 3, 4 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:    December 14, 1999            By: /s/ FREDERICK A. SMITH
                                      ------------------------------------------
                                      Frederick A. Smith
                                      Chairman and Chief Executive Officer
                                      (principal executive, financial and
                                      accounting officer)

                                      17
<PAGE>

                                 LEAPNET, INC.
                                 EXHIBIT INDEX


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

          10.1               Promissory Note, dated November 10, 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               Cross-Collateralization and Cross-Default
                             Agreement, dated November 10, 1999, between QLC and
                             ANB.


          11.                Statement Regarding Computation of Per-Share
                             Earnings.

          27.                Financial Data Schedules


                                      18