UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number: 000-26263
APPNET, INC.
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(Exact name of registrant as specified in its charter)
Delaware 52-2077860
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6707 Democracy Boulevard
Bethesda, MD 20817
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(Address of principal executive offices including zip code)
(301) 493-8900
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
As of April 6, 2000, there were 33,945,874 outstanding shares of the
Registrant's Common Stock, $0.0005 par value.
<PAGE>
APPNET, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
Page
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PART I. FINANCIAL INFORMATION
Item 1. Unaudited Consolidated Financial Statements
Consolidated Balance Sheets at March 31, 2000 and December 31, 1999 3
Consolidated Statements of Operations for the three months ended
March 31, 2000 and 1999 4
Consolidated Statements of Cash Flows for the three months ended
March 31, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 14
Signature 15
Unless otherwise indicated, all references to "AppNet," "we," "us" and
"our" refer to AppNet, Inc. and, after our respective acquisitions or
formations, its subsidiaries.
CAUTIONARY NOTICE
REGARDING FORWARD-LOOKING STATEMENTS
This report contains statements that we believe are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. All statements other than statements of historical fact in this report,
including statements regarding our competitive strengths, business strategy,
expected benefits of any acquisition, future financial position, budgets,
projected costs and plans and objectives of management are forward-looking
statements. In addition, forward-looking statements generally can be identified
by the use of forward-looking terminology such as "may," "will," "expect,"
"should," "intend," "estimate," "anticipate," "believe," "plan," "continue" or
similar terminology. We undertake no obligation to publicly update or revise any
forward-looking statements contained in this report. These forward-looking
statements are not guarantees of future performance and are subject to risks,
uncertainties and other factors, some of which are beyond our control, that
could cause actual results to differ materially from those we express or imply
in those forward-looking statements. These factors include those we describe in
"Risk Factors" in our 1999 Annual Report on Form 10-K and elsewhere in this
report, and these factors expressly qualify all written and oral forward-looking
statements attributable to us.
2
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PART I. FINANCIAL INFORMATION
Item I. Financial Statements
APPNET, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
March 31, December 31,
2000 1999
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ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 55,105 $ 66,549
Accounts receivable, net 36,010 31,661
Other current assets 3,255 1,300
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Total current assets 94,370 99,510
Property and equipment, net 10,585 8,958
Intangible assets, net 83,517 97,247
Other assets 2,636 2,111
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Total assets $ 191,108 $ 207,826
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,331 $ 4,830
Accrued liabilities 30,940 32,311
Current portion long-term debt 838 1,063
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Total current liabilities 36,109 38,204
Long-term debt, net of current portion 3,516 3,516
Other long-term liabilities 1,406 1,264
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Total liabilities 41,031 42,984
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Stockholders' equity:
Common stock, $.0005 par value; 75,000,000 shares
authorized, 34,102,712 shares issued and 33,9601709
shares outstanding as of March 31, 2000 and
33,625,175 shares issued and 33,454,474 shares
outstanding as of December 31, 1999 17 17
Additional paid-in capital 262,126 257,542
Treasury stock (43) (51)
Notes receivable from management (503) (503)
Deferred compensation (351) (383)
Accumulated deficit (111,169) (91,780)
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Total stockholders' equity 150,077 164,842
Total liabilities and stockholders' equity $ 191,108 $ 207,826
========= =========
The accompanying notes are an integral part of these statements.
3
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APPNET, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except share and per share data)
Three months ended March 31,
2000 1999
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Revenues $ 44,731 19,643
Cost of revenues 24,762 11,457
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Gross profit 19,969 8,186
Operating expenses:
Selling and marketing 3,536 1,190
General and administrative 16,297 6,754
Stock-based and acquisition-related compensation 5,115 2,487
Depreciation and amortization 14,847 12,735
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Total operating expenses 39,795 23,166
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Loss from operations (19,826) (14,980)
Interest income (873) (4)
Interest expense 167 1,266
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Loss before income taxes (19,120) (16,242)
Income tax provision 270 100
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Net loss (19,390) (16,342)
Dividends on and accretion of preferred stock - (1,039)
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Net loss attributable to common stockholders $ (19,390) $ (17,381)
========== ==========
Basic and diluted net loss per common share $ (0.57) $ (0.88)
========== ==========
Weighted average common shares outstanding 33,841,997 19,722,559
The accompanying notes are an integral part of these statements.
4
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<TABLE>
APPNET, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<CAPTION>
Three months ended March 31,
2000 1999
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Cash flows from operating activities:
<S> <C> <C>
Net loss $ (19,390) $ (16,342)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Amortization 13,730 12,289
Depreciation 1,117 446
Stock-based and acquisition-related compensation 5,115 2,487
Change in assets and liabilities:
Accounts receivable, net (4,349) (3,131)
Other current assets (1,955) 336
Accounts payable (499) (1,106)
Accrued liabilities 457 6,524
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Net cash (used in) provided by operating activities (5,774) 1,503
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Cash flows from investing activities:
Purchase of property and equipment (2,538) (923)
Cash paid for acquired businesses, net of cash acquired (1,600) (26,109)
Payment of contingent consideration (2,343) -
Other assets (732) (218)
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Net cash used in investing activities (7,213) (27,250)
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Cash flows from financing activities:
Repayments of long-term debt (1,041) -
Borrowings under credit facilities - 59,400
Repayments of credit facilities - (37,461)
Debt issue costs - (621)
Proceeds from issuance of common stock - 375
Proceeds from issuance of preferred stock - 7,046
Proceeds from Employee Stock Purchase Plan 855 -
Proceeds from exercise of stock options 1,729 215
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Net cash provided by financing activities 1,543 28,954
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Net (decrease) increase in cash (11,444) 3,207
Cash and cash equivalents, beginning of period 66,549 2,447
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Cash and cash equivalents, end of period $ 55,105 $ 5,654
========== =========
Supplementary information:
Cash paid for income taxes $ 804 $ -
========== =========
Cash paid for interest $ 52 $ 157
========== =========
The accompanying notes are an integral part of these statements.
</TABLE>
5
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AppNet, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis Of Presentation
The accompanying consolidated financial statements of AppNet, Inc. and
its subsidiaries (the "Company") are unaudited and include all normal recurring
adjustments which are, in the opinion of management, necessary for a fair
presentation of the results for the periods presented pursuant to the
instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information
and footnote disclosures normally included in the consolidated financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. These
consolidated financial statements should be read in conjunction with the
Company's 1999 Annual Report on Form 10-K, which includes consolidated financial
statements and the notes thereto for the years ended December 31, 1999 and 1998.
The consolidated operating results of operations for the three-month period
ended March 31, 2000 are not necessarily indicative of the results that may be
expected for the entire year ending December 31, 2000.
2. Acquisitions
During the three months ended March 31, 1999, the Company acquired
five businesses, which included: i33 communications corp. for approximately
$21.6 million with a combination of cash and promissory notes that were
converted into shares of Company common stock in December 1999; Sigma6, Inc.
("Sigma6") for approximately $2.5 million with a combination of cash and shares
of our common stock; Salzinger & Company ("Salzinger") for approximately $8.5
million with a combination of cash and shares of our common stock; Internet
Outfitters, Inc. for approximately $9.5 million with a combination of cash,
shares of our common stock and options to purchase shares of our common stock;
and TransForm IT, Incorporated for approximately $5.1 million with a combination
of cash and shares of our common stock. The accounts of the businesses acquired
are included in the accompanying consolidated financial statements from the date
of their respective acquisitions. The following unaudited pro forma consolidated
amounts give effect to the five acquisitions that occurred during the three
months ended March 31, 1999, as if they had occurred on January 1, 1999, by
consolidating the results of operations of the acquired businesses with the
results of AppNet for the three months ended March 31, 1999 (in thousands,
except per share data). The pro forma amounts do not purport to be indicative of
the results of operations that would have been achieved had the transactions
been in effect as of the beginning of 1999 and should not be construed as being
representative of future results of operations.
For the three
months ended
March 31, 1999
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Revenues $ 22,271
Net loss attributable to common stockholders (17,731)
Basic and diluted net loss per share (0.87)
Contingent Payments
In January 2000, the Company paid a portion of the contingent
consideration related to its acquisition of New Media Publishing, Inc. ("NMP").
Of the portion paid, $5.1 million was paid in cash to the former shareholders
and employees, a note payable of approximately $0.8 million, which accrues
interest at 9% and is due January 2001, was issued for the remaining cash
portion payable to a former shareholder, 334,762 shares of the Company's common
stock were issued to the former shareholders and options to purchase 88,523
shares of the Company's common stock at $11.70 per share were issued to certain
employees. Of the remaining portion payable in cash, approximately $0.8 million
will be paid in May 2000 and approximately $2.4 million, including the note
payable discussed above, will be paid in January 2001 if certain former NMP
employees remain employed by AppNet through September 2000. The remaining
portion payable in stock, approximately 255,000 shares, will be issued in
January 2001 if certain former NMP employees remain employed by AppNet through
September 2000. During the three months ended March 31, 2000, the Company
incurred approximately $2.8 million in stock-based compensation expense related
to these contingent payments.
6
<PAGE>
AppNet, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)
2. Acquisitions (continued)
In connection with the Company's acquisition of Sigma6 in March 1999,
the former Sigma6 stockholders were also entitled to a contingent payment of
$2.8 million based on the achievement of agreed-upon performance criteria during
the 12-month period ending on December 31, 1999. The contingent payment, $1.4
million in cash and $1.4 million in Company common stock, or approximately
65,000 shares, was made in April 2000. During the three months ended March 31,
2000, the Company incurred approximately $0.6 million in stock-based
compensation expense related to this contingent payment.
The Company may be required to make contingent payments of up to $5.0
million in cash or, at the seller's option, cash and Company common stock, to
the former stockholders of Salzinger if certain performance criteria are met
during any consecutive twelve-month period during the period from April 1, 1999
to September 30, 2000. The amount of this payment will depend on the level of
achievement of the operating targets and the market price of the Company's
common stock. Further, the former stockholders must remain employed by the
Company in order to remain eligible to receive these payments. During the three
months ended March 31, 2000, the Company incurred approximately $1.3 million in
stock-based compensation expense related to this contingent payment.
3. Accounts Receivable
Accounts receivable consist of the following (in thousands):
March 31, December 31,
2000 1999
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Accounts receivable $28,309 $24,777
Unbilled accounts receivable 13,447 8,831
Allowance for doubtful accounts (5,746) (1,947)
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Accounts receivable, net $36,010 $31,661
======= =======
In March 2000, as a result of the parent company of one of the
Company's customers discontinuing the operations of that customer, the Company
recorded a reserve of $3.4 million against amounts outstanding due from that
customer. The Company intends to aggressively pursue all legal opportunities
available to collect the receivable.
4. Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
March 31, December 31,
2000 1999
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Accrued compensation and benefits $ 5,600 $ 4,851
Payments due to former shareholders of
Acquired Businesses -- 1,600
Accrued stock-based and acquisition-related
compensation 13,867 16,816
Other accrued liabilities 11,473 9,044
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Total accrued liabilities $30,940 $32,311
======= =======
7
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AppNet, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)
5. Earnings Per Share
Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings
Per Share," requires the presentation of basic and diluted earnings per share.
Basic net income (loss) per share is computed by dividing income (loss)
attributable to common stockholders by the weighted average number of common
shares outstanding for the period. The diluted net income (loss) per share data
is computed using the weighted average number of common shares outstanding plus
the dilutive effect of common stock equivalents, unless the common stock
equivalents are antidilutive. Approximately 157,000 shares of Company common
stock that are contingently payable pursuant to the acquisition agreements are
not included in the calculation of weighted average shares outstanding for the
period presented, as circumstances may arise in which the shares would not be
issued. In addition, the impact of potentially dilutive securities, which
include approximately 1,057,000 stock options outstanding (on an incremental and
weighted average basis), approximately 64,000 contingent shares to be issued in
January 2001 and approximately 70,000 warrants are excluded from diluted
earnings per share due to their antidilutive effect as of March 31, 2000.
6. Segment Information
During 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS No. 131"). SFAS No.
131 requires a business enterprise, based upon a management approach, to
disclose financial and descriptive information about its operating segments.
Operating segments are components of an enterprise about which separate
financial information is available and regularly evaluated by the chief
operating decision maker(s) of an enterprise. Under this definition, the Company
operated as a single segment for all periods presented.
7. Litigation and Claims
The Company is subject to lawsuits, investigations and claims arising
out of the ordinary course of business, including those related to commercial
transactions, contracts, government regulation and employment matters. Certain
claims, suits and complaints have been filed or are pending against the Company.
In the opinion of management, based on all known facts, all matters are without
merit, and except as related to the claims mentioned below, are of such kind, or
involve such amounts, as would not have a material effect on the financial
position or results of operations of the Company if disposed of unfavorably.
In connection with the Company's acquisition of Internet Outfitters,
Inc., approximately $1.45 million of the purchase price in the form of shares of
Company common stock, based upon the fair value of $17.10 per share at the date
of acquisition, was pledged to the Company and escrowed to be available to
satisfy any potential liability in connection with a license dispute. The
Company also held back $750,000 of the cash purchase price to be used to satisfy
this and any other indemnification claims. During the three months ended March
31, 2000, the license dispute was settled with no financial consequences to the
Company. The shares of Company common stock pledged and escrowed and the cash
purchase price held back in connection with the license dispute are no longer
escrowed and were released in March 2000.
In November 1999, a former employee filed suit against the Company and
its Chief Executive Officer in state court in Michigan. The case was removed to
the United States District Court for the Eastern District of Michigan. The
plaintiff alleges a breach of contract and fraud in connection with the former
employee's employment agreement with the Company, and improper interference with
the former employee's efforts to sell shares of the Company's common stock. The
former employee is seeking monetary damages in connection with these claims. On
March 21, 2000, the court dismissed some of the former employee's claims and
tentatively dismissed the fraud claims while allowing the former employee to
replead. The court indicated that the former employee will be permitted to
pursue the claim for interference with the effort to sell shares of the
Company's common stock. The Company intends to contest the claims vigorously. At
this time, the Company is not able to reasonably estimate the amount of loss, if
any, that will be incurred as a consequence of this lawsuit.
8
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AppNet, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)
7. Litigation and Claims (continued)
In February 2000, a former customer of the Company filed suit against
the Company, one of its subsidiaries and a former and current employee of the
Company in the Supreme Court of the State of New York, County of New York. The
plaintiff in the suit alleges breach of contract and misrepresentation related
to services performed by the Company. The former customer is seeking direct
damages, plus punitive damages, costs and fees. The Company intends to
vigorously contest these claims and has filed counterclaims against the
defendants alleging monies due for services performed. The Company is not able
to reasonably estimate the amount of loss, if any, that will be incurred as a
consequence of this lawsuit.
9
<PAGE>
Item 2. Management's Discussion And Analysis Of Financial Condition And Results
Of Operations
The following discussion and analysis compares the three-month period
ended March 31, 2000 to the corresponding period ended March 31, 1999 for
AppNet, Inc. and its subsidiaries ("AppNet," the "Company," "we," "us" or "our")
and should be read in conjunction with the Company's consolidated financial
statements and notes thereto appearing elsewhere in this report. You are also
encouraged to review the information contained in the Cautionary Notice
Regarding Forward-Looking Statements on the Table of Contents page of this
report.
Overview
AppNet provides end-to-end e-business professional services and
solutions to Global 1000 and dot.com companies. We develop end-to-end e-business
solutions that improve communication and commerce between businesses and their
trading partners as well as among businesses and consumers. Through internal
growth and strategic acquisitions, we have built a company with the ability to
design, develop, implement and manage end-to-end e-business solutions.
The goal in founding AppNet was to build a company that could offer a
comprehensive range of e-business professional services. We began by developing
a detailed strategic plan that identified the specific professional services
that are required to provide clients with end-to-end e-business solutions. These
services were strategy consulting, interactive marketing, e-business application
development, e-business integration and e-business outsourcing. We then
identified a group of companies that excelled in providing services in one or
more of these professional services areas. After reviewing and evaluating over
100 companies, we ultimately acquired a set of companies that fit together
strategically and culturally and that, as integrated with one another, design,
develop, implement and manage end-to-end e-business solutions.
We acquired five companies during the first quarter of 1999, which
included: i33 communications corp. for approximately $21.6 million with a
combination of cash and promissory notes that were converted in December 1999;
Sigma6, Inc. ("Sigma6") for approximately $2.5 million with a combination of
cash and shares of our common stock; Salzinger & Company ("Salzinger") for
approximately $8.5 million with a combination of cash and shares of our common
stock; Internet Outfitters, Inc. for approximately $9.5 million with a
combination of cash, shares of our common stock and options to purchase shares
of our common stock; and TransForm IT, Incorporated for approximately $5.1
million with a combination of cash and shares of our common stock.
Results Of Operations
Three Months Ended March 31, 2000 Compared To The Three Months Ended March 31,
1999
Revenues. Revenue for the three months ended March 31, 2000 increased
$25.1 million to $44.7 million from $19.6 million for the three months ended
March 31, 1999, primarily due to internal growth and the inclusion of a full
three months of operations of the companies we acquired during the first quarter
of 1999.
Cost of revenues. Cost of revenues for the three months ended March
31, 2000 increased $13.3 million to $24.8 million from $11.5 million for the
three months ended March 31, 1999. The increase in cost of revenues was
primarily driven by an increase in billable headcount resulting from the
acquisitions that occurred during 1998 and 1999, as well as internally generated
headcount. As a percentage of revenues, cost of revenues for the three months
ended March 31, 2000 decreased to 55% from 58% for the three months ended March
31, 1999 due to an increase in utilization and hourly bill rates in the first
quarter of 2000 compared to the first quarter of 1999.
10
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Selling and marketing. Selling and marketing expenses for the three
months ended March 31, 2000 increased $2.3 million to $3.5 million from $1.2
million for the three months ended March 31, 1999. As a percentage of revenue,
selling and marketing expenses for the three months ended March 31, 2000
increased to 8% from 6% for the three months ended March 31, 1999. The increase
in selling and marketing expenses is a result of the development of our
corporate sales and marketing staff, the expansion of our marketing strategy and
the promotion of our brand identity during the first quarter of 2000, as well as
the inclusion of a full three months of operations of the companies we acquired
in the first quarter of 1999.
General and administrative. General and administrative expenses for
the three months ended March 31, 2000 increased $9.5 million to $16.3 million
from $6.8 million for the three months ended March 31, 1999. The increase in
general and administrative expenses is a result of the build up of corporate
infrastructure in the first quarter of 2000 to support the growth of the
Company. Further, in March 2000, AppNet recognized a bad debt charge of
approximately $3.4 million related to a receivable due from a customer because
the parent company of the customer discontinued the operations of the customer.
We intend to aggressively pursue all legal opportunities available to collect
the receivable. As a result of anticipated additional hiring costs associated
with the continued growth of our business, our general and administrative
expenses are expected to continue to increase during 2000, although they may
decline as a percentage of our revenues. As a percentage of revenue, general and
administrative expenses for the three months ended March 31, 2000, excluding the
$3.4 million bad debt charge, decreased to 29% from 34% for the three months
ended March 31, 1999.
Stock-based and acquisition-related compensation. Stock-based and
acquisition-related compensation expense for the three months ended March 31,
2000 increased $2.6 million to $5.1 million from $2.5 million for the three
months ended March 31, 1999. The compensation charge during the three months
ended March 31, 2000 is primarily attributable to the contingent payments due to
former shareholders of businesses acquired that must remain employed by AppNet
to receive the contingent payments.
Depreciation and amortization. Depreciation and amortization expense
for the three months ended March 31, 2000 increased $2.1 million to $14.8
million from $12.7 million for the three months ended March 31, 1999. The
increase is primarily due to the amortization of intangible assets resulting
from the acquisitions made during 1999. Further, the increase in amortization
expense for the three months of March 31, 2000 as compared to the three months
of March 31, 1999 is due to an increase in goodwill related to the recording of
certain contingent payments as additional purchase price. Our goodwill and
related amortization may increase in future periods if AppNet is required to pay
additional consideration for its acquisitions based on the attainment of certain
operating targets.
Interest income. Interest income for the three months ended March 31,
2000 was $0.9 million and is attributable to higher cash balances during 2000 as
a result of our public stock offerings in June and November 1999.
Interest expense. Interest expense for the three months ended March
31, 2000 decreased $1.1 million to $0.2 million from $1.3 million for the three
months ended March 31, 1999 due to the repayment of borrowings under our credit
facility with proceeds from our public stock offerings in June and November 1999
and the repayment or conversion during 1999 and the first quarter of 2000 of
notes payable issued to sellers of businesses acquired.
Income tax provision. The provision for income taxes for the three
months ended March 31, 2000 increased $0.2 million to $0.3 million from $0.1
million for the three months ended March 31, 1999. The provision for income
taxes for the three months ended March 31, 2000 and 1999 relates to state income
taxes and the increase for the three months ended March 31, 2000 from the three
months ended March 31, 1999 is attributable to the growth of our business.
11
<PAGE>
Liquidity And Capital Resources
At March 31, 2000, we had approximately $55.1 million in cash and cash
equivalents. We have financed our operations and acquisitions primarily through
the issuance of common stock, borrowings under credit facilities and the
issuance of preferred stock. For the three months ended March 31, 2000, cash
used by operations was $5.8 million. For the three months ended March 31, 1999,
cash provided by operations was $1.5 million.
For the three months ended March 31, 2000 and 1999, cash used in
investing activities was $7.2 million and $27.3 million, respectively. The
principal use of cash in investing activities during the three months of March
31, 2000 was as follows: to make approximately $5.1 million in payments for
contingent consideration related to our acquisition of New Media Publishing,
Inc. ("NMP"), of which $2.3 million is included in investing activities due to
it considered as additional purchase price and the remaining $2.8 is included in
accrued liabilities in operating activities; to repay $1.6 million withheld from
owners of other acquired businesses due to the resolution of certain employment
contingencies; and to make purchases of property and equipment to build the
infrastructure to support our growth. The principal use of cash in investing
activities during the three months of March 31, 1999 was to finance the
acquisitions that occurred in the first quarter of 1999. As we continue to grow
our business and build the infrastructure to support our growth, we expect to
use cash from operations to fund the continued growth and to fund selling and
marketing activities.
Net cash provided by financing activities was $1.5 million and $29.0
million for the three months ended March 31, 2000 and 1999, respectively. During
the first quarter of 1999, we received proceeds of $7.6 million from the
issuance of our preferred stock, common stock and the exercise of stock options.
We had borrowings under our credit facilities of $59.4 million, offset by
repayments of $37.5 million and debt issue costs of $0.6 million during the
three months ended March 31, 1999. During the first quarter of 2000, we received
proceeds of $1.7 million from the exercise of stock options and $0.9 million
related to our Employee Stock Purchase Plan, offset by debt repayments of $1.0
million.
In January 2000, we paid a portion of the contingent consideration
related to our acquisition of NMP. Of the portion paid, $5.1 million was paid in
cash to the former shareholders and employees, a note payable of approximately
$0.8 million, which accrues interest at 9% and is due January 2001, was issued
for the remaining cash portion payable to a former shareholder, 334,762 shares
of the our common stock were issued to the former shareholders and options to
purchase 88,523 shares of the our common stock at $11.70 per share were issued
to certain employees. Of the remaining portion payable in cash, approximately
$0.8 million will be paid in May 2000 and approximately $2.4 million, including
the note payable discussed above, will be paid in January 2001 if certain former
NMP employees remain employed by AppNet through September 2000. The remaining
portion payable in stock, approximately 255,000 shares, will be issued in
January 2001 if certain former NMP employees remain employed by AppNet through
September 2000. During the three months ended March 31, 2000, we incurred
approximately $2.8 million in stock-based compensation expense related to these
contingent payments. We expect to incur approximately $3.3 million in additional
stock-based compensation expense during 2000 related to these contingent
payments.
In connection with our acquisition of Sigma6, the former Sigma6
stockholders were also entitled to a contingent payment of $2.8 million based on
the achievement of agreed-upon performance criteria during the 12-month period
ending on December 31, 1999. The contingent payment, $1.4 million in cash and
$1.4 million in our common stock, or approximately 65,000 shares, was made in
April 2000. During the three months ended March 31, 2000, we incurred
approximately $0.6 million in stock-based compensation expense related to this
contingent payment.
We may be required to make contingent payments of up to $5.0 million
in cash or, at the seller's option, cash and our common stock, to the former
stockholders of Salzinger if certain performance criteria are met during any
consecutive twelve-month period during the period from April 1, 1999 to
September 30, 2000. The amount of this payment will depend on the level of
achievement of the operating targets and the market price of our common stock.
Further, the former stockholders must remain employed by AppNet in
12
<PAGE>
order to remain eligible to receive these payments. During the three months
ended March 31, 2000, we incurred approximately $1.3 million in stock-based
compensation expense related to this contingent payment. At this time, we are
not able to reasonably estimate the additional amount of stock-based
compensation expense to be incurred during 2000 related to this contingent
payment due to possible future fluctuations in the market price of our common
stock and the level of achievement of the operating targets.
Our capital expenditures for the three months ended March 31, 2000 and
1999 were approximately $2.5 million and $0.9 million, respectively.
Historically, capital expenditures have been used to make leasehold improvements
to our leased office space and to purchase computer hardware and software and
furniture and fixtures. We do not have any material commitments for capital
expenditures for the foreseeable future. However, we do plan to make capital
expenditures, which may include expenditures for leasehold improvements to
office space, computer equipment, software and furniture and fixtures.
Based upon current expectations, we believe our available cash
balances, amounts that may be borrowed under our credit facility ($20.0 million
as of March 31, 2000) and cash flow from our operations will be adequate for us
to meet our capital requirements, to finance the cash portion of our contingent
payments and pursue our business strategy for the next 18 months. To the extent
we are unable to fund our operations from our available cash balances, cash
flows and existing credit facility during or following the next 18 months, we
may need to obtain financing from external sources either by issuing additional
equity or incurring additional indebtedness, although additional financing may
not be available.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are subject to lawsuits, investigations and claims arising out of
the ordinary course of our business, including those related to commercial
transactions, contracts, government regulation and employment matters. Certain
claims, suits and complaints have been filed or are pending against the Company.
In the opinion of management, based on all known facts, all matters are without
merit, and except as related to the claims mentioned below, are of such kind, or
involve such amounts, as would not have a material effect on the financial
position or results of operations of the Company if disposed of unfavorably.
On November 11, 1999, Robert Harvey filed suit against AppNet, Inc.
and Ken Bajaj (our Chief Executive Officer) in state court in Michigan. The case
has been removed to the United States District Court for the Eastern District of
Michigan. The plaintiff alleges a breach of contract and fraud in connection
with his employment agreement with AppNet, and improper interference with his
efforts to sell shares of our common stock. Mr. Harvey is seeking monetary
damages in connection with these claims. On March 21, 2000, the court dismissed
some of Mr. Harvey's claims, and tentatively dismissed the fraud claims while
allowing Mr. Harvey to replead. The court indicated that Mr. Harvey will be
permitted to pursue his claim for interference with his effort to sell shares of
our common stock. We intend to contest the claims vigorously. At this time, we
are not able to reasonably estimate the amount of loss, if any, that will be
incurred as a consequence of this lawsuit.
On February 4, 2000, Counsel Corporation (US) and JewelryOnly.com, LLC
filed suit against AppNet Inc., one of its subsidiaries, Drew Rayman (a former
employee) and David Levin (a current employee) in the Supreme Court of the State
of New York, County of New York. The plaintiffs in the suit allege breach of
contract and misrepresentation related to services performed by AppNet. They are
seeking direct damages, plus punitive damages, costs and fees. We intend to
vigorously contest these claims and have filed counterclaims against the
defendants alleging monies due for services performed. We are not able to
reasonably estimate the amount of loss, if any, that will be incurred as a
consequence of this lawsuit.
13
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit Description
------- -----------
10.1 Third Amendment to Revolving Credit Agreement, dated as
of October 25, 1999, by and among AppNet, Inc., Bank
Boston, N.A. and Antares Capital Corporation.
10.2 Fourth Amendment to Revolving Credit Agreement, dated
as of March 31, 2000, by and among AppNet, Inc., Fleet
National Bank (formerly known as Bank Boston, N.A.) and
Antares Capital Corporation.
27 Financial Data Schedule.
(b) Reports on Form 8-K filed during the three months ended March 31,
2000:
The Company filed a Form 8-K dated March 30, 2000 to file the
audited financial statements of i33 communications corp.,
Salzinger & Company, Inc. and Internet Outfitters, Inc., which
were acquired by AppNet in 1999. These financial statements were
filed under Item 7 of Form 8-K pursuant to the requirements of
Staff Accounting Bulletin No. 80 ("SAB No. 80"). As permitted by
SAB No. 80, the audited financial statements for these
corporations for the periods from January 1, 1999 through their
respective acquisition dates were not included in the Company's
Registration Statement on Form S-1 filed in connection with the
Company's June 1999 initial public offering.
14
<PAGE>
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned on its behalf by the undersigned thereunto duly
authorized.
APPNET, INC.
Date: May 5, 2000 By: /s/ Jack Pearlstein
--------------------------------------
Jack Pearlstein
Senior Vice President,
Chief Financial Officer and Treasurer
(On behalf of the registrant and
as principal financial officer)
15
<PAGE>
APPNET, INC.
Exhibit Index to Quarterly Report
On Form 10-Q for the Quarterly Period
Ended March 31, 2000
Exhibit Description
------- -----------
10.1 Third Amendment to Revolving Credit Agreement, dated as
of October 25, 1999, by and among AppNet, Inc., Bank
Boston, N.A. and Antares Capital Corporation.
10.2 Fourth Amendment to Revolving Credit Agreement, dated
as of March 31, 2000, by and among AppNet, Inc., Fleet
National Bank (formerly known as Bank Boston, N.A.) and
Antares Capital Corporation.
27 Financial Data Schedule.
16
- --------------------------------------------------------------------------------
THIRD AMENDMENT
TO
REVOLVING CREDIT AGREEMENT (UNGUARANTEED)
- --------------------------------------------------------------------------------
Third Amendment dated as of October 25, 1999 to Revolving Credit
Agreement (the "Second Amendment"), by and among APPNET SYSTEMS, INC., a
Delaware corporation (the "Borrower"), BANKBOSTON, N.A. and the other lending
institutions listed on Schedule 1 to the Credit Agreement (as hereinafter
defined) (the "Banks"), amending certain provisions of the Revolving Credit
Agreement dated as of January 8, 1999 (as amended and in effect from time to
time, the "Credit Agreement") by and among the Borrower, the Banks, BankBoston,
N.A. as agent for the Banks (the "Agent") and Antares Capital Corporation as
co-agent for the Banks. Terms not otherwise defined herein which are defined in
the Credit Agreement shall have the same respective meanings herein as therein.
WHEREAS, the Borrower and the Banks have agreed to modify certain terms
and conditions of the Credit Agreement as specifically set forth in this Third
Amendment;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
ss.1. Amendment to Section 1.1 of the Credit Agreement. Section 1.1 of
the Credit Agreement is hereby amended as follows:
(a) The definition of "EBITDA" contained in ss.1.1 of the Credit
Agreement is hereby amended by deleting such definition in its entirety and
restating it as follows:
EBITDA. With respect to the Borrower and its Subsidiaries
for any fiscal period, an amount equal to Consolidated Net Income
for such period, plus, to the extent deducted in the calculation
of Consolidated Net Income and without duplication, (a) income tax
expense for such period; (b) Consolidated Total Interest Expense
paid or accrued (excluding accrued interest the payment of which
is deferred beyond one year from the date such amount is being
determined) during such period; (c) depreciation and amortization
for such period; (d) the one-time expense incurred in the fiscal
quarter ended September 30, 1999 pertaining to the severance
arrangements for certain employees; and (e) the amount of any
earn-out or noncompete for such period to the extent such amount
was capitalized and treated as debt (including without limitation
any earn-out such as that which was part of the consideration in
the acquisition of New Media Publishing, Inc., which earn-out was
<PAGE>
-2-
accounted for as compensation and noncompete and capitalized as an
intangible asset and amortized), and minus, to the extent added in
computing Consolidated Net Income and without duplication, all
noncash gains (including income tax benefits) for such period, all
as determined in accordance with generally accepted accounting
principles.
(b) Section 1.1 of the Credit Agreement is further amended by inserting
the following definition in the appropriate alphabetical order:
Earn-Out Payments. With respect to the Borrower and its
Subsidiaries for any fiscal period, that amount which would appear
on the Borrower's balance sheet as the line item for the accrued
cash amount of the present value of any acquisition related
earn-outs and/or contingent compensation liabilities owed or to be
owed by the Borrower or any Subsidiary, as determined for such
period calculated in accordance with generally accepted accounting
principles and in accordance with the Borrower's past accounting
practices, consistently applied.
Total Debt to EBITDA Ratio. As at any date of
determination, the ratio of (a) Total Indebtedness of the Borrower
and its Subsidiaries outstanding on such date to (b) EBITDA of the
Borrower and its Subsidiaries for the Reference Period ending as
of the most recent quarter ended, provided, however, when
calculating the Total Debt to EBITDA Ratio for any period in which
a Permitted Acquisition has occurred, the calculation of the Total
Debt to EBITDA Ratio shall be made on a Pro Forma Basis.
Total Indebtedness. All Indebtedness of the Borrower and
its Subsidiaries for borrowed money (including without limitation,
the Earn-Out Payments, the Seller Subordinated Debt and all
guarantees by such Person of Indebtedness of others for borrowed
money), purchase money Indebtedness and with respect to
Capitalized Leases and synthetic leases (as defined in clause (f)
of the definition of "Indebtedness"), determined on a consolidated
basis in accordance with generally accepted accounting principles.
ss.2. Amendment to Section 10 of the Credit Agreement. Section 10 of
the Credit Agreement is hereby amended by deleting ss.10 in its entirety and
restating ss.10 as follows:
10. FINANCIAL COVENANTS OF THE BORROWER.
The Borrower covenants and agrees that, so long as any
Revolving Credit Loan, Unpaid Reimbursement Obligation, Letter of
Credit or Revolving Credit Note is outstanding or any Bank has any
<PAGE>
-3-
obligation to make any Revolving Credit Loans or the Agent has any
obligation to issue, extend or renew any Letters of Credit:
10.1 Leverage Ratio. The Borrower will not permit the
Leverage Ratio at any time from (a) October 25, 1999 through June
30, 2000 to exceed 2.25:1.00; and (b) from July 1, 2000 and any
time thereafter to exceed 2:00:1.00.
10.2 Minimum EBITDA. The Borrower will not, as of the end
of any fiscal quarter ending during any period described in the
table set forth below, permit EBITDA of the Borrower and its
Subsidiaries for the fiscal quarter ending on such date, to be
less than the amount set forth opposite such period in such table:
-----------------------------------------------------------------------
Fiscal Quarter
Ending Minimum EBITDA
-----------------------------------------------------------------------
September 30, 1999 $2,000,000
-----------------------------------------------------------------------
December 31, 1999 $1,500,000
-----------------------------------------------------------------------
March 31, 2000 and $2,000,000
each fiscal quarter
ending thereafter
-----------------------------------------------------------------------
10.3. Consolidated Operating Cash Flow to Total Debt
Service. The Borrower will not permit the ratio of Consolidated
Operating Cash Flow to Total Debt Service for any fiscal quarter
ending on or after June 30, 1999 other than the fiscal quarter
ending December 31, 1999 to be less than 1.50:1.00 for such fiscal
quarter, and will not permit the ratio of Consolidated Operating
Cash Flow to Total Debt Service for the fiscal quarter ending
December 31, 1999 to be less than 0.60:1.00 for such fiscal
quarter; provided, however, solely for the fiscal quarter ending
December 31, 1999, Total Debt Service shall not include any
mandatory payments of principal on the Seller Subordinated Debt
consisting of the convertible promissory note issued by Century
Computing, Incorporated in the original principal amount of
$2,000,000.
10.4. Consolidated Operating Cash Flow to Senior Debt
Service. The Borrower will not permit the ratio of Consolidated
Operating Cash Flow to Senior Debt Service for any fiscal quarter
ending on or after December 31, 1998 to be less than 2.00:1.00 for
such fiscal quarter.
10.5. Quick Ratio. The Borrower will not permit the ratio
of Consolidated Quick Assets to Consolidated Current Liabilities
to be less than (a) 1.25:1.00 at any time from August 16, 1999
through and including September 30, 1999 and (b) 0.90:1.00 at any
time thereafter.
<PAGE>
-4-
10.6. No Quarterly Net Loss. The Borrower will not permit
Consolidated Net Income for any fiscal quarter to be less than
$1.00.
10.7. Capital Expenditures. The Borrower will not make,
or permit any Subsidiary of the Borrower to make, Capital
Expenditures, other than Capital Expenditures which the Majority
Banks reasonably determine are made for nonrecurring one-time
infrastructure purchases or leases by the Borrower, in any fiscal
year that exceed, in the aggregate, (a) $3,000,000 for the fiscal
year ending December 31, 1999; and (b) $4,000,000 for the fiscal
year ending thereafter.
10.8. Total Debt/EBITDA. The Borrower will not permit the
Total Debt to EBITDA Ratio (a) from October 25, 1999 through June
29, 2000 to exceed 5.00:1.00 at any time; (b) from June 30, 2000
through December 30, 2000 to exceed 3.50:1.00 at any time; and (c)
from December 31, 2000 and any time thereafter to exceed 3.00:1.00
at any time.
ss.3. Conditions to Effectiveness. This Third Amendment shall not
become effective until the Agent receives a counterpart of this Third Amendment,
executed by the Borrower, each Subsidiary and the Banks
ss.4. Representations and Warranties. The Borrower hereby represents
that, on and as of the date hereof, each of the representations and warranties
made by it in ss.7 of the Credit Agreement remain true as of the date hereof
(except to the extent of changes resulting from transactions contemplated or
permitted by the Credit Agreement and the other Loan Documents and changes
occurring in the ordinary course of business that singly or in the aggregate are
not materially adverse, and to the extent that such representations and
warranties relate expressly to an earlier date), provided, that all references
therein to the Credit Agreement shall refer to such Credit Agreement as amended
hereby. In addition, the Borrower hereby represents and warrants that the
execution and delivery by the Borrower and its Subsidiaries of this Third
Amendment and the performance by the Borrower and its Subsidiaries of all of its
agreements and obligations under the Credit Agreement and the other Loan
Documents as amended hereby are within the corporate authority of each of the
Borrower and its Subsidiaries and has been duly authorized by all necessary
corporate action on the part of the Borrower and its Subsidiaries.
ss.5. Ratification, Etc. Except as expressly amended hereby, the Credit
Agreement and all documents, instruments and agreements related thereto,
including, but not limited to the Security Documents, are hereby ratified and
confirmed in all respects and shall continue in full force and effect. The
Credit Agreement and this Third Amendment shall be read and construed as a
single agreement. All references in the Credit Agreement or any related
agreement or instrument to the Credit Agreement shall hereafter refer to the
Credit Agreement as amended hereby.
<PAGE>
-5-
ss.6. No Waiver. Nothing contained herein shall constitute a waiver of,
impair or otherwise affect any Obligations, any other obligation of the Borrower
or any rights of the Agent or the Banks consequent thereon.
ss.7. Counterparts. This Third Amendment may be executed in one or more
counterparts, each of which shall be deemed an original but which together shall
constitute one and the same instrument.
ss.8. Governing Law. THIS THIRD AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS
(WITHOUT REFERENCE TO CONFLICT OF LAWS).
<PAGE>
-6-
IN WITNESS WHEREOF, the parties hereto have executed this Third
Amendment as a document under seal as of the date first above written.
APPNET SYSTEMS, INC.
By: /s/
------------------------------------
Title:
BANKBOSTON, N.A.
By: /s/
------------------------------------
Jay L. Massimo, Director
ANTARES CAPITAL CORPORATION
By: /s/
------------------------------------
Title:
<PAGE>
-7-
RATIFICATION OF GUARANTY
Each of the undersigned guarantors hereby acknowledges and consents to
the foregoing Third Amendment as of October 25, 1999 and agrees that each of the
Guaranty dated as of January 8, 1999, March 4, 1999 and March 10, 1999 from each
of the undersigned guarantors remains in full force and effect, and each of the
guarantors confirms and ratifies all of its obligations thereunder.
APPNET OF MICHIGAN, INC.
By: /s/
------------------------------------
Title:
APPNET OF MARYLAND, INC.
By: /s/
------------------------------------
Title:
SOFTWARE SERVICES CORPORATION
By: /s/
------------------------------------
Title:
NEW MEDIA PUBLISHING, INC.
By: /s/
------------------------------------
Title:
RESEARCH & PLANNING, INC.
By: /s/
------------------------------------
Title:
<PAGE>
-8-
CENTURY COMPUTING, INCORPORATED
By: /s/
------------------------------------
Title:
THE KODIAK GROUP, INC.
By: /s/
------------------------------------
Title:
I33 COMMUNICATION CORP.
By: /s/
------------------------------------
Title:
SIGMA6, INC.
By: /s/
------------------------------------
Title:
SALZINGER ACQUISITION CORP.
By: /s/
------------------------------------
Title:
- --------------------------------------------------------------------------------
FOURTH AMENDMENT
TO
REVOLVING CREDIT AGREEMENT (UNGUARANTEED)
- --------------------------------------------------------------------------------
Fourth Amendment dated as of March 31, 2000 to Revolving Credit
Agreement (the "Fourth Amendment"), by and among APPNET SYSTEMS, INC., a
Delaware corporation (the "Borrower"), FLEET NATIONAL BANK (formerly known as
BANKBOSTON, N.A.) and the other lending institutions listed on Schedule 1 to the
Credit Agreement (as hereinafter defined) (the "Banks"), amending certain
provisions of the Revolving Credit Agreement dated as of January 8, 1999 (as
amended and in effect from time to time, the "Credit Agreement") by and among
the Borrower, the Banks, Fleet National Bank (formerly known as BankBoston,
N.A.) as agent for the Banks (the "Agent") and Antares Capital Corporation as
co-agent for the Banks. Terms not otherwise defined herein which are defined in
the Credit Agreement shall have the same respective meanings herein as therein.
WHEREAS, the Borrower and the Banks have agreed to modify certain terms
and conditions of the Credit Agreement as specifically set forth in this Fourth
Amendment;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
ss.1. Amendment to Section 1.1 of the Credit Agreement. The definition
of "EBITDA" contained in ss.1.1 of the Credit Agreement is hereby amended by
deleting such definition in its entirety and restating it as follows:
EBITDA. With respect to the Borrower and its Subsidiaries
for any fiscal period, an amount equal to Consolidated Net Income
for such period, plus, to the extent deducted in the calculation
of Consolidated Net Income and without duplication, (a) income tax
expense for such period; (b) Consolidated Total Interest Expense
paid or accrued (excluding accrued interest the payment of which
is deferred beyond one year from the date such amount is being
determined) during such period; (c) depreciation and amortization
for such period; (d) the one-time expense incurred in the fiscal
quarter ended September 30, 1999 pertaining to the severance
arrangements for certain employees; (e) the one-time charge for
bad debts taken in the fiscal quarter ended March 31, 2000 in an
aggregate amount not to exceed $3,400,000 and (f) the amount of
any earn-out or noncompete for such period to the extent such
amount was capitalized and treated as debt (including without
limitation any earn-out such as that which was part of the
consideration in the acquisition of New Media Publishing, Inc.,
which earn-out was
<PAGE>
-2-
accounted for as compensation and noncompete and capitalized as an
intangible asset and amortized), and minus, to the extent added in
computing Consolidated Net Income and without duplication, all
noncash gains (including income tax benefits) for such period, all
as determined in accordance with generally accepted accounting
principles.
ss.2. Conditions to Effectiveness. This Fourth Amendment shall not
become effective until the Agent receives a counterpart of this Fourth
Amendment, executed by the Borrower, each Subsidiary and the Banks
ss.3. Representations and Warranties. The Borrower hereby represents
that, on and as of the date hereof, each of the representations and warranties
made by it in ss.7 of the Credit Agreement remain true as of the date hereof
(except to the extent of changes resulting from transactions contemplated or
permitted by the Credit Agreement and the other Loan Documents and changes
occurring in the ordinary course of business that singly or in the aggregate are
not materially adverse, and to the extent that such representations and
warranties relate expressly to an earlier date), provided, that all references
therein to the Credit Agreement shall refer to such Credit Agreement as amended
hereby. In addition, the Borrower hereby represents and warrants that the
execution and delivery by the Borrower and its Subsidiaries of this Fourth
Amendment and the performance by the Borrower and its Subsidiaries of all of its
agreements and obligations under the Credit Agreement and the other Loan
Documents as amended hereby are within the corporate authority of each of the
Borrower and its Subsidiaries and has been duly authorized by all necessary
corporate action on the part of the Borrower and its Subsidiaries.
ss.4. Ratification, Etc. Except as expressly amended hereby, the Credit
Agreement and all documents, instruments and agreements related thereto,
including, but not limited to the Security Documents, are hereby ratified and
confirmed in all respects and shall continue in full force and effect. The
Credit Agreement and this Fourth Amendment shall be read and construed as a
single agreement. All references in the Credit Agreement or any related
agreement or instrument to the Credit Agreement shall hereafter refer to the
Credit Agreement as amended hereby.
ss.5. No Waiver. Nothing contained herein shall constitute a waiver of,
impair or otherwise affect any Obligations, any other obligation of the Borrower
or any rights of the Agent or the Banks consequent thereon.
ss.6. Counterparts. This Fourth Amendment may be executed in one or
more counterparts, each of which shall be deemed an original but which together
shall constitute one and the same instrument.
ss.7. Governing Law. THIS FOURTH AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS
(WITHOUT REFERENCE TO CONFLICT OF LAWS).
<PAGE>
-3-
IN WITNESS WHEREOF, the parties hereto have executed this Fourth
Amendment as a document under seal as of the date first above written.
APPNET SYSTEMS, INC.
By: /s/
------------------------------------
Title:
FLEET NATIONAL BANK (formerly
know as BankBoston, N.A.)
By: /s/
------------------------------------
Jay L. Massimo, Director
ANTARES CAPITAL CORPORATION
By: /s/
------------------------------------
Title:
<PAGE>
-4-
RATIFICATION OF GUARANTY
Each of the undersigned guarantors hereby acknowledges and consents to
the foregoing Fourth Amendment as of March 31, 2000 and agrees that each of the
Guaranty dated as of January 8, 1999, March 4, 1999 and March 10, 1999 from each
of the undersigned guarantors remains in full force and effect, and each of the
guarantors confirms and ratifies all of its obligations thereunder.
APPNET OF MICHIGAN, INC.
By: /s/
------------------------------------
Title:
APPNET OF MARYLAND, INC.
By: /s/
------------------------------------
Title:
SOFTWARE SERVICES CORPORATION
By: /s/
------------------------------------
Title:
NEW MEDIA PUBLISHING, INC.
By: /s/
------------------------------------
Title:
RESEARCH & PLANNING, INC.
By: /s/
------------------------------------
Title:
<PAGE>
-5-
CENTURY COMPUTING, INCORPORATED
By: /s/
------------------------------------
Title:
THE KODIAK GROUP, INC.
By: /s/
------------------------------------
Title:
I33 COMMUNICATION CORP.
By: /s/
------------------------------------
Title:
SIGMA6, INC.
By: /s/
------------------------------------
Title:
SALZINGER ACQUISITION CORP.
By: /s/
------------------------------------
Title:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF APPNET, INC. AS OF AND FOR
THE QUARTER ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 55,105
<SECURITIES> 0
<RECEIVABLES> 41,756
<ALLOWANCES> 5,746
<INVENTORY> 0
<CURRENT-ASSETS> 94,370
<PP&E> 13,891
<DEPRECIATION> 3,306
<TOTAL-ASSETS> 191,108
<CURRENT-LIABILITIES> 36,109
<BONDS> 0
0
0
<COMMON> 17
<OTHER-SE> 150,060
<TOTAL-LIABILITY-AND-EQUITY> 191,108
<SALES> 0
<TOTAL-REVENUES> 44,731
<CGS> 0
<TOTAL-COSTS> 64,557
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 167
<INCOME-PRETAX> (19,120)
<INCOME-TAX> 270
<INCOME-CONTINUING> (19,390)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,390)
<EPS-BASIC> (.57)
<EPS-DILUTED> (.57)
</TABLE>
