<PAGE>
Exhibit 99.2
APPNET, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 55,105 $ 66,549
Accounts receivable, net 36,010 31,661
Other current assets 3,255 1,300
--------- ---------
Total current assets 94,370 99,510
Property and equipment, net 10,585 8,958
Intangible assets, net 83,517 97,247
Other assets 2,636 2,111
--------- ---------
Total assets $ 191,108 $ 207,826
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,331 $ 4,830
Accrued liabilities 30,940 32,311
Current portion long-term debt 838 1,063
--------- ---------
Total current liabilities 36,109 38,204
Long-term debt, net of current portion 3,516 3,516
Other long-term liabilities 1,406 1,264
--------- ---------
Total liabilities 41,031 42,984
--------- ---------
Stockholders' equity:
Common stock, $.0005 par value; 75,000,000 shares
authorized, 34,102,712 shares issued and 33,960,709
shares outstanding as of March 31, 2000 and
33,625,175 shares issued and 33,454,474 shares
outstanding as of December 31, 1999 17 17
Additional paid-in capital 262,126 257,542
Treasury stock (43) (51)
Notes receivable from management (503) (503)
Deferred compensation (351) (383)
Accumulated deficit (111,169) (91,780)
--------- ---------
Total stockholders' equity 150,077 164,842
Total liabilities and stockholders' equity $ 191,108 $ 207,826
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
-1-
<PAGE>
APPNET, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three months ended March 31,
2000 1999
----------- ------------
<S> <C> <C>
Revenues $ 44,731 $ 19,643
Cost of revenues 24,762 11,457
---------- ----------
Gross profit 19,969 8,186
Operating expenses:
Selling and marketing 3,536 1,190
General and administrative 16,297 6,754
Stock-based and acquisition-related compensation 5,115 2,487
Depreciation and amortization 14,847 12,735
---------- ----------
Total operating expenses 39,795 23,166
---------- ----------
Loss from operations (19,826) (14,980)
Interest income (873) (4)
Interest expense 167 1,266
---------- ----------
Loss before income taxes (19,120) (16,242)
Income tax provision 270 100
---------- ----------
Net loss (19,390) (16,342)
Dividends on and accretion of preferred stock - (1,039)
---------- ----------
Net loss attributable to common stockholders $ (19,390) $ (17,381)
========== ==========
Basic and diluted net loss per common share $ (0.57) $ (0.88)
========== ==========
Weighted average common shares outstanding 33,841,997 19,722,559
</TABLE>
The accompanying notes are an integral part of these statements.
-2-
<PAGE>
APPNET, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three months ended March 31,
2000 1999
---------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(19,390) $(16,342)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Amortization 13,730 12,289
Depreciation 1,117 446
Stock-based and acquisition-related
compensation 5,115 2,487
Change in assets and liabilities:
Accounts receivable, net (4,349) (3,131)
Other current assets (1,955) 336
Accounts payable (499) (1,106)
Accrued liabilities 457 6,524
-------- --------
Net cash (used in) provided
by operating activities (5,774) 1,503
-------- --------
Cash flows from investing activities:
Purchase of property and equipment (2,538) (923)
Cash paid for acquired businesses,
net of cash acquired (1,600) (26,109)
Payment of contingent consideration (2,343) --
Other assets (732) (218)
-------- --------
Net cash used in investing
activities (7,213) (27,250)
-------- --------
Cash flows from financing activities:
Repayments of long-term debt (1,041) --
Borrowings under credit facilities -- 59,400
Repayments of credit facilities -- (37,461)
Debt issue costs -- (621)
Proceeds from issuance of common stock -- 375
Proceeds from issuance of preferred stock -- 7,046
Proceeds from Employee Stock Purchase Plan 855 --
Proceeds from exercise of stock options 1,729 215
-------- --------
Net cash provided by
financing activities 1,543 28,954
-------- --------
Net (decrease) increase in cash (11,444) 3,207
Cash and cash equivalents, beginning of
period 66,549 2,447
-------- --------
Cash and cash equivalents, end of period $ 55,105 $ 5,654
======== ========
Supplementary information:
Cash paid for income taxes $ 804 $ --
======== ========
Cash paid for interest $ 52 $ 157
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
-3-
<PAGE>
AppNet, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis Of Presentation
The accompanying consolidated financial statements of AppNet, Inc. and its
subsidiaries (the "Company") are unaudited and include all normal recurring
adjustments which are, in the opinion of management, necessary for a fair
presentation of the results for the periods presented pursuant to the
instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information
and footnote disclosures normally included in the consolidated financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. These
consolidated financial statements should be read in conjunction with the
Company's 1999 Annual Report on Form 10-K, which includes consolidated financial
statements and the notes thereto for the years ended December 31, 1999 and 1998.
The consolidated operating results of operations for the three-month period
ended March 31, 2000 are not necessarily indicative of the results that may be
expected for the entire year ending December 31, 2000.
2. Acquisitions
During the three months ended March 31, 1999, the Company acquired five
businesses, which included: i33 communications corp. for approximately $21.6
million with a combination of cash and promissory notes that were converted into
shares of Company common stock in December 1999; Sigma6, Inc. ("Sigma6") for
approximately $2.5 million with a combination of cash and shares of our common
stock; Salzinger & Company ("Salzinger") for approximately $8.5 million with a
combination of cash and shares of our common stock; Internet Outfitters, Inc.
for approximately $9.5 million with a combination of cash, shares of our common
stock and options to purchase shares of our common stock; and TransForm IT,
Incorporated for approximately $5.1 million with a combination of cash and
shares of our common stock. The accounts of the businesses acquired are included
in the accompanying consolidated financial statements from the date of their
respective acquisitions. The following unaudited pro forma consolidated amounts
give effect to the five acquisitions that occurred during the three months ended
March 31, 1999, as if they had occurred on January 1, 1999, by consolidating the
results of operations of the acquired businesses with the results of AppNet for
the three months ended March 31, 1999 (in thousands, except per share data). The
pro forma amounts do not purport to be indicative of the results of operations
that would have been achieved had the transactions been in effect as of the
beginning of 1999 and should not be construed as being representative of future
results of operations.
<TABLE>
<CAPTION>
For the three
months ended
March 31, 1999
--------------
<S> <C>
Revenues $ 22,271
Net loss attributable to common stockholders (17,731)
Basic and diluted net loss per share (0.87)
</TABLE>
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.
-4-
<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):
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ------------
<S> <C> <C>
Accounts receivable $28,309 $24,777
Unbilled accounts receivable 13,447 8,831
Allowance for doubtful accounts (5,746) (1,947)
------- -------
Accounts receivable, net $36,010 $31,661
======= =======
</TABLE>
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):
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ------------
<S> <C> <C>
Accrued compensation and benefits $ 5,600 $ 4,851
Payments due to former shareholders of
Acquired Businesses -- 1,600
Accrued stock-based and acquisition-related
compensation 13,867 16,816
Other accrued liabilities 11,473 9,044
------- -------
Total accrued liabilities $30,940 $32,311
======= =======
</TABLE>
-5-
<PAGE>
AppNet, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)
5. Earnings Per Share
Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings Per
Share," requires the presentation of basic and diluted earnings per share. Basic
net income (loss) per share is computed by dividing income (loss) attributable
to common stockholders by the weighted average number of common shares
outstanding for the period. The diluted net income (loss) per share data is
computed using the weighted average number of common shares outstanding plus the
dilutive effect of common stock equivalents, unless the common stock equivalents
are antidilutive. Approximately 157,000 shares of Company common stock that are
contingently payable pursuant to the acquisition agreements are not included in
the calculation of weighted average shares outstanding for the period presented,
as circumstances may arise in which the shares would not be issued. In addition,
the impact of potentially dilutive securities, which include approximately
1,057,000 stock options outstanding (on an incremental and weighted average
basis), approximately 64,000 contingent shares to be issued in January 2001 and
approximately 70,000 warrants are excluded from diluted earnings per share due
to their antidilutive effect as of March 31, 2000.
6. Segment Information
During 1998, the Company adopted SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131
requires a business enterprise, based upon a management approach, to disclose
financial and descriptive information about its operating segments. Operating
segments are components of an enterprise about which separate financial
information is available and regularly evaluated by the chief operating decision
maker(s) of an enterprise. Under this definition, the Company operated as a
single segment for all periods presented.
7. Litigation and Claims
The Company is subject to lawsuits, investigations and claims arising out
of the ordinary course of business, including those related to commercial
transactions, contracts, government regulation and employment matters. Certain
claims, suits and complaints have been filed or are pending against the Company.
In the opinion of management, based on all known facts, all matters are without
merit, and except as related to the claims mentioned below, are of such kind, or
involve such amounts, as would not have a material effect on the financial
position or results of operations of the Company if disposed of unfavorably.
In connection with the Company's acquisition of Internet Outfitters, Inc.,
approximately $1.45 million of the purchase price in the form of shares of
Company common stock, based upon the fair value of $17.10 per share at the date
of acquisition, was pledged to the Company and escrowed to be available to
satisfy any potential liability in connection with a license dispute. The
Company also held back $750,000 of the cash purchase price to be used to satisfy
this and any other indemnification claims. During the three months ended March
31, 2000, the license dispute was settled with no financial consequences to the
Company. The shares of Company common stock pledged and escrowed and the cash
purchase price held back in connection with the license dispute are no longer
escrowed and were released in March 2000.
In November 1999, a former employee filed suit against the Company and its
Chief Executive Officer in state court in Michigan. The case was removed to the
United States District Court for the Eastern District of Michigan. The plaintiff
alleges a breach of contract and fraud in connection with the former employee's
employment agreement with the Company, and improper interference with the former
employee's efforts to sell shares of the Company's common stock. The former
employee is seeking monetary damages in connection with these claims. On March
21, 2000, the court dismissed some of the former employee's claims and
tentatively dismissed the fraud claims while allowing the former employee to
replead. The court indicated that the former employee will be permitted to
pursue the claim for interference with the effort to sell shares of the
Company's common stock. The Company intends to contest the claims vigorously. At
this time, the Company is not able to reasonably estimate the amount of loss, if
any, that will be incurred as a consequence of this lawsuit.
-6-
<PAGE>
AppNet, Inc.
Notes to Consolidated Financial Statements (continued)
(Unaudited)
7. Litigation and Claims (continued)
In February 2000, a former customer of the Company filed suit against the
Company, one of its subsidiaries and a former and current employee of the
Company in the Supreme Court of the State of New York, County of New York. The
plaintiff in the suit alleges breach of contract and misrepresentation related
to services performed by the Company. The former customer is seeking direct
damages, plus punitive damages, costs and fees. The Company intends to
vigorously contest these claims and has filed counterclaims against the
defendants alleging monies due for services performed. The Company is not able
to reasonably estimate the amount of loss, if any, that will be incurred as a
consequence of this lawsuit.
-7-
