<PAGE>

                            UNITED STATES SECURITIES
                             AND EXCHANGE COMMISSION

                                    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: September 30, 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: 333-53841


                                  WAM!NET Inc.
             (Exact name of registrant as specified in its charter)

               Minnesota                                 41-1795247
    (State or other jurisdiction of         (I.R.S. Employer Identification No.)
     incorporation or organization)


                               655 Lone Oak Drive
                             Eagan, Minnesota 55121
                    (Address of principal executive offices)
                                   (Zip Code)


                                 (651) 256-5100
              (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 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 October 31, 1999 there were 9,297,427 shares of the Corporation's Common
Stock, par value $.01 per share, outstanding.

Total number of pages in this report: 21
<PAGE>

                                  WAM!NET Inc.

                               INDEX TO FORM 10-Q

<TABLE>
<CAPTION>

Part I--Financial Information
                                                                                                        Page
                                                                                                         No.
                                                                                                         ---
<S>                                                                                                    <C>
          Item 1--Financial Statements

                 Consolidated Balance Sheets as of September 30, 1999 (unaudited)
                   and December 31, 1998.............................................................     3

                 Consolidated Statements of Operations for the three and nine months in the periods
                   ended September 30, 1999 and 1998 (unaudited).....................................     5

                 Consolidated Statements of Cash Flows for the nine months in the periods ended
                   September 30, 1999 and 1998 (unaudited)...........................................     6

                 Notes to Consolidated Financial Statements (unaudited)..............................     8

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

          Item 3--Quantitative and Qualitative Disclosures About Market Risk.........................    16

Part II--Other Information

          Item 2--Changes in Securities and Use of Proceeds..........................................    17

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

Signature --      ...................................................................................    18

Exhibit Index--   ...................................................................................    19

</TABLE>

                                      -2-
<PAGE>

                          Part I--FINANCIAL INFORMATION


Item 1--Financial Information


                                  WAM!NET Inc.

                           Consolidated Balance Sheets
                    (dollars in thousands, except share data)

<TABLE>
<CAPTION>
                                                                        September 30,  December 31,
                                                                            1999          1998
                                                                        -------------  ----------
                                                                        (Unaudited)
<S>                                                                         <C>        <C>
Assets
Current assets:
     Cash and cash equivalents ..........................................   $ 31,919   $  6,272
     Accounts receivable, net of allowance of $880 and $430, respectively      5,138      3,466
     Inventory ..........................................................      1,572      1,534
     Prepaid expenses and other current assets ..........................      3,983      3,187
                                                                            --------   --------
          Total current assets ..........................................     42,612     14,459

Property and equipment:
     Building and land ..................................................     39,742        605
     Network equipment ..................................................     66,613     50,907
     Other support equipment ............................................     21,714     18,046
     Furniture and fixtures .............................................      4,403      2,802
     Leasehold improvements .............................................      4,634      6,506
                                                                            --------   --------
                                                                             137,106     78,866
     Accumulated depreciation ...........................................     33,374     16,399
                                                                            --------   --------
                                                                             103,732     62,467
     Goodwill, net of accumulated amortization of $10,266 and $5,308,
         respectively ...................................................     22,714     27,734
     Deferred financing charges, net of accumulated amortization of
         $9,637 and $5,959, respectively ................................     19,549     20,183
     Other assets .......................................................        628        616
                                                                            --------   --------

          Total assets ..................................................   $189,235   $125,459
                                                                            ========   ========
</TABLE>

                                      -3-
<PAGE>

                                  WAM!NET Inc.

                     Consolidated Balance Sheets (continued)
                    (dollars in thousands, except share data)

<TABLE>
<CAPTION>
                                                                    September 30,  December 31,
                                                                         1999         1998
                                                                     -----------   ----------
                                                                     (Unaudited)
<S>                                                                   <C>          <C>
Liabilities and shareholders' deficit
Current liabilities:
     Accounts payable .............................................   $  17,710    $  17,098
     Accrued salaries and wages ...................................       3,580        4,801
     Accrued expenses .............................................       6,376        3,176
     Current portion of equipment financing .......................       8,023        5,324
                                                                      ---------    ---------
          Total current liabilities ...............................      35,689       30,399

Long-term debt:
     Subordinated notes payable ...................................      28,779       27,403
     Notes payable ................................................      38,000         --
     Line of credit ...............................................      27,708       24,000
     Equipment financing ..........................................      14,490       13,536
     13.25% Senior Discounted Notes ...............................     152,987      138,975

Redeemable Preferred Stock, Class A, $10.00 par value:
          Authorized shares--115,206
          Issued and outstanding shares--115,206 and 100,000 at
             September 30, 1999 and December 31, 1998 .............       1,152        1,000

Shareholders' deficit:
     Convertible Preferred Stock, Class B, $.01 par value:
          Authorized, issued and outstanding--5,710,425 and 0 .....          57         --
     Convertible Preferred Stock, Class C, $.01 par value:
          Authorized, issued and outstanding--878,527 and 0 .......           9         --
     Convertible Preferred Stock, Class D $.01 par value:
          Authorized, issued and outstanding--2,196,317 and 0 .....          22         --
     Undesignated shares, $.01 par value--1,099,525
     Common Stock, $.01 par value:
          Authorized shares--490,000,000
          Issued and outstanding shares--9,297,427 and 9,288,194 at
             September 30, 1999 and December 31, 1998 .............          93           93
     Additional paid-in capital ...................................     156,600       54,302
     Accumulated deficit ..........................................    (265,870)    (164,387)
     Other accumulated comprehensive income (loss) ................        (481)         138
                                                                      ---------    ---------
     Total shareholders' deficit ..................................    (109,570)    (109,854)
                                                                      ---------    ---------
     Total liabilities and shareholders' deficit ..................   $ 189,235    $ 125,459
                                                                      =========    =========
</TABLE>

                             See accompanying notes.

                                      -4-
<PAGE>

                                  WAM!NET Inc.

                     Consolidated Statements of Operations
            (dollars in thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                               Three months ended             Nine months ended
                                                                  September 30,                 September 30,
                                                                  -------------                 -------------
                                                               1999           1998           1999           1998
                                                           -----------    -----------    -----------    -----------
                                                                                  (Unaudited)
<S>                                                        <C>            <C>            <C>            <C>
Revenues:
Net service revenue ....................................   $     4,787    $     1,782    $    11,861    $     4,256
Software and hardware sales ............................         2,029          3,739          5,622          8,480
                                                           -----------    -----------    -----------    -----------
Total revenue ..........................................         6,816          5,521         17,483         12,736

Operating expenses:
Network communications .................................         6,766          4,602         19,489         11,502
Cost of software and hardware ..........................           823          1,155          2,220          2,631
Network operations and development .....................         6,448         11,628         17,222         23,994
Selling, general and administrative ....................         9,581          9,956         30,952         33,058
Depreciation and amortization ..........................         8,851          5,328         24,908         11,353
                                                           -----------    -----------    -----------    -----------
                                                                32,469         32,669         94,791         82,538
                                                           -----------    -----------    -----------    -----------
Loss from operations ...................................       (25,653)       (27,148)       (77,308)       (69,802)

Other income (expense):
     Interest income ...................................            90            464            520          1,612
     Interest (expense) ................................        (7,987)        (6,293)       (25,479)       (15,787)
     Other income ......................................           508            718            783            783
                                                           -----------    -----------    -----------    -----------
Net loss ...............................................   $   (33,042)   $   (32,259)   $  (101,484)   $   (83,194)
Less preferred dividends ...............................        (1,800)           (18)        (4,105)           (52)
                                                           -----------    -----------    -----------    -----------
Net loss applicable to common stock ....................   $   (34,842)   $   (32,277)   $  (105,589)   $   (83,246)
                                                           ===========    -----------    ===========    -----------

Net loss applicable per common share - basic and diluted   $     (3.75)   $     (3.74)   $    (11.36)   $     (9.65)
                                                           ===========    ===========    ===========    ===========

Weighted average number of common shares outstanding ...     9,296,339      8,627,889      9,296,339      8,627,889
                                                           ===========    ===========    ===========    ===========
</TABLE>


                             See accompanying notes.

                                      -5-
<PAGE>

                                  WAM!NET Inc.

                      Consolidated Statements of Cash Flows
                             (dollars in thousands)

<TABLE>
<CAPTION>
                                                                                 Nine months ended
                                                                                   September 30,
                                                                              ----------------------
                                                                                 1999         1998
                                                                              ---------    ---------
                                                                                    (Unaudited)
<S>                                                                           <C>          <C>
Operating activities
Net loss ..................................................................   $(101,484)   $ (83,194)
Adjustments to reconcile net loss to net cash used in operating activities:
     Depreciation and amortization ........................................      24,908       11,544
     Noncash interest expense, including related warrants values ..........      21,864       12,719
     Loss on disposal of property and equipment ...........................       1,354           69
     Value of stock options issued to employees and consultants ...........         145       12,492
     Changes in operating assets and liabilities:
          Accounts receivable .............................................      (1,671)         329
          Prepaid expenses and other assets ...............................        (806)      (3,380)
          Accounts payable ................................................         612        8,427
          Accrued expenses ................................................         646        3,846
          Income Taxes ....................................................        --         (1,360)
                                                                              ---------    ---------
Net cash used in operating activities .....................................     (54,432)     (38,508)

Investing activities
Purchases of property and equipment .......................................     (22,609)     (38,598)
Purchase of 4-Sight and Freemail (net of cash acquired) ...................        (250)     (16,350)
                                                                              ---------    ---------
Net cash used in investing activities .....................................     (22,859)     (54,948)

Financing activities
Proceeds from exercise of stock options ...................................           5           11
Net proceeds from sale of convertible preferred stock .....................      59,498         --
Proceeds from 13.25% Senior Discount Notes ................................        --        120,626
Proceeds from line of credit ..............................................      13,397        5,203
Payments on line of credit ................................................     (10,000)     (24,003)
Net proceeds from notes payable ...........................................      36,765         --
Proceeds from equipment financing .........................................       8,347       14,274
Payments on equipment financing ...........................................      (4,756)      (3,465)
Capitalized financing costs ...............................................        --         (2,098)
                                                                              ---------    ---------
Net cash provided by financing activities .................................     103,256      110,548
Effect of foreign currencies on cash ......................................        (318)         260
                                                                              ---------    ---------
Increase (decrease) in cash and cash equivalents ..........................      25,647       17,352
Cash and cash equivalents at beginning of period ..........................       6,272          274
                                                                              ---------    ---------
Cash and cash equivalents at end of period ................................   $  31,919    $  17,626
                                                                              =========    =========
</TABLE>

                             See accompanying notes.

                                      -6-
<PAGE>

                                  WAM!NET Inc.

                Consolidated Statements of Cash Flows (continued)

                             (dollars in thousands)

<TABLE>
<CAPTION>
                                                                             Nine months ended
                                                                                September 30,
                                                                             -----------------
                                                                               1999      1998
                                                                             -------   -------
                                                                                 (Unaudited)
<S>                                                                          <C>       <C>
Supplemental schedule of noncash financing activities
     Conversion of accrued dividends to preferred stock ..................       152        --
     Issuance of convertible preferred stock in exchange for land,
       building and furniture & fixtures .................................    40,000        --
     Warrant valuation reclassed to deferred charges from line of credit .        --     4,104
     Value of interest cost assigned to warrants .........................     4,297        --
     Accumulated and unpaid dividends ....................................        47        52
     Issuance of common stock relating to acquisition ....................        --    20,000
     Conversion of convertible subordinated debenture for common stock ...        --        25

Supplemental schedule of cash flow information
     Cash paid for interest ..............................................   $ 3,230   $ 1,654
</TABLE>

                             See accompanying notes.

                                      -7-
<PAGE>

                                  WAM!NET INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   Consolidated Financial Statements

The accompanying consolidated financial statements have been prepared by WAM!NET
Inc. ("We," "us," "our") without audit and reflect all adjustments (consisting
only of normal and recurring adjustments and accruals) which are, in the opinion
of management, necessary to present a fair statement of the results for the
interim periods presented. The statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of regulation S-X, but omit
certain information and footnote disclosures necessary to present the statements
in accordance with generally accepted accounting principles. The results of
operations for the interim periods presented are not necessarily indicative of
the results to be expected for the full fiscal year. These financial statements
should be read in conjunction with our audited Consolidated Financial Statements
for the year ended December 31, 1998. The December 31, 1998 balance sheet was
derived from audited financial statements, but does not include all disclosures
required by generally accepted accounting principles. Certain amounts for the
prior year have been reclassified to conform to current year presentation.


2.   Consolidation

The consolidated financial statements include our accounts and our wholly-owned
subsidiaries: FreeMail, Inc., NetCo Communications of Canada, Inc., WAM!NET
Japan KK and WAM!NET U.K. Limited (formerly 4-Sight Limited). All intercompany
transactions have been eliminated.


3.   Preferred Stock

In January 1999, we issued the 1999 MCI WorldCom Convertible Note and in January
1999 and March 1999, we borrowed $10.0 million and $15.0 million, respectively.
The 1999 MCI WorldCom Convertible Note was converted into 2,196,317 shares of
our Class D Convertible Preferred Stock, par value $.01 per share (the "Class D
Preferred Stock"), immediately prior to the closing of the Silicon Graphics,
Inc. investment discussed below ("SGI Investment"). In connection with the MCI
WorldCom Convertible Note, we issued warrants to MCI WorldCom to purchase a
total of 350,000 shares of Common Stock. The warrants have an exercise price of
$.01 and are exercisable from April 30, 1999 until April 30, 2004.

In March 1999, we entered into the SGI Investment, providing for the purchase by
SGI of 5,710,425 shares of our Class B Convertible Preferred Stock, par value
$.01 per share (the "Class B Preferred Stock"), and 878,527 shares of our Class
C Convertible Preferred Stock, par value $.01 per share (the "Class C Preferred
Stock"). The holders of a majority of the Class B Preferred Stock have the right
to designate one member of our Board of Directors. The aggregate consideration
received by us for the Class B Preferred Stock and the Class C Preferred Stock
was $75 million, of which $35 million was paid in cash and $40 million was paid
by transfer to us of a corporate campus facility. The Class B Preferred Stock
and the Class C Preferred Stock will be convertible on a one-to-one basis into
Common Stock (subject to anti-dilution adjustments) and will have the right to
vote with the Common Stock, on an as-converted basis, as a single class. The
Class B Preferred Stock and Class C Preferred Stock are convertible immediately
following the issuance date and 18 months following the issuance date,
respectively. The shares of convertible Common Stock into which the Class B
Preferred Stock and the Class C Preferred Stock are subject to certain
registration rights.

                                      -8-
<PAGE>

Sale Leaseback

On September 30, 1999, we entered into a Purchase and Sale Agreement and Escrow
Instructions together with a Net Lease Agreement or Memorandum of Lease
(collectively, "The Sale/Lease Back Agreement") with CCPRE-Eagan, LLC, ("CCPRE")
a Delaware Limited Liability Company, and an affiliate of Chase Bank, New York.
Pursuant to the Sale/Lease Back Agreement, we conveyed our corporate
headquarters facility, including land, building and personal property to CCPRE
for a total purchase price of $38 million. Under the Sale/Lease Back Agreement,
we agreed to lease the facility from CCPRE for a term of 20 years with three
five-year options at a minimum monthly rent increasing from $481,000 per month
during the first year of the initial term to $959,000 per month during the last
year of the initial term. We also agreed to pay all taxes, assessments,
utilities and other governmental charges. Under the Sale/Lease Back Agreement,
we may repurchase the corporate headquarters facility on the 24th or 36th month
anniversary of the agreement. The Sale/Lease Back Agreement entitles CCPRE to
require us to repurchase our corporate headquarters facility at any time
following the 36th month anniversary of the Agreement for the sum $41.8 million,
less the amount of certain payments made under the lease. As additional
consideration for the Sale/Lease Back Agreement, we issued Chase Capital
Partners ten-year warrants to purchase 325,000 shares of common stock at an
initial exercise price of $12.00 per share. The initial exercise price is
subject to antidilution adjustments. The warrant agreement entitles the holder
to require us to repurchase shares issued upon exercise of the warrant if we
elect to repurchase our corporate headquarters facility prior to an initial
public offering of our common stock, at a per share purchase price equal to 92%
of fair market value determined by appraisal. In connection with the warrant
agreement, Chase Capital Partners entered into agreements with MCI WorldCom and
SGI entitling the holder of the warrants to include a portion of the warrants,
or shares issuable upon exercise, in any transaction occurring prior to our
initial public offering in which either MCI WorldCom or SGI sold 10% or more of
its ownership of our securities.

Item 2--Management's Discussion and Analysis of Financial Condition and Results
        of Operations


           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS


         The following discussion and analysis is based on the historical
results of WAM!NET Inc. ("We," "us" "our") and should be read in conjunction
with our Financial Statements included herein. The following discussion contains
forward-looking statements that reflect our plans, estimates and beliefs. Our
actual results could differ materially from those discussed in the
forward-looking statements.

Overview

         We offer a suite of electronic data delivery services including our
Direct Service, On-Ramp Service and Internet Gateway Services. Our initial focus
through 1998 was our Direct Service. This is our fastest, most secure and most
reliable transport service, that includes installation of equipment on our
customer's premises and provision of telephone service connecting the equipment
to our network. This service provides direct, guaranteed and managed access and
transport over our private network. Customers choose from a variety of
capacities, speeds and throughput levels to meet their requirements. We released
our On-Ramp Service in Europe during the first quarter of 1999 and in North
America during the second quarter of 1999. Our On-Ramp service allows customers
to connect to our network using software we provide, an ISDN card, which we also
offer, and a dial-up ISDN or similar telephone service which our customer
obtains. We introduced our Internet Gateway Service to our Direct Service
customers in the third quarter of 1999. Internet Gateway service allows
connection to our network over the Internet. Both On-Ramp and Internet Gateway
services are targeted to facilitate growth in the number and size of workflow
groups by permitting connectivity at lower costs commensurate with lower
capacity needs for smaller users who are often key participants in workflow. At
September 30, 1999, we had over 5,000 subscribers using our data delivery
services.

                                      -9-
<PAGE>

         Revenues.

         Service revenue. Our service revenue is directly related to customer
traffic through our global private network which is related to the number of,
and degree of utilization by, workflow groups who connect among themselves
through our network. Our service revenue is derived primarily from annual or
multi-year service contracts, many of which have automatic renewal or extension
provisions. These contracts generally include a minimum monthly fee and
additional charges for usage that exceeds an included monthly minimum. We
currently offer our services at scaled minimum usage fees, which typically range
for Direct Service from $650 per month to $4,000 per month, and for On-Ramp
Service from $45 per month to $360 per month. Our Internet Gateway is priced
primarily on a per-megabyte basis. We begin to earn service revenue from Direct
Service customers following installation of equipment and service at a
customer's premises, which typically lags contract signing by 60 to 90 days. We
begin to earn service revenue from our other services upon contract signing
and/or usage. We began to record revenue from our On-Ramp Service in March 1999,
and began to record revenue from Internet Gateway Service in September of 1999.
We expect to introduce our initial WAM!BASE(R) data storage services during the
first quarter of 2000.

         Software and hardware sales. Revenue from software and hardware sales
resulted primarily from the sale of 4-Sight ISDN Manager(TM) software and ISDN
cards. In addition, our On-Ramp Service customers may choose to make a single
upfront payment and purchase software instead of paying monthly service fees
under contracts for the use of our On-Ramp software. In both cases these
purchases appear as software and hardware sales in our revenue. We expect
revenue from software and hardware sales to decline upon completion of the
long-term contracts for 4-Sight ISDN Manager(TM) and ISDN cards.

         No single customer accounted for more than 5% of our revenues for the
nine month period ended September 30, 1999 on a consolidated basis.

         Operating Expenses.

         Network communications. Network communications expense represents the
largest direct cost associated with providing our Direct Service. Network
communications expense includes both the costs of the high bandwidth, backbone
carrier services interconnecting our global infrastructure of network operation
and data storage centers and distribution hubs as well as the costs of local
loop telephone circuits connecting our network access devices from a customer's
premises to the nearest distribution hub. Local telephone circuit connections
provided by local exchange carriers account for the substantial majority of
these charges, with significant differences between urban and rural connection
costs. National and international carrier service, accounts for the balance of
these charges. Network communication expense is generally a fixed monthly cost
per circuit. We expect that network communications expense will increase as our
network expands; however, we expect that the cost of these expenses as a
percentage of revenue will decline with increasing utilization of our network.
We also believe that growing competition among telephony and communications
providers may reduce the cost of local telephone circuit and backbone
connections. We actively seek to obtain and deploy technologies that will reduce
the costs of local telephone circuit connections, such as wireless technologies,
remote dial-up capabilities and DSL. We also intend to use our network
management tools to optimize the use of existing and planned network capacity as
volume increases and traffic patterns begin to emerge. We continue to incur
substantial network communication expense as we deploy our network and related
services and applications globally; however, we expect the network
communications expense as a percentage of revenue to decline.

         Software and hardware. Software and hardware expense reflects the costs
of software and hardware sold.

         Network operations and development. Network operations and development
expense represents costs directly associated with developing, maintaining,
managing and servicing our global private network and expanding our service
offerings. These costs include direct labor, vendor service fees,
point-of-presence charges and research and development charges, which are often
incurred in advance of receiving revenue. Our currently installed

                                      -10-
<PAGE>

network operation centers account for the substantial majority of these direct
labor and operating costs. Most of the costs associated with the development of
new services and applications, such as WAM!BASE(R), WAM!PROOF(R), On-Ramp and
Internet Gateway, are accounted for as network operations expenses and are
incurred in advance of receiving revenue. We expect that network operations
costs will increase as our network expands; however, the cost of network
operations as a percentage of revenue is expected to decline.

         Selling, general and administrative. Our selling expense consists
primarily of the salaries and commissions of our direct sales force and our
global marketing groups, commissions for channel partners, and the costs of
ongoing marketing activities such as promotions and channel development. Our
sales and marketing efforts through the end of 1998 were primarily intended to
create awareness of our services, stimulate trial use and induce integration
into customer workflow. With the growth of our installed customer base, we began
in 1999 integrating our services into our customers' workflow and expanding the
size and number of workflow groups with our more affordable On-Ramp and Internet
Gateway connectivity options. We expect to continue to incur significant sales
and marketing expenses in order to obtain increased penetration in our markets
and to generate increased traffic among existing customers.

         Our general and administrative expense includes administrative
salaries, related overhead and professional service fees. These costs reflect
expenditures related to the rapid growth and expansion of our administrative
infrastructure necessary to manage our globally expanding operations, and
professional service fees for financing activities, contract negotiations and
acquisitions. We continue to incur general and administrative expenses as we
continue to deploy our network and related services and applications globally;
however, we expect the cost of general and administrative expenses as a
percentage of revenue to decline.

         Depreciation and amortization. We retain ownership of the customer
premise equipment and most of the hardware and software necessary for our
customers to use our services on a turn-key basis. Depreciation and amortization
expense includes depreciation of this hardware and software as well as the
equipment located in our distribution hubs and network operation and data
storage centers. We also amortize certain costs relating to the acquisitions of
4-Sight and Freemail, which we acquired using the purchase method of accounting.
We anticipate additional capital investments in our network infrastructure
commensurate with customer demand and market opportunity. As a result, we
anticipate that depreciation and amortization expense will continue to increase
in future periods as we continue to purchase equipment and expand operations;
however, we expect depreciation and amortization expense as a percentage of
revenue to decline.

Results of Operations

Three and Nine Month Periods Ended September 30, 1999 Compared with Three and
Nine Month Period Ended September 30, 1998

         Revenues.

         Net Service revenue. Net Service revenue for the three month period
ended September 30, 1999 was $4.8 million, compared to $1.8 million for the
three month period ended September 30, 1998, an increase of $3.0 million, or
166.7%. Net Service revenue for the nine month period ended September 30, 1999
was $11.9 million, compared to $4.3 million for the nine month period ended
September 30, 1998, an increase of $7.6 million, or 176.7%. This increase in
revenue during each current period was primarily due to growth in the number of
customers purchasing Direct Services and On-Ramp Services, increased utilization
by customers, and price increases in monthly fees.

         Software and hardware sales. Revenues from software and hardware sales
for the three month period ended September 30, 1999 were $2.0 million, compared
to $3.7 million for the three month period ended September 30, 1998 a decrease
of $1.7 million or 45.9%. Revenues from software and hardware sales for the nine
month period ended September 30, 1999 were $5.6 million, compared to $8.5
million for the nine month period ended September 30, 1998, a decrease of $2.9
million, or 34.1%. The decrease in each current period is due to our

                                      -11-
<PAGE>

migration from sales of 4-Sight software and hardware as stand-alone products to
sales of service contracts, partially offset by software purchases associated
with On-Ramp Service agreements.

         Total Revenue. Total revenue for the three month period ended September
30, 1999 was $6.8 million, compared to $5.5 million for the three month period
ended September 30, 1998, an increase of $1.3 million, or 23.6%. Total revenue
for the nine month period ended September 30, 1999 was $17.5 million, compared
to $12.8 million for the nine month period ended September 30, 1998, an increase
of $4.7 million, or 36.7%. Increased service revenue during each period was
partially offset by decreases in hardware and software sales, as described
above.

         Operating Expenses.

         Network communications. Network communications expense for the three
month period ended September 30, 1999 was $6.8 million, compared to $4.6 million
for the three month period ended September 30, 1998, an increase of $2.2
million, or 47.8%. Network communications expenses for the nine month period
ended September 30, 1999 were $19.5 million, compared to $11.5 million for the
nine month period ended September 30, 1998, an increase of $8.0 million, or
69.6%. The increase in each current period resulted from increased costs for
local loop connections related to growth in the number of our Direct Service
customers, and from expenses on network coverage through installation of
additional hubs for domestic and foreign network operations. The average monthly
communications expense per Direct Service customer installation decreased
overall 13.5% during each of the current periods. This trend reflects more
efficient use of our backbone as we add more Direct Service customers to our
network, a beneficial shift in the geographic mix of our customers, and
generally declining costs of backbone capacity and North American local loop
connections. These trends were partially offset by growth in our Direct Service
customer base in Europe, where local loop costs are generally higher than in
North America.

         Software and hardware. The cost of software and hardware for the three
month period ended September 30, 1999 was $0.8 million, compared to $1.2 million
for the three month period ended September 30, 1998, a decrease of $0.4 million,
or 33.3%. The cost of software and hardware for the nine month period ended
September 30, 1999, was $2.2 million, compared to $2.6 million for the nine
month period ended September 30, 1998, a decrease of $0.4 million, or 15.4%.
This decrease reflects the decline in software and hardware sales as described
above.

         Network operations and development. Network operations and development
expense for the three month period ended September 30, 1999 was $6.4 million,
compared to $11.6 million for the three month period ended September 30, 1998, a
decrease of $5.2 million, or 44.8%. Network operations and development expense
for the nine month period ended September 30, 1999 was $17.2 million, compared
to $24.0 million for the nine month period ended September 30, 1998, a decrease
of $6.8 million, or 28.3%. The decrease in each current period was primarily due
to completion of On-Ramp development and the termination of associated
development costs, partially offset by costs incurred for establishing our
network operations center in Belgium and deploying our network in Europe. This
category of expense also includes one-time costs related to the acquisition of
4-Sight in March 1998, and costs for development of On-Ramp, Internet Gateway
and WAM!BASE which were incurred during 1998 and 1999. We anticipate a lower
level of development costs for continuing Internet Gateway and WAM!BASE
development in future periods.

         Selling, general and administrative. Selling, general and
administrative expense for the three month period ended September 30, 1999 was
$9.6 million, compared to $10.0 million for the three month period ended
September 30, 1998, a decrease of $0.4 million, or 4.0%. Selling, general and
administrative expense for the nine month period ended September 30, 1999 was
$31.0 million, compared to $33.1 million for the nine month period ended
September 30, 1998, a decrease of $2.1 million, or 6.3%. This decrease is due to
a one-time $11.5 million non-cash compensation charge relating to the vesting of
option contracts held by certain of our officers that occurred in the period
ended September 30, 1998, partially offset by costs incurred following the
acquisition of 4-Sight in March, 1998 and by increases in other selling, general
and administrative expenses associated with expanded operations during the
current nine month period. After adjusting for the one-time charge during 1998,

                                      -12-
<PAGE>

recurring selling, general and administrative expense during the nine month
period ended September 30, 1999 increased $9.4 million, or 43.5% over the
comparable adjusted amount for the nine month period ended September 30, 1998.
The increase was primarily due to (i) expansion of our European sales force,
partially offset by reductions and realignments in our North American sales
force, (ii) increased marketing expense for trade show attendance associated
with new service promotions and (iii) increased costs associated with the
restructuring of our executive and administrative management team to support our
new sales and marketing focus. Management expects selling, general and
administrative expense will continue to decline as a percentage of revenue.

         Depreciation and amortization. Depreciation and amortization for the
three month period ended September 30, 1999 was $8.9 million, compared to $5.3
million for the three month period ended September 30, 1998, an increase of $3.6
million, or 67.9%. Depreciation and amortization for the nine month period ended
September 30, 1999 was $24.9 million, compared to $11.4 million for the nine
month period ended September 30, 1998, an increase of $13.5 million, or 118.4%.
This increase in each current period is primarily due to depreciation of
additional network and related equipment purchased for network expansion during
1998 and 1999.

         Interest income. Interest income for the three month period ended
September 30, 1999 was $0.1 million, compared to $0.5 million for the three
month period ended September 30, 1998, a decrease of $0.4 million, or 80.0%.
Interest income for the nine month period ended September 30, 1999 was $0.5
million, compared to $1.6 million for the nine month period ended September 30,
1998, a decrease of $1.1 million, or 68.8%. The decrease in interest income in
each current period was primarily due to the decrease in our average monthly
balance of cash and cash equivalents during the period.

         Interest expense. Interest expense for the three month period ended
September 30, 1999 was $8.0 million, compared to $6.3 million for the three
month period ended September 30, 1998, an increase of $1.7 million, or 27.0%.
Interest expense for the nine month period ended September 30, 1999 was $25.5
million, compared to $15.8 million for the nine month period ended September 30,
1998, an increase of $9.7 million, or 61.4%. The increase was primarily due to
(i) the increase in long-term unsecured debt we incurred during 1998 to fund our
operations and to acquire 4-Sight, consisting primarily of our 13.25% senior
discounted notes due 2005 (the "1998 Notes") in the accreted principal amount of
$153.0 million at September 30, 1999, and (ii) the increase in equipment
financing. In the nine month period ended September 30, 1999 we also incurred
interest expense (i) in the amount of $2.8 million in connection with the 13.25%
subordinated unsecured convertible note, which converted into equity in March
1999, and (ii) in the amount of $6.5 million representing financing costs
including the current portion of the attributed cost incurred for the issuance
of warrants in connection with certain financing transactions, including our
13.25% senior discount notes.

         Other income. Other income for the three month period ended September
30, 1999 was $0.5 million, compared to $0.7 million for the three month period
ended September 30, 1998, a decrease of $0.2 million, or 28.6%. %. Other income
for the nine month period ended September 30, 1999 was $0.8 million, compared to
$0.8 million for the nine month period ended September 30, 1998. The 1999 other
income primarily reflects receipt of rental income received from SGI in
connection with our lease to SGI in June, 1999 of a portion of the corporate
campus facility in Eagan which we purchased from SGI in March, 1999. This income
was partially offset by our continuing rental obligations for vacated
facilities.

         Net loss. Our net loss of $33.0 million for the three month period
ended September 30, 1999 increased $0.7 million, or 2.2%, compared to a net loss
of $32.3 million for the three month period ended September 30, 1998. Our net
loss of $101.5 million for the nine month period ended September 30, 1999,
increased $18.3 million, or 22.0%, compared to a net loss of approximately $83.2
million for the nine month period ended September 30, 1998. This increase is
related to expenses associated with the continuing operation, deployment and
marketing of our network and network services, for the expansion of European
operations, for increased depreciation and amortization over a larger equipment
base and for increased interest expense.

                                      -13-
<PAGE>

Liquidity and Capital Resources

         Since inception, we have incurred net losses and experienced negative
cash flow. We expect to continue to operate at a net loss and experience
negative cash flow for the foreseeable future. Our ability to achieve
profitability and positive cash flow from operations will depend on our ability
to grow our revenue substantially and achieve other operating efficiencies.

         For the nine month period ended September 30, 1999, we used $54.4
million of net cash in operating activities primarily for operating expenses,
including network communications, salaries, travel, consulting and legal
expense. During that period we used $22.6 million of net cash in investing
activities primarily for the expansion of our network and storage
infrastructure. Since January 1, 1999, we have obtained $103.3 million of net
cash proceeds from financing activities, consisting of $36.8 million from the
sale leaseback of our building and land, $59.5 million from the issuance of
short-term debt and preferred stock to MCI WorldCom and SGI, and $7.0 million
from other net borrowings under credit facilities and equipment financing
arrangements. The increase of $39.0 million in our building and land assets
during the period result from our acquisition of the SGI corporate campus
facility in March 1999 in exchange for the issuance of our preferred stock.
Changes in other asset and liability balances during the recent nine month
period related to timing of expense recognition.

         On January 13, 1999, we issued the 1999 MCI WorldCom convertible note
in the principal amount of $25.0 million due August 28, 1999. Under the 1999 MCI
WorldCom convertible note we borrowed $10.0 million on January 13, 1999 and
$15.0 million on March 4, 1999. Also, on that date, we consummated the SGI
investment pursuant to which SGI purchased 5,710,425 shares of Class B
convertible preferred stock and 878,527 shares of our Class C convertible
preferred stock for aggregate net cash proceeds of $35.0 million and $40.0
million by way of transfer to us of SGI's corporate campus facility in Eagan,
Minnesota. Immediately prior to the closing of our transaction with SGI, the
1999 MCI WorldCom convertible note was converted into 2,196,317 shares of Class
D convertible preferred stock. In connection with the issuance of the 1999 MCI
WorldCom convertible note, we also issued warrants to MCI WorldCom to purchase
150,000 and 200,000 shares of common stock at an exercise price of $.01 per
share after April 30, 1999 and exercisable until April 30, 2004.

         Effective June 1, 1999 we amended our 1997 agreement for the
acquisition of Freemail to change the amount and rate of payment of contingent
consideration due to the former Freemail shareholders. We have decreased the
amount payable from $3.0 million cash to $2.0 million, payable $1.0 million in
cash and $1.0 million in shares of our common stock at fair market value. The
rate of payment has also been changed from 5% of revenue from a selected class
of customers to 5% of our total collected revenue, calculated quarterly. In
accordance with this amendment, the first payment was made by October 30, 1999,
for the quarter ended September 30, 1999.

         On July 16, 1999, we entered into a $20.0 million, two year credit
facility with Foothill Capital Corporation. The credit facility contains a $10.0
million term loan which was repaid from the proceeds of the sale/License
Agreement with CCPRE Eagan, LLC. The remainder of the facility is a revolving
credit facility under which Foothill will lend us up to an additional $10.0
million based upon a borrowing base consisting of our recurring billings and
collections from its U.S. customers. Amounts outstanding under the credit
facility incur interest at the Wells Fargo Bank reference rate plus 1.75%
(currently 9.75% per year). The credit facility is secured by a lien on certain
unencumbered and lienable assets. The credit facility requires us to obtain
certain minimum gross margins, specified levels of network access device
installations and minimum EBITDA for the quarter ending September 30, 1999, and
for each quarter thereafter until maturity. It also provides for annual limits
on the amount of our capital expenditures. Foothill has agreed under certain
circumstances to subordinate or release its lien on equipment to permit us to
obtain equipment financing from third parties. The credit facility is
automatically renewable at maturity until cancelled in accordance with its
terms. We have currently borrowed approximately $4.0 million under the credit
facility.

On September 30, 1999, we entered into a Purchase and Sale Agreement and Escrow
Instructions together with a Net Lease Agreement or Memorandum of Lease
(collectively, "The Sale/Lease Back Agreement") with CCPRE-Eagan,

                                      -14-
<PAGE>

LLC, ("CCPRE") a Delaware Limited Liability Company, and an affiliate of Chase
Bank, New York. Pursuant to the Sale/Lease Back Agreement, we conveyed our
corporate headquarters facility, including land, building and personal property
to CCPRE for a total purchase price of $38 million. Under the Sale/Lease Back
Agreement, we agreed to lease the facility from CCPRE for a term of 20 years
with three five-year options at a minimum monthly rent increasing from $481,000
per month during the first year of the term to $959,000 per month during the
last year of the initial term. We also agreed to pay all taxes, assessments,
utilities and other governmental charges. Under the Sale/Lease Back Agreement,
we may repurchase the corporate headquarters facility on the 24th or 36th month
anniversary of the agreement. The Sale/Lease Back Agreement entitles CCPRE to
require us to repurchase our corporate headquarters facility at any time
following the 36th month anniversary of the Agreement for the sum $41.8 million,
less the amount of certain payments made under the lease. As additional
consideration for the Sale/Lease Back Agreement, we issued Chase Capital
Partners ten-year warrants to purchase 325,000 shares of common stock at an
initial exercise price of $12.00 per share. The initial exercise price is
subject to antidilution adjustments. The warrant agreement entitles the holder
to require us to repurchase shares issued upon exercise of the warrant if we
elect to repurchase our corporate headquarters facility prior to an initial
public offering of our common stock, at a per share purchase price equal to 92%
of fair market value determined by appraisal. In connection with the warrant
agreement, Chase Capital Partners entered into agreements with MCI WorldCom and
SGI entitling the holder of the warrants to include a portion of the warrants,
or shares issuable upon exercise, in any transaction occurring prior to our
initial public offering in which either MCI WorldCom or SGI sold 10% or more of
its ownership of our securities.

         Our ability to continue to fund our operating losses as we expand our
business depends on our ability to obtain additional sources of financing. We
expect that our available operating capital as of October 31, 1999, as evidenced
by cash, cash equivalent investments, and availability under existing credit
facilities, together with borrowings under facilities from financial
institutions with whom we are currently negotiating, will be sufficient to fund
our operating losses, capital expenditures, lease payments and working capital
requirements for the remainder of our current fiscal year. We are seeking
additional financing through long- and short-term financing from banks,
financial institutions, and vendors and the issuance of our equity securities.
If additional sources of funding cannot be obtained during the course of our
fiscal year ending December 31, 1999, due to a constraint of available operating
capital, we will be required to significantly slow our global market
penetration, network growth and product development. In addition, should we be
unable to generate cash from operating or investing activities to fund our
operations and network growth during 1999, management expects that it would
implement plans to reduce cash expenditures. The reduction of cash expenditures
would have a material adverse effect on our global revenue and network expansion
plans. We believe that the most evident and clearly measurable impact resulting
from these reductions would be a significant decrease of installed network
customers for the year ending December 31, 1999. A material reduction in the
base of installed customers would slow the growth of our recurring revenue
stream, which is dependent upon customer utilization of our excess network
capacity. Reductions in network utilization would directly impact our network
revenue and could ultimately defer overall profitability of our service and
products. Another possible impact of the above outlined expenditure reductions
would be potentially material delays in software product development, the impact
of which could further erode customer retention and network utilization.



Year 2000 Compliance

         The Year 2000 issue is the result of computer-controlled systems using
two digits rather than four to define the applicable year. For example, computer
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. As for many other companies, this year
2000 computer issue poses a potential risk for us as a user of information
systems in the operation of our business, as a provider of managed, high-speed,
digital data delivery network service and the related computer technology and
software to customers, and as a customer of other organizations whose operations
may be affected by year 2000 compliance issues.

         Our State of Readiness. We have completed an assessment of our core
business information systems, many of which are provided by outside suppliers,
for year 2000 readiness and are extending that review to include a variety

                                      -15-
<PAGE>

of other information systems and related business processes used in our
operations. We have implemented necessary changes to critical systems, and
successfully tested them. We are also assessing the possible effect on our
operations of the year 2000 readiness of critical suppliers of products and
services. These include not just suppliers of components but also our
outsourcing partners in manufacturing as well as suppliers of basic utilities.
Our reliance on key suppliers, and therefore on the proper functioning of their
information systems and software, is increasing, and there can be no assurance
that another company's failure to address year 2000 issues could not have a
material adverse effect on our business, financial condition and results of
operation. Although our assessment is ongoing, we currently believe that
resolving these matters will not have a material adverse effect on our business,
financial condition and results of operations.

         Costs. We have not incurred material historical costs for year 2000
awareness, inventory assessment, analysis, conversion, testing or contingency
planning. We believe that we are unlikely to experience a material adverse
impact on our business, financial condition or results of operations due to year
2000 compliance issues.

         Potential Risks. We could face substantial claims by customers or loss
of revenue due to service interruptions, inability to fulfill contractual
obligations or to bill customers accurately and on a timely basis, and increased
expenses associated with litigation, stabilization of operations following
critical system failures and the execution of contingency plans. We could also
experience an inability by customers and others to pay, on a timely basis or at
all, obligations owed to us. Under these circumstances, the adverse effects
would be material, although not quantifiable at this time. Further, the
cumulative effect of these failures could have a substantial adverse effect on
the economy, domestically and internationally. The adverse effects of a domestic
or global recession or depression also could be material, although not
quantifiable at this time. We will continue to monitor business conditions to
assess and quantify material adverse effects, if any, that may result from the
year 2000 problem.

Item 3--Quantitative and Qualitative Disclosures About Market Risk

         Foreign Currency Exchange Rates. For the nine month period ending
September 30 ,1999, our revenues originating outside the U.S. were 36% of total
revenues. Currently, we do not employ currency hedging strategies to reduce the
risks associated with the fluctuation of foreign currency exchange rates. All of
our contracts are denominated in U.S. dollars except for those contracts entered
into by our foreign subsidiaries which are denominated in local currency. We are
unable to determine what effect, if any, the adoption and use of the Euro will
have in the future on our business, operating results, liquidity and financial
condition.

         Our international business is subject to risks typical of an
international business, including, but not limited to: differing economic
conditions, changes in political climate, differing tax structures, other
regulations and restrictions, and foreign exchange rate volatility. Accordingly,
our future results could be materially adversely impacted by changes in these or
other factors.

         Interest Rates. We invest cash in a variety of financial instruments,
including bank time deposits and fixed rate obligations of governmental entities
and agencies. These investments are denominated in U.S. dollars. Cash balances
in foreign currencies overseas are operating balances and are invested in
short-term time deposits of the local operating bank.

         Investments in fixed rate interest earning instruments carry a degree
of interest rate risk. Fixed rate securities may have their fair market value
adversely impacted due to a rise in interest rates. Due in part to these
factors, our future investment income may fall short of expectations due to
changes in interest rates, or we may suffer losses in principal if forced to
sell securities which have seen a decline in market value due to changes in
interest rates. Our investment securities are held for purposes other than
trading.

         We are exposed to market risk from changes in the interest rates on
certain of our outstanding debt. The outstanding loan balance under the
revolving credit facility bears interest at a variable rate based on prevailing
short-term interest rates in the U.S. and Europe. Based on the average
outstanding bank debt for the year ended December 31, 1998, a 100 basis point
change in interest rates would not change interest expense by a material amount.
For fixed rate debt such as our 13.25% senior discount notes, interest rate
changes affect its fair market value, but do not impact earnings or cash flows.

                                      -16-
<PAGE>

                           Part II--OTHER INFORMATION


Item 2--Changes in Securities and Use of Proceeds

         (c) The information required by this Item 2 of Part II has been
previously reported in Item 2 of Part I of this Form 10-Q, and is incorporated
herein by reference. For a complete discussion of the transactions involving
recent sales of unregistered securities of the Company please see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

         The sale and purchase of the 1999 MCI WorldCom Note and the conversion
thereof into the Class D Preferred Stock and the sale and purchase of the Class
B Preferred Stock, the Class C Preferred Stock and the 1999 MCI WorldCom
Warrants were exempt from the registration requirements of Section 5 of the
Securities Act of 1933 (the "Securities Act") pursuant to the provisions of
Section 4(2) of the Securities Act.

         The issuance of warrants to Chase Capital Partners in connection with
the Sale/Lease Back agreement was exempt from the registration requirements of
Section 5 of the Securities Act of 1933 (the "Securities Act") pursuant to the
provisions of Section 4(2) of the Securities Act.

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

(a)  Exhibits

     See Exhibit Index

(b)  Reports on Form 8-K

       On October 8, 1999, we filed a Report on Form 8-K relating to the
transaction with Chase Capital Partners and CCPRE-Eagan, LLC, and also reporting
the resignation of certain directors.

                                      -17-
<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 by the
undersigned thereunto duly authorized.


                                            WAM!NET Inc.

Date: November 5 , 1999



                                            By: /s/ Terri F. Zimmerman
                                               -----------------------------
                                                 Terri F. Zimmerman
                                                 Chief Financial Officer

                                      -18-
<PAGE>

                                  EXHIBIT INDEX

Item
Number              Description
------              -----------

2.1   (1)   Agreement for the Sale and Purchase of the entire issued share
            capital of WAM!NET U.K. Limited dated February 11, 1998, among the
            Company, WAM!NET (UK) Limited and the Selling Shareholders listed
            therein.
2.2   (1)   Agreement and Plan of Reorganization dated December 17, 1997 by and
            among NetCo Communications Corporation, NetCo Acquiring Corporation,
            FreeMail, Inc. and the shareholders listed therein.
2.3   (4)   June 1, 1999 Amendment to the Agreement and Plan of Reorganization
            dated December 17, 1997 by and among WAM!NET Inc. (formerly NetCo
            Communications Corporation), NetCo Acquiring Corporation, FreeMail,
            Inc. and the shareholders listed therein.
3.1   (1)   Amended and Restated Articles of Incorporation of the Company.
3.2   (1)   By-Laws of the Company.
4.1   (1)   Indenture dated as of March 5, 1998, between the Company, as Issuer,
            and First Trust National Association, as Trustee.
4.2a  (1)   Certificate for the Rule 144A Original Notes ($200,000,000).
4.2b  (1)   Certificate for the Rule 144A Original Notes ($8,030,000).
4.3   (1)   Certificate for the Regulation S Original Notes.
4.4   (1)   Certificate for the Rule 144A Warrants.
4.5   (1)   Certificate for the Regulation S Warrants.
4.6a  (1)   Rule 144A Unit Certificate. (200,000 Units)
4.6b  (1)   Rule 144A Unit Certificate. (8,030 Units)
4.7   (1)   Certificate for the Regulation S Units.
4.8   (1)   Form of Certificate for the Exchange Notes (incorporated herein by
            reference and included in Exhibit 4.1 to the Company's Registration
            Statement on Form S-4 filed with Securities and Exchange Commission
            on May 28, 1998).
4.9   (1)   Common Stock Certificate.
4.10  (1)   Registration Rights Agreement, dated March 5, 1998, among the
            Company and Merrill Lynch Pierce, Fenner & Smith Incorporated,
            Credit Suisse First Boston Corporation and First Chicago Capital
            Markets, Inc.
4.11  (1)   Common Stock Registration Rights Agreement, dated as of March 5,
            1998, among the Company, WorldCom Inc., Merrill Lynch, Pierce,
            Fenner & Smith Incorporated, Credit Suisse First Boston Corporation
            and First Chicago Capital Markets, Inc.
4.12  (1)   Warrant Agreement, dated as of March 5, 1998, by and between the
            Company and First Trust National Association, as Warrant Agent, to
            purchase common stock of the Company.
4.13  (2)   Certificate Representing 100,000 Shares of Class A Preferred Stock
            of the Company issued to WorldCom Inc. on December 16, 1996
            (Incorporated herein by reference to exhibit 10.5 of the Company's
            Registration Statement on Form S-4 (File No. 333-53841) filed with
            the Securities and Exchange Commission on May 28, 1998).
4.14  (2)   Warrants to purchase 4,157,500 Shares of Common Stock of the Company
            exercisable on or before December 31, 2000, issued to WorldCom Inc.
            on December 16, 1996 (Incorporated herein by reference to exhibit
            10.6 of the Company's Registration Statement on Form S-4 (File No.
            333-53841) filed with the Securities and Exchange Commission on May
            28, 1998).
4.15  (2)   Certificate for 13.25% Subordinated Unsecured Convertible Note due
            August 28, 2005 ($25,000,000 Note) issued to MCI WorldCom, Inc. on
            January 13, 1999.
4.16  (2)   Certificate for 1,679,234 Class A Warrants and 2,840,967 Class B
            Warrants to purchase Common Stock of the Company, issued to WorldCom
            Inc. on September 26, 1997 (Incorporated herein by reference to
            exhibit 10.9 of the Company's Registration Statement on Form S-4
            (File No. 333-53841) filed with the Securities and Exchange
            Commission on May 28, 1998).

                                      -19-
<PAGE>

4.17  (2)   Subordinate Unsecured Convertible Note and Warrant Purchase
            Agreement between the Company and MCI WorldCom, Inc. dated January
            13, 1999.
4.18  (2)   Preferred Stock Purchase Agreement by and between the Company and
            Silicon Graphics, Inc. dated as of March 3, 1999.
4.19  (2)   Certificate for 150,000 Warrants to purchase shares of Common Stock
            for the purchase price of $.01 per share dated January 13, 1999.
4.20  (2)   Certificate of Designation of Rights and Preferences of Class A
            Preferred Stock of the Company filed with the Secretary of State of
            the State of Minnesota on March 4, 1999, as corrected and filed with
            the Secretary of State of this State of Minnesota on March 5, 1999.
4.21  (2)   Certificate of Designation of Rights and Preferences of Class B
            Convertible Preferred Stock of the Company filed with the Secretary
            of State of the State of Minnesota on March 4, 1999.
4.22  (2)   Certificate of Designation of Rights and Preferences of Class C
            Convertible Preferred Stock of the Company filed with the Secretary
            of State of the State of Minnesota on March 4, 1999.
4.23  (2)   Certificate of Designation of Rights and Preferences of Class D
            Convertible Preferred Stock of the Company filed with the Secretary
            of State of the State of Minnesota on March 4, 1999.
4.24  (2)   Certificate representing 115,206 shares of Class A Preferred Stock
            of the Company issued to MCI WorldCom. Inc. on March 4, 1999.
4.25  (2)   Certificate representing 5,710,425 shares of Class B Convertible
            Preferred Stock of the Company issued to Silicon Graphics, Inc. on
            March 4, 1999.
4.26  (2)   Certificate representing 878,527 shares of Class C Convertible
            Preferred Stock of the Company issued to Silicon Graphics, Inc. on
            March 4, 1999.
4.27  (2)   Certificate representing 2,196,317 shares of Class D Convertible
            Preferred Stock of the Company issued to MCI WorldCom. Inc. on March
            4, 1999.
4.28  (2)   Stockholders Agreement by and among the Company, Silicon Graphics,
            Inc. and MCI WorldCom, Inc. dated as of March 4, 1999.
4.29  (2)   Class A Preferred Stock Exchange Agreement by and between the
            Company and MCI WorldCom, Inc. dated as of March 4, 1999.
4.30  (2)   Class D Preferred Stock Conversion Agreement by and between the
            Company and MCI WorldCom, Inc. dated as of March 4, 1999.
10.1  (1)   Credit Agreement among the Company, the Lending Institutions party
            thereto, as Lenders, The First National Bank of Chicago, as Agent,
            dated as of September 26, 1997.
10.2  (1)   Ten Percent Convertible Note Purchase Agreement between the Company
            and WorldCom Inc. dated September 12, 1996 ($5,000,000 Note).
10.3  (1)   Preferred Stock, Subordinated Note and Warrant Purchase Agreement
            between the Company and WorldCom Inc. dated November 14, 1996.
10.4  (1)   $28,500,000 Seven Percent Subordinated Note due December 31, 2003,
            payable to WorldCom Inc.
10.5        Intentionally omitted.
10.6        Intentionally omitted.
10.7  (1)   Right of Refusal Agreement Among WorldCom Inc., Edward Driscoll III
            and Allen L. Witters dated December 16, 1996.
10.8  (1)   Guaranty Agreement dated September 26, 1997, by and between the
            Company and WorldCom Inc.
10.9        Intentionally omitted.
10.10 (1)   Sublease dated September 24, 1997 between the Company and 1250895
            Ontario Limited, relating to the property located at 6100 110th
            Street West, Bloomington, Minnesota.
10.11 (1)   Service Provision Agreement dated as of July 18, 1997, by and
            between the Company and Time Inc.
10.12 (1)   Standby Agreement dated as of July 19, 1997 by and between WorldCom
            Inc. and Time Inc.
10.13 (1)   Employment Agreement dated as of November 14, 1996, by and between
            the Company and Edward J. Driscoll III.
10.14 (1)   Employment Agreement dated as of November 14, 1996, by and between
            the Company and Allen Witters.
10.15 (1)   Employment Agreement dated as of April 16, 1996, by and between the
            Company and James R. Clancy.

                                      -20-
<PAGE>

10.16 (1)   Employment Agreement dated as of May 10, 1995, as amended, by and
            between the Company and Mark Marlow.
10.17 (1)   Agreement dated February 11, 1998 between the Company and WorldCom,
            Inc. modifying certain terms of the (i) 10% Convertible Subordinated
            Note, due September 30, 1999, (ii) 7% Subordinated Note, due
            December 31, 2003, and (iii) 100,000 shares of Series A Preferred
            Stock, all of which are held by MCI WorldCom, Inc. (incorporated
            herein by reference to exhibit No. 4.17 to the Company's
            Registration Statement on Form S-4 (File No. 333-53841) filed with
            the Securities and Exchange Commission on May 28, 1998)
10.18 (1)   1994 Stock Option Plan
10.19 (1)   Amended and Restated 1994 Stock Option Plan
10.20 (1)   1998 Combined Stock Option Plan.
10.21 (1)   Agreement dated June 5, 1997 between the Company and WorldCom, Inc.
            regarding data services provided by WorldCom, Inc. to the Company.
10.22 (3)   Preferred Provider Agreement by and between the Company and Silicon
            Graphics, Inc., dated as of March 4, 1999 (portions of this exhibit
            have been omitted pursuant to a request for confidential treatment
            and have been filed with the Securities Commission under separate
            cover).
10.23 (2)   Sale and Purchase Agreement by and between Silicon Graphics, Inc.,
            on behalf of itself and its wholly-owned subsidiary, Cray Research,
            L.L.C., and the Company dated as of March 4, 1999.
10.24 (2)   Lease by and between the Company and Silicon Graphics, Inc. on
            behalf of itself and its wholly-owned subsidiary, Cray Research,
            L.L.C., with respect to the Company's corporate campus facility
            located in Eagan, Minnesota dated as of March 4, 1999.
10.25 (2)   Employment Agreement dated January 1, 1998 by and between John R.
            Kauffman and the Company.
10.26 (2)   Employment Agreement dated November 3, 1997 by and between David T.
            Ottinger and the Company.
10.27 (4)   Loan and Security Agreement dated July 16, 1999, by and between
            Foothill Capital Corporation and the Company.
10.28 *     Purchase and Sale Agreement and Escrow Instructions dated September
            30, 1999, between the Company and CCPRE-Eagan, LLC.
10.29 *     Amendment Number One to Purchase and Sale Agreement and escrow
            Instructions dated September 30, 1999, between the Company and
            CCPRE-Eagan, LLC.
10.30   *   Net Lease dated September 30, 1999 between the Company and
            CCPRE-Eagan, LLC
27.1    *   Financial Data Schedule.

----------------
(1)   Incorporated herein by reference to the Company's Registration Statement
      on Form S-4 (File No. 333-53841), filed with the SEC on May 28, 1998.
(2)   Incorporated herein by reference to the Company's Annual Report on Form
      10-K, filed with the SEC on March 31, 1999.
(3)   Incorporated herein by reference to the Company's Quarterly Report on Form
      10-Q filed with the SEC on May 17, 1999.
(4)   Incorporated herein by reference to the Company's Quarterly Report on Form
      10-Q filed with the SEC on August 4, 1999.
*     Filed herein.

                                      -21-
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UNITED STATES SECURITIES
                             AND EXCHANGE COMMISSION

                                    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: September 30, 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: 333-53841

                                  WAM!NET Inc.
             (Exact name of registrant as specified in its charter)

               Minnesota                                 41-1795247
    (State or other jurisdiction of         (I.R.S. Employer Identification No.)
     incorporation or organization)

                               655 Lone Oak Drive
                             Eagan, Minnesota 55121
                    (Address of principal executive offices)
                                   (Zip Code)

                                 (651) 256-5100
              (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 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 October 31, 1999 there were 9,297,427 shares of the Corporation's Common
Stock, par value $.01 per share, outstanding.

Total number of pages in this report: 21
WAM!NET Inc.

                               INDEX TO FORM 10-Q
Part I--Financial Information
                                                                                                        Page
                                                                                                         No.
                                                                                                         ---
Item 1--Financial Statements

                 Consolidated Balance Sheets as of September 30, 1999 (unaudited)
                   and December 31, 1998.............................................................     3

                 Consolidated Statements of Operations for the three and nine months in the periods
                   ended September 30, 1999 and 1998 (unaudited).....................................     5

                 Consolidated Statements of Cash Flows for the nine months in the periods ended
                   September 30, 1999 and 1998 (unaudited)...........................................     6

                 Notes to Consolidated Financial Statements (unaudited)..............................     8

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

          Item 3--Quantitative and Qualitative Disclosures About Market Risk.........................    16

Part II--Other Information

          Item 2--Changes in Securities and Use of Proceeds..........................................    17

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

Signature --      ...................................................................................    18

Exhibit Index--   ...................................................................................    19
-2-
Part I--FINANCIAL INFORMATION

Item 1--Financial Information

                                  WAM!NET Inc.

                           Consolidated Balance Sheets
                    (dollars in thousands, except share data)
September 30,  December 31,
                                                                            1999          1998
                                                                        -------------  ----------
                                                                        (Unaudited)
Assets
Current assets:
     Cash and cash equivalents ..........................................   $ 31,919   $  6,272
     Accounts receivable, net of allowance of $880 and $430, respectively      5,138      3,466
     Inventory ..........................................................      1,572      1,534
     Prepaid expenses and other current assets ..........................      3,983      3,187
                                                                            --------   --------
          Total current assets ..........................................     42,612     14,459

Property and equipment:
     Building and land ..................................................     39,742        605
     Network equipment ..................................................     66,613     50,907
     Other support equipment ............................................     21,714     18,046
     Furniture and fixtures .............................................      4,403      2,802
     Leasehold improvements .............................................      4,634      6,506
                                                                            --------   --------
                                                                             137,106     78,866
     Accumulated depreciation ...........................................     33,374     16,399
                                                                            --------   --------
                                                                             103,732     62,467
     Goodwill, net of accumulated amortization of $10,266 and $5,308,
         respectively ...................................................     22,714     27,734
     Deferred financing charges, net of accumulated amortization of
         $9,637 and $5,959, respectively ................................     19,549     20,183
     Other assets .......................................................        628        616
                                                                            --------   --------

          Total assets ..................................................   $189,235   $125,459
                                                                            ========   ========
-3-
WAM!NET Inc.

                     Consolidated Balance Sheets (continued)
                    (dollars in thousands, except share data)
September 30,  December 31,
                                                                         1999         1998
                                                                     -----------   ----------
                                                                     (Unaudited)
Liabilities and shareholders' deficit
Current liabilities:
     Accounts payable .............................................   $  17,710    $  17,098
     Accrued salaries and wages ...................................       3,580        4,801
     Accrued expenses .............................................       6,376        3,176
     Current portion of equipment financing .......................       8,023        5,324
                                                                      ---------    ---------
          Total current liabilities ...............................      35,689       30,399

Long-term debt:
     Subordinated notes payable ...................................      28,779       27,403
     Notes payable ................................................      38,000         --
     Line of credit ...............................................      27,708       24,000
     Equipment financing ..........................................      14,490       13,536
     13.25% Senior Discounted Notes ...............................     152,987      138,975

Redeemable Preferred Stock, Class A, $10.00 par value:
          Authorized shares--115,206
          Issued and outstanding shares--115,206 and 100,000 at
             September 30, 1999 and December 31, 1998 .............       1,152        1,000

Shareholders' deficit:
     Convertible Preferred Stock, Class B, $.01 par value:
          Authorized, issued and outstanding--5,710,425 and 0 .....          57         --
     Convertible Preferred Stock, Class C, $.01 par value:
          Authorized, issued and outstanding--878,527 and 0 .......           9         --
     Convertible Preferred Stock, Class D $.01 par value:
          Authorized, issued and outstanding--2,196,317 and 0 .....          22         --
     Undesignated shares, $.01 par value--1,099,525
     Common Stock, $.01 par value:
          Authorized shares--490,000,000
          Issued and outstanding shares--9,297,427 and 9,288,194 at
             September 30, 1999 and December 31, 1998 .............          93           93
     Additional paid-in capital ...................................     156,600       54,302
     Accumulated deficit ..........................................    (265,870)    (164,387)
     Other accumulated comprehensive income (loss) ................        (481)         138
                                                                      ---------    ---------
     Total shareholders' deficit ..................................    (109,570)    (109,854)
                                                                      ---------    ---------
     Total liabilities and shareholders' deficit ..................   $ 189,235    $ 125,459
                                                                      =========    =========
See accompanying notes.

                                      -4-
WAM!NET Inc.

                     Consolidated Statements of Operations
            (dollars in thousands, except share and per share data)
Three months ended             Nine months ended
                                                                  September 30,                 September 30,
                                                                  -------------                 -------------
                                                               1999           1998           1999           1998
                                                           -----------    -----------    -----------    -----------
                                                                                  (Unaudited)
Revenues:
Net service revenue ....................................   $     4,787    $     1,782    $    11,861    $     4,256
Software and hardware sales ............................         2,029          3,739          5,622          8,480
                                                           -----------    -----------    -----------    -----------
Total revenue ..........................................         6,816          5,521         17,483         12,736

Operating expenses:
Network communications .................................         6,766          4,602         19,489         11,502
Cost of software and hardware ..........................           823          1,155          2,220          2,631
Network operations and development .....................         6,448         11,628         17,222         23,994
Selling, general and administrative ....................         9,581          9,956         30,952         33,058
Depreciation and amortization ..........................         8,851          5,328         24,908         11,353
                                                           -----------    -----------    -----------    -----------
                                                                32,469         32,669         94,791         82,538
                                                           -----------    -----------    -----------    -----------
Loss from operations ...................................       (25,653)       (27,148)       (77,308)       (69,802)

Other income (expense):
     Interest income ...................................            90            464            520          1,612
     Interest (expense) ................................        (7,987)        (6,293)       (25,479)       (15,787)
     Other income ......................................           508            718            783            783
                                                           -----------    -----------    -----------    -----------
Net loss ...............................................   $   (33,042)   $   (32,259)   $  (101,484)   $   (83,194)
Less preferred dividends ...............................        (1,800)           (18)        (4,105)           (52)
                                                           -----------    -----------    -----------    -----------
Net loss applicable to common stock ....................   $   (34,842)   $   (32,277)   $  (105,589)   $   (83,246)
                                                           ===========    -----------    ===========    -----------

Net loss applicable per common share - basic and diluted   $     (3.75)   $     (3.74)   $    (11.36)   $     (9.65)
                                                           ===========    ===========    ===========    ===========

Weighted average number of common shares outstanding ...     9,296,339      8,627,889      9,296,339      8,627,889
                                                           ===========    ===========    ===========    ===========
See accompanying notes.

                                      -5-
WAM!NET Inc.

                      Consolidated Statements of Cash Flows
                             (dollars in thousands)
Nine months ended
                                                                                   September 30,
                                                                              ----------------------
                                                                                 1999         1998
                                                                              ---------    ---------
                                                                                    (Unaudited)
Operating activities
Net loss ..................................................................   $(101,484)   $ (83,194)
Adjustments to reconcile net loss to net cash used in operating activities:
     Depreciation and amortization ........................................      24,908       11,544
     Noncash interest expense, including related warrants values ..........      21,864       12,719
     Loss on disposal of property and equipment ...........................       1,354           69
     Value of stock options issued to employees and consultants ...........         145       12,492
     Changes in operating assets and liabilities:
          Accounts receivable .............................................      (1,671)         329
          Prepaid expenses and other assets ...............................        (806)      (3,380)
          Accounts payable ................................................         612        8,427
          Accrued expenses ................................................         646        3,846
          Income Taxes ....................................................        --         (1,360)
                                                                              ---------    ---------
Net cash used in operating activities .....................................     (54,432)     (38,508)

Investing activities
Purchases of property and equipment .......................................     (22,609)     (38,598)
Purchase of 4-Sight and Freemail (net of cash acquired) ...................        (250)     (16,350)
                                                                              ---------    ---------
Net cash used in investing activities .....................................     (22,859)     (54,948)

Financing activities
Proceeds from exercise of stock options ...................................           5           11
Net proceeds from sale of convertible preferred stock .....................      59,498         --
Proceeds from 13.25% Senior Discount Notes ................................        --        120,626
Proceeds from line of credit ..............................................      13,397        5,203
Payments on line of credit ................................................     (10,000)     (24,003)
Net proceeds from notes payable ...........................................      36,765         --
Proceeds from equipment financing .........................................       8,347       14,274
Payments on equipment financing ...........................................      (4,756)      (3,465)
Capitalized financing costs ...............................................        --         (2,098)
                                                                              ---------    ---------
Net cash provided by financing activities .................................     103,256      110,548
Effect of foreign currencies on cash ......................................        (318)         260
                                                                              ---------    ---------
Increase (decrease) in cash and cash equivalents ..........................      25,647       17,352
Cash and cash equivalents at beginning of period ..........................       6,272          274
                                                                              ---------    ---------
Cash and cash equivalents at end of period ................................   $  31,919    $  17,626
                                                                              =========    =========
See accompanying notes.

                                      -6-
WAM!NET Inc.

                Consolidated Statements of Cash Flows (continued)

                             (dollars in thousands)
Nine months ended
                                                                                September 30,
                                                                             -----------------
                                                                               1999      1998
                                                                             -------   -------
                                                                                 (Unaudited)
Supplemental schedule of noncash financing activities
     Conversion of accrued dividends to preferred stock ..................       152        --
     Issuance of convertible preferred stock in exchange for land,
       building and furniture & fixtures .................................    40,000        --
     Warrant valuation reclassed to deferred charges from line of credit .        --     4,104
     Value of interest cost assigned to warrants .........................     4,297        --
     Accumulated and unpaid dividends ....................................        47        52
     Issuance of common stock relating to acquisition ....................        --    20,000
     Conversion of convertible subordinated debenture for common stock ...        --        25

Supplemental schedule of cash flow information
     Cash paid for interest ..............................................   $ 3,230   $ 1,654
See accompanying notes.

                                      -7-
WAM!NET INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   Consolidated Financial Statements

The accompanying consolidated financial statements have been prepared by WAM!NET
Inc. ("We," "us," "our") without audit and reflect all adjustments (consisting
only of normal and recurring adjustments and accruals) which are, in the opinion
of management, necessary to present a fair statement of the results for the
interim periods presented. The statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of regulation S-X, but omit
certain information and footnote disclosures necessary to present the statements
in accordance with generally accepted accounting principles. The results of
operations for the interim periods presented are not necessarily indicative of
the results to be expected for the full fiscal year. These financial statements
should be read in conjunction with our audited Consolidated Financial Statements
for the year ended December 31, 1998. The December 31, 1998 balance sheet was
derived from audited financial statements, but does not include all disclosures
required by generally accepted accounting principles. Certain amounts for the
prior year have been reclassified to conform to current year presentation.

2.   Consolidation

The consolidated financial statements include our accounts and our wholly-owned
subsidiaries: FreeMail, Inc., NetCo Communications of Canada, Inc., WAM!NET
Japan KK and WAM!NET U.K. Limited (formerly 4-Sight Limited). All intercompany
transactions have been eliminated.

3.   Preferred Stock

In January 1999, we issued the 1999 MCI WorldCom Convertible Note and in January
1999 and March 1999, we borrowed $10.0 million and $15.0 million, respectively.
The 1999 MCI WorldCom Convertible Note was converted into 2,196,317 shares of
our Class D Convertible Preferred Stock, par value $.01 per share (the "Class D
Preferred Stock"), immediately prior to the closing of the Silicon Graphics,
Inc. investment discussed below ("SGI Investment"). In connection with the MCI
WorldCom Convertible Note, we issued warrants to MCI WorldCom to purchase a
total of 350,000 shares of Common Stock. The warrants have an exercise price of
$.01 and are exercisable from April 30, 1999 until April 30, 2004.

In March 1999, we entered into the SGI Investment, providing for the purchase by
SGI of 5,710,425 shares of our Class B Convertible Preferred Stock, par value
$.01 per share (the "Class B Preferred Stock"), and 878,527 shares of our Class
C Convertible Preferred Stock, par value $.01 per share (the "Class C Preferred
Stock"). The holders of a majority of the Class B Preferred Stock have the right
to designate one member of our Board of Directors. The aggregate consideration
received by us for the Class B Preferred Stock and the Class C Preferred Stock
was $75 million, of which $35 million was paid in cash and $40 million was paid
by transfer to us of a corporate campus facility. The Class B Preferred Stock
and the Class C Preferred Stock will be convertible on a one-to-one basis into
Common Stock (subject to anti-dilution adjustments) and will have the right to
vote with the Common Stock, on an as-converted basis, as a single class. The
Class B Preferred Stock and Class C Preferred Stock are convertible immediately
following the issuance date and 18 months following the issuance date,
respectively. The shares of convertible Common Stock into which the Class B
Preferred Stock and the Class C Preferred Stock are subject to certain
registration rights.

                                      -8-
Sale Leaseback

On September 30, 1999, we entered into a Purchase and Sale Agreement and Escrow
Instructions together with a Net Lease Agreement or Memorandum of Lease
(collectively, "The Sale/Lease Back Agreement") with CCPRE-Eagan, LLC, ("CCPRE")
a Delaware Limited Liability Company, and an affiliate of Chase Bank, New York.
Pursuant to the Sale/Lease Back Agreement, we conveyed our corporate
headquarters facility, including land, building and personal property to CCPRE
for a total purchase price of $38 million. Under the Sale/Lease Back Agreement,
we agreed to lease the facility from CCPRE for a term of 20 years with three
five-year options at a minimum monthly rent increasing from $481,000 per month
during the first year of the initial term to $959,000 per month during the last
year of the initial term. We also agreed to pay all taxes, assessments,
utilities and other governmental charges. Under the Sale/Lease Back Agreement,
we may repurchase the corporate headquarters facility on the 24th or 36th month
anniversary of the agreement. The Sale/Lease Back Agreement entitles CCPRE to
require us to repurchase our corporate headquarters facility at any time
following the 36th month anniversary of the Agreement for the sum $41.8 million,
less the amount of certain payments made under the lease. As additional
consideration for the Sale/Lease Back Agreement, we issued Chase Capital
Partners ten-year warrants to purchase 325,000 shares of common stock at an
initial exercise price of $12.00 per share. The initial exercise price is
subject to antidilution adjustments. The warrant agreement entitles the holder
to require us to repurchase shares issued upon exercise of the warrant if we
elect to repurchase our corporate headquarters facility prior to an initial
public offering of our common stock, at a per share purchase price equal to 92%
of fair market value determined by appraisal. In connection with the warrant
agreement, Chase Capital Partners entered into agreements with MCI WorldCom and
SGI entitling the holder of the warrants to include a portion of the warrants,
or shares issuable upon exercise, in any transaction occurring prior to our
initial public offering in which either MCI WorldCom or SGI sold 10% or more of
its ownership of our securities.

Item 2--Management's Discussion and Analysis of Financial Condition and Results
        of Operations

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

         The following discussion and analysis is based on the historical
results of WAM!NET Inc. ("We," "us" "our") and should be read in conjunction
with our Financial Statements included herein. The following discussion contains
forward-looking statements that reflect our plans, estimates and beliefs. Our
actual results could differ materially from those discussed in the
forward-looking statements.

Overview

         We offer a suite of electronic data delivery services including our
Direct Service, On-Ramp Service and Internet Gateway Services. Our initial focus
through 1998 was our Direct Service. This is our fastest, most secure and most
reliable transport service, that includes installation of equipment on our
customer's premises and provision of telephone service connecting the equipment
to our network. This service provides direct, guaranteed and managed access and
transport over our private network. Customers choose from a variety of
capacities, speeds and throughput levels to meet their requirements. We released
our On-Ramp Service in Europe during the first quarter of 1999 and in North
America during the second quarter of 1999. Our On-Ramp service allows customers
to connect to our network using software we provide, an ISDN card, which we also
offer, and a dial-up ISDN or similar telephone service which our customer
obtains. We introduced our Internet Gateway Service to our Direct Service
customers in the third quarter of 1999. Internet Gateway service allows
connection to our network over the Internet. Both On-Ramp and Internet Gateway
services are targeted to facilitate growth in the number and size of workflow
groups by permitting connectivity at lower costs commensurate with lower
capacity needs for smaller users who are often key participants in workflow. At
September 30, 1999, we had over 5,000 subscribers using our data delivery
services.

                                      -9-
Revenues.

         Service revenue. Our service revenue is directly related to customer
traffic through our global private network which is related to the number of,
and degree of utilization by, workflow groups who connect among themselves
through our network. Our service revenue is derived primarily from annual or
multi-year service contracts, many of which have automatic renewal or extension
provisions. These contracts generally include a minimum monthly fee and
additional charges for usage that exceeds an included monthly minimum. We
currently offer our services at scaled minimum usage fees, which typically range
for Direct Service from $650 per month to $4,000 per month, and for On-Ramp
Service from $45 per month to $360 per month. Our Internet Gateway is priced
primarily on a per-megabyte basis. We begin to earn service revenue from Direct
Service customers following installation of equipment and service at a
customer's premises, which typically lags contract signing by 60 to 90 days. We
begin to earn service revenue from our other services upon contract signing
and/or usage. We began to record revenue from our On-Ramp Service in March 1999,
and began to record revenue from Internet Gateway Service in September of 1999.
We expect to introduce our initial WAM!BASE(R) data storage services during the
first quarter of 2000.

         Software and hardware sales. Revenue from software and hardware sales
resulted primarily from the sale of 4-Sight ISDN Manager(TM) software and ISDN
cards. In addition, our On-Ramp Service customers may choose to make a single
upfront payment and purchase software instead of paying monthly service fees
under contracts for the use of our On-Ramp software. In both cases these
purchases appear as software and hardware sales in our revenue. We expect
revenue from software and hardware sales to decline upon completion of the
long-term contracts for 4-Sight ISDN Manager(TM) and ISDN cards.

         No single customer accounted for more than 5% of our revenues for the
nine month period ended September 30, 1999 on a consolidated basis.

         Operating Expenses.

         Network communications. Network communications expense represents the
largest direct cost associated with providing our Direct Service. Network
communications expense includes both the costs of the high bandwidth, backbone
carrier services interconnecting our global infrastructure of network operation
and data storage centers and distribution hubs as well as the costs of local
loop telephone circuits connecting our network access devices from a customer's
premises to the nearest distribution hub. Local telephone circuit connections
provided by local exchange carriers account for the substantial majority of
these charges, with significant differences between urban and rural connection
costs. National and international carrier service, accounts for the balance of
these charges. Network communication expense is generally a fixed monthly cost
per circuit. We expect that network communications expense will increase as our
network expands; however, we expect that the cost of these expenses as a
percentage of revenue will decline with increasing utilization of our network.
We also believe that growing competition among telephony and communications
providers may reduce the cost of local telephone circuit and backbone
connections. We actively seek to obtain and deploy technologies that will reduce
the costs of local telephone circuit connections, such as wireless technologies,
remote dial-up capabilities and DSL. We also intend to use our network
management tools to optimize the use of existing and planned network capacity as
volume increases and traffic patterns begin to emerge. We continue to incur
substantial network communication expense as we deploy our network and related
services and applications globally; however, we expect the network
communications expense as a percentage of revenue to decline.

         Software and hardware. Software and hardware expense reflects the costs
of software and hardware sold.

         Network operations and development. Network operations and development
expense represents costs directly associated with developing, maintaining,
managing and servicing our global private network and expanding our service
offerings. These costs include direct labor, vendor service fees,
point-of-presence charges and research and development charges, which are often
incurred in advance of receiving revenue. Our currently installed

                                      -10-
network operation centers account for the substantial majority of these direct
labor and operating costs. Most of the costs associated with the development of
new services and applications, such as WAM!BASE(R), WAM!PROOF(R), On-Ramp and
Internet Gateway, are accounted for as network operations expenses and are
incurred in advance of receiving revenue. We expect that network operations
costs will increase as our network expands; however, the cost of network
operations as a percentage of revenue is expected to decline.

         Selling, general and administrative. Our selling expense consists
primarily of the salaries and commissions of our direct sales force and our
global marketing groups, commissions for channel partners, and the costs of
ongoing marketing activities such as promotions and channel development. Our
sales and marketing efforts through the end of 1998 were primarily intended to
create awareness of our services, stimulate trial use and induce integration
into customer workflow. With the growth of our installed customer base, we began
in 1999 integrating our services into our customers' workflow and expanding the
size and number of workflow groups with our more affordable On-Ramp and Internet
Gateway connectivity options. We expect to continue to incur significant sales
and marketing expenses in order to obtain increased penetration in our markets
and to generate increased traffic among existing customers.

         Our general and administrative expense includes administrative
salaries, related overhead and professional service fees. These costs reflect
expenditures related to the rapid growth and expansion of our administrative
infrastructure necessary to manage our globally expanding operations, and
professional service fees for financing activities, contract negotiations and
acquisitions. We continue to incur general and administrative expenses as we
continue to deploy our network and related services and applications globally;
however, we expect the cost of general and administrative expenses as a
percentage of revenue to decline.

         Depreciation and amortization. We retain ownership of the customer
premise equipment and most of the hardware and software necessary for our
customers to use our services on a turn-key basis. Depreciation and amortization
expense includes depreciation of this hardware and software as well as the
equipment located in our distribution hubs and network operation and data
storage centers. We also amortize certain costs relating to the acquisitions of
4-Sight and Freemail, which we acquired using the purchase method of accounting.
We anticipate additional capital investments in our network infrastructure
commensurate with customer demand and market opportunity. As a result, we
anticipate that depreciation and amortization expense will continue to increase
in future periods as we continue to purchase equipment and expand operations;
however, we expect depreciation and amortization expense as a percentage of
revenue to decline.

Results of Operations

Three and Nine Month Periods Ended September 30, 1999 Compared with Three and
Nine Month Period Ended September 30, 1998

         Revenues.

         Net Service revenue. Net Service revenue for the three month period
ended September 30, 1999 was $4.8 million, compared to $1.8 million for the
three month period ended September 30, 1998, an increase of $3.0 million, or
166.7%. Net Service revenue for the nine month period ended September 30, 1999
was $11.9 million, compared to $4.3 million for the nine month period ended
September 30, 1998, an increase of $7.6 million, or 176.7%. This increase in
revenue during each current period was primarily due to growth in the number of
customers purchasing Direct Services and On-Ramp Services, increased utilization
by customers, and price increases in monthly fees.

         Software and hardware sales. Revenues from software and hardware sales
for the three month period ended September 30, 1999 were $2.0 million, compared
to $3.7 million for the three month period ended September 30, 1998 a decrease
of $1.7 million or 45.9%. Revenues from software and hardware sales for the nine
month period ended September 30, 1999 were $5.6 million, compared to $8.5
million for the nine month period ended September 30, 1998, a decrease of $2.9
million, or 34.1%. The decrease in each current period is due to our

                                      -11-
migration from sales of 4-Sight software and hardware as stand-alone products to
sales of service contracts, partially offset by software purchases associated
with On-Ramp Service agreements.

         Total Revenue. Total revenue for the three month period ended September
30, 1999 was $6.8 million, compared to $5.5 million for the three month period
ended September 30, 1998, an increase of $1.3 million, or 23.6%. Total revenue
for the nine month period ended September 30, 1999 was $17.5 million, compared
to $12.8 million for the nine month period ended September 30, 1998, an increase
of $4.7 million, or 36.7%. Increased service revenue during each period was
partially offset by decreases in hardware and software sales, as described
above.

         Operating Expenses.

         Network communications. Network communications expense for the three
month period ended September 30, 1999 was $6.8 million, compared to $4.6 million
for the three month period ended September 30, 1998, an increase of $2.2
million, or 47.8%. Network communications expenses for the nine month period
ended September 30, 1999 were $19.5 million, compared to $11.5 million for the
nine month period ended September 30, 1998, an increase of $8.0 million, or
69.6%. The increase in each current period resulted from increased costs for
local loop connections related to growth in the number of our Direct Service
customers, and from expenses on network coverage through installation of
additional hubs for domestic and foreign network operations. The average monthly
communications expense per Direct Service customer installation decreased
overall 13.5% during each of the current periods. This trend reflects more
efficient use of our backbone as we add more Direct Service customers to our
network, a beneficial shift in the geographic mix of our customers, and
generally declining costs of backbone capacity and North American local loop
connections. These trends were partially offset by growth in our Direct Service
customer base in Europe, where local loop costs are generally higher than in
North America.

         Software and hardware. The cost of software and hardware for the three
month period ended September 30, 1999 was $0.8 million, compared to $1.2 million
for the three month period ended September 30, 1998, a decrease of $0.4 million,
or 33.3%. The cost of software and hardware for the nine month period ended
September 30, 1999, was $2.2 million, compared to $2.6 million for the nine
month period ended September 30, 1998, a decrease of $0.4 million, or 15.4%.
This decrease reflects the decline in software and hardware sales as described
above.

         Network operations and development. Network operations and development
expense for the three month period ended September 30, 1999 was $6.4 million,
compared to $11.6 million for the three month period ended September 30, 1998, a
decrease of $5.2 million, or 44.8%. Network operations and development expense
for the nine month period ended September 30, 1999 was $17.2 million, compared
to $24.0 million for the nine month period ended September 30, 1998, a decrease
of $6.8 million, or 28.3%. The decrease in each current period was primarily due
to completion of On-Ramp development and the termination of associated
development costs, partially offset by costs incurred for establishing our
network operations center in Belgium and deploying our network in Europe. This
category of expense also includes one-time costs related to the acquisition of
4-Sight in March 1998, and costs for development of On-Ramp, Internet Gateway
and WAM!BASE which were incurred during 1998 and 1999. We anticipate a lower
level of development costs for continuing Internet Gateway and WAM!BASE
development in future periods.

         Selling, general and administrative. Selling, general and
administrative expense for the three month period ended September 30, 1999 was
$9.6 million, compared to $10.0 million for the three month period ended
September 30, 1998, a decrease of $0.4 million, or 4.0%. Selling, general and
administrative expense for the nine month period ended September 30, 1999 was
$31.0 million, compared to $33.1 million for the nine month period ended
September 30, 1998, a decrease of $2.1 million, or 6.3%. This decrease is due to
a one-time $11.5 million non-cash compensation charge relating to the vesting of
option contracts held by certain of our officers that occurred in the period
ended September 30, 1998, partially offset by costs incurred following the
acquisition of 4-Sight in March, 1998 and by increases in other selling, general
and administrative expenses associated with expanded operations during the
current nine month period. After adjusting for the one-time charge during 1998,

                                      -12-
recurring selling, general and administrative expense during the nine month
period ended September 30, 1999 increased $9.4 million, or 43.5% over the
comparable adjusted amount for the nine month period ended September 30, 1998.
The increase was primarily due to (i) expansion of our European sales force,
partially offset by reductions and realignments in our North American sales
force, (ii) increased marketing expense for trade show attendance associated
with new service promotions and (iii) increased costs associated with the
restructuring of our executive and administrative management team to support our
new sales and marketing focus. Management expects selling, general and
administrative expense will continue to decline as a percentage of revenue.

         Depreciation and amortization. Depreciation and amortization for the
three month period ended September 30, 1999 was $8.9 million, compared to $5.3
million for the three month period ended September 30, 1998, an increase of $3.6
million, or 67.9%. Depreciation and amortization for the nine month period ended
September 30, 1999 was $24.9 million, compared to $11.4 million for the nine
month period ended September 30, 1998, an increase of $13.5 million, or 118.4%.
This increase in each current period is primarily due to depreciation of
additional network and related equipment purchased for network expansion during
1998 and 1999.

         Interest income. Interest income for the three month period ended
September 30, 1999 was $0.1 million, compared to $0.5 million for the three
month period ended September 30, 1998, a decrease of $0.4 million, or 80.0%.
Interest income for the nine month period ended September 30, 1999 was $0.5
million, compared to $1.6 million for the nine month period ended September 30,
1998, a decrease of $1.1 million, or 68.8%. The decrease in interest income in
each current period was primarily due to the decrease in our average monthly
balance of cash and cash equivalents during the period.

         Interest expense. Interest expense for the three month period ended
September 30, 1999 was $8.0 million, compared to $6.3 million for the three
month period ended September 30, 1998, an increase of $1.7 million, or 27.0%.
Interest expense for the nine month period ended September 30, 1999 was $25.5
million, compared to $15.8 million for the nine month period ended September 30,
1998, an increase of $9.7 million, or 61.4%. The increase was primarily due to
(i) the increase in long-term unsecured debt we incurred during 1998 to fund our
operations and to acquire 4-Sight, consisting primarily of our 13.25% senior
discounted notes due 2005 (the "1998 Notes") in the accreted principal amount of
$153.0 million at September 30, 1999, and (ii) the increase in equipment
financing. In the nine month period ended September 30, 1999 we also incurred
interest expense (i) in the amount of $2.8 million in connection with the 13.25%
subordinated unsecured convertible note, which converted into equity in March
1999, and (ii) in the amount of $6.5 million representing financing costs
including the current portion of the attributed cost incurred for the issuance
of warrants in connection with certain financing transactions, including our
13.25% senior discount notes.

         Other income. Other income for the three month period ended September
30, 1999 was $0.5 million, compared to $0.7 million for the three month period
ended September 30, 1998, a decrease of $0.2 million, or 28.6%. %. Other income
for the nine month period ended September 30, 1999 was $0.8 million, compared to
$0.8 million for the nine month period ended September 30, 1998. The 1999 other
income primarily reflects receipt of rental income received from SGI in
connection with our lease to SGI in June, 1999 of a portion of the corporate
campus facility in Eagan which we purchased from SGI in March, 1999. This income
was partially offset by our continuing rental obligations for vacated
facilities.

         Net loss. Our net loss of $33.0 million for the three month period
ended September 30, 1999 increased $0.7 million, or 2.2%, compared to a net loss
of $32.3 million for the three month period ended September 30, 1998. Our net
loss of $101.5 million for the nine month period ended September 30, 1999,
increased $18.3 million, or 22.0%, compared to a net loss of approximately $83.2
million for the nine month period ended September 30, 1998. This increase is
related to expenses associated with the continuing operation, deployment and
marketing of our network and network services, for the expansion of European
operations, for increased depreciation and amortization over a larger equipment
base and for increased interest expense.

                                      -13-
Liquidity and Capital Resources

         Since inception, we have incurred net losses and experienced negative
cash flow. We expect to continue to operate at a net loss and experience
negative cash flow for the foreseeable future. Our ability to achieve
profitability and positive cash flow from operations will depend on our ability
to grow our revenue substantially and achieve other operating efficiencies.

         For the nine month period ended September 30, 1999, we used $54.4
million of net cash in operating activities primarily for operating expenses,
including network communications, salaries, travel, consulting and legal
expense. During that period we used $22.6 million of net cash in investing
activities primarily for the expansion of our network and storage
infrastructure. Since January 1, 1999, we have obtained $103.3 million of net
cash proceeds from financing activities, consisting of $36.8 million from the
sale leaseback of our building and land, $59.5 million from the issuance of
short-term debt and preferred stock to MCI WorldCom and SGI, and $7.0 million
from other net borrowings under credit facilities and equipment financing
arrangements. The increase of $39.0 million in our building and land assets
during the period result from our acquisition of the SGI corporate campus
facility in March 1999 in exchange for the issuance of our preferred stock.
Changes in other asset and liability balances during the recent nine month
period related to timing of expense recognition.

         On January 13, 1999, we issued the 1999 MCI WorldCom convertible note
in the principal amount of $25.0 million due August 28, 1999. Under the 1999 MCI
WorldCom convertible note we borrowed $10.0 million on January 13, 1999 and
$15.0 million on March 4, 1999. Also, on that date, we consummated the SGI
investment pursuant to which SGI purchased 5,710,425 shares of Class B
convertible preferred stock and 878,527 shares of our Class C convertible
preferred stock for aggregate net cash proceeds of $35.0 million and $40.0
million by way of transfer to us of SGI's corporate campus facility in Eagan,
Minnesota. Immediately prior to the closing of our transaction with SGI, the
1999 MCI WorldCom convertible note was converted into 2,196,317 shares of Class
D convertible preferred stock. In connection with the issuance of the 1999 MCI
WorldCom convertible note, we also issued warrants to MCI WorldCom to purchase
150,000 and 200,000 shares of common stock at an exercise price of $.01 per
share after April 30, 1999 and exercisable until April 30, 2004.

         Effective June 1, 1999 we amended our 1997 agreement for the
acquisition of Freemail to change the amount and rate of payment of contingent
consideration due to the former Freemail shareholders. We have decreased the
amount payable from $3.0 million cash to $2.0 million, payable $1.0 million in
cash and $1.0 million in shares of our common stock at fair market value. The
rate of payment has also been changed from 5% of revenue from a selected class
of customers to 5% of our total collected revenue, calculated quarterly. In
accordance with this amendment, the first payment was made by October 30, 1999,
for the quarter ended September 30, 1999.

         On July 16, 1999, we entered into a $20.0 million, two year credit
facility with Foothill Capital Corporation. The credit facility contains a $10.0
million term loan which was repaid from the proceeds of the sale/License
Agreement with CCPRE Eagan, LLC. The remainder of the facility is a revolving
credit facility under which Foothill will lend us up to an additional $10.0
million based upon a borrowing base consisting of our recurring billings and
collections from its U.S. customers. Amounts outstanding under the credit
facility incur interest at the Wells Fargo Bank reference rate plus 1.75%
(currently 9.75% per year). The credit facility is secured by a lien on certain
unencumbered and lienable assets. The credit facility requires us to obtain
certain minimum gross margins, specified levels of network access device
installations and minimum EBITDA for the quarter ending September 30, 1999, and
for each quarter thereafter until maturity. It also provides for annual limits
on the amount of our capital expenditures. Foothill has agreed under certain
circumstances to subordinate or release its lien on equipment to permit us to
obtain equipment financing from third parties. The credit facility is
automatically renewable at maturity until cancelled in accordance with its
terms. We have currently borrowed approximately $4.0 million under the credit
facility.

On September 30, 1999, we entered into a Purchase and Sale Agreement and Escrow
Instructions together with a Net Lease Agreement or Memorandum of Lease
(collectively, "The Sale/Lease Back Agreement") with CCPRE-Eagan,

                                      -14-
LLC, ("CCPRE") a Delaware Limited Liability Company, and an affiliate of Chase
Bank, New York. Pursuant to the Sale/Lease Back Agreement, we conveyed our
corporate headquarters facility, including land, building and personal property
to CCPRE for a total purchase price of $38 million. Under the Sale/Lease Back
Agreement, we agreed to lease the facility from CCPRE for a term of 20 years
with three five-year options at a minimum monthly rent increasing from $481,000
per month during the first year of the term to $959,000 per month during the
last year of the initial term. We also agreed to pay all taxes, assessments,
utilities and other governmental charges. Under the Sale/Lease Back Agreement,
we may repurchase the corporate headquarters facility on the 24th or 36th month
anniversary of the agreement. The Sale/Lease Back Agreement entitles CCPRE to
require us to repurchase our corporate headquarters facility at any time
following the 36th month anniversary of the Agreement for the sum $41.8 million,
less the amount of certain payments made under the lease. As additional
consideration for the Sale/Lease Back Agreement, we issued Chase Capital
Partners ten-year warrants to purchase 325,000 shares of common stock at an
initial exercise price of $12.00 per share. The initial exercise price is
subject to antidilution adjustments. The warrant agreement entitles the holder
to require us to repurchase shares issued upon exercise of the warrant if we
elect to repurchase our corporate headquarters facility prior to an initial
public offering of our common stock, at a per share purchase price equal to 92%
of fair market value determined by appraisal. In connection with the warrant
agreement, Chase Capital Partners entered into agreements with MCI WorldCom and
SGI entitling the holder of the warrants to include a portion of the warrants,
or shares issuable upon exercise, in any transaction occurring prior to our
initial public offering in which either MCI WorldCom or SGI sold 10% or more of
its ownership of our securities.

         Our ability to continue to fund our operating losses as we expand our
business depends on our ability to obtain additional sources of financing. We
expect that our available operating capital as of October 31, 1999, as evidenced
by cash, cash equivalent investments, and availability under existing credit
facilities, together with borrowings under facilities from financial
institutions with whom we are currently negotiating, will be sufficient to fund
our operating losses, capital expenditures, lease payments and working capital
requirements for the remainder of our current fiscal year. We are seeking
additional financing through long- and short-term financing from banks,
financial institutions, and vendors and the issuance of our equity securities.
If additional sources of funding cannot be obtained during the course of our
fiscal year ending December 31, 1999, due to a constraint of available operating
capital, we will be required to significantly slow our global market
penetration, network growth and product development. In addition, should we be
unable to generate cash from operating or investing activities to fund our
operations and network growth during 1999, management expects that it would
implement plans to reduce cash expenditures. The reduction of cash expenditures
would have a material adverse effect on our global revenue and network expansion
plans. We believe that the most evident and clearly measurable impact resulting
from these reductions would be a significant decrease of installed network
customers for the year ending December 31, 1999. A material reduction in the
base of installed customers would slow the growth of our recurring revenue
stream, which is dependent upon customer utilization of our excess network
capacity. Reductions in network utilization would directly impact our network
revenue and could ultimately defer overall profitability of our service and
products. Another possible impact of the above outlined expenditure reductions
would be potentially material delays in software product development, the impact
of which could further erode customer retention and network utilization.

Year 2000 Compliance

         The Year 2000 issue is the result of computer-controlled systems using
two digits rather than four to define the applicable year. For example, computer
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. As for many other companies, this year
2000 computer issue poses a potential risk for us as a user of information
systems in the operation of our business, as a provider of managed, high-speed,
digital data delivery network service and the related computer technology and
software to customers, and as a customer of other organizations whose operations
may be affected by year 2000 compliance issues.

         Our State of Readiness. We have completed an assessment of our core
business information systems, many of which are provided by outside suppliers,
for year 2000 readiness and are extending that review to include a variety

                                      -15-
of other information systems and related business processes used in our
operations. We have implemented necessary changes to critical systems, and
successfully tested them. We are also assessing the possible effect on our
operations of the year 2000 readiness of critical suppliers of products and
services. These include not just suppliers of components but also our
outsourcing partners in manufacturing as well as suppliers of basic utilities.
Our reliance on key suppliers, and therefore on the proper functioning of their
information systems and software, is increasing, and there can be no assurance
that another company's failure to address year 2000 issues could not have a
material adverse effect on our business, financial condition and results of
operation. Although our assessment is ongoing, we currently believe that
resolving these matters will not have a material adverse effect on our business,
financial condition and results of operations.

         Costs. We have not incurred material historical costs for year 2000
awareness, inventory assessment, analysis, conversion, testing or contingency
planning. We believe that we are unlikely to experience a material adverse
impact on our business, financial condition or results of operations due to year
2000 compliance issues.

         Potential Risks. We could face substantial claims by customers or loss
of revenue due to service interruptions, inability to fulfill contractual
obligations or to bill customers accurately and on a timely basis, and increased
expenses associated with litigation, stabilization of operations following
critical system failures and the execution of contingency plans. We could also
experience an inability by customers and others to pay, on a timely basis or at
all, obligations owed to us. Under these circumstances, the adverse effects
would be material, although not quantifiable at this time. Further, the
cumulative effect of these failures could have a substantial adverse effect on
the economy, domestically and internationally. The adverse effects of a domestic
or global recession or depression also could be material, although not
quantifiable at this time. We will continue to monitor business conditions to
assess and quantify material adverse effects, if any, that may result from the
year 2000 problem.

Item 3--Quantitative and Qualitative Disclosures About Market Risk

         Foreign Currency Exchange Rates. For the nine month period ending
September 30 ,1999, our revenues originating outside the U.S. were 36% of total
revenues. Currently, we do not employ currency hedging strategies to reduce the
risks associated with the fluctuation of foreign currency exchange rates. All of
our contracts are denominated in U.S. dollars except for those contracts entered
into by our foreign subsidiaries which are denominated in local currency. We are
unable to determine what effect, if any, the adoption and use of the Euro will
have in the future on our business, operating results, liquidity and financial
condition.

         Our international business is subject to risks typical of an
international business, including, but not limited to: differing economic
conditions, changes in political climate, differing tax structures, other
regulations and restrictions, and foreign exchange rate volatility. Accordingly,
our future results could be materially adversely impacted by changes in these or
other factors.

         Interest Rates. We invest cash in a variety of financial instruments,
including bank time deposits and fixed rate obligations of governmental entities
and agencies. These investments are denominated in U.S. dollars. Cash balances
in foreign currencies overseas are operating balances and are invested in
short-term time deposits of the local operating bank.

         Investments in fixed rate interest earning instruments carry a degree
of interest rate risk. Fixed rate securities may have their fair market value
adversely impacted due to a rise in interest rates. Due in part to these
factors, our future investment income may fall short of expectations due to
changes in interest rates, or we may suffer losses in principal if forced to
sell securities which have seen a decline in market value due to changes in
interest rates. Our investment securities are held for purposes other than
trading.

         We are exposed to market risk from changes in the interest rates on
certain of our outstanding debt. The outstanding loan balance under the
revolving credit facility bears interest at a variable rate based on prevailing
short-term interest rates in the U.S. and Europe. Based on the average
outstanding bank debt for the year ended December 31, 1998, a 100 basis point
change in interest rates would not change interest expense by a material amount.
For fixed rate debt such as our 13.25% senior discount notes, interest rate
changes affect its fair market value, but do not impact earnings or cash flows.

                                      -16-
Part II--OTHER INFORMATION

Item 2--Changes in Securities and Use of Proceeds

         (c) The information required by this Item 2 of Part II has been
previously reported in Item 2 of Part I of this Form 10-Q, and is incorporated
herein by reference. For a complete discussion of the transactions involving
recent sales of unregistered securities of the Company please see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

         The sale and purchase of the 1999 MCI WorldCom Note and the conversion
thereof into the Class D Preferred Stock and the sale and purchase of the Class
B Preferred Stock, the Class C Preferred Stock and the 1999 MCI WorldCom
Warrants were exempt from the registration requirements of Section 5 of the
Securities Act of 1933 (the "Securities Act") pursuant to the provisions of
Section 4(2) of the Securities Act.

         The issuance of warrants to Chase Capital Partners in connection with
the Sale/Lease Back agreement was exempt from the registration requirements of
Section 5 of the Securities Act of 1933 (the "Securities Act") pursuant to the
provisions of Section 4(2) of the Securities Act.

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

(a)  Exhibits

     See Exhibit Index

(b)  Reports on Form 8-K

       On October 8, 1999, we filed a Report on Form 8-K relating to the
transaction with Chase Capital Partners and CCPRE-Eagan, LLC, and also reporting
the resignation of certain directors.

                                      -17-
SIGNATURE

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

                                            WAM!NET Inc.

Date: November 5 , 1999

                                            By: /s/ Terri F. Zimmerman
                                               -----------------------------
                                                 Terri F. Zimmerman
                                                 Chief Financial Officer

                                      -18-
EXHIBIT INDEX

Item
Number              Description
------              -----------

2.1   (1)   Agreement for the Sale and Purchase of the entire issued share
            capital of WAM!NET U.K. Limited dated February 11, 1998, among the
            Company, WAM!NET (UK) Limited and the Selling Shareholders listed
            therein.
2.2   (1)   Agreement and Plan of Reorganization dated December 17, 1997 by and
            among NetCo Communications Corporation, NetCo Acquiring Corporation,
            FreeMail, Inc. and the shareholders listed therein.
2.3   (4)   June 1, 1999 Amendment to the Agreement and Plan of Reorganization
            dated December 17, 1997 by and among WAM!NET Inc. (formerly NetCo
            Communications Corporation), NetCo Acquiring Corporation, FreeMail,
            Inc. and the shareholders listed therein.
3.1   (1)   Amended and Restated Articles of Incorporation of the Company.
3.2   (1)   By-Laws of the Company.
4.1   (1)   Indenture dated as of March 5, 1998, between the Company, as Issuer,
            and First Trust National Association, as Trustee.
4.2a  (1)   Certificate for the Rule 144A Original Notes ($200,000,000).
4.2b  (1)   Certificate for the Rule 144A Original Notes ($8,030,000).
4.3   (1)   Certificate for the Regulation S Original Notes.
4.4   (1)   Certificate for the Rule 144A Warrants.
4.5   (1)   Certificate for the Regulation S Warrants.
4.6a  (1)   Rule 144A Unit Certificate. (200,000 Units)
4.6b  (1)   Rule 144A Unit Certificate. (8,030 Units)
4.7   (1)   Certificate for the Regulation S Units.
4.8   (1)   Form of Certificate for the Exchange Notes (incorporated herein by
            reference and included in Exhibit 4.1 to the Company's Registration
            Statement on Form S-4 filed with Securities and Exchange Commission
            on May 28, 1998).
4.9   (1)   Common Stock Certificate.
4.10  (1)   Registration Rights Agreement, dated March 5, 1998, among the
            Company and Merrill Lynch Pierce, Fenner & Smith Incorporated,
            Credit Suisse First Boston Corporation and First Chicago Capital
            Markets, Inc.
4.11  (1)   Common Stock Registration Rights Agreement, dated as of March 5,
            1998, among the Company, WorldCom Inc., Merrill Lynch, Pierce,
            Fenner & Smith Incorporated, Credit Suisse First Boston Corporation
            and First Chicago Capital Markets, Inc.
4.12  (1)   Warrant Agreement, dated as of March 5, 1998, by and between the
            Company and First Trust National Association, as Warrant Agent, to
            purchase common stock of the Company.
4.13  (2)   Certificate Representing 100,000 Shares of Class A Preferred Stock
            of the Company issued to WorldCom Inc. on December 16, 1996
            (Incorporated herein by reference to exhibit 10.5 of the Company's
            Registration Statement on Form S-4 (File No. 333-53841) filed with
            the Securities and Exchange Commission on May 28, 1998).
4.14  (2)   Warrants to purchase 4,157,500 Shares of Common Stock of the Company
            exercisable on or before December 31, 2000, issued to WorldCom Inc.
            on December 16, 1996 (Incorporated herein by reference to exhibit
            10.6 of the Company's Registration Statement on Form S-4 (File No.
            333-53841) filed with the Securities and Exchange Commission on May
            28, 1998).
4.15  (2)   Certificate for 13.25% Subordinated Unsecured Convertible Note due
            August 28, 2005 ($25,000,000 Note) issued to MCI WorldCom, Inc. on
            January 13, 1999.
4.16  (2)   Certificate for 1,679,234 Class A Warrants and 2,840,967 Class B
            Warrants to purchase Common Stock of the Company, issued to WorldCom
            Inc. on September 26, 1997 (Incorporated herein by reference to
            exhibit 10.9 of the Company's Registration Statement on Form S-4
            (File No. 333-53841) filed with the Securities and Exchange
            Commission on May 28, 1998).

                                      -19-
4.17  (2)   Subordinate Unsecured Convertible Note and Warrant Purchase
            Agreement between the Company and MCI WorldCom, Inc. dated January
            13, 1999.
4.18  (2)   Preferred Stock Purchase Agreement by and between the Company and
            Silicon Graphics, Inc. dated as of March 3, 1999.
4.19  (2)   Certificate for 150,000 Warrants to purchase shares of Common Stock
            for the purchase price of $.01 per share dated January 13, 1999.
4.20  (2)   Certificate of Designation of Rights and Preferences of Class A
            Preferred Stock of the Company filed with the Secretary of State of
            the State of Minnesota on March 4, 1999, as corrected and filed with
            the Secretary of State of this State of Minnesota on March 5, 1999.
4.21  (2)   Certificate of Designation of Rights and Preferences of Class B
            Convertible Preferred Stock of the Company filed with the Secretary
            of State of the State of Minnesota on March 4, 1999.
4.22  (2)   Certificate of Designation of Rights and Preferences of Class C
            Convertible Preferred Stock of the Company filed with the Secretary
            of State of the State of Minnesota on March 4, 1999.
4.23  (2)   Certificate of Designation of Rights and Preferences of Class D
            Convertible Preferred Stock of the Company filed with the Secretary
            of State of the State of Minnesota on March 4, 1999.
4.24  (2)   Certificate representing 115,206 shares of Class A Preferred Stock
            of the Company issued to MCI WorldCom. Inc. on March 4, 1999.
4.25  (2)   Certificate representing 5,710,425 shares of Class B Convertible
            Preferred Stock of the Company issued to Silicon Graphics, Inc. on
            March 4, 1999.
4.26  (2)   Certificate representing 878,527 shares of Class C Convertible
            Preferred Stock of the Company issued to Silicon Graphics, Inc. on
            March 4, 1999.
4.27  (2)   Certificate representing 2,196,317 shares of Class D Convertible
            Preferred Stock of the Company issued to MCI WorldCom. Inc. on March
            4, 1999.
4.28  (2)   Stockholders Agreement by and among the Company, Silicon Graphics,
            Inc. and MCI WorldCom, Inc. dated as of March 4, 1999.
4.29  (2)   Class A Preferred Stock Exchange Agreement by and between the
            Company and MCI WorldCom, Inc. dated as of March 4, 1999.
4.30  (2)   Class D Preferred Stock Conversion Agreement by and between the
            Company and MCI WorldCom, Inc. dated as of March 4, 1999.
10.1  (1)   Credit Agreement among the Company, the Lending Institutions party
            thereto, as Lenders, The First National Bank of Chicago, as Agent,
            dated as of September 26, 1997.
10.2  (1)   Ten Percent Convertible Note Purchase Agreement between the Company
            and WorldCom Inc. dated September 12, 1996 ($5,000,000 Note).
10.3  (1)   Preferred Stock, Subordinated Note and Warrant Purchase Agreement
            between the Company and WorldCom Inc. dated November 14, 1996.
10.4  (1)   $28,500,000 Seven Percent Subordinated Note due December 31, 2003,
            payable to WorldCom Inc.
10.5        Intentionally omitted.
10.6        Intentionally omitted.
10.7  (1)   Right of Refusal Agreement Among WorldCom Inc., Edward Driscoll III
            and Allen L. Witters dated December 16, 1996.
10.8  (1)   Guaranty Agreement dated September 26, 1997, by and between the
            Company and WorldCom Inc.
10.9        Intentionally omitted.
10.10 (1)   Sublease dated September 24, 1997 between the Company and 1250895
            Ontario Limited, relating to the property located at 6100 110th
            Street West, Bloomington, Minnesota.
10.11 (1)   Service Provision Agreement dated as of July 18, 1997, by and
            between the Company and Time Inc.
10.12 (1)   Standby Agreement dated as of July 19, 1997 by and between WorldCom
            Inc. and Time Inc.
10.13 (1)   Employment Agreement dated as of November 14, 1996, by and between
            the Company and Edward J. Driscoll III.
10.14 (1)   Employment Agreement dated as of November 14, 1996, by and between
            the Company and Allen Witters.
10.15 (1)   Employment Agreement dated as of April 16, 1996, by and between the
            Company and James R. Clancy.

                                      -20-
10.16 (1)   Employment Agreement dated as of May 10, 1995, as amended, by and
            between the Company and Mark Marlow.
10.17 (1)   Agreement dated February 11, 1998 between the Company and WorldCom,
            Inc. modifying certain terms of the (i) 10% Convertible Subordinated
            Note, due September 30, 1999, (ii) 7% Subordinated Note, due
            December 31, 2003, and (iii) 100,000 shares of Series A Preferred
            Stock, all of which are held by MCI WorldCom, Inc. (incorporated
            herein by reference to exhibit No. 4.17 to the Company's
            Registration Statement on Form S-4 (File No. 333-53841) filed with
            the Securities and Exchange Commission on May 28, 1998)
10.18 (1)   1994 Stock Option Plan
10.19 (1)   Amended and Restated 1994 Stock Option Plan
10.20 (1)   1998 Combined Stock Option Plan.
10.21 (1)   Agreement dated June 5, 1997 between the Company and WorldCom, Inc.
            regarding data services provided by WorldCom, Inc. to the Company.
10.22 (3)   Preferred Provider Agreement by and between the Company and Silicon
            Graphics, Inc., dated as of March 4, 1999 (portions of this exhibit
            have been omitted pursuant to a request for confidential treatment
            and have been filed with the Securities Commission under separate
            cover).
10.23 (2)   Sale and Purchase Agreement by and between Silicon Graphics, Inc.,
            on behalf of itself and its wholly-owned subsidiary, Cray Research,
            L.L.C., and the Company dated as of March 4, 1999.
10.24 (2)   Lease by and between the Company and Silicon Graphics, Inc. on
            behalf of itself and its wholly-owned subsidiary, Cray Research,
            L.L.C., with respect to the Company's corporate campus facility
            located in Eagan, Minnesota dated as of March 4, 1999.
10.25 (2)   Employment Agreement dated January 1, 1998 by and between John R.
            Kauffman and the Company.
10.26 (2)   Employment Agreement dated November 3, 1997 by and between David T.
            Ottinger and the Company.
10.27 (4)   Loan and Security Agreement dated July 16, 1999, by and between
            Foothill Capital Corporation and the Company.
10.28 *     Purchase and Sale Agreement and Escrow Instructions dated September
            30, 1999, between the Company and CCPRE-Eagan, LLC.
10.29 *     Amendment Number One to Purchase and Sale Agreement and escrow
            Instructions dated September 30, 1999, between the Company and
            CCPRE-Eagan, LLC.
10.30   *   Net Lease dated September 30, 1999 between the Company and
            CCPRE-Eagan, LLC
27.1    *   Financial Data Schedule.

----------------
(1)   Incorporated herein by reference to the Company's Registration Statement
      on Form S-4 (File No. 333-53841), filed with the SEC on May 28, 1998.
(2)   Incorporated herein by reference to the Company's Annual Report on Form
      10-K, filed with the SEC on March 31, 1999.
(3)   Incorporated herein by reference to the Company's Quarterly Report on Form
      10-Q filed with the SEC on May 17, 1999.
(4)   Incorporated herein by reference to the Company's Quarterly Report on Form
      10-Q filed with the SEC on August 4, 1999.
*     Filed herein.

                                      -21-