##### Table of Contents



UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-K
 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIESEXCHANGE ACT OF 1934
 For the Fiscal Year Ended August 31, 2005
 Commission File Number: 0-17932
 
 Interland, Inc.
 ( Exact name of registrant as specified in its charter )
 Minnesota
    
    41-1404301(State or other jurisdiction
of incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 303 Peachtree Center Avenue, Suite 500, Atlanta, GA 30303  (Address, including Zip Code, of principal executive offices )
 (404) 260-2477  (Registrants telephone number, including area code )
 Securities registered pursuant to Section 12(g) of the Act:
 Common Stock, par value $.01 per share
Registered on The Nasdaq National Market
 þ o
 o
 þ o
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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TABLE OF CONTENTS
 PART I
    
    
    3ITEM 1. Business
    
    
    3ITEM 2. Properties
    
    
    8ITEM 3. Legal Proceedings
    
    
    8ITEM 4. Submission Of Matters To A Vote Of Security Holders
    
    
    11ITEM 4A. Executive Officers and Directors of the Registrant
    
    
    11PART II
    
    
    13ITEM 5. Market For Registrants Common Equity, Related Stockholder Matters and issuer purchases of equity securities
    
    
    13ITEM 6. Selected Financial Data
    
    
    13ITEM 7. Managements Discussion And Analysis Of Financial Condition and Results Of Operations
    
    
    14ITEM
7A. Quantitative and Qualitative Disclosures about Market Risk
    
    
    33ITEM 9. Changes In And Disagreements With Accountants On Accounting And Financial Disclosure
    
    
    33ITEM 9A. Controls And Procedures
    
    
    33ITEM 9B. Other Information
    
    
    34PART III
    
    
    34Item 10. Directors And Executive Officers Of The Registrant
    
    
    35Item 11. Executive Compensation
    
    
    35Item 12. Security Ownership Of Certain Beneficial Owners And Management And Related Stockholder Matters
    
    
    35Item 13. Certain Relationships And Related Transactions
    
    
    35Item 14. Principal Accounting Fees And Services
    
    
    35ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    F-1PART IV
    
    
    E-1ITEM 15. Exhibits and Financial Statement Schedules
    
    
    E-1Signatures
    
    
    E-12EX-21.01 SUBSIDIARIES OF THE REGISTRANTEX-23.01 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMEX-24.01 POWER OF ATTORNEYEX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION OF THE CEOEX-32.2 SECTION 906 CERTIFICATION OF THE CFO
  2




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##### Table of Contents



PART I
 
 ITEM 1. Business
 Statements contained in this Form 10-K that are not purely historical are forward-looking
statements and are being provided in reliance upon the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Words such as anticipates, expects, intends,
plans, believes, seeks, estimates, and similar expressions identify forward-looking
statements. These forward-looking statements include but are not limited to statements regarding
Interlands expectations of the Companys future liquidity needs, its expectations regarding its
future operating results including its planned increase in its revenue levels and the actions the
Company expects to take in order to maintain its existing customers and expand its operations and
customer base. All forward-looking statements are made as of the date hereof and are based on
current management expectations and information available to the Company as of such date. The
Company assumes no obligation to update any forward-looking statement. It is important to note
that actual results could differ materially from historical results or those contemplated in the
forward-looking statements. Forward-looking statements involve a number of risks and
uncertainties, and include risks associated with our target markets and risks pertaining to
competition, other trend information and the Companys ability to successfully enhance its
operations. Factors that could cause actual results to differ materially include, but are not
limited to, those identified in Item 7. Managements Discussion and Analysis of Financial
Condition and Results of OperationsRisk Factors and in other Company filings with the Securities
and Exchange Commission. All references to Interland or the Company in this Annual Report on
Form 10-K mean Interland, Inc., a Minnesota corporation, and all entities owned or controlled by
Interland, Inc., except where it is made clear that the term only means the parent company. All
annual references are on a fiscal August 31 st year-end basis, unless otherwise
indicated. All tabular amounts are stated in thousands.
 Overview
   
    
    August 6, 2001, the Company acquired Interland-Georgia, an Atlanta, Georgia-based
provider of Web hosting, applications hosting and other related Web-based business
solutions. In connection with the acquisition of Interland-Georgia, Micron Electronics,
Inc., (MEI), changed its name to Interland, Inc. and its trading symbol to INLD.
    
    October 2001, January 2002, and May 2002, the Company acquired the small
business-focused Web hosting customer accounts of Interliant, Inc., (Interliant), AT&T
Corp., (AT&T), and Burlee Networks LLC, (Burlee), respectively.
    
    February 8, 2002, the Company acquired CommuniTech.Net, Inc., (CommuniTech.Net) a
Kansas City, Missouri-based Web hosting company.
    
    May 3, 2002, the Company acquired Dialtone, Inc., (Dialtone), a Fort Lauderdale,
Florida-based leading dedicated Web hosting company.
    
    August 1, 2002, the Company acquired iNNERHOST, Inc., (iNNERHOST), a Miami,
Florida-based Web hosting company serving small-and-medium-sized businesses.
    
    January 3, 2003, the Company acquired Trellix Corporation (Trellix), a privately held
developer of software-based website solutions. Trellix offers a suite of site building
tools and services that enable Interland and its users to create professional websites
highly efficiently.
    
    June 13, 2003, the Company acquired Hostcentric, Inc., (Hostcentric) a privately held
provider of a broad range of Web hosting services to small business and enterprise
customers.
  
    
    May 5, 2005, the Company entered into an Asset Purchase Agreement with Caird Corporation
for the sale of its Hostcentric shared web hosting accounts together with related
equipment, trademarks, domain names and miscellaneous assets.
    
    August 31, 2005, the Company entered into an Asset Purchase Agreement with Peer 1
Acquisition Corporation (Peer 1) for the sale of its dedicated web hosting accounts
together with related equipment, trademarks, domain names and miscellaneous assets and the
assignment of its data center leases.
  3




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Products and Services
    Other products and services
  Partner specific products
  Strategic Product Relationships
  Sales and Marketing
  4




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Distribution Relationships
  Enterprise Distribution Partners (EDP)
  Enterprise Resellers
  Value-Added Partners
  Customers
   Network Infrastructure, Technology and Operations
      5




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Data centers
  Proprietary Technology
  Network operations centers
  International Revenues
  Competition
    6




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Intellectual Property
  Patent#
    
    Patent Description6,868,444
    
    System and Method For Managing Server Configurations6,842,769
    
    Automatically Configured Network Server6,789,103
    
    Synchronized Server Parameter Database6,871,347
    
    Method and Apparatus For Facilitating Load Balancing Across Name Servers6,769,031
    
    Dynamically Incorporating Updates to Active Configuration Information6,895,431
    
    Providing User Access To Dynamic Updating of Remote Configuration Information6,654,804
    
    Method and Apparatus For Automatic Dial-Up Dial-Down Web Hosting6,813,766
    
    Method and Apparatus For Scheduling Processes Based Upon Virtual Server Identifiers6,364,439
    
    Computer Storage Systems For Computer Facilities6,078,921
    
    Method and Apparatus for Providing a Self-Service File6,268,851
    
    Hypermedia Authoring and Publishing System6,928,609
    
    Hypermedia Authoring and Publishing System (Continuation of U.S. Pat. 6,268,851)5,999,941
    
    Database Access Using Active Server Pages6,363,398
    
    Database Access Using Active Server Pages5,621,430
    
    Method and Apparatus for Navigating Multiple Independent Windowed Images5,680,152
    
    Method and Apparatus for Navigating Multiple Independent Windowed Images6,738,348
    
    Bandwidth On Demand Subscriber System
      Government Regulation
  7




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Employees
  Environmental Regulations
   
 ITEM 2. Properties
   
 ITEM 3. Legal Proceedings
    8




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9




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##### Table of Contents



Smith v. Micron Electronics,
Inc. (n/k/a Interland, Inc.) all with
  see Interland, Inc. v. Certain Underwriters at
Lloyds of London
    10




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##### Table of Contents



ITEM 4. Submission Of Matters To A Vote Of Security Holders
  Proposal One
  Votes
    
    
    VotesName of Nominee
    
    For
    
    
    WithheldJohn B. Balousek
    
    
    13,165,691
    
    
    
    205,424John P. Crecine
    
    
    13,170,910
    
    
    
    200,205Alex Kazerani
    
    
    13,194,767
    
    
    
    176,349Joel J. Kocher
    
    
    13,114,795
    
    
    
    256,320Efrem Gerszberg
    
    
    13,193,209
    
    
    
    177,907Seymour Holtzman
    
    
    13,195,450
    
    
    
    175,665Robert Lee
    
    
    13,025,531
    
    
    
    345,584Robert T. Slezak
    
    
    13,029,617
    
    
    
    341,499Jeffrey M. Stibel
    
    
    13,211,219
    
    
    
    159,897
 Proposal Two
  Votes For: 8,250,584
    
    Votes Against: 272,813
    
    Abstain: 926,477
 
 ITEM 4A. Executive Officers and Directors of the Registrant
  Name
    
    Age
    
    PositionJeffrey Stibel
    
    32
    
    President, Chief Executive Officer and DirectorJuan G. Troncoso
    
    43
    
    Executive Vice President and Chief Financial OfficerRichard A. Pitrolo
    
    45
    
    Executive Vice President and Chief Operating OfficerJonathan B. Wilson
    
    39
    
    Senior Vice President, General CounselSeymour Holtzman
    
    69
    
    Chairman of the Board of DirectorsEfrem Gerszberg
    
    32
    
    DirectorJoel J. Kocher
    
    49
    
    DirectorAlex Kazerani
    
    32
    
    DirectorJohn B. Balousek
    
    60
    
    DirectorJohn P. Crecine
    
    66
    
    DirectorRobert Lee
    
    57
    
    DirectorRobert T. Slezak
    
    48
    
    Director
 JEFFREY M. STIBEL
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JUAN G. TRONCOSO
 JONATHAN B. WILSON Internet Forms and Commentary: A
Practitioners Guide to E-Commerce Contracts and the World Wide Web Out of Balance: Prescriptions for Reforming the American Litigation
System
 RICHARD A. PITROLO
 SEYMOUR HOLTZMAN
 EFREM GERSZBERG
 JOEL J. KOCHER
 ALEX KAZERANI
 JOHN B. BALOUSEK
 12




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DR. JOHN PATRICK CRECINE
 ROBERT LEE
 ROBERT T. SLEZAK
 
 PART II
 
 ITEM 5. Market For Registrants Common Equity, Related Stockholder Matters and issuer
purchases of equity securities
  High
    
    
    Low2005
    
    
    Fourth Quarter ended August 31, 2005
    
    $
    2.70
    
    
    $
    1.90Third Quarter ended May 31, 2005
    
    
    2.53
    
    
    
    1.86Second Quarter ended February 28, 2005
    
    
    3.27
    
    
    
    2.56First Quarter ended November 30, 2004
    
    
    3.94
    
    
    
    3.122004
    
    
    Fourth Quarter ended August 31, 2004
    
    $
    4.07
    
    
    $
    2.71Third Quarter ended May 31, 2004
    
    
    5.52
    
    
    
    2.67Second Quarter ended February 28, 2004
    
    
    7.36
    
    
    
    3.88First Quarter ended November 30, 2003
    
    
    10.56
    
    
    
    6.40
 Holders Of Record
  Dividends
  
 ITEM 6. Selected Financial Data
  13




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Fiscal Years Ended August 31,(In thousands, except per share amounts)
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Statements of operations data:Revenues from continuing operations
    
    $
    88,608
    
    
    $
    102,745
    
    
    $
    106,638
    
    
    $
    101,628
    
    
    $
    60,752Goodwill impairments
    
    
    
    
    
    
    66,587
    
    
    
    89,928
    
    
    
    
    
    
    
    Asset impairments
    
    
    
    
    
    
    7,009
    
    
    
    13,868
    
    
    
    
    
    
    
    Income (loss) from continuing operations
    
    
    (19,450
    )
    
    
    (102,959
    )
    
    
    (178,791
    )
    
    
    (5,272
    )
    
    
    (145,717
    )Net Income (loss)
    
    
    (19,889
    )
    
    
    (104,663
    )
    
    
    (173,879
    )
    
    
    (11,293
    )
    
    
    (357,194
    )Earnings (loss) per share, continuing operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    $Basic and Diluted
    
    $
    (1.21
    )
    
    $
    (6.40
    )
    
    $
    (12.19
    )
    
    $
    (0.38
    )
    
    $
    (14.63
    )Net Income (loss) per shareBasic and Diluted
    
    $
    (1.24
    )
    
    $
    (6.50
    )
    
    $
    (11.85
    )
    
    $
    (0.82
    )
    
    $
    (35.86
    )Balance sheet data:Total assets
    
    $
    56,559
    
    
    $
    84,912
    
    
    $
    207,042
    
    
    $
    395,278
    
    
    $
    429,280Total debt
    
    
    3,369
    
    
    
    5,744
    
    
    
    12,499
    
    
    
    31,166
    
    
    
    39,106Shareholders equity
    
    
    29,943
    
    
    
    48,899
    
    
    
    152,658
    
    
    
    297,730
    
    
    
    296,430
  
 ITEM 7. Managements Discussion And Analysis Of Financial Condition and Results Of
Operations
 Statements contained in this Form 10-K that are not purely historical are forward-looking
statements and are being provided in reliance upon the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Words such as anticipates, expects, intends,
plans, believes, seeks, estimates, and similar expressions identify forward-looking
statements. These forward-looking statements include but are not limited to statements regarding
Interlands expectations of the Companys future liquidity needs, its expectations regarding its
future operating results including its planned increase in its revenue levels and the actions the
Company expects to take in order to maintain its existing customers and expand its operations and
customer base. All forward-looking statements are made as of the date hereof and are based on
current management expectations and information available to it as of such date. The Company
assumes no obligation to update any forward-looking statement. It is important to note that actual
results could differ materially from historical results or those contemplated in the
forward-looking statements due to the risks and uncertainties associated with forward-looking
statements including risks associated with our target markets, product offerings, and risks
pertaining to our ability to successfully enhance the Companys operations. These and other
identified risks are disclosed in the Risk Factors section of this Managements Discussion and
Analysis included in this Form 10-K for the year ended August 31, 2005. All yearly references are
to the Companys fiscal years ended August 31, 2005, August 31, 2004, or August 31, 2003 unless
otherwise indicated. All quarterly references are also on a fiscal basis, unless otherwise
indicated. All tabular dollar amounts are stated in thousands.
 Overview
  14




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
    
    August 6, 2001, the Company acquired Interland-Georgia, an Atlanta, Georgia-based
provider of Web hosting, applications hosting and other related Web-based business
solutions. In connection with the acquisition of Interland-Georgia, Micron Electronics,
Inc., (MEI), changed its name to Interland, Inc. and its trading symbol to INLD.
    
    October 2001, January 2002, and May 2002, the Company acquired the small
business-focused Web hosting customer accounts of Interliant, Inc., (Interliant), AT&T
Corp., (AT&T), and Burlee Networks LLC, (Burlee), respectively.
    
    February 8, 2002, the Company acquired CommuniTech.Net, Inc., (CommuniTech.Net) a
Kansas City, Missouri-based Web hosting company.
    
    May 3, 2002, the Company acquired Dialtone, Inc., (Dialtone), a Fort Lauderdale,
Florida-based leading dedicated Web hosting company.
    
    August 1, 2002, the Company acquired iNNERHOST, Inc., (iNNERHOST), a Miami,
Florida-based Web hosting company serving small-and-medium-sized businesses.
    
    January 3, 2003, the Company acquired Trellix Corporation (Trellix), a privately held
developer of software-based website solutions. Trellix offers a suite of site building
tools and services that enable Interland and its users to create professional websites
highly efficiently.
    
    June 13, 2003, the Company acquired Hostcentric, Inc., (Hostcentric) a privately held
provider of a broad range of Web hosting services to small business and enterprise
customers.
  
    
    May 5, 2005, the Company entered into an Asset Purchase Agreement with Caird Corporation
for the sale of its Hostcentric shared web hosting accounts together with related
equipment, trademarks, domain names and miscellaneous assets.
    
    August 31, 2005, the Company entered into an Asset Purchase Agreement with Peer 1
Acquisition Corporation (Peer 1) for the sale of its dedicated web hosting accounts
together with related equipment, trademarks, domain names and miscellaneous assets and the
assignment of its data center leases.
  Critical Accounting Policies and Estimates
   
    
    Revenue Recognition Revenues from continuing operations through August 2005 were
primarily generated from shared and dedicated Internet Web hosting, managed services,
e-commerce services, applications hosting, domain name registrations, and website
development services. After August 31, 2005, the Company no longer provided dedicated
web hosting product services. Revenues are recognized as the services are provided.
Hosting contracts generally are for service periods ranging from one to twenty four
months and sometimes require up-front set-up fees, which are deferred and recognized
ratably over the customers expected service period. Deferred revenues represent the
liability for advance billings to customers for services not yet provided. The Company
may permit an early termination of a term contract subject to penalties.
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
    
    Valuation of Accounts Receivable Judgment is required when the Company assesses the
likelihood of ultimate realization of recorded accounts receivable, including assessing
the likelihood of collection and the credit-worthiness of customers. If the financial
condition of the Companys customers were to deteriorate or their operating climate were
to change, resulting in an impairment of either their ability or willingness to make
payments, an increase in the allowance for doubtful accounts would be required.
Similarly, a change in the payment behavior of customers generally may require an
adjustment in the calculation of an appropriate allowance. Each month management
reviews customer payment patterns, historical credit card charge-backs, customer
cancellation trends, and comparative aged receivables balances in order to determine the
appropriate amount of allowance for doubtful accounts receivable to record. The
majority of customer payments are made by credit card and all trade receivable balances
over 60 days are fully reserved. Additionally, all trade balances 60 days or less are
reserved at 7.4%, with the exception of our large partnership
accounts, which was established based on historical data. The Company believes
that the current allowance for doubtful accounts receivable is adequate to cover a
reasonably expected level of uncollectible accounts receivable as of the balance sheet
date.
    
    Property, Plant, Equipment and Long Lived Assets The Company utilizes significant
amounts of property, plant and equipment in providing service to its customers. For
financial statement reporting purposes, the Company uses straight-line depreciation for
property and equipment over its estimate of their useful lives. The Company uses
estimated useful lives of three to seven years for equipment and software. Changes in
technology or changes in the intended use of property, plant and equipment may cause the
estimated period of use or the value of these assets to change. The Company periodically
confirms the appropriateness of estimated economic useful lives for each category of
property, plant, and equipment. Long-lived assets are reviewed for impairment whenever
events or changes in circumstances indicate that their carrying amounts may not be
recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds
the sum of the undiscounted cash flows expected to result from the use and eventual
disposition of the asset.
    
    Goodwill and Intangible Assets In accordance with SFAS No. 142 Goodwill and Other
Intangible Assets (SFAS 142), the Company periodically evaluates goodwill and
intangible assets for potential impairment. The Company tests for the impairment of
goodwill and intangible assets annually and between annual tests if an event occurs or
circumstances change that would more likely than not reduce the fair value of goodwill
below its carrying amount by determining whether the Companys carrying value exceeds
its fair value. Fair value is ascertained by using quoted values of the Companys stock
and by using discounted values of expected future cash flows. If impairment of carrying
value based on estimated future cash flows exists, the Company measures the impairment
through the use of discounted cash flows. Judgments regarding the existence of
impairment indicators are based on legal factors, market conditions, and operational
considerations. Future events could cause us to conclude that impairment indicators
exist and that other intangible assets associated with acquired businesses are
impaired. Upon completion of the annual assessment, Interland recorded a non-cash impairment
charge of $66.6 million to remove the remainder of the carrying value of goodwill. In
addition, the company recorded an impairment charge of $7.0 million for its other
intangible assets. Other intangible assets are amortized over an estimate of their
period of economic benefit.
    
    Contingencies The Company is subject to proceedings, lawsuits and other claims
related to lawsuits and other legal and regulatory proceedings that arise in the
ordinary course of business. The Company is required to assess the likelihood of any
adverse judgments or outcomes of these matters as well as potential ranges of probable
losses. A determination of the amount of the loss accrual required, if any, for these
contingencies, is made after careful analysis of each individual issue. The Company
consults with legal counsel and other experts where necessary to assess any
contingencies. The required accrual may change in the future due to new developments in
each matter or changes in approach such as a change in settlement strategy in dealing
with these matters.
    
    Discontinued Operations During fiscal 2001, the Company discontinued the operations
of its PC Systems and SpecTek business segments. These segments have been accounted for
as discontinued operations in accordance with APB No. 30 Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions (APB 30), and
in this regard an estimate of all retained liabilities was recorded. The amounts
recorded as of the subsequent reported balance sheet dates represent
the estimated remaining liabilities. These amounts are subject to final settlement,
which could result in a revision to the estimated loss on the final disposal of these
discontinued operations.
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
    
    Restructuring and Acquisition Related LiabilitiesThe Company has remaining
reserves related to its restructuring program approved and implemented in the fourth
quarter of fiscal year 2001 in connection with their acquisition of Interland-GA. The
Company also incurred liabilities related to the integration of acquired business
during fiscal 2002 and 2003. These remaining liabilities represent our estimate of
future lease payments for data centers and office facilities being exited that cannot
be recovered through subleases. Future events may result in adjustments of these
estimates.
 Results of Continuing Operations
  For the fiscal year endedAugust 31,
    
    
    August 31,
    
    
    August 31,2005
    
    
    2004
    
    
    2003Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Operating costs and expenses:Network operating costs
    
    
    25.8
    %
    
    
    27.5
    %
    
    
    30.8
    %Sales and marketing
    
    
    20.9
    %
    
    
    19.4
    %
    
    
    19.0
    %Technical support
    
    
    14.8
    %
    
    
    17.5
    %
    
    
    14.7
    %General and administrative
    
    
    34.4
    %
    
    
    30.0
    %
    
    
    38.4
    %Bad debt expense
    
    
    2.0
    %
    
    
    3.6
    %
    
    
    6.9
    %Depreciation and amortization
    
    
    24.0
    %
    
    
    29.8
    %
    
    
    53.2
    %Restructuring costs
    
    
    3.0
    %
    
    
    0.7
    %
    
    
    4.8
    %Merger and integration costs
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.5
    %Goodwill impairment
    
    
    0.0
    %
    
    
    64.8
    %
    
    
    84.3
    %Asset impairment
    
    
    0.0
    %
    
    
    6.8
    %
    
    
    13.0
    %Gain on sale of accounts
    
    
    (1.4
    %)
    
    
    0.0
    %
    
    
    0.0
    %Other expense (income), net
    
    
    (0.0
    %)
    
    
    (0.2
    %)
    
    
    1.2
    %Total operating costs and expenses
    
    
    123.4
    %
    
    
    200.0
    %
    
    
    266.8
    %Operating loss
    
    
    (23.4
    %)
    
    
    (100.0
    %)
    
    
    (166.8
    %)Interest income (expense), net
    
    
    0.5
    %
    
    
    (0.2
    %)
    
    
    (0.3
    %)Loss from continuing operations before taxes
    
    
    (22.9
    %)
    
    
    (100.2
    %)
    
    
    (167.1
    %)Income tax benefit (expense)
    
    
    1.0
    %
    
    
    0.0
    %
    
    
    (0.6
    %)Net loss from continuing operations
    
    
    21.9
    %
    
    
    (100.2
    %)
    
    
    (167.7
    %)
   
    
    Interland-Georgia for twelve months;
    
    CommuniTech.Net for twelve months;
    
    Dialtone for twelve months;
    
    INNERHOST for twelve months;
    
    Trellix for eight months; and,
    
    Hostcentric for two and one-half months.
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Discontinued Operations
 PC Systems
      Sale of Accounts
 Hostcentric Shared Accounts and Related Assets
     18




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Dedicated Accounts and Related Assets
   Comparison of the Years Ended August 31, 2005, 2004 and 2003
 Revenues
  Fiscal Year EndedAugust 31,
    
    
    August 31,
    
    
    August 31,2005
    
    
    2004
    
    
    2003(In thousands)Hosting Revenue
    
    $
    83,937
    
    
    $
    97,601
    
    
    $
    103,313Other Revenue
    
    
    4,671
    
    
    
    5,144
    
    
    
    3,325Total
    
    $
    88,608
    
    
    $
    102,745
    
    
    $
    106,638
     19




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##### Table of Contents



OPERATING COSTS AND EXPENSES
 Network Operating Costs
     Sales and Marketing
    20




---



##### Table of Contents



Technical Support
   General and Administrative
    Bad Debt Expense
    Depreciation and Amortization
    Restructuring and Facility Exit Costs
   21




---



##### Table of Contents



Goodwill Impairment
  Intangible Asset Impairment
  Interest Income (Expense), Net
  Gain on sale of accounts
  Income Tax Provision
  22




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##### Table of Contents



Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
    For the fiscal year endedAugust 31,
    
    
    August 31,
    
    
    August 31,2005
    
    
    2004
    
    
    2003Net loss
    
    $
    (19,889
    )
    
    $
    (104,663
    )
    
    $
    (173,879
    )Depreciation and amortization
    
    
    21,239
    
    
    
    30,650
    
    
    
    56,708Interest expense (income)
    
    
    (436
    )
    
    
    202
    
    
    
    327Income tax
expense (benefit)
    
    
    (850
    )
    
    
    
    
    
    
    629Discontinued operations
    
    
    439
    
    
    
    1,704
    
    
    
    (4,912
    )EBITDA
    
    $
    503
    
    
    $
    (72,107
    )
    
    $
    (121,127
    )Interest income / (expense)
    
    
    436
    
    
    
    (202
    )
    
    
    (327
    )Provision for bad debts
    
    
    1,761
    
    
    
    3,690
    
    
    
    7,335Gain on sale of accounts
    
    
    (1,210
    )
    
    
    
    
    
    
    (Gain)/Loss on the sale of assets
    
    
    (41
    )
    
    
    (159
    )
    
    
    1,641Goodwill and asset impairment
    
    
    
    
    
    
    73,596
    
    
    
    103,796Other non-cash adjustments
    
    
    320
    
    
    
    678
    
    
    
    2,189Income tax (expense) benefit
    
    
    850
    
    
    
    
    
    
    
    (629
    )Changes in assets and liabilities:Receivables, net
    
    
    (837
    )
    
    
    (1,514
    )
    
    
    (2,323
    )Income tax recoverable
    
    
    
    
    
    
    612
    
    
    
    778Other current assets
    
    
    271
    
    
    
    (206
    )
    
    
    742Accounts payable, accrued
expenses, and deferred revenue
    
    
    (3,997
    )
    
    
    (8,447
    )
    
    
    (24,951
    )Net cash provided by (used in) operating activities
    
    $
    (1,944
    )
    
    $
    (4,059
    )
    
    $
    (32,876
    )
 23




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##### Table of Contents

]

For the quarter ended(in thousands)November 30
    
    
    February 29
    
    
    May 30
    
    
    August 312004
    
    
    2005
    
    
    2005
    
    
    2005in thousandsNet loss
    
    $
    (3,196
    )
    
    $
    (4,272
    )
    
    $
    (6,247
    )
    
    $
    (6,174
    )Depreciation and amortization
    
    
    5,877
    
    
    
    5,306
    
    
    
    5,686
    
    
    
    4,370Interest expense (income)
    
    
    (41
    )
    
    
    (83
    )
    
    
    (131
    )
    
    
    (181
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (850
    )Discontinued operations
    
    
    (601
    )
    
    
    89
    
    
    
    173
    
    
    
    778EBITDA income / (loss) from continuing operations
    
    $
    2,039
    
    
    $
    1,040
    
    
    $
    (519
    )
    
    $
    (2,057
    )Interest income / (expense)
    
    
    41
    
    
    
    83
    
    
    
    131
    
    
    
    181Provision for bad debts
    
    
    440
    
    
    
    465
    
    
    
    535
    
    
    
    321Gain on sale of accounts
    
    
    
    
    
    
    
    
    
    
    (1,915
    )
    
    
    705Loss on the sale of assets
    
    
    (13
    )
    
    
    72
    
    
    
    (96
    )
    
    
    (4
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    850Amortization of deferred compensation
    
    
    158
    
    
    
    162
    
    
    
    
    
    
    
    Changes in assets and liabilities:Receivables
    
    
    (490
    )
    
    
    (1,044
    )
    
    
    149
    
    
    
    548Other current assets
    
    
    301
    
    
    
    (143
    )
    
    
    647
    
    
    
    (534
    )Accounts payable, accrued expenses, and deferred revenue
    
    
    (2,583
    )
    
    
    (1,782
    )
    
    
    4,738
    
    
    
    (4,370
    )Net cash provided by (used in) operating activities
    
    $
    (107
    )
    
    $
    (1,147
    )
    
    $
    3,670
    
    
    $
    (4,360
    )
 Liquidity And Capital Resources
      24




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##### Table of Contents



AfterContractual Obligations(in thousands)
    
    Total
    
    
    1 year
    
    
    2-3 years
    
    
    4-5 years
    
    
    5 yearsReal Property Leases
    
    $
    14,787
    
    
    $
    3,785
    
    
    $
    5,963
    
    
    $
    5,039
    
    
    $
    Long-term Debt
    
    
    3,417
    
    
    
    920
    
    
    
    2,037
    
    
    
    460
    
    
    
    Bandwidth Commitments
    
    
    2,365
    
    
    
    2,365
    
    
    
    
    
    
    
    
    
    
    
    Contractual Obligations
    
    
    1,792
    
    
    
    1,792
    
    
    
    
    
    
    
    
    
    
    
    Operating Leases
    
    
    151
    
    
    
    65
    
    
    
    86
    
    
    
    
    
    
    
    Capital Leases
    
    
    26
    
    
    
    13
    
    
    
    10
    
    
    
    3
    
    
    
    Total Commitments
    
    $
    22,538
    
    
    $
    8,940
    
    
    $
    8,096
    
    
    $
    5,502
    
    
    $
    
  25




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##### Table of Contents



Reverse Stock Split
  Stock Repurchase Program
  Recently Issued Accounting Standards
    Off-Balance Sheet Arrangements
  Directors & Officers Insurance
   26




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##### Table of Contents



Risk Factors
 You should carefully consider the following factors and all other information contained in this
Form 10-K before you make any investment decisions with respect to the Companys securities. The
risks and uncertainties described below may not be the only risks the Company faces.
 Interland has incurred losses since inception and could incur losses in the future.
  
    
    Adapting network infrastructure and administrative resources to accommodate additional customers and future
growth;
    
    Developing products, distribution, marketing, and management for the mainstream market;
    
    Broadening customer technical support capabilities;
    
    Developing or acquiring new products and
associated technical infrastructure;
    
    Developing additional indirect distribution
partners;
    
    Increased costs from third party service providers;
    
    Improving network security features; and;
    
    Legal fees and settlements associated with
litigation and contingencies.
  Interlands management and Board of Directors may be unable to execute their plans to turn around
the Company, grow its revenues and achieve profitability.
  Ours is a recurring-revenue subscriber business and as such the effects of a net loss of monthly
recurring revenue are magnified.
  Unfavorable results of existing litigation may cause Interland to have additional expenses or
operating losses that exceed the Companys ability to pay.
  27




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##### Table of Contents



Because Interlands historical financial information is not representative of its future results,
investors and analysts will have difficulty analyzing Interlands future earnings potential.
  Interland has a limited operating history and its business model is still evolving, which makes it
difficult to evaluate its prospects.
  Quarterly and annual operating results may fluctuate, which could cause Interlands stock price to
be volatile.
  
    
    Demand for and market acceptance of the Companys services and products;
    
    Introduction of new services or enhancements by Interland or its competitors;
    
    Costs of implementing new network security features, CRM systems, and billing modules;
    
    Technical difficulties or system downtime affecting the Internet generally or its hosting operations specifically;
    
    Customer retention;
    
    Increased competition and consolidation within the Web hosting and applications hosting markets;
    
    Changes in pricing policies and the pricing policies of competitors;
    
    Gains or losses of key strategic partner relationships;
    
    Impairment charges;
    
    Restructuring charges;
    
    Merger and integration costs;
 28




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##### Table of Contents




    
    Litigation expenses;
    
    Insurance expenses;
    
    Marketing expenses; and
    
    Seasonality of customer demand
  Interland operates in a new and evolving market with uncertain prospects for growth and may not be
able to generate and sustain growth in its customer base.
  Because Interlands target markets are volatile, the Company may face a loss of customers or a high
level of non-collectible accounts.
  
    
    Capitalizing on infrastructure efficiencies to become a profitable provider at the lowest
sustainable price;
    
    Automating customer care and technical support to reduce the cost per call, and
to minimize the time spent by Company personnel;
    
    Intensive training and supervision of customer care and technical support
personnel to maximize customer satisfaction; and,
    
    Increasing the number and breadth of services to differentiate the Company from
competition.
  Interland could incur liabilities in the future relating to its PC Systems business, which could
cause additional operating losses.
  29




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##### Table of Contents



Interland could incur liabilities in the future relating to the sale of its dedicated server
assets, which could cause additional operating losses.
  Because Interland faces intense competition, it may not be able to operate profitably in its
markets .
  
    
    Develop and expand their network infrastructures and service offerings more rapidly;
    
    Adapt to new or emerging technologies and changes in customer requirements more quickly;
    
    Devote greater resources to the marketing and sale of their services; and,
    
    Adopt more aggressive pricing policies than the Company can.
  Impairment of Interlands intellectual property rights could negatively affect its business or
could allow competitors to minimize any advantage that Interlands proprietary technology may give
it .
    If Interland is unable to attract and retain key personnel, it may not be able to compete
effectively in its market .
 30




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##### Table of Contents



Interland depends on its reseller sales channel to market and sell many of its services. Interland
does not control its resellers, and if it fails to develop or maintain good relations with them, it
may not achieve the growth in customers and revenues that it expects .
  Interland is vulnerable to system failures, which could harm its reputation, cause its customers to
seek reimbursement for services, and cause its customers to seek another provider for services .
  
    
    Cause customers or end users to seek damages for losses incurred;
    
    Require the Company to replace existing equipment or add redundant facilities;
    
    Damage the Companys reputation for reliable service;
    
    Cause existing customers to cancel their contracts; or
    
    Make it more difficult for the Company to attract new customers.
 Interlands data centers are maintained by a third party
   Data centers and communications networks are vulnerable to security breaches that could cause
disruptions in service, liability to third parties, or loss of customers
 31




---



##### Table of Contents



Disruption of Interlands services caused by unknown software or hardware defects could harm its
business and reputation
  Providing services to customers with critical websites and Web-based applications could potentially
expose Interland to lawsuits for customers lost profits or other damages.
  Interland could face liability for information distributed through its network.
  Interlands business operates in an uncertain legal environment where future government regulation
and lawsuits could restrict Interlands business or cause unexpected losses .
  32




---



##### Table of Contents



Interlands stock price may be volatile which could cause an investment in its common stock to
decrease significantly.
  
    
    Variations in operating results and analyst earnings estimates;
    
    The volatility of stock within the sectors within which it conducts business;
    
    Announcements by Interland or its competitors regarding introduction of new services;
    
    General decline in economic conditions;
    
    Reductions in the volume of trading in its common stock, and;
    
    The Companys inability to reduce the rate of account cancellations, or to increase the rate of account additions, or both.
  Substantial future sales of shares by shareholders could negatively affect Interlands stock price.
  
 ITEM 7A . Quantitative And Qualitative Disclosures About Market Risk
  
 ITEM 9. Changes In And Disagreements With Accountants On Accounting And Financial
Disclosure
  
 ITEM 9A. Controls And Procedures
 Disclosure Controls and Procedures
  33




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##### Table of Contents



Managements report on internal control over financial reporting
    Internal Control
 Integrated Framework
 
 ITEM 9B. Other Information
  
 PART III
  34




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##### Table of Contents



Item 10. Directors And Executive Officers Of The Registrant
 
 Item 11. Executive Compensation
 
 Item 12. Security Ownership Of Certain Beneficial Owners And Management And Related
Stockholder Matters
 
 Item 13. Certain Relationships And Related Transactions
 
 Item 14. Principal Accounting Fees And Services
 35




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##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 Index To consolidated Financial Statements
 PageConsolidated Financial Statements:Consolidated Statements of Operations for the Fiscal Years Ended August 31, 2005, 2004, and 2003
    
    
    F-2Consolidated Balance Sheets as of August 31, 2005 and 2004
    
    
    F-3Consolidated Statements of Shareholders Equity for the Fiscal Years Ended August 31, 2005,
2004, and 2003
    
    
    F-4Consolidated Statements of Cash Flows for the Fiscal Years Ended August 31, 2005, 2004, and 2003
    
    
    F-5Notes to Consolidated Financial Statements
    
    
    F-6Report of Independent Registered Public Accounting Firm
    
    
    F-30Quarterly Financial Information (Unaudited)
    
    
    F-31
 F-1




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##### Table of Contents



Interland, Inc.
 
 consolidated
statements of operations  (In thousands except per share amounts)
 Fiscal Year Ended August 31,2005
    
    
    2004
    
    
    2003Revenues
    
    $
    88,608
    
    
    $
    102,745
    
    
    $
    106,638Operating costs and expenses:Network operating costs, exclusive of depreciation shown below
    
    
    22,903
    
    
    
    28,254
    
    
    
    32,856Sales and marketing, exclusive of depreciation shown below
    
    
    18,503
    
    
    
    19,948
    
    
    
    20,269Technical support, exclusive of depreciation shown below
    
    
    13,084
    
    
    
    17,965
    
    
    
    15,709General and administrative, exclusive of depreciation shown below
    
    
    30,489
    
    
    
    30,835
    
    
    
    40,948Bad debt expense
    
    
    1,761
    
    
    
    3,690
    
    
    
    7,335Depreciation and amortization
    
    
    21,239
    
    
    
    30,650
    
    
    
    56,708Restructuring costs
    
    
    2,616
    
    
    
    756
    
    
    
    5,072Merger and integration costs
    
    
    
    
    
    
    
    
    
    
    494Goodwill impairment
    
    
    
    
    
    
    66,587
    
    
    
    89,928Asset impairment
    
    
    
    
    
    
    7,009
    
    
    
    13,868Gain on sale of accounts
    
    
    (1,210
    )
    
    
    
    
    
    
    Other expense (income), net
    
    
    (41
    )
    
    
    (192
    )
    
    
    1,286Total operating costs and expenses
    
    
    109,344
    
    
    
    205,502
    
    
    
    284,473Operating loss
    
    
    (20,736
    )
    
    
    (102,757
    )
    
    
    (177,835
    )Interest income (expense), net
    
    
    436
    
    
    
    (202
    )
    
    
    (327
    )Loss from continuing operations before income taxes
    
    
    (20,300
    )
    
    
    (102,959
    )
    
    
    (178,162
    )Income tax benefit (expense)
    
    
    850
    
    
    
    
    
    
    
    (629
    )Net loss from continuing operations
    
    
    (19,450
    )
    
    
    (102,959
    )
    
    
    (178,791
    )Income/(loss) from discontinued operations, net of tax
    
    
    (439
    )
    
    
    (1,704
    )
    
    
    4,912Net loss
    
    $
    (19,889
    )
    
    $
    (104,663
    )
    
    $
    (173,879
    )Net income/(loss) per share, basic and diluted:Continuing operations
    
    $
    (1.21
    )
    
    $
    (6.40
    )
    
    $
    (12.19
    )Discontinued operations
    
    
    (0.03
    )
    
    
    (0.10
    )
    
    
    0.34$
    (1.24
    )
    
    $
    (6.50
    )
    
    $
    (11.85
    )Number of shares used in per share calculation:Basic and diluted
    
    
    16,044
    
    
    
    16,096
    
    
    
    14,668
  F-2




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##### Table of Contents



Interland, Inc.
 
 consolidated
balance sheets  (In thousands)
 As of August 31,2005
    
    
    2004AssetsCurrent assetsCash and cash equivalents
    
    $
    16,891
    
    
    $
    15,203Auction rate securities
    
    
    
    
    
    
    12,525Trade receivables, net of the allowance of $34 and $381, respectively
    
    
    1,365
    
    
    
    2,431Receivable on sale of assets
    
    
    11,367
    
    
    
    Other receivables
    
    
    135
    
    
    
    553Prepaids and other current assets
    
    
    2,698
    
    
    
    3,479Restricted investments
    
    
    258
    
    
    
    283Total current assets
    
    
    32,714
    
    
    
    34,474Restricted investments
    
    
    9,299
    
    
    
    10,609Securities, held-to-maturity
    
    
    50
    
    
    
    Property plant and equipment, net
    
    
    5,858
    
    
    
    24,508Intangibles, net
    
    
    3,038
    
    
    
    12,077Other assets
    
    
    5,600
    
    
    
    3,244Total assets
    
    $
    56,559
    
    
    $
    84,912Liabilities and shareholders equityCurrent liabilitiesAccounts payable
    
    $
    2,355
    
    
    $
    2,517Accrued expenses
    
    
    10,465
    
    
    
    12,105Accrued restructuring charges
    
    
    4,717
    
    
    
    4,393Current portion of long-term debt and capital lease obligations
    
    
    859
    
    
    
    2,271Deferred revenue
    
    
    4,542
    
    
    
    7,777Total current liabilities
    
    
    22,938
    
    
    
    29,063Long-term debt and capital lease obligations
    
    
    2,510
    
    
    
    3,473Deferred revenue, long-term
    
    
    229
    
    
    
    268Other liabilities
    
    
    939
    
    
    
    3,209Total liabilities
    
    
    26,616
    
    
    
    36,013Commitments and contingencies (notes 21 & 22)
    
    
    
    
    
    
    Shareholders equityCommon stock, $.01 par value, authorized 21 million shares,
issued and outstanding 16.4 and 16.1 million shares, respectively
    
    
    164
    
    
    
    161Additional capital
    
    
    323,498
    
    
    
    321,091Warrants
    
    
    2,806
    
    
    
    4,603Deferred compensation
    
    
    
    
    
    
    (320
    )Note receivable from shareholder
    
    
    (735
    )
    
    
    (735
    )Accumulated deficit
    
    
    (295,790
    )
    
    
    (275,901
    )Total shareholders equity
    
    
    29,943
    
    
    
    48,899Total liabilities and shareholders equity
    
    $
    56,559
    
    
    $
    84,912
  F-3




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##### Table of Contents



Interland, Inc.
 
 consolidated
statements of shareholders equity  In thousands, except per share amounts)
 TotalCommon Stock
    
    
    Additional
    
    
    
    
    
    
    Deferred
    
    
    Note Receivable
    
    
    Retained
    
    
    ShareholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Warrants
    
    
    Compensation
    
    
    From Shareholder
    
    
    Earnings
    
    
    EquityBalance, August 31, 2002
    
    
    14,131
    
    
    $
    1,413
    
    
    $
    296,949
    
    
    $
    1,690
    
    
    $
    (2,228
    )
    
    $
    (2,735
    )
    
    $
    2,641
    
    
    $
    297,730Stock issued to purchase:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    iNNERHOST
    
    
    553
    
    
    
    55
    
    
    
    (72
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17
    )Trellix
    
    
    300
    
    
    
    30
    
    
    
    4,866
    
    
    
    3,300
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,196Hostcentric
    
    
    1,357
    
    
    
    136
    
    
    
    20,302
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,438Stock sold
    
    
    34
    
    
    
    4
    
    
    
    290
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    294Stock options exercised
    
    
    23
    
    
    
    2
    
    
    
    190
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    192Repurchase and retirement of stock
    
    
    (85
    )
    
    
    (8
    )
    
    
    (976
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (984
    )Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    (607
    )
    
    
    
    
    
    
    1,182
    
    
    
    
    
    
    
    
    
    
    
    575Non-cash compensation
    
    
    9
    
    
    
    1
    
    
    
    112
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    113Adjustment 1-for-10 reverse stock split
    
    
    
    
    
    
    (1,469
    )
    
    
    1,469
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (173,879
    )
    
    
    (173,879
    )Balance, August 31, 2003
    
    
    16,322
    
    
    $
    164
    
    
    $
    322,523
    
    
    $
    4,990
    
    
    $
    (1,046
    )
    
    $
    (2,735
    )
    
    $
    (171,238
    )
    
    $
    152,658Stock sold
    
    
    47
    
    
    
    
    
    
    
    226
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    226Repurchase and retirement of stock and note receivable
    
    
    (273
    )
    
    
    (3
    )
    
    
    (1,997
    )
    
    
    
    
    
    
    
    
    
    
    2,000
    
    
    
    
    
    
    
    Retirement of warrants
    
    
    
    
    
    
    
    
    
    
    387
    
    
    
    (387
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    (48
    )
    
    
    
    
    
    
    726
    
    
    
    
    
    
    
    
    
    
    
    678Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (104,663
    )
    
    
    (104,663
    )Balance, August 31, 2004
    
    
    16,096
    
    
    $
    161
    
    
    $
    321,091
    
    
    $
    4,603
    
    
    $
    (320
    )
    
    $
    (735
    )
    
    $
    (275,901
    )
    
    $
    48,899Stock sold
    
    
    266
    
    
    
    3
    
    
    
    610
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    613Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    320
    
    
    
    
    
    
    
    
    
    
    
    320Retirement of warrants
    
    
    
    
    
    
    
    
    
    
    1,797
    
    
    
    (1,797
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,889
    )
    
    
    (19,889
    )Balance, August 31, 2005
    
    
    16,362
    
    
    
    164
    
    
    
    323,498
    
    
    
    2,806
    
    
    
    
    
    
    
    (735
    )
    
    
    (295,790
    )
    
    
    29,943
  F-4




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##### Table of Contents



Interland, Inc.
 
 consolidated
statements of cash flows  In thousands
 For the twelve months ended August 31,2005
    
    
    2004
    
    
    2003CASH FLOWS FROM OPERATING ACTIVITIESNet loss
    
    $
    (19,889
    )
    
    $
    (104,663
    )
    
    $
    (173,879
    )Adjustments to reconcile net loss to net cash used in
operating activities from continuing operations:Loss from discontinued operations
    
    
    439
    
    
    
    1,704
    
    
    
    (4,912
    )Depreciation and amortization
    
    
    21,239
    
    
    
    30,650
    
    
    
    56,708Bad debt expense
    
    
    1,761
    
    
    
    3,690
    
    
    
    7,335Loss (gain) on sale of assets
    
    
    (41
    )
    
    
    (159
    )
    
    
    1,641Goodwill and asset impairment
    
    
    
    
    
    
    73,596
    
    
    
    103,796Amortization of deferred compensation
    
    
    320
    
    
    
    678
    
    
    
    2,189Gain on sale of accounts
    
    
    (1,210
    )
    
    
    
    
    
    
    Changes in operating assets and liabilities
net of effect of acquisitions and dispositions:Receivables
    
    
    (837
    )
    
    
    (1,514
    )
    
    
    (2,323
    )Income tax recoverable
    
    
    
    
    
    
    612
    
    
    
    778Other current assets
    
    
    271
    
    
    
    (206
    )
    
    
    742Accounts payable, accrued expenses and deferred revenue
    
    
    (3,997
    )
    
    
    (8,447
    )
    
    
    (24,951
    )Cash used in operating activities of continuing operations
    
    
    (1,944
    )
    
    
    (4,059
    )
    
    
    (32,876
    )CASH FLOWS FROM INVESTING ACTIVITIESExpenditures for property, plant, and equipment
    
    
    (9,392
    )
    
    
    (11,892
    )
    
    
    (13,152
    )Net proceeds from sale of accounts
    
    
    2,517
    
    
    
    
    
    
    
    Payment of fees on sale of dedicated accounts
    
    
    (338
    )
    
    
    
    
    
    
    Purchases of held-to-maturity investment securities
    
    
    (50
    )
    
    
    
    
    
    
    Proceeds from held-to-maturity investment securities
    
    
    
    
    
    
    1,500
    
    
    
    7,512Purchases of auction rate securities
    
    
    (8,000
    )
    
    
    (7,500
    )
    
    
    (88,225
    )Proceeds from auction rate securities
    
    
    20,525
    
    
    
    22,800
    
    
    
    137,025Deposits of restricted cash and other deposits
    
    
    
    
    
    
    (2,800
    )
    
    
    Net change in restricted investments
    
    
    1,335
    
    
    
    7,734
    
    
    
    15,828Proceeds from short-term investments
    
    
    
    
    
    
    
    
    
    
    1,000Acquisitions, net of cash acquired
    
    
    
    
    
    
    242
    
    
    
    (8,630
    )Other
    
    
    
    
    
    
    
    
    
    
    300Cash provided by investing activities of continuing operations
    
    
    6,597
    
    
    
    10,084
    
    
    
    51,658CASH FLOWS FROM FINANCING ACTIVITIESRepayments of debt and capital lease obligations
    
    
    (2,375
    )
    
    
    (11,536
    )
    
    
    (21,543
    )Proceeds from issuance of common stock
    
    
    613
    
    
    
    226
    
    
    
    433Purchase and retirement of stock
    
    
    
    
    
    
    
    
    
    
    (985
    )Other
    
    
    
    
    
    
    
    
    
    
    38Cash used in financing activities of continuing operations
    
    
    (1,762
    )
    
    
    (11,310
    )
    
    
    (22,057
    )Net cash provided by (used in) continuing operations
    
    
    2,891
    
    
    
    (5,285
    )
    
    
    (3,275
    )Net cash used in discontinued operations
    
    
    (1,203
    )
    
    
    (1,742
    )
    
    
    (3,251
    )Net increase (decrease) in cash and cash equivalents
    
    
    1,688
    
    
    
    (7,027
    )
    
    
    (6,526
    )Cash and cash equivalents at beginning of period
    
    
    15,203
    
    
    
    22,230
    
    
    
    28,756Cash and cash equivalents at end of period
    
    $
    16,891
    
    
    $
    15,203
    
    
    $
    22,230Interest paid, net of amounts capitalized
    
    
    305
    
    
    
    927
    
    
    
    2,574Common stock and warrants issued for acquisition
    
    
    
    
    
    
    
    
    
    
    28,617
  F-5




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##### Table of Contents



Interland, Inc.
 
 notes
to consolidated financial statements
 1. General
 Business
 History of operating losses
 2. Summary of Significant Accounting Policies
 Basis
of Presentation
 Use
of estimates
 Revenue
recognition 
 Reverse stock split 
 Basic
and diluted income (loss) per share
  F-6




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##### Table of Contents



Interland, Inc.
 notes
to consolidated financial statements
 Comprehensive income
 Financial
instruments and concentration of credit risk
  Reclassification of Auction rate securities 
  PreviouslyConsolidated
Balance Sheet  August 31, 2004
    
    Reported
    
    
    Reclass
    
    
    RevisedCash and cash equivalents
    
    $
    25,228
    
    
    
    (10,025
    )
    
    $
    15,203Short-term investments
    
    
    2,500
    
    
    
    (2,500
    )
    
    
    0Auction rate securities
    
    
    0
    
    
    
    12,525
    
    
    
    12,525Total
    
    $
    27,728
    
    
    $
    
    
    
    $
    27,728
 PreviouslyConsolidated
Statement of Cash Flows  Year Ended August 31, 2004
    
    Reported
    
    
    Reclass
    
    
    RevisedPurchases of held-to-maturity investment securities
    
    $
    (2,000
    )
    
    $
    2,000
    
    
    $
    Proceeds from held-to-maturity investment securities
    
    
    15,800
    
    
    
    (14,300
    )
    
    
    1,500Purchases of auction rate securities
    
    
    0
    
    
    
    (7,500
    )
    
    
    (7,500
    )Proceeds from auction rate securities
    
    
    0
    
    
    
    22,800
    
    
    
    22,800Net Change
    
    $
    13,800
    
    
    $
    3,000
    
    
    $
    16,800
 F-7




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##### Table of Contents



Interland, Inc.
 notes
to consolidated financial statements
 PreviouslyConsolidated Statement of Cash Flows  Year Ended August 31, 2003
    
    Reported
    
    
    Reclass
    
    
    RevisedPurchases of held-to-maturity investment securities
    
    $
    (32,300
    )
    
    $
    32,300
    
    
    $
    Proceeds from held-to-maturity investment securities
    
    
    68,700
    
    
    
    (67,700
    )
    
    
    1,000Purchases of auction rate securities
    
    
    
    
    
    
    (88,225
    )
    
    
    (88,225
    )Proceeds from auction rate securities
    
    
    
    
    
    
    137,025
    
    
    
    137,025Net Change
    
    $
    36,400
    
    
    $
    13,400
    
    
    $
    49,800
 Restricted investments
 Goodwill and other intangibles
 Property, plant and equipment
 Advertising
 Income taxes
 Stock-based employee compensation
  F-8




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##### Table of Contents



Interland, Inc.
 notes
to consolidated financial statements
   Fiscal year ended August 31,2005
    
    
    2004
    
    
    2003(In thousands, except per share numbers)Net loss as reported
    
    $
    (19,889
    )
    
    $
    (104,663
    )
    
    $
    (173,879
    )Add: Stock-based employee compensation
expense included in reported net income,
net of related tax effects
    
    
    320
    
    
    
    678
    
    
    
    573Deduct: Total stock-based employee compensation
expense determined under fair value method-based methods for all awards, net of tax effects
    
    
    (2,361
    )
    
    
    (2,117
    )
    
    
    (891
    )Proforma net loss
    
    $
    (21,930
    )
    
    $
    (106,102
    )
    
    $
    (174,197
    )Loss per share:Basic and diluted  as reported
    
    $
    (1.24
    )
    
    $
    (6.50
    )
    
    $
    (11.85
    )Basic and diluted  pro forma
    
    $
    (1.37
    )
    
    $
    (6.59
    )
    
    $
    (11.88
    )Weighted average shares outstandingBasic and diluted
    
    
    16,044
    
    
    
    16,096
    
    
    
    14,668
 Recently issued accounting standards
 3. Sale of Accounts
 Dedicated Accounts and Related Assets
  F-9




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##### Table of Contents



Interland, Inc.
 notes
to consolidated financial statements
     Hostcentric Shared Accounts and Related Assets
    F-10




---



##### Table of Contents



Interland, Inc.
 notes
to consolidated financial statements
  4. Discontinued Operations
      5. Acquisitions
 Hostcentric
   Fair Value(In Thousands)Current assets
    
    $
    4,885Property and equipment
    
    
    4,559Trade names and trademarks
    
    
    360Customer relationships
    
    
    3,900Goodwill
    
    
    19,051Current liabilities
    
    
    (5,970
    )Other liabilities
    
    
    (1,311
    )Net assets acquired
    
    $
    25,474
 Trellix
  F-11




---



##### Table of Contents



Interland, Inc.
 notes
to consolidated financial statements
   Fair Value(In Thousands)Current assets
    
    $
    700Property and equipment
    
    
    603Trade names and trademarks
    
    
    140Technology
    
    
    5,900Goodwill
    
    
    8,096Current liabilities
    
    
    (3,763
    )Net assets acquired
    
    $
    11,676
 6. Investment Securities
  As ofAugust 31,
    
    
    August 31,2005
    
    
    2004Available-for-sale securities, at fair value:Commercial paper and money market funds
    
    $
    22,133
    
    
    $
    14,622State and local government
    
    
    
    
    
    
    3,000Certificates of deposit
    
    
    
    
    
    
    1,11322,133
    
    
    
    18,735Held-to-maturity securities, at amortized cost
    
    
    50
    
    
    
    Auction rate securities
    
    
    
    
    
    
    12,525Total securities
    
    $
    22,183
    
    
    $
    31,260
 F-12




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##### Table of Contents



Interland, Inc.
 notes
to consolidated financial statements
 7. Receivables
 As ofAugust 31,
    
    August 31,2005
    
    2004(In thousands)Trade receivables
    
    $
    1,399
    
    
    $
    2,812Allowance for doubtful accounts
    
    
    (34
    )
    
    
    (381
    )Receivable on sale of assets
    
    
    11,367
    
    
    
    Other
    
    
    135
    
    
    
    553$
    12,867
    
    
    $
    2,984
     Fiscal Year Ended2005
    
    2004
    
    2003(In thousands)Allowance for Doubtful AccountsBalance at beginning of year
    
    $
    381
    
    
    $
    373
    
    
    $
    3,843Additions charged to bad debt expense
    
    
    1,761
    
    
    
    3,690
    
    
    
    7,335Reductions and write-offs
    
    
    (2,108
    )
    
    
    (3,682
    )
    
    
    (10,805
    )Balance at end of year
    
    $
    34
    
    
    $
    381
    
    
    $
    373
 8. Prepaids and Other Current Assets
 As ofAugust 31,
    
    
    August 31,2005
    
    
    2004(In thousands)Prepaid Insurance
    
    $
    1,299
    
    
    $
    1,520Prepaid Rent
    
    
    393
    
    
    
    639Prepaid Software
    
    
    90
    
    
    
    276Prepaid interest
    
    
    21
    
    
    
    43Short term deposits
    
    
    134
    
    
    
    156Other prepaids
    
    
    761
    
    
    
    845$
    2,698
    
    
    $
    3,479
 F-13




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##### Table of Contents



Interland, Inc.
 notes
to consolidated financial statements
 9. Property, Plant And Equipment
 As ofEstimated
    
    August 31,
    
    
    August 31,useful lives
    
    2005
    
    
    2004(In years)
    
    (In thousands)Computer equipment
    
    3
    
    $
    6,634
    
    
    $
    69,550Software
    
    2
    
    
    1,077
    
    
    
    16,075Office equipment
    
    5
    
    
    1,982
    
    
    
    5,978Leasehold improvements
    
    3-5
    
    
    1,482
    
    
    
    20,975Assets in progress
    
    
    
    
    4,170
    
    
    
    61115,345
    
    
    
    113,189Less: Accumulated depreciation and amortization
    
    
    
    
    (9,487
    )
    
    
    (88,681
    )Property, plant and equipment, net
    
    
    
    $
    5,858
    
    
    $
    24,508
   As ofAugust 31,
    
    August 31,2005
    
    2004Computer equipment under capital leases
    
    $
    
    
    
    $
    8,703Accumulated amortization
    
    
    
    
    
    
    (7,688
    )Net equipment under capital leases
    
    $
    
    
    
    $
    1,015
 10. Acquired Intangibles And Goodwill
   F-14




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##### Table of Contents



Interland, Inc.
 notes
to consolidated financial statements
 Fiscal Year EndedAugust 31,
    
    
    August 31,
    
    
    August 31,2005
    
    
    2004
    
    
    2003(In thousands)Balance at beginning of year
    
    $
    
    
    
    $
    66,646
    
    
    $
    120,011Goodwill acquired
    
    
    
    
    
    
    
    
    
    
    36,563Impairment write-down
    
    
    
    
    
    
    (66,646
    )
    
    
    (89,928
    )Other adjustments
    
    
    
    
    
    
    
    
    
    
    Balance at end of year
    
    $
    
    
    
    $
    
    
    
    $
    66,646
  As of August 31, 2005
    
    
    As of August 31, 2004Gross
    
    
    
    
    
    
    Grosscarrying
    
    
    Accumulated
    
    
    carrying
    
    
    Accumulatedamount
    
    
    amortization
    
    
    amount
    
    
    amortization(In thousands)Amortizable intangible assets:Core technology
    
    $
    15,505
    
    
    $
    13,898
    
    
    $
    15,505
    
    
    $
    11,086Customer account acquisitions
    
    
    14,072
    
    
    
    13,864
    
    
    
    16,323
    
    
    
    14,321Customer relationships
    
    
    1,317
    
    
    
    1,282
    
    
    
    9,383
    
    
    
    5,584Trademarks
    
    
    3,771
    
    
    
    2,583
    
    
    
    4,553
    
    
    
    2,696Other
    
    
    
    
    
    
    
    
    
    
    1,027
    
    
    
    1,027Total
    
    $
    34,665
    
    
    $
    31,627
    
    
    $
    46,791
    
    
    $
    34,714Aggregate amortization expense:For the year ended August 31, 2005
    
    $
    6,658Estimated amortization expense:For the year ended August 31, 2006
    
    $
    1,548For the year ended August 31, 2007
    
    
    909For the year
ended August 31, 2008
    
    
    581Total estimated expense
    
    $
    3,038
  F-15




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##### Table of Contents



Interland, Inc.
 notes
to consolidated financial statements
   11. Other Assets
 As ofAugust 31,
    
    
    August 31,2005
    
    
    2004(In thousands)Directors and officers liability insurance deposit
    
    $
    2,800
    
    
    $
    2,800Funds held in escrow-sale of dedicated assets to Peer 1
    
    
    2,800
    
    
    
    Deposits
    
    
    
    
    
    
    344Other
    
    
    
    
    
    
    100Total Other Assets
    
    $
    5,600
    
    
    $
    3,244
  12. Accrued Expenses
 As ofAugust 31,
    
    
    August 31,2005
    
    
    2004(In thousands)Accrued payroll and related liabilities
    
    $
    1,803
    
    
    $
    2,371Acquisition related liabilities
    
    
    561
    
    
    
    740Taxes payable
    
    
    1,757
    
    
    
    1,719Accrued advertising
    
    
    428
    
    
    
    1,092Accrued discontinued operations liabilities
    
    
    1,390
    
    
    
    1,341Accrued software liabilities
    
    
    461
    
    
    
    744Accrued legal fees and settlements and professional fees
    
    
    2,572
    
    
    
    1,137Other
    
    
    1,493
    
    
    
    2,961Total accrued expenses
    
    $
    10,465
    
    
    $
    12,105
  F-16




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##### Table of Contents



Interland, Inc.
 notes
to consolidated financial statements
 EmployeeLease
    
    
    
    
    
    
    terminationabandonments
    
    
    Bandwidth
    
    
    benefits
    
    
    Total(In thousands)Balance at August 31, 2000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Liabilities accrued
    
    
    7,098
    
    
    
    1,440
    
    
    
    1,362
    
    
    
    9,900Cash paid
    
    
    (123
    )
    
    
    
    
    
    
    (83
    )
    
    
    (206
    )Balance at August 31, 2001
    
    
    6,975
    
    
    
    1,440
    
    
    
    1,279
    
    
    
    9,694Other adjustments
    
    
    2,470
    
    
    
    (1,440
    )
    
    
    
    
    
    
    1,030Cash paid
    
    
    (1,871
    )
    
    
    
    
    
    
    (1,027
    )
    
    
    (2,898
    )Balance at August 31, 2002
    
    
    7,574
    
    
    
    
    
    
    
    252
    
    
    
    7,826Other adjustments
    
    
    
    
    
    
    
    
    
    
    675
    
    
    
    675Cash paid
    
    
    (6,653
    )
    
    
    
    
    
    
    (710
    )
    
    
    (7,363
    )Balance at August 31, 2003
    
    
    921
    
    
    
    
    
    
    
    217
    
    
    
    1,138Cash paid
    
    
    (181
    )
    
    
    
    
    
    
    (217
    )
    
    
    (398
    )Balance at August 31, 2004
    
    
    740
    
    
    
    
    
    
    $
    
    
    
    $
    740Cash paid
    
    
    (179
    )
    
    
    
    
    
    
    
    
    
    
    (179
    )Balance at August 31, 2005
    
    $
    561
    
    
    
    
    
    
    $
    
    
    
    $
    561
 13. Restructuring And Facility Exit Costs
 2001 Plan
      F-17




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##### Table of Contents



Interland, Inc.
 notes
to consolidated financial statements
 Property,
    
    
    
    
    
    EmployeeLease
    
    plant, and
    
    Other exit
    
    termination
    
    Goodwill andabandonments
    
    equipment
    
    costs
    
    benefits
    
    Intangibles
    
    Total(In thousands)Balance at August 31, 2000
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Plan charges
    
    
    9,404
    
    
    
    26,915
    
    
    
    3,528
    
    
    
    727
    
    
    
    69,704
    
    
    
    110,278Cash paid
    
    
    (683
    )
    
    
    
    
    
    
    
    
    
    
    (498
    )
    
    
    
    
    
    
    (1,181
    )Non-cash write downs
    
    
    
    
    
    
    (26,915
    )
    
    
    
    
    
    
    
    
    
    
    (69,704
    )
    
    
    (96,619
    )Balance at August 31, 2001
    
    $
    8,721
    
    
    $
    
    
    
    $
    3,528
    
    
    $
    229
    
    
    $
    
    
    
    $
    12,478Cash paid
    
    
    (1,625
    )
    
    
    
    
    
    
    (487
    )
    
    
    (229
    )
    
    
    
    
    
    
    (2,341
    )Other adjustments
    
    
    538
    
    
    
    
    
    
    
    (1,862
    )
    
    
    
    
    
    
    
    
    
    
    (1,324
    )Balance at August 31, 2002
    
    $
    7,634
    
    
    $
    
    
    
    $
    1,179
    
    
    $
    
    
    
    $
    
    
    
    $
    8,813Cash paid
    
    
    (1,701
    )
    
    
    
    
    
    
    (199
    )
    
    
    
    
    
    
    
    
    
    
    (1,900
    )Other adjustments
    
    
    (297
    )
    
    
    
    
    
    
    (980
    )
    
    
    
    
    
    
    
    
    
    
    (1,277
    )Balance at August 31, 2003
    
    $
    5,636
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    5,636Cash paid
    
    
    (2,192
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,192
    )Other adjustments
    
    
    178
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    178Balance at August 31, 2004
    
    $
    3,622
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    3,622Cash paid
    
    
    (2,072
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,072
    )Other adjustments
    
    
    2,217
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,217Balance at August 31, 2005
    
    $
    3,767
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    3,767
 2003 Plan
    F-18




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##### Table of Contents



Interland, Inc.
 notes
to consolidated financial statements
 Property,
    
    
    
    
    
    
    EmployeeLease
    
    
    plant, and
    
    
    Other exit
    
    
    terminationabandonments
    
    
    equipment
    
    
    costs
    
    
    benefits
    
    
    Total(In thousands)Balance at August 31, 2002
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Plan charges
    
    
    2,061
    
    
    
    1,317
    
    
    
    1,886
    
    
    
    1,317
    
    
    
    6,581Cash paid
    
    
    (2,130
    )
    
    
    (227
    )
    
    
    (426
    )
    
    
    (1,165
    )
    
    
    (3,948
    )Other adjustments
    
    
    79
    
    
    
    46
    
    
    
    (236
    )
    
    
    (121
    )
    
    
    (232
    )Non-cash write down
    
    
    
    
    
    
    (871
    )
    
    
    
    
    
    
    
    
    
    
    (871
    )Balance at August 31, 2003
    
    $
    10
    
    
    $
    265
    
    
    $
    1,224
    
    
    $
    31
    
    
    $
    1,530Cash paid
    
    
    (6
    )
    
    
    (236
    )
    
    
    (227
    )
    
    
    (31
    )
    
    
    (500
    )Other adjustments
    
    
    (4
    )
    
    
    (29
    )
    
    
    (453
    )
    
    
    
    
    
    
    (486
    )Balance at August 31, 2004
    
    $
    
    
    
    $
    
    
    
    $
    544
    
    
    $
    
    
    
    $
    544Cash paid
    
    
    
    
    
    
    
    
    
    
    (12
    )
    
    
    
    
    
    
    (12
    )Other adjustments
    
    
    
    
    
    
    
    
    
    
    (532
    )
    
    
    
    
    
    
    (532
    )Balance at August 31, 2005
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 2004 Plan
   EmployeeLease
    
    
    terminationabandonments
    
    
    benefits
    
    
    Total(In thousands)Balance at August 31, 2003
    
    $
    
    
    
    $
    
    
    
    $
    Plan charges
    
    
    279
    
    
    
    785
    
    
    
    1,064Cash paid
    
    
    (72
    )
    
    
    (765
    )
    
    
    (837
    )Balance at August 31, 2004
    
    $
    207
    
    
    $
    20
    
    
    $
    227Other adjustments
    
    
    (18
    )
    
    
    
    
    
    
    (18
    )Cash paid
    
    
    (189
    )
    
    
    (20
    )
    
    
    (209
    )Balance at August 31, 2005
    
    $
    
    
    
    $
    
    
    
    $
    
 2005 Transition Period Plan
  F-19




---



##### Table of Contents



Interland, Inc.
 notes
to consolidated financial statements
 14. Other Liabilities
 As ofAugust 31,
    
    
    August 31,2005
    
    
    2004(In thousands)Sales tax assessments liability
    
    $
    191
    
    
    $
    1,200Personal
property tax liability
    
    
    678
    
    
    
    1,577Other
    
    
    70
    
    
    
    432Total other liabilities
    
    $
    939
    
    
    $
    3,209
  15. Long-Term Debt And Capital Lease Obligations
 As of August 31,2005
    
    
    2004(In thousands)Capital lease obligations payable in
monthly installments through
2009, weighted average interest rates of 11.0% and 10.9%, respectively
    
    $
    26
    
    
    $
    1,508Notes payable
    
    
    3,343
    
    
    
    4,2363,369
    
    
    
    5,744Less current portion
    
    
    (859
    )
    
    
    (2,271
    )Long-term debt and capital lease obligations
    
    $
    2,510
    
    
    $
    3,473
  16. Warrants
   F-20




---



##### Table of Contents



Interland, Inc.
 notes
to consolidated financial statements
 Warrant Holder
    
    Expiration Date
    
    Number of Shares
    
    
    Exercise PriceTransamerica
    
    October 3, 2005
    
    
    2,153
    
    
    
    139.40Trellix
    
    January 3, 2008
    
    
    507,393
    
    
    
    50.00Total
    
    
    509,546
 17. Stock purchase and incentive plans
        F-21




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##### Table of Contents



Interland, Inc.
 notes
to consolidated financial statements
   Fiscal Year EndedAugust 31, 2005
    
    
    August 31, 2004
    
    
    August 31, 2003Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageNumber of
    
    
    Exercise
    
    
    Number of
    
    
    Exercise
    
    
    Number of
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    Price(In thousands, except per share amounts)Outstanding at beginning of year
    
    
    1,079
    
    
    $
    19.86
    
    
    
    1,421
    
    
    $
    24.66
    
    
    
    1,586
    
    
    $
    29.50Granted
    
    
    2,131
    
    
    
    2.30
    
    
    
    179
    
    
    
    3.96
    
    
    
    518
    
    
    
    12.80Exercised
    
    
    (1
    )
    
    
    3.33
    
    
    
    
    
    
    
    
    
    
    
    (24
    )
    
    
    8.28Terminated or cancelled
    
    
    (220
    )
    
    
    19.16
    
    
    
    (521
    )
    
    
    29.07
    
    
    
    (659
    )
    
    
    28.11Outstanding at end of year
    
    
    2,989
    
    
    
    8.32
    
    
    
    1,079
    
    
    
    19.86
    
    
    
    1,421
    
    
    
    24.66Exercisable at end of year
    
    
    1,141
    
    
    
    18.10
    
    
    
    679
    
    
    
    23.92
    
    
    
    686
    
    
    
    33.08Shares available for future grant
under the:2005 Plan
    
    
    1,200
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  Options Outstanding
    
    
    Options ExercisableWeighted
    
    
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    Average
    
    
    
    
    
    
    AverageNumber of
    
    
    Remaining
    
    
    Exercise
    
    
    Number of
    
    
    ExerciseRange of Exercise Prices
    
    Shares
    
    
    Life (Years)
    
    
    Price
    
    
    Shares
    
    
    Price(In thousands, except per share amounts)$1.90
    
    
    103
    
    
    
    9.8
    
    
    
    1.90
    
    
    
    103
    
    
    
    1.90$2.29
    
    
    1,900
    
    
    
    7.9
    
    
    
    2.29
    
    
    
    53
    
    
    $
    2.29$2.62 - $9.80
    
    
    355
    
    
    
    8.0
    
    
    
    5.30
    
    
    
    354
    
    
    
    5.30$9.82 -
$21.40
    
    
    391
    
    
    
    6.6
    
    
    
    16.20
    
    
    
    391
    
    
    
    16.20$22.40 -
$132.70
    
    
    240
    
    
    
    4.1
    
    
    
    108.45
    
    
    
    240
    
    
    
    108.452,989
    
    
    
    
    
    
    
    
    
    
    
    1,141
  F-22




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##### Table of Contents



Interland, Inc.
 notes
to consolidated financial statements
 Stock Option Plans Shares2005
    
    2004
    
    2003AssumptionsExpected life
    
    5.77 years
    
    
    3.0 years
    
    
    3.0 yearsRisk-free interest rate
    
    
    4.1
    %
    
    
    2.7
    %
    
    
    2.8
    %Expected volatility
    
    
    74.0
    %
    
    
    32.0
    %
    
    
    80.0
    %Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Weighted average fair values:Exercise price equal
to market price
    
    $
    2.01
    
    
    $
    1.02
    
    
    $
    7.61
 18. Retirement Plan
   19. Related party Transactions
  Heitman
et. al. v. Interland
et. al.
 20. Income Taxes
  F-23




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##### Table of Contents



Interland, Inc.
 notes
to consolidated financial statements
 Fiscal Year Ended August 31,2005
    
    
    2004
    
    
    2003(In thousands)Current:U.S. Federal
    
    $
    
    
    
    $
    
    
    
    $
    629State
    
    
    (850
    )
    
    
    
    
    
    
    (850
    )
    
    
    
    
    
    
    629Deferred:U.S. Federal
    
    
    
    
    
    
    
    
    
    
    State
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income tax (benefit) provision
    
    $
    (850
    )
    
    $
    
    
    
    $
    629
  August 31,
    
    
    August 31,
    
    
    August 31,2005
    
    
    2004
    
    
    2003(In thousands)U.S. federal income tax at statutory rate
    
    $
    (7,105
    )
    
    $
    (36,035
    )
    
    $
    (62,357
    )State taxes, net of federal benefit and state tax credits
    
    
    (1,015
    )
    
    
    (5,148
    )
    
    
    (3,983
    )Goodwill
    
    
    
    
    
    
    26,635
    
    
    
    31,475Valuation allowance
    
    
    7,270
    
    
    
    14,524
    
    
    
    33,844Other
    
    
    
    
    
    
    24
    
    
    
    1,650Income tax (benefit) provision
    
    $
    (850
    )
    
    $
    0
    
    
    $
    629
  As of August 31,2005
    
    
    2004(In thousands)Deferred tax assets:Receivables and other allowances
    
    $
    13
    
    
    $
    76Accrued expenses
    
    
    4,331
    
    
    
    1,779Accrued compensation
    
    
    434
    
    
    
    161Deferred revenue
    
    
    1,908
    
    
    
    3,218Property, plant and equipment
    
    
    581
    
    
    
    6,962Acquired intangibles
    
    
    6,621
    
    
    
    3,695Net operating loss carryforwards
    
    
    122,700
    
    
    
    117,620Total deferred tax assets
    
    
    136,588
    
    
    
    133,511Valuation allowance
    
    
    (136,588
    )
    
    
    (133,511
    )Net deferred taxes
    
    $
    
    
    
    $
    
   F-24




---



##### Table of Contents



Interland, Inc.
notes to consolidated financial statements
    Fiscal Year EndedAugust 31, 2005
    
    
    August 31, 2004
    
    
    August 31, 2003(In thousands)Deferred Tax Asset Valuation AllowanceBalance at beginning of year
    
    $
    133,511
    
    
    $
    116,792
    
    
    $
    81,406Change in net cumulative tax differences
    
    
    3,077
    
    
    
    16,719
    
    
    
    24,870Additions from acquisitions
    
    
    
    
    
    
    
    
    
    
    10,516Balance at end of year
    
    $
    136,588
    
    
    $
    133,511
    
    
    $
    116,792
 21. Commitments
  OperatingLeases andOther FutureMinimum
    
    
    Long-term
    
    
    CapitalCommitments
    
    
    debt
    
    
    Leases(In thousands)2006
    
    $
    8,007
    
    
    $
    920
    
    
    $
    132007
    
    
    3,284
    
    
    
    984
    
    
    
    52008
    
    
    2,766
    
    
    
    1,053
    
    
    
    52009
    
    
    2,781
    
    
    
    460
    
    
    
    32010
    
    
    2,257
    
    
    
    
    
    
    
    Thereafter
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    19,095
    
    
    $
    3,417
    
    
    $
    26Less: amount representing interest
    
    
    
    
    
    
    
    
    
    
    3Present value of net minimum lease payments
    
    
    
    
    
    
    
    
    
    $
    23Less: current portion
    
    
    
    
    
    
    
    
    
    
    (13
    )Capital lease obligation excluding current portion
    
    
    
    
    
    
    
    
    
    $
    (10
    )
 22. Contingencies
  F-25




---



##### Table of Contents



Interland, Inc.
notes to consolidated financial statements
        F-26




---



##### Table of Contents



Interland, Inc.
notes to consolidated financial statements
    Smith v. Micron Electronics,
Inc. (n/k/a Interland, Inc.)
  see Interland, Inc. v. Certain Underwriters at
Lloyds of London
  F-27




---



##### Table of Contents



Interland, Inc.
notes to consolidated financial statements
    23. Other Expense (Income), net
  24. Geographic Information
  Fiscal Year EndedAugust 31,
    
    
    August 31,
    
    
    August 31,2005
    
    
    2004
    
    
    2003(In thousands)Revenues by Geographic Area(Based on customer location)United States
    
    $
    77,850
    
    
    $
    91,173
    
    
    $
    96,276Non- U.S.
    
    
    10,758
    
    
    
    11,572
    
    
    
    10,362Total
    
    $
    88,608
    
    
    $
    102,745
    
    
    $
    106,638
  F-28




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##### Table of Contents



Interland, Inc.
notes to consolidated financial statements
 Fiscal Year EndedAugust 31,
    
    
    August 31,
    
    
    August 31,2005
    
    
    2004
    
    
    2003(In thousands)Hosting Revenue
    
    $
    83,937
    
    
    $
    97,601
    
    
    $
    103,313Other Revenue
    
    
    4,671
    
    
    
    5,144
    
    
    
    3,325Total
    
    $
    88,608
    
    
    $
    102,745
    
    
    $
    106,638
 25. subsequent events
 Settlement of Novell Litigation
  Other 2005 Transition Period Restructuring Costs
  Change in Fiscal Year
  F-29




---



##### Table of Contents



Consolidated financial statements
  Internal control over financial reporting
 Internal
Control  Integrated Framework Internal
Control  Integrated Framework
   
 F-30




---



##### Table of Contents



Quarterly Financial Information (Unaudited)  (in thousands, except per share information)
 First
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter(In thousands, except per share amounts)2005Revenues
    
    $
    23,061
    
    
    $
    22,622
    
    
    $
    22,307
    
    
    $
    20,618Loss from continuing operations
    
    
    (3,797
    )
    
    
    (4,183
    )
    
    
    (6,074
    )
    
    
    (5,396
    )Net Loss
    
    
    (3,196
    )
    
    
    (4,272
    )
    
    
    (6,247
    )
    
    
    (6,174
    )Loss per share, basic and diluted:Continuing operations
    
    $
    (0.24
    )
    
    $
    (0.26
    )
    
    $
    (0.38
    )
    
    $
    (0.33
    )Discontinued operations
    
    
    0.04
    
    
    
    (0.01
    )
    
    
    (0.01
    )
    
    
    (0.05
    )$
    (0.20
    )
    
    $
    (0.27
    )
    
    $
    (0.39
    )
    
    $
    (0.38
    )
 First
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter(In thousands, except per share amounts)2004Revenues
    
    $
    26,687
    
    
    $
    26,029
    
    
    $
    25,686
    
    
    $
    24,343Loss from continuing operations
    
    
    (7,971
    )
    
    
    (9,361
    )
    
    
    (81,245
    )
    
    
    (4,382
    )Net Loss
    
    
    (8,553
    )
    
    
    (10,100
    )
    
    
    (81,726
    )
    
    
    (4,284
    )Loss per share, basic and diluted:Continuing operations
    
    $
    (0.49
    )
    
    $
    (0.58
    )
    
    $
    (5.07
    )
    
    $
    (0.27
    )Discontinued operations
    
    
    (0.04
    )
    
    
    (0.04
    )
    
    
    (0.03
    )
    
    
    (0.01
    )$
    (0.53
    )
    
    $
    (0.62
    )
    
    $
    (5.10
    )
    
    $
    (0.28
    )
 
 F-31




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##### Table of Contents



PART IV
 
 ITEM 15. Exhibits and Financial Statement Schedules
  1.
    
    Financial Statements.
 Consolidated Financial Statements:Consolidated Statements of Operations for the Fiscal Years Ended August 31, 2005, 2004, and 2003Consolidated Balance Sheets as of August 31, 2005 and 2004Consolidated Statements of Shareholders Equity for the Fiscal Years Ended August 31, 2005, 2004, and 2003Consolidated Statements of Cash Flows for the Fiscal Years Ended August 31, 2005, 2004, and 2003Notes to Consolidated Financial Statements
 2.
    
    Report of Independent Registered Public Accounting Firm3.
    
    Quarterly Financial Information (Unaudited)4.
    
    Financial Statement Schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of the Schedules,
or because the information required is included in the financial statements and notes
thereto.
  FILEDPREVIOUSLYINCORPORATED BY REFERENCE
    
    ON FORM
    
    FILEDExhibit
    
    Description
    
    Form
    
    Date
    
    Number
    
    Registrant
    
    10-K
    
    HEREWITH2.01
    
    Agreement of
Merger, dated as of
October 10, 1994,
as amended by the
first amendment
thereto, dated as
of December 13,
1994, by and among
ZEOS, MCI and MCMS
    
    S-4
    
    3/13/95
    
    
    2.1
    
    
    INLD2.02
    
    Articles of
Merger, dated April
7, 1995, by and
among ZEOS, MCI and
MCMS
    
    8-K
    
    4/07/95
    
    
    2.2
    
    
    INLD2.03
    
    Purchase
Agreement, dated
March 22, 2001, by
and among MEI
California, Inc.,
the Registrant and
MICRON Technology
Inc. (MTI)
    
    8-K
    
    4/10/01
    
    
    2.01
    
    
    INLD2.04
    
    Agreement and
Plan of Merger
dated March 22,
2001, by and among
the Registrant,
Imagine Acquisition
Corporation and
Interland, Inc., a
Georgia corporation
(Interland-Georgia)
    
    8-K
    
    4/10/01
    
    
    2.01
    
    
    INLD
 E-1




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##### Table of Contents



FILEDPREVIOUSLYINCORPORATED BY REFERENCE
    
    ON FORM
    
    FILEDExhibit
    
    Description
    
    Form
    
    Date
    
    Number
    
    Registrant
    
    10-K
    
    HEREWITH2.05
    
    Membership
Interest Purchase
Agreement, dated as
of April 30, 2001,
by and between the
Registrant and GTG
PC Holdings, LLC
    
    10-Q
    
    5/31/01
    
    
    2.01
    
    
    INLD2.06
    
    First
Amendment to
Membership Interest
Purchase Agreement
and Form of
Contribution
Agreement, dated as
of May 31, 2001, by
and between the
Registrant and GTG
PC Holdings, LLC
    
    10-Q
    
    5/31/01
    
    
    2.02
    
    
    INLD2.07(1)
    
    Agreement and
Plan of Merger
dated as of May 3,
2002, by and
between Dialtone
Inc., Jaguarcub
Acquisition
Corporation,
Dialtone
Stockholders
Representative
    
    10-Q
    
    5/31/02
    
    
    2.07
    
    
    INLD2.08(a)(1)
    
    Agreement and
Plan of Merger
dated as of August
30, 2002 by and
among Interland,
Inc., Panthercub
Acquisition
Corporation,
InnerhoST, Inc.,
Spire Capital
Partners, L.P.,
Spire Investment
L.L.C.,
Waller-Sutton Media
Partners, L.P. and
the other
stockholders of
iNNERHOST, Inc.
    
    S-3/A
    
    9/24/02
    
    
    2.08
    
    
    INLD2.08(b)
    
    Amendment
dated as of October
10, 2002 to
Agreement and Plan
of Merger by and
among Interland,
Inc., iNNERHOST,
Inc. and the
stockholders of
iNNERHOST, Inc.
    
    10-K
    
    8/31/02
    
    
    2.08
    (b)
    
    INLD2.09(1)
    
    Agreement and
Plan of Merger
dated as of
December 19, 2002
by and among
Interland, Inc.,
Bobcat Acquisition
Corporation,
Hostcentric, Inc.
and William
Bunting, Steve
Harter, and
Dominique Bellanger
as Stockholders
Representatives
    
    8-K
    
    12/20/02
    
    
    2.1
    
    
    INLD
 E-2




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##### Table of Contents



FILEDPREVIOUSLYINCORPORATED BY REFERENCE
    
    ON FORM
    
    FILEDExhibit
    
    Description
    
    Form
    
    Date
    
    Number
    
    Registrant
    
    10-K
    
    HEREWITH2.10(1)
    
    Merger
Agreement and Plan
of Reorganization
among Trellix
Corporation,
Interland, Inc. and
Cheetah Acquisition
Corporation
    
    S-3
    
    1/22/03
    
    
    2.10
    
    
    INLD2.12(1)
    
    Asset Purchase
Agreement dated as
of August 31, 2005
by and between Peer
1 Acquisition
Corporation and
Interland, Inc.
    
    8-K
    
    9/7/05
    
    
    2.1
    
    
    INLD3.01
    
    Unofficial
Restated Articles
of Incorporation of
Registrant (as
amended through
April 24, 2002)
    
    10-Q
    
    5/31/02
    
    
    3.01
    
    
    INLD3.01(b)
    
    Articles of
Amendment to
Articles of
Incorporation of
Registrant
    
    10-K
    
    8/31/03
    
    
    3.01
    (b)
    
    INLD3.02
    
    Unofficial
Restated Bylaws of
the Registrant (as
amended through
April 24, 2002)
    
    10-Q
    
    5/31/02
    
    
    3.02
    
    
    INLD4.01
    
    Form of Stock
Certificate of the
Registrant
    
    10-K
    
    8/31/01
    
    
    3.04
    
    
    INLD4.03
    
    August 30,
2002 Registration
Rights Agreement by
and among
Interland, Inc.,
Spire Capital
Partners, L.P.,
Spire Investment,
L.L.C., and
Waller-Sutton Media
Partners, L.P.
    
    S-3
    
    9/24/02
    
    
    4.03
    
    
    INLD4.04
    
    August 30,
2002 Stock
Restriction
Agreement by and
among Spire Capital
Partners, L.P.,
Spire Investment,
L.L.C., and
Waller-Sutton Media
Partners, L.P.
    
    S-3
    
    9/24/02
    
    
    4.04
    
    
    INLD4.05
    
    March 28, 2002
Amendment to Stock
Rights Agreement by
and among
Interland, Inc.,
Bryan Heitman and
Gabriel Murphy
    
    10-Q
    
    5/31/02
    
    
    10.112
    
    
    INLD4.06
    
    July 11, 2002
Amendment to Stock
Rights Agreement by
and among
Interland, Inc.,
Bryan Heitman and
Gabriel Murphy
    
    S-3/A
    
    9/24/02
    
    
    4.06
    
    
    INLD
 E-3




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##### Table of Contents



FILEDPREVIOUSLYINCORPORATED BY REFERENCE
    
    ON FORM
    
    FILEDExhibit
    
    Description
    
    Form
    
    Date
    
    Number
    
    Registrant
    
    10-K
    
    HEREWITH4.07
    
    December 31,
2002 Amendment to
Stock Rights
Agreement by and
among Interland,
Inc., Bryan Heitman
and Gabriel Murphy
    
    S-3/A
    
    3/17/03
    
    
    4.07
    
    
    INLD4.08
    
    Form of Warrant
    
    S-3
    
    1/22/03
    
    
    4.07
    
    
    INLD10.35(a)+
    
    Micron
Electronics 1995
Stock Option Plan,
as amended through
August 29, 2001
    
    S-8
    
    1/14/00
    
    
    4.1
    
    
    INLD10.35(b)+
    
    Form of Notice
of Grant for Micron
Electronics 1995
Stock Option Plan
    
    10-K
    
    8/31/01
    
    
    10.35
    (b)
    
    INLD10.35(c)+
    
    Interland 1995
Stock Option Plan,
as amended August
30, 2001
    
    10-K
    
    8/31/01
    
    
    10.35
    (c)
    
    INLD10.35(d)+
    
    Form of Notice
of Grant for
Interland 1995
Stock Option Plan
    
    10-K
    
    8/31/01
    
    
    10.35
    (d)
    
    INLD10.36(a)+
    
    Micron
Electronics 1995
Employee Stock
Purchase Plan, as
amended through
August 5, 2001
    
    10-Q
    
    6/1/95
    
    
    10.36
    
    
    INLD10.36(b)+
    
    Interland 1995
Employee Stock
Purchase Plan, as
amended August 6,
2001 and April 24,
200210.36(c)+
    
    Interland,
Inc. 2002 Equity
Incentive Plan
    
    S-8
    
    10/3/03
    
    
    4.1
    
    
    INLD10.38+
    
    Form of
Indemnification
Agreement between
the Registrant and
its officers and
directors
    
    10-K
    
    8/31/95
    
    
    10.38
    
    
    INLD10.39+
    
    Form of
Six-Month
Termination
Agreements for
certain officers of
the Registrant
    
    10-K
    
    8/31/95
    
    
    10.39
    
    
    INLD10.42
    
    Amended and
Restated Component
Recovery Agreement,
dated effective
September 2, 1999,
between the
Registrant and MTI
    
    8-K
    
    9/10.99
    
    
    10.42
    
    
    INLD10.44+
    
    Form of
Twelve-Month
Termination
Agreements for
certain officers of
the Registrant
    
    10-K
    
    8/28/97
    
    
    10.44
    
    
    INLD
 E-4




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##### Table of Contents



FILEDPREVIOUSLYINCORPORATED BY REFERENCE
    
    ON FORM
    
    FILEDExhibit
    
    Description
    
    Form
    
    Date
    
    Number
    
    Registrant
    
    10-K
    
    HEREWITH10.45+
    
    Form of
Two-Year
Termination
Agreements for
certain officers of
the Registrant
    
    10-K
    
    8/28/97
    
    
    10.45
    
    
    INLD10.47+
    
    Form of
Employment and
Non-compete
Agreement, with
12-month
termination
provision, for
certain officers of
the Registrant
    
    10-Q
    
    2/26/98
    
    
    10.47
    
    
    INLD10.48+
    
    Form of
Employment and
Non-compete
Agreement, with
6-month termination
provision, for
certain officers of
the Registrant
    
    10-Q
    
    2/26/98
    
    
    10.48
    
    
    INLD10.52+
    
    Employment
Offer, dated
January 10, 1998,
to Joel J. Kocher
    
    10-Q
    
    2/26/98
    
    
    10.52
    
    
    INLD10.56+
    
    Form of
Employment,
Severance and
Non-compete
Agreement for
Certain Officers of
the Registrant
    
    10-K
    
    9/3/98
    
    
    10.56
    
    
    INLD10.58+
    
    The Registrants Executive Incentive Plan, as amended
    
    10-Q
    
    12/2/99
    
    
    10.58
    
    
    INLD10.65
    
    Executive
Sales
Representative
Agreement effective
September 2, 1999,
between the
Registrant and
Micron
Semiconductor
Products, Inc.
    
    8-K
    
    9/10/99
    
    
    10.65
    
    
    INLD10.68+
    
    Amended Non
Qualified Stock
Option Agreement,
dated April 6, 2000
    
    10-Q
    
    6/1/00
    
    
    10.68
    
    
    INLD10.69+
    
    Amended Non
Qualified Stock
Option Agreement,
dated April 6, 2000
    
    10-Q
    
    6/1/00
    
    
    10.69
    
    
    INLD10.70(a)+
    
    HostPro, Inc.
2000 Equity
Incentive Plan I
    
    10-K
    
    8/31/00
    
    
    10.70
    
    
    INLD10.70(b)+
    
    HostPro, Inc.
2000 Equity
Incentive Plan II
    
    10-K
    
    8/31/00
    
    
    10.71
    
    
    INLD10.70(c)+
    
    Form of Notice
of Grant for
HostPro, Inc. 2000
Equity Incentive
Plans
    
    10-K
    
    8/31/00
    
    
    10.72
    
    
    INLD
 E-5




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##### Table of Contents



FILEDPREVIOUSLYINCORPORATED BY REFERENCE
    
    ON FORM
    
    FILEDExhibit
    
    Description
    
    Form
    
    Date
    
    Number
    
    Registrant
    
    10-K
    
    HEREWITH10.70(d)+
    
    Form of Notice
of Grant for
HostPro, Inc. 2000
Equity Incentive
Plans
    
    10-K
    
    8/31/00
    
    
    10.73
    
    
    INLD10.70(e)+
    
    Micron
Electronics 2001
Equity Incentive
Plan, as amended as
of March 22, 2001
    
    10-Q
    
    5/31/01
    
    
    10.89
    
    
    INLD10.70(f)+
    
    Interland 2001
Equity Incentive
Plan, as amended
August 6, 2001
    
    10-K
    
    8/31/01
    
    
    10.70
    (f)
    
    INLD10.70(g)+
    
    Form of Notice
of Grant for
Interland 2001
Equity Incentive
Plan
    
    10-K
    
    8/31/01
    
    
    10.70
    (g)
    
    INLD10.76
    
    Amendment
Number 1 to Amended
and Restated
Component Recovery
Agreement, dated
November 16, 2000,
between the
Registrant and MTI
    
    10-Q
    
    11/30/00
    
    
    10.76
    
    
    INLD10.77
    
    Commercial
Lease, dated March
22, 2001, between
MTI and the
Registrant
    
    8-K
    
    4/10/01
    
    
    99.01
    
    
    INLD10.78
    
    Commercial
Sublease, dated
March 22, 2001,
between MTI and the
Registrant
    
    8-K
    
    4/10/01
    
    
    99.02
    
    
    INLD10.79+
    
    The
Registrants
Severance Plan for
Employees  2001
Amendment and
Restatement
    
    10-Q
    
    3/1/01
    
    
    10.79
    
    
    INLD10.80+
    
    The Registrants Change in Control Severance Plan
    
    10-Q
    
    3/1/01
    
    
    10.80
    
    
    INLD10.81+
    
    HostPro, Inc.
2000 Incentive Plan
II  Notice of
Grant to Joel
Kocher
    
    10-Q
    
    3/1/01
    
    
    10.81
    
    
    INLD10.84+
    
    Retention
Agreement between
the Registrant and
Sid Ferrales, dated
as of December 1,
2000
    
    10-Q
    
    3/1/01
    
    
    10.84
    
    
    INLD10.89
    
    MTI
Shareholder
Agreement dated as
of March 22, 2001
between the
Registrant and MTI
    
    10-Q
    
    4/10/01
    
    
    2.01
    
    
    INLD
 E-6




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##### Table of Contents



FILEDPREVIOUSLYINCORPORATED BY REFERENCE
    
    ON FORM
    
    FILEDExhibit
    
    Description
    
    Form
    
    Date
    
    Number
    
    Registrant
    
    10-K
    
    HEREWITH10.91
    
    Operating
lease for property
located at 3250
Wilshire Blvd., Los
Angeles,
California, dated
as of March 16,
1998
    
    10-Q
    
    5/31/01
    
    
    10.90
    
    
    INLD10.92
    
    Operating
lease for property
located at 3250
Wilshire Blvd., Los
Angeles,
California, dated
as of March 19,
1999
    
    10-Q
    
    5/3/01
    
    
    10.91
    
    
    INLD10.93
    
    Operating
lease for property
located at 1450
Eagle Flight Way,
Boise, Idaho, dated
as of January 7,
2000
    
    10-Q
    
    5/31/01
    
    
    10.92
    
    
    INLD10.94
    
    Operating
lease for property
located at 3326
160th Avenue SE,
Bellevue,
Washington, dated
as of December 16,
1999
    
    10-Q
    
    5/31/01
    
    
    10.93
    
    
    INLD10.96(a)+
    
    Interland-Georgia Stock Incentive
Plan
    
    S-8
    
    9/17/01
    
    
    4.05
    (a)
    
    INLD10.96(b)+
    
    First
Amendment to
Interland-Georgia
Stock Incentive
Plan
    
    S-8
    
    9/17/01
    
    
    4.05
    (b)
    
    INLD10.96(c)+
    
    Second
Amendment to
Interland-Georgia
Stock Incentive
Plan
    
    S-8
    
    9/17/01
    
    
    4.05
    (c)
    
    INLD10.96(d)+
    
    Third
Amendment to
Interland-Georgia
Stock Incentive
Plan
    
    S-8
    
    9/17/01
    
    
    4.05
    (d)
    
    INLD10.96(e)+
    
    Fourth
Amendment to
Interland-Georgia
Stock Incentive
Plan
    
    S-8
    
    9/17/01
    
    
    4.05
    (e)
    
    INLD10.101(a)
    
    Amended and
Restated Lease
Agreement between
Interland-Georgia
and 101 Marietta
Street Associated
dated September 29,
1999
    
    S-1/A
    
    5/18/00
    
    
    10.22
    (a)
    
    ILND10.101(b)
    
    First
Amendment to
Amended and
Restated Lease
Agreement between
Interland-Georgia
and 101 Marietta
Street Associates
dated November 23,
1999
    
    S-1/A
    
    5/18/00
    
    
    10.22
    (b)
    
    ILND
 E-7




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##### Table of Contents



FILEDPREVIOUSLYINCORPORATED BY REFERENCE
    
    ON FORM
    
    FILEDExhibit
    
    Description
    
    Form
    
    Date
    
    Number
    
    Registrant
    
    10-K
    
    HEREWITH10.104(a)
    
    SunTrust Plaza
Garden Offices
Lease Agreement by
and between
SunTrust Plaza
Associates, LLC and
Interland-Georgia
dated May 15, 2000
    
    10-K
    
    8/31/01
    
    
    10.104
    (a)
    
    INLD10.104(b)
    
    First
Amendment to Lease
Agreement by and
between SunTrust
Plaza Associates,
LLC and
Interland-Georgia
dated September 27,
2000
    
    10-K
    
    8/31/01
    
    
    10.104
    (b)
    
    INLD10.105
    
    Amended and
Restated
Registration Rights
Agreement between
the Registrant, MTI
and certain
shareholders of
Interland named
therein dated
August 6, 2001
    
    10-K
    
    8/31/01
    
    
    10.105
    
    
    INLD10.106
    
    Stock Purchase
Agreement between
MTI and Micron
Semiconductor
Products, Inc.
dated as of August
30, 2001
    
    10-K
    
    8/31/01
    
    
    10.106
    
    
    INLD10.107
    
    Donation
Agreement between
Micron
Semiconductor
Products, Inc. and
the Micron
Technology
Foundation, Inc.
dated as of August
30, 2001
    
    10-K
    
    8/31/01
    
    
    10.107
    
    
    INLD10.108(a)+
    
    Employment
Agreement between
the Registrant and
Allen Shulman dated
November 1, 2001
    
    10-K
    
    8/31/02
    
    
    10.108
    (a)
    
    INLD10.108(b)+
    
    Amendment to
Employment
Agreement between
the Registrant and
Allen Shulman dated
as of September 10,
2002.
    
    10-K
    
    8/31/02
    
    
    10.108
    (b)
    
    INLD10.109
    
    February 8,
2002 Investor
Rights Agreement by
and among
Interland, Inc.,
PAR Investment
Partners, L.P.,
Hartford Capital
Appreciation Fund,
and certain other
stockholders
    
    10-Q
    
    2/28/02
    
    
    10.109
    
    
    INLD
 E-8




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##### Table of Contents



FILEDPREVIOUSLYINCORPORATED BY REFERENCE
    
    ON FORM
    
    FILEDExhibit
    
    Description
    
    Form
    
    Date
    
    Number
    
    Registrant
    
    10-K
    
    HEREWITH10.110(1)
    
    Agreement and
Plan of Merger
dated as of
February 8, 2002,
by and between
CommuniTech.Net,
Inc., Montana
Acquisition
Company, Inc.,
Interland, Inc.,
Gabriel Murphy, and
Bryan Heitman
    
    10-Q
    
    2/28/02
    
    
    10.110
    
    
    INLD10.112
    
    Amendment to
Stock Rights
Agreement dated as
of March 28, 2002
by and among
    
    10-Q
    
    5/31/02
    
    
    10.112
    
    
    INLD10.116
    
    Escrow
Agreement dated as
of June 13, 2003,
by and among
Interland, Inc.,
William B. Bunting,
Steve Harter, and
Dominique
Bellanger, and
SunTrust Bank, a
Georgia banking
corporation (the
Escrow Agent)
    
    10-Q
    
    5/31/03
    
    
    10.1
    
    
    INLD10.118+
    
    Employment
Agreement dated as
of January 13, 2003
by and between
Interland and
William Jones
    
    10-K/A
    
    8/31/03
    
    
    10.118
    
    
    INLD10.119+
    
    Employment
Agreement dated as
of August 5, 2002
by and between
Interland and
Tiffani D. Bova
    
    10-K/A
    
    8/31/03
    
    
    10.119
    
    
    INLD10.120
    
    Promissory
Note in the
principal amount of
$4,780,475 dated
February 11, 2004
in favor or U.S.
Bancorp
Oliver-Allen
Technology Leasing.
    
    10-Q
    
    2/29/04
    
    
    10.117
    
    
    INLD10.121(2)
    
    Hosting
Provider Program
Agreement dated
February 24, 2004
between INTERLAND,
INC. and Red Hat,
Inc.
    
    10-Q
    
    2/29/04
    
    
    10.118
    
    
    INLD10.124+
    
    Director
Compensation Policy
effective as of
June 1, 2005
    
    8-K
    
    4/19/05
    
    
    10.1
    
    
    INLD10.125+
    
    Amendment to
Stock Options,
dated as of May 24,
2005
    
    8-K
    
    5/31/05
    
    
    10.125
    
    
    INLD
 E-9




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##### Table of Contents



FILEDPREVIOUSLYINCORPORATED BY REFERENCE
    
    ON FORM
    
    FILEDExhibit
    
    Description
    
    Form
    
    Date
    
    Number
    
    Registrant
    
    10-K
    
    HEREWITH10.126+
    
    Form of
Employment
Agreement by and
between Interland,
Inc. and Juan G.
Troncoso and
Richard A. Pitrolo
    
    8-K
    
    6/13/05
    
    
    10.126
    
    
    INLD10.127+
    
    Form of
Employment
Agreement dated as
of July 28, 2005
with Jeffrey Stibel
    
    8-K
    
    8/3/05
    
    
    10.1
    
    
    INLD10.128+
    
    Form of
Employment
Agreement dated as
of July 28, 2005
with Peter
Delgrosso
    
    8-K
    
    8/3/05
    
    
    10.2
    
    
    INLD10.129+
    
    Form of Option
Agreement dated as
of July 28, 2005
with Jeffrey Stibel
    
    8-K
    
    8/3/05
    
    
    10.3
    
    
    INLD10.130
    
    Form of
Subscription
Agreement dated
July 28, 2005 with
Jeffrey Stibel
    
    8-K
    
    8/3/05
    
    
    10.4
    
    
    INLD10.131+
    
    Form of Option
Agreement dated as
of July 28, 2005
with Peter
Delgrosso
    
    8-K
    
    8/3/05
    
    
    10.5
    
    
    INLD10.132+
    
    Form of
Separation
Agreement and
Mutual Release of
Claims executed
August 3, 2005 by
and between
Interland, Inc. and
Joel Kocher
    
    8-K
    
    8/3/05
    
    
    10.6
    
    
    INLD10.133+
    
    Separation
Agreement and Full
Release of Claims
executed August 3,
2005 by and between
Interland, Inc. and
William J. Jones
    
    8-K
    
    8/11/05
    
    
    10.1
    
    
    INLD10.134
    
    Escrow
Agreement dated as
of August 31, 2005
by and between
Interland, Inc.,
Peer 1 Acquisition
Corporation and
SunTrust Bank
    
    8-K
    
    9/7/05
    
    
    10.1
    
    
    INLD10.135+
    
    Interland,
Inc. 2005 Equity
Incentive Plan
    
    8-K
    
    9/7/05
    
    
    10.2
    
    
    INLD10.135+
    
    Form of Notice
of Grant to be
issued under the
2005 Equity
Incentive Plan
    
    8-K
    
    9/7/05
    
    
    10.3
    
    
    INLD14.00
    
    Code of Ethics
    
    10-Q
    
    4/28/05
    
    
    14.0
    
    
    INLD
 E-10




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##### Table of Contents



FILEDPREVIOUSLYINCORPORATED BY REFERENCE
    
    ON FORM
    
    FILEDExhibit
    
    Description
    
    Form
    
    Date
    
    Number
    
    Registrant
    
    10-K
    
    HEREWITH21.01
    
    Subsidiaries of the
Registrant
    
    
    
    
    
    
    
    
    
    
    
    
    
    X23.01
    
    Consent of Independent
Registered Public
Accounting Firm
    
    
    
    
    
    
    
    
    
    
    
    
    
    X24.01
    
    Power of Attorney
    
    
    
    
    
    
    
    
    
    
    
    
    
    X31.2
    
    Certification
of Chief Financial
Officer pursuant to
Section 302 of the
Sarbanes-Oxley Act
of 2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    X32.1
    
    Certification
of Chief Executive
Officer under
Section 906 of the
Sarbanes-Oxley Act
of 2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    X32.1
    
    Certification
of Chief Financial
Officer under
Section 906 of the
Sarbanes-Oxley Act
of 2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    X31.1
    
    Certification of
Chief Executive
Officer pursuant
to Section 302 of
the Sarbanes-Oxley
Act of 2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    X
 
 *
    
    INLD indicates the exhibit is incorporated by reference to the Registrants prior filings
with the SEC. ILND indicates the exhibit is incorporated by reference to Interland-Georgias
prior filings with the SEC,+
    
    Management contract or compensatory arrangement or plan.(1)
    
    Schedules and exhibits have been omitted from the exhibit. A list of omitted schedules and
exhibits is set forth immediately following the table of contents of the exhibit. Copies will
be provided to the Commission upon request.(2)
    
    The Company has requested confidential treatment for portions of this exhibit pursuant to
Rule 24b-2 of the Securities Exchange Act of 1934. E-11




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##### Table of Contents



Signatures
  INTERLAND, INC.Date:  November 7, 2005
    

/s/
Gonzalo TroncosoBy:
    Gonzalo TroncosoVice President and Chief Financial Officer  Signature
    
    Title
    
    Date/s/ Jeffrey M. Stibel

Jeffrey M. Stibel
    
    Chief Executive Officer
(principal executive
officer)
    
    November 7, 2005/s/ Allen L. Shulman

Allen L. Shulman
    
    President and Chief
Operating Officer
    
    November 7, 2005/s/ Juan G. Troncoso

Juan G. Troncoso
    
    Vice President and
Chief Financial Officer
(principal accounting
officer)
    
    November 7, 2005/s/ John B. Balousek

John B. Balousek
    
    Director
    
    November 7, 2005/s/ Dr. John Patrick Crecine

Dr. John Patrick Crecine
    
    Director
    
    November 7, 2005/s/ Robert Lee

Robert Lee
    
    Director
    
    November 7, 2005/s/ Alex Kazerani

Alex Kazerani
    
    Director
    
    November 7, 2005/s/ Robert T. Slezak

Robert T. Slezak
    
    Director
    
    November 7, 2005/s/ Joel J. Kocher

Joel J. Kocher
    
    Director
    
    November 7, 2005/s/ Seymour Holtzman

Seymour Holtzman
    
    Chairman of the Board of
Directors
    
    November 7, 2005/s/ Efrem  Gerszberg

Efrem  Gerszberg
    
    Director
    
    November 7, 2005
 E-12