<PAGE>



                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-K

                    |X| ANNUAL REPORT PURSUANT TO SECTION 13
                OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
                                       or
                     TRANSITION REPORT PURSUANT TO SECTION
               13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
         FOR THE TRANSITION PERIOD FROM . . . . . . . . TO . . . . . . .
                         COMMISSION FILE NUMBER 0-26115

                                 ---------------
                                 INTERLIANT, INC.

             (Exact name of registrant as specified in its charter)
                                 ---------------

                 DELAWARE                               13-3978980
     (State or other jurisdiction                      (I.R.S. Employer
   of incorporation or organization)                  Identification No.)

                             TWO MANHATTANVILLE ROAD
                             PURCHASE, NEW YORK 10577
               (Address of principal executive offices, zip code)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (914)640-9000

       SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE

          SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

                     COMMON STOCK, $.01 PAR VALUE PER SHARE

     Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file Such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. | |

     The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based on the closing price of Common Stock on March 2, 2000 of
$41 11/16 as reported on the Nasdaq National Market, was approximately $588.0
million. Shares of Common Stock held by each officer and director and by each
person who owns 5% or more of the outstanding Common Stock have been excluded in
that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.

     As of March 2, 2000, 47,304,514 shares of Common Stock, $.01 par value per
<PAGE>

share, were outstanding.

                  DOCUMENTS INCORPORATED BY REFERENCE


Document                                                   Part of Form 10-K

Portions of the Definitive Proxy Statement                      Part III
with respect to the Annual Meeting of Shareholders,
to be filed not later than 120 days after the close
of the Registrant's fiscal year

                                       2
<PAGE>

                                Table of Contents

PART I

Item 1. Business............................................................ 4
Item 2. Properties.......................................................... 40
Item 3. Legal Proceedings................................................... 40
Item 4. Submission of Matters to a Vote of Security Holders................. 40

PART II

Item 5. Market for the Company's Common Equity and Related
Stockholder Matters......................................................... 40
Item 6. Selected Financial Data............................................. 41
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................................... 43
Item 8. Financial Statements and Supplementary Data......................... 51
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure......................................... 71

PART III

Item 10. Directors and Executive Officers of the Registrant..................71
Item 11. Executive Compensation..............................................71
Item 12. Security Ownership of Certain Beneficial Owners and Management......71
Item 13. Certain Relationships and Related Transactions......................71

PART IV

Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K......71
Item 15. Signatures..........................................................76


         Interliant is a registered trademark of Interliant, Inc. This Report on
Form 10-K contains trademarks of other companies. These trademarks are the
property of their respective holders.

         All references to "we," "us," "our," or "Interliant" in this Report on
Form 10-K means Interliant, Inc. For purposes of this Report on Form 10-K, the
company whose business we acquired in March 1999, the name of which was
Interliant, Inc., is referred to as Interliant Texas. We changed our name from
Sage Networks, Inc. to Interliant, Inc. after acquiring Interliant Texas.

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<PAGE>

PART I


THE STATEMENTS IN THIS REPORT ON FORM 10-K THAT ARE NOT DESCRIPTIONS OF
HISTORICAL FACTS MAY BE FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS REFLECT
MANAGEMENT'S CURRENT VIEWS, ARE BASED ON CERTAIN ASSUMPTIONS AND ARE SUBJECT TO
RISKS AND UNCERTAINTIES, INCLUDING, BUT NOT LIMITED TO, THE INFORMATION SET
FORTH UNDER THE CAPTION "RISK FACTORS", AS WELL AS OTHER RISKS DETAILED HEREIN.
ACTUAL RESULTS COULD DIFFER MATERIALLY FORM THOSE CURRENTLY ANTICIPATED AS A
RESULT OF THE FOREGOING OR OTHER FACTORS.

         We currently file reports, proxy statements and other information with
the SEC. Such reports, proxy statements and other information can be inspected
and copied at the public reference facilities maintained by the SEC at:

Room 1024                  Suite 1400
450 Fifth Street, N.W.     Northwest Atrium Center     13th Floor
Judiciary Plaza            500 West Madison Street     Seven World Trade Center
Washington, D.C. 20549     Chicago, Illinois 60661     New York, New York 10048

         Copies of material can be obtained at prescribed rates from the Public
Reference Section of the SEC at:

         450 Fifth Street, N.W.
         Judiciary Plaza
         Washington, D.C. 20549

         The SEC maintains a World Wide Web site that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the SEC. The address of the site is http://www.sec.gov.

ITEM 1.  BUSINESS

Our Company

         We are a leading application service provider, or ASP, providing our
customers with a broad range of outsourced e-business solutions. Our customers
face significant challenges in doing business on the Internet due to its
technical complexity, their lack of technical skills, the cost of implementation
and ongoing support and the time necessary to implement solutions. By providing
comprehensive outsourced solutions that combine our hosting infrastructure with
Internet professional services expertise, we can rapidly design, implement,
deploy and effectively manage cost-effective e-business solutions for our
customers.

         As an ASP, we provide:

         o        hosting infrastructure for our customers' network-based
                  applications, which allows our customers to store their
                  databases, applications or Web sites on equipment owned and
                  maintained by us or on our customers' equipment located in our
                  data centers;

         o        Internet professional services for designing, implementing and
                  deploying these network-based applications; and

         o        operations support, systems and applications management and
                  customer care for our customers and their end-users.

         Our services portfolio consists of the following solutions:

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         Web Hosting. We provide virtual, dedicated and co-located Web hosting
services. These range from simple, low-end, marketing-oriented Web sites on a
server shared by many customers to high-end, Web-based, mission-critical
applications on hardware dedicated to a specific customer.

         Messaging/Knowledge Management. We offer a range of messaging and
knowledge management hosting solutions for the Lotus Notes/Domino and Microsoft
Exchange platforms. These solutions provide our customers with the
infrastructure needed to support e-mail and other messaging methods for internal
and external communication, project team collaboration and document sharing and
to improve business process automation and workflow. We also provide outsourced
messaging solutions based on industry-standard e-mail technologies, such as POP
and SMTP, as well as proprietary messaging solutions, including our eReach for
messaging.

         Customer Relationship Management. Our Customer Relationship Management
(CRM) solutions, which are based on software provided by companies such as Onyx
and Pivotal, provide geographically distributed sales and marketing
organizations with all the elements needed to deploy sales force automation,
partner relationship management and other CRM solutions quickly and at a
reasonable cost.

         E-Commerce. We provide e-commerce solutions based on IBM Net.Commerce,
Microsoft SiteServer, Mercantec SoftCart and other applications. Our e-commerce
solutions allow our customers to create and manage electronic storefronts and
provide end-to-end online e-commerce solutions.

         Distributed Learning. Our distributed learning solutions, which are
based on software provided by Lotus, Macromedia and other companies, allow our
customers to create online learning and training environments.

         Infrastructure/Security Solutions. Our infrastructure/security
solutions allow our customers to implement and deploy technologies that enhance
the performance of their hosted e-business solutions. These technologies include
managed firewall services, load balancing, and caching solutions from vendors
such as Cisco Systems, Check Point Software, ArrowPoint Communications, and
Alteon WebSystems.

         Internet Professional Services. We implement, enhance and support all
of our ASP solutions with Internet professional services, either provided by our
own consultants or by our business partners. Our Internet professional services
include capabilities to create intranet, extranet and application hosting
solutions for our customers, as well as provide network implementation, security
implementation and back-end Web development projects. These services are a key
part of our ASP service delivery, enabling us to provide our customers with an
end-to-end outsourced solution.

         We have three state-of-the-art primary data centers, located in
Atlanta, Georgia, Houston, Texas and Vienna, Virginia. These data centers are
monitored on a 24x7 basis and include sophisticated monitoring and diagnostics,
24x7 customer support, multiple high speed network connections to the Internet
and uninterruptible power supplies, fire suppression and external fuel
generators.

         We have grown rapidly since our inception in December 1997, acquiring
23 hosting and related Internet service businesses through February, 2000. In
addition, we have established strategic relationships that enable us to provide
complete, scalable and reliable ASP services to our customers and business
partners. Our current strategic alliances include partnerships with IBM, Dell

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Computer, BMC Software, Lotus Development, Microsoft, UUNET Technologies,
Network Solutions, Cisco Systems and Onyx.

          In February 2000, we acquired reSOURCE PARTNER, Inc. and Soft Link,
Inc. These acquisitions expand our business into the Enterprise Resource
Planning (ERP) market by extending our service offerings to include the
implementation and hosting of PeopleSoft solutions. reSOURCE PARTNER is a
leading provider of hosting services for outsourced human resources and finance
solutions and a certified PeopleSoft partner and Soft Link, Inc. is an
international professional services firm that specializes in expert-level
implementation and management support to PeopleSoft customers. As part of our
acquisition of reSOURCE PARTNER, we also acquired a data center in Columbus,
Ohio. Except where specifically stated, the acquisitions of reSOURCE PARTNER,
Inc. and Soft Link, Inc. are not reflected in this Report on Form 10-K.

Industry Background

         Growth of the Internet. The Internet is experiencing significant growth
and is emerging as a global medium for communications and commerce.
International Data Corporation ("IDC") estimates that the number of Web users
worldwide will increase from approximately 142.2 million at the end of 1998 to
502.4 million by the end of 2003, a 29.0% compounded annual growth rate. IDC
also estimates that the number of Web users in the United States will increase
from approximately 62.8 million at the end of 1998 to 177.0 million by the end
of 2003, a 23.0% compounded annual growth rate. During this same period, the
number of business Web sites in the United States is projected by Forrester
Research, Inc. to increase from approximately 650,000 in 1998 to approximately
2.6 million in 2002, a 41.1% compounded annual growth rate. This growth in the
number of Web users and number of Web sites is being driven by a number of
factors including the large and growing installed base of personal computers,
easier and less expensive alternatives for Internet access, an increase in the
number of networked applications and the proliferation of broadband technologies
that promise consumers faster, more convenient access to the Internet.

         Growth in Business Use of the Internet. The dramatic growth in usage
combined with enhanced functionality and accessibility have made the Internet an
increasingly attractive medium for businesses to disseminate information, engage
in e-commerce, build customer relationships, streamline and automate
data-intensive processes and communicate more efficiently with dispersed
employees.

         In the last several years, businesses have emerged with operating
models that are exclusively dependent on the Internet, while traditional
businesses of all sizes are working quickly to establish a Web presence. Many of
these businesses establish their initial online presence with a simple, static
brochure for marketing purposes. As they become more familiar with the Internet
as a communications platform, an increasing number of businesses are
implementing more complex, mission-critical applications on the Web for sales,
customer service, customer acquisition and retention, employee communications
and e-commerce between suppliers and business partners. IDC projects that
worldwide commercial business commerce on the Internet will grow from
approximately $27.4 billion in 1998 to approximately $1.0 trillion by 2003, a
compounded annual growth rate of 104.5%.

         Trend Toward Outsourcing. According to IDC, firms worldwide are now
spending approximately 30% of their overall IT services budgets on outsourcing.
These services include network consulting and integration, network and desktop
outsourcing, information services consulting and outsourcing and application
outsourcing. Reasons for the growth in outsourcing include the desire of
companies to focus on their core businesses, the increased costs that businesses
experience in developing and maintaining their networks and software
applications, the fast pace of technological change that shortens time to
obsolescence and increases capital expenditures as companies attempt to
capitalize on leading-edge technologies, the challenges faced by companies in
hiring, motivating and retaining qualified application engineers and IT
employees and the desire of companies to reduce deployment time and risk.

         Emergence of the Application Service Provider Industry. Companies are
increasingly relying on software applications to improve business process and
functions, develop new sales channels, improve customer relationships and reduce
costs. In addition, both new and traditional businesses are developing complex
Web sites to leverage e-commerce opportunities. However, given the

                                       6
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shortage of qualified IT professionals, the increasing cost and complexity of
applications and the importance of time to market cycles, many companies are
finding it increasingly difficult to manage the quality of their IT assets.

         Application service providers combine Internet professional services,
network and application management and hosting capabilities to deliver
applications as a service to their customers. Customers access applications that
are remotely hosted and managed by the ASP using the Internet or leased lines.
Typically, ASPs offer their services on a contractual basis, charging customers
a monthly fee. In contrast to traditional application outsourcing arrangements,
where the application outsourcer is responsible for managing custom built
applications for one customer, the ASP offers primarily packaged applications
and manages those applications for multiple customers from a centrally located
facility. Dataquest Research Services forecasts the worldwide ASP market will
grow from $889 million in 1998 to $22.7 billion in 2003, representing a
compounded annual growth rate of 91.2%.

         We believe that the ASP model offers customers the following
advantages:

              o   Improved time to market. With rapid implementation
                  methodologies and applications management expertise, ASPs
                  enable customers to take advantage of the functionality of new
                  applications, without the difficulties associated with long
                  implementation cycles and attracting qualified IT talent. In
                  addition, ASPs attempt to minimize customization, therefore
                  reducing the time and total expense associated with any
                  specific application implementation;

              o   Improved performance. As the complexity of applications and
                  networks increases, customers are finding it difficult to
                  manage and maintain the performance of their IT systems. By
                  offering service level agreements and utilizing the latest
                  technology, ASPs are able to offer guaranteed levels of
                  service that are not easily attainable by customers' internal
                  IT departments;

              o   Focus on core competencies. By outsourcing the delivery and
                  management of certain applications, customers can better
                  utilize scarce internal IT resources;

              o   Access to best-of-breed applications and technology. ASPs
                  utilize the latest data center technologies, network
                  management tools and leading applications to provide a wide
                  range of solutions. Customers of ASPs, therefore, have the
                  flexibility to select the best-of-breed solutions, from
                  multiple technology vendors, for many of their
                  mission-critical functions; and

              o   Reduced total cost of ownership. Until recently, the
                  implementation of applications required either the development
                  of in-house software applications or the customization of
                  existing packages, making each implementation unique and
                  costly. It also made implementation time frames and costs
                  unpredictable. By outsourcing to an ASP, companies are able to
                  better forecast and plan for monthly IT expenditures.

Our Opportunity

         The emerging ASP market is fragmented and is currently being served by
a range of companies, most of which, such as those described below, offer only a
portion of the services provided by full service ASPs:

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         o        telecommunications companies and Internet service providers
                  which typically provide data center facilities and network
                  connectivity;

         o        hosting companies, which typically provide data center
                  facilities, network connectivity and computer and storage
                  hardware;

         o        software companies, which typically provide application and
                  database software; and

         o        IT services companies, which typically provide implementation
                  services and post implementation support.

         As a full service ASP, we provide this entire range of services,
including data center facilities, network connectivity, computer and storage
hardware, systems and applications management, application development tools,
application and database software, implementation services and post
implementation support. Through these capabilities, we can rapidly design,
implement, deploy and effectively manage cost effective e-business solutions for
our customers. We believe that a significant market opportunity exists for an
internationally recognized ASP with the scale and expertise to offer a wide
range of outsourced e-business solutions to businesses of all sizes.

Our Solution

         We design, implement and deploy ASP solutions that enable our customers
to effectively manage e-business solutions in a rapid and cost effective manner.
We offer the technological expertise, partnering ability and understanding of
the business and licensing models which we believe are essential to succeed in
the ASP marketplace. We provide solutions to customers ranging from small
businesses to large enterprises in a variety of vertical markets across a wide
range of industries. We believe we have developed the infrastructure, resources,
systems and application management expertise and industry relationships to
capitalize on this emerging market opportunity.

         We provide the following advantages to our customers:

         Rapid Implementation. Designing, implementing, and deploying e-business
solutions is a complex problem requiring appropriate staff with the correct
skill sets. Our hosting solutions provide our customers with our pre-configured
infrastructure and our experienced team of consultants to rapidly implement
their e-business solutions.

         Comprehensive Hosting Solutions. Our hosting solutions provide our
customers with continuously available remote access to mission-critical
applications and data. These solutions help to ensure that our customers'
applications and Web sites are continuously online and deliver data rapidly to
users. Our primary state-of-the-art data centers provide high-quality
performance and reliability through features such as a redundant, high-speed,
secure network architecture, continuous monitoring, alternate power sources,
environmental controls, regular data back-ups and a fault-tolerant hosting
platform. Our Network Operations Centers monitor our network on a 24x7 basis and
allow our staff to minimize service interruptions.

         Customer Service. We are dedicated to providing the highest quality
customer service. Our customer service organizations can address technical
problems on a 24x7 basis. We have invested in advanced customer service software
and call routing technology to streamline the customer service process. We also
offer a self-service customer support alternative, which

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provides online access to account and billing data and site statistics such as
disk storage capacity and bandwidth utilization.

         Cost-Effective Solutions. Our customers benefit from the capital and
labor investments that we have made to support hosting and other Internet
services. For customers to replicate our performance and reliability, they would
be required to make significant expenditures for hardware, data center
facilities, connectivity and personnel. We believe that our hosting solutions
are significantly more cost-effective and reliable than in-house solutions, both
for businesses with low-end application requirements as well as for those
businesses whose Internet operations are mission-critical and require
sophisticated application support.

Services

      Our services portfolio consists of the following solutions:

Web Hosting Services

         We offer a comprehensive suite of solutions to meet the current and
future Web hosting needs of our customers. We provide virtual, dedicated and
co-located hosting services. The following table sets forth certain information
with respect to our Web hosting services.

<TABLE>
<CAPTION>

-------------------------------------------------------------------------------------------------------------
Hosting Services        Price                Web Site Profile      Key Features         Customer Benefits
----------------------- -------------------- --------------------- -------------------- ---------------------
<S>                     <C>                  <C>
Virtual                 $20-$350             Static Web            Shared space on      Economical
                        per month            Pages, moderately     Interliant-owned
                                             Accessed sites        server

Dedicated               $100-$5,000          Dynamic Web           Dedicated            Greater server
                        per month            Content, heavily      Interliant-owned     resources
                                             Accessed sites        server in shared     requiring
                                                                   rack                 minimal
                                                                                        customer
                                                                                        maintenance

Co-Located              $500-$40,000         Mission-critical      Secure cabinet       Greater
                        per month            Applications          for customer-        customer
                                                                   owned server         control/access
                                                                                        to hardware
-------------------------------------------------------------------------------------------------------------

</TABLE>

         The foregoing prices are representative of products marketed under the
Interliant brand and may not be representative of our products marketed under
other brand names. Customers generally pay monthly, quarterly or annual fees for
the services used, as well as one-time fees for installation and any equipment
purchased by the customer.

         Virtual Hosting. Our virtual hosting solution provides customers with
all the elements needed to establish a basic presence on the Web at a reasonable
cost, making it an economical solution for relatively simple or moderately
accessed Web sites. This entry-level service is known as virtual hosting because
the customer's home page has its own domain name and appears to

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exist as a stand-alone server. It operates with the speed and efficiency of our
high-speed connections and its location at our facility remains invisible to Web
site visitors. Customers are able to have their own Web site with a domain name
at a fraction of the cost of maintaining it themselves. Because customers do not
need to invest in costly hardware or personnel to accommodate future growth, we
believe this solution also maximizes the customers' flexibility.

         Dedicated Hosting. As companies increase the complexity, level of
traffic or reliance on their Web sites, they may prefer to host their Web site
on a dedicated server, which is typically owned and maintained by us. A
dedicated server provides greater server and network resources to our customers
than virtual hosting and allows them to configure their hardware to optimize
site performance. Customers receive a high level of site security, maintenance
and technical support without the prohibitive costs of setting up and
maintaining their own server and Internet connection. We support most leading
Internet hardware and software system vendor platforms, including Solaris, which
operates on a Sun Microsystems platform, Microsoft Windows NT, which operates on
an Intel/PC platform and Linux, which operates on a Cobalt Networks platform.

         Co-located Hosting. We provide co-located hosting services in each of
our primary data centers for customers with sophisticated, mission-critical
applications. This solution allows the customer to own and access their servers
on a 24x7 basis while delegating the day-to-day management of their Web site to
our IT specialists. In addition, co-located servers are housed in separate,
limited-access rooms in our data centers.

Messaging/Knowledge Management

         We offer our customers a broad spectrum of messaging/knowledge
management solutions. These solutions allow a customer's widely distributed work
force to share software applications hosted on computers owned and managed by
us. Our messaging/knowledge management solutions provide feature-rich e-mail and
other types of messaging for internal and external communication. These
solutions also support workgroup and project team collaboration and document
sharing, business process automation and workflow, as well as proprietary or
custom applications built for this platform.

         We provide hosting for messaging/knowledge management applications
based on the Lotus Notes/Domino and Microsoft Exchange platforms. We also
provide outsourced messaging solutions based on industry-standard e-mail
technology, such as POP and SMTP, as well as proprietary messaging solutions,
including our eReach for messaging. We host these solutions on both shared and
dedicated servers at one of our data centers or on the customer's premises.
Customers can connect to our servers using the Internet or a variety of private
network options, including frame relay, dedicated lines and local dialup access
in more than 100 Countries.

Customer Relationship Management

         Our customer relationship management (CRM) solutions provide
geographically distributed sales and marketing organizations with all the
elements needed to quickly deploy sales force automation, partner relationship
management or other customer relationship management solutions. Our CRM
offerings are based on software from leading CRM software providers such as
Onyx. Our solutions are hosted on both shared and dedicated servers at one of
our data centers or on the customer's premises.

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E-Commerce Capabilities

         We offer a variety of e-commerce solutions to help businesses create
and maintain a successful electronic commerce presence on the Web. E-commerce
provides businesses the ability to sell products and services on the Internet.
Our e-commerce offerings include:

              o   Net.Commerce from IBM, which allows our customers to rapidly
                  plan, create and implement a fully manageable e-commerce Web
                  site using the IBM Net.Commerce software platform;

              o   SiteServer from Microsoft, which allows our customers to
                  rapidly plan, create, and implement a fully manageable
                  e-commerce Web site using the Microsoft SiteServer software
                  platform;

              o   SoftCart from Mercantec, which allows users to create
                  sophisticated e-commerce Web sites that include order taking,
                  credit card processing and order fulfillment;

              o   CyberCash from Cybercash, Inc., which offers users a full
                  suite of Internet payment solutions, including credit card
                  services, micropayment and Internet check transactions; and

              o   ShopSite from Open Market, which allows users to build and
                  maintain catalogs of products or services to sell over the
                  Internet.

Distributed Learning

         Our distributed learning solutions allow our customers to create online
training and learning environments. We offer comprehensive solutions for
corporate and academic customers based on software from vendors such as Lotus.
These solutions include sophisticated course and student management systems and
online facilitation. Deployment of existing courses is very rapid, with students
typically able to access courses within a few days following registration.

Infrastructure/Security Solutions

         Our infrastructure/security solutions allow our customers to implement
and deploy technologies that enhance the performance of their hosted e-business
solutions. These technologies include managed firewall services, load balancing
and caching solutions from vendors such as Cisco Systems, Check Point Software,
ArrowPoint Communications, and Alteon WebSystems.

Internet Professional Services

         We implement, enhance and support our ASP services with Internet
professional services, either provided by our own consultants or by our business
partners. These services are a key part of our ASP service portfolio, enabling
us to provide our customers with end-to-end outsourced solutions.

         Our Internet professional services include capabilities to create
intranet, extranet and application hosting solutions for our customers, as well
as provide network implementation, security implementation and back-end Web
development projects. In addition, we provide support for our customers'
enterprise networking needs. We address the complete spectrum of services,
including desktop and network server support, network architecture and design,

                                       11
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strategic technology planning and application development and implementation. We
scale our Internet professional services to meet each client's needs.

Customers

         We have established a diversified customer base across our service
offerings. Our customer contracts range in duration from one month to three
years. Our customers include end-users representing a variety of business types,
ranging from small businesses to large enterprises. We also sell our services to
Web consulting firms, Internet service providers, network integration companies,
system integrators and other Internet-related companies who resell them to their
customers. We do not believe that the loss of any one customer would materially
adversely affect us.

Strategic Relationships

         Our strategic relationships and partnerships with leading technology
companies allow us to provide a wide range of services to meet our customers'
needs. The following is a description of selected companies with whom we have a
strategic relationship:

         IBM. We are a Premier Partner in the IBM Partnerworld Business Partner
program for Service Providers, as well as an IBM Strategic Alliance Partner. We
began offering the IBM Net.Commerce Hosting Server product line in January 1999
as an end-to-end e-commerce solution. IBM currently lists Interliant on its Web
site as one of a select group of partners that are able to offer this product.
We are also hosting IBM Net.Commerce solutions, Start and Pro, for dedicated
server customers who maintain large e-stores and require large scale
implementations.

         On October 22, 1999 we signed an agreement to create a sales and
marketing alliance to deliver application hosting solutions that combine IBM
e-business hardware and software with our hosting services. The first two
services being addressed under this alliance are: Interliant's eReach
application management service and hosted e-commerce solutions deploying IBM
WebSphere and IBM Net.Commerce. These solutions will be brought to market
through IBM's and our direct sales forces and IBM's and our Business Partner
channels. The alliance agreement includes obligations for both parties to work
together on joint marketing and sales activities. This agreement will expire on
December 31, 2000, unless terminated sooner upon 90 days advance written notice
by either party.

         Lotus Development. We believe we are a leading partner of IBM's Lotus
software division and are a Lotus Net Service Provider/Alliance Partner. We
provide a variety of messaging and hosting services for Internet, intranet and
extranet applications operating on Lotus Notes/Domino. We are currently listed
by Lotus on several sections of Lotus' Web site as one of a select group of
partners that provide hosting services for Lotus Notes/Domino and other Lotus
application solutions and have twice been recognized with Lotus' highest
recognition, the Lotus Beacon Award, most recently in January 1999.

         We are party to a Joint Development Agreement with Lotus Development,
dated April 27, 1998, which is scheduled to expire on April 27, 2000, subject to
automatic renewal for additional one-year terms unless terminated by either
party upon prior written notice. Under this agreement, together with Lotus we
co-developed Lotus' Domino Instant! Host now known as the Lotus Hosting
Management System (LHMS) platform, which enables application developers to
deploy and offer Web-based collaborative applications. Under the terms of this
agreement, we share joint development responsibilities with Lotus. Terms of this
agreement include:

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              o   We are obligated to contribute proprietary computer code owned
                  by us, to name one of our employees as the project liaison and
                  to provide non-dedicated architectural and project management
                  assistance to Lotus.

              o   Lotus is obligated to contribute substantially similar type of
                  intellectual property and personnel resources to the project.

              o   Lotus is obligated to pay us a royalty equal to 25% of the net
                  revenues received from licensing LHMS. The royalty percentage
                  may be adjusted at the request of Lotus not more than once
                  with respect to each new release of LHMS, however, such
                  adjustment may not reduce the royalty percentage by more than
                  half the percentage in effect at that time.

              o   We must pay Lotus at its standard rate for all copies of LHMS
                  which we desire to license.

              o   If Lotus engages in product development or promotional
                  activities which impact its ability to generate revenues from
                  the sale of LHMS, the agreement will terminate and Lotus will
                  be obligated to pay us up to $250,000 in penalties depending
                  upon the amount of royalties paid to us through the date of
                  termination.

         Microsoft. We are a Microsoft Certified Solution Provider ("MCSP") at
the Partner level. The Partner designation is the highest attainable level in
this program. We believe this designation provides us with preferred access to a
broad range of Microsoft resources and is a distinguishing factor for software
development firms and systems integrators looking to identify sources for
advanced hosting services such as those offered by Interliant.

         Our status with Microsoft provides us with the following:

              o   access to a local, field-based Microsoft representative;

              o   a corporate-based business development manager;

              o   designated points of contact in the customer units and
                  product groups;

              o   enhanced technical support;

              o   advance product notification;

              o   advance product releases;

              o   participation in beta programs;

              o   joint marketing programs; and

              o   sales leads and new business development opportunities
                  generated by Microsoft.

         We are one of ten designated Microsoft Application Service Providers,
defined by Microsoft as being able to provide superior infrastructure, service
and performance for hosted applications on the Microsoft platform.

                                       13
<PAGE>

         We are also designated as a rapid deployment partner for various
Microsoft products. As such, we are responsible for providing feedback on
Microsoft products in the advanced hosting and managed application markets prior
to release of those products and by doing so we have been able to provide
services and gain expertise on these products before the general market.

         Additionally, we are currently engaged in several strategic initiatives
with Microsoft, as described below.

         We have entered into a co-marketing and promotion agreement whereby
Microsoft will include our advertisements in a catalog that is inserted into
every FrontPage 2000 product box that is packaged for retail sale, as well as a
catalog that is inserted into every full package product versions of Office
Developer, Office Standard, Office Small Business, Office Professional and
Office Premium. Microsoft has also agreed that it will issue a press release on
its Web site highlighting our joint involvement in the promotion of FrontPage
2000. In return, we have agreed to feature Front Page 2000 on our Web site with
greater frequency and visibility than any competing product and have agreed to
offer either free Web hosting with a value of up to $105 or free or reduced
registration and set up fees with a value of up to $500, in order to induce the
public to host a FrontPage 2000 Web site. This agreement remains in effect until
the earlier of the initial release of the next version of FrontPage, Microsoft
ceasing to produce FrontPage, or December 31, 2000.

         We are also participating in a Microsoft initiative called the Complete
Commerce program. In conjunction with selected other MCSP's, we will incent
customers seeking to engage in e-commerce activities on the Web to enter into
this program by offering a specially priced, all inclusive storefront hosting
package that integrates shipping, credit card processing and tax elements. The
service will also include consulting and development of the storefront
application Web site, back-end integration and hosting activities. Microsoft
will provide resources to help us market this program, including promotional
activities, marketing activities and participation in the customer engagement
activities. Our marketing activities for the Complete Commerce program commenced
in April 1999.

         We are also participating in a Microsoft initiative called the Complete
Commerce Phase II program. This program will launch end-to-end hosting solutions
for corporate procurement, customer relationship management and accounting
customers.

         We are participating in Microsoft's Office Online pilot program and
have plans to offer Microsoft's desktop productivity suite over the Internet. As
part of this strategic initiative, we will deliver hosted and customized Office
2000 solutions, instant software updates and service releases. We will allow
customers to pay for services on a monthly basis. In addition, our hosting of
Office 2000 will provide small- to medium-sized businesses a new, pay-per-use
option for familiar Office applications including, Microsoft Word, Microsoft
Excel, Microsoft PowerPoint, Microsoft Access, Microsoft FrontPage and Microsoft
Outlook.

         We are also engaged in research and development efforts with the
Microsoft Exchange 2000 Product Team to develop a robust hosting platform for
collaborative applications running on Exchange 2000.

         All of these initiatives supplement our current shared and advanced
dedicated server offerings for Microsoft NT 4.0, IIS 4.0, SQL, 6.5/7.0,
FrontPage 98, FrontPage 2000 and Office Server Extensions. Dedicated and shared
server offerings based on Windows 2000 are currently under development. We plan
to launch these service offerings in the second half of 2000.

                                       14
<PAGE>

         Any aspect of this relationship may be terminated at any time by either
party. We currently have no material financial commitments under any of these
agreements or programs; and we do not expect either of these agreements to
generate any material financial commitments for us in the future.

         We also have a strategic partnership with UUNET Technologies to be our
primary connectivity provider on a worldwide basis. See "Technology and Network
Operations--Connectivity."

         Since our initial public offering in July 1999, we have entered into
the following additional strategic relationships:

         Network Solutions. We have entered into a strategic alliance with
Network Solutions, Inc. to deliver enhanced Internet identity and hosting
services for small and medium-sized businesses. Under the terms of this
agreement, Interliant and Network Solutions will offer and promote our
respective products and services to each other's existing and potential
customers. In particular:

              o   We will continue to offer our customers the benefit of Network
                  Solutions' registration services in the .com, .net and .org
                  top-level domains to help them establish their unique Internet
                  identities;

              o   We will provide access to the dot com directory (TM) through
                  a link on our Web site;

              o   Network Solutions will promote our services on its Web site,
                  on the dot com directory and in a variety of other promotional
                  campaigns. Network Solutions will continue to refer customers
                  to us as an Alliance Program member and the two companies will
                  engage in joint sales efforts with the goal of offering those
                  customers the benefits of our hosting and both parties'
                  services;

              o   Network Solutions will also expedite the registration process
                  for our customers and will provide dedicated advanced account
                  management for our customers with 24x7 support; and

              o   Interliant and Network Solutions will explore joint
                  development of a rentable application offering that would
                  allow small and medium-sized businesses to leverage the power
                  of an Internet-based hosted application without the
                  traditional Infrastructure required to host and administer
                  one.

         Cisco Systems. We have entered into a strategic relationship with Cisco
Systems to provide comprehensive solutions to our customers utilizing Cisco
Systems access and switching products. As part of an Interliant overall IT
solution including design, installation, project management and post-sales
support, we are authorized to distribute Cisco Systems products, both
domestically and on a multinational scale, at substantial discounts to the
retail prices available generally. This relationship also grants us substantial
discounts on Cisco Systems products allocated for our internal uses.

         Onyx. We have entered into a strategic relationship with Onyx, a leader
in e-business software and a professional services provider, to provide
comprehensive solutions for Onyx's customer relationship management
applications, Onyx Front Office and Onyx Enterprise Portal. As part of this
relationship, Interliant will provide European Customers with application set

                                       15
<PAGE>

up and configuration at its data center, operating system and application level
administration as well as customer support for Onyx Front Office and Onyx
Enterprise Portal. Outside of Europe, these implementation services will be
initially offered through Interliant partnerships with Onyx system integrators.

         In addition to the above relationship, Onyx has selected Interliant as
one if its ASPiN partners. Onyx ASPiN is a global program that includes
software, hardware and services companies working together and independently to
deliver a wide-ranging set of unique hosted offerings based on the Onyx Front
Office product family.

         Dell Computer Corporation. In February 2000, we entered into an
alliance agreement with Dell under which we will collaborate to bring Web-based
services to market. Under the terms of the agreement, Interliant will provide
certain services to Dell. As part of the deal, Dell has agreed to sell its
PowerEdge servers and PowerVault storage products to us for use in our hosting
service.

         BMC Software. We have executed an agreement with BMC Software under
which we have agreed to standardize BMC Software's monitoring products to
support our hosting platforms and customer premise servers. BMC Software will
also join us in co-marketing activities intended to promote our respective
products and services. We will also promote one another's products and services
to our respective current and potential customers.

         @viso Limited. In February, 2000, we and @viso Limited, a company
incorporated under the laws of England and Wales and owned 50% by Softbank
Holdings, Inc. and 50% by Vivendi, S.A., agreed to form a corporation,
Interliant Europe B.V., to be owned 51% by us and 49% by @viso Limited. Through
Interliant Europe, we plan to launch Web hosting, application hosting and
related services in continental Europe. @viso has loaned us the amount required
to purchase our equity interest in Interliant Europe (approximately $7.7
million). We have also agreed to license some of our technology and intellectual
property to and to enter into a service agreement with Interliant Europe.

Acquisition Program

         We have completed 23 acquisitions through February, 2000 and we intend
to seek additional acquisitions. We seek to identify businesses which will add
application expertise and service offerings, customers, added sales capabilities
and/or geographic coverage while generating a positive rate of return on
investment. Furthermore, we intend to capitalize on the business practices of
acquired companies that we believe will best maintain our competitive advantages
and ensure ongoing delivery of high quality hosting services to our customers.
The acquisition candidates we review can be large, and their acquisition by us
could have a significant and lasting impact on our business.

         The following table sets forth certain information with respect to the
23 acquisitions completed by us since our inception.


<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
          Date                          Name                   Primary Focus          Location at Acquisition
-------------------------------- ------------------------- ------------------------- -------------------------
<S>                               <C>                      <C>                       <C>
February 1998..............      DirectNet                 Web hosting               California
April 1998.................      Clever Computers          Web hosting               Georgia
April 1998.................      Server and network        Web hosting               Washington, D.C.
                                    connectivity assets
                                    from Knowledgelink
                                    Interactive
</TABLE>

                                       16
<PAGE>

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
          Date                          Name                   Primary Focus          Location at Acquisition
-------------------------------- ------------------------- ------------------------- -------------------------
<S>                               <C>                      <C>                       <C>
May 1998...................      Tri-Star Web Creations    Web hosting               New York
June 1998..................      HostAmerica               Web hosting               Georgia
June 1998..................      All Information Systems   Web hosting               Texas
July 1998..................      Software Business         Web hosting               California
                                    Technologies Web
                                 Hosting business unit
July 1998..................      DevCom                    Web hosting               California
July 1998..................      Maikon                    Web hosting               Texas
August 1998................      ICOM                      Web hosting               California
September 1998.............      GEN International         Web hosting               Florida
December 1998..............      Dialtone                  Web hosting               Florida
February 1999..............      DigiWeb                   Web hosting               Washington, D.C.
February 1999..............      Telephonetics             Multimedia                Florida
                                    International
February 1999..............      Net Daemons Associates    Professional Services     Massachusetts,
                                                                                     California and Colorado
March 1999.................      Interliant Texas          Messaging, CRM,           Texas and London,
                                                           e-Commerce, Distributed   England
                                                           Learning
May 1999...................      Advanced Web Creations    Web hosting               New Jersey
August 1999................      Daily-e                   Professional Services     New York
September 1999.............      Sales Technology          CRM                       London, England
November 1999..............      Triumph Technologies      Professional Services,    Massachusetts
                                    and Triumph            e-business security
                                    Development            solutions
December 1999..............      The Jacobson Group        Professional Services     Massachusetts
February 2000..............      reSOURCE PARTNER, Inc.    ASP                       Ohio
February 2000..............      Soft Link, Inc.           Professional Services     Minnesota
--------------------------------------------------------------------------------------------------------------
</TABLE>

         Once we acquire a company, a multi-disciplinary team engages in a
detailed integration process. Technical integration often involves physically
moving the acquired company's equipment into one of our facilities and migrating
acquired company customers onto our hosting platforms. Our platforms are
typically more robust than that of the acquired company and standardization
allows us to manage the servers more efficiently. We also intend to continue to
integrate customer service operations at our primary data centers. By
centralizing customer service, we believe that we can improve performance while
reducing cost. We also intend to continue transitioning acquired company
operations onto a consistent billing platform. This platform will be serviced by
our personnel at a centralized location and employ uniform systems and
procedures to operate multiple billing systems.

Sales and Distribution

         Our sales and marketing group sells our ASP solutions to our customers
through the following sales channels:

         Direct Sales, which sells ASP solutions to large enterprises and other
businesses whose Internet operations are mission-critical.

                                       17
<PAGE>

         Telesales, which acquires new customers through inbound calls generated
through traditional media and outbound telesales to pre-qualified potential
customers.

         Internet Marketing programs that drive potential customers to our Web
site or our telesales group. Customers can purchase Web hosting services on a
24x7 basis from our Web site at www.interliant.com.

         Indirect Sales consisting of reseller and referral partners, such as
Web consulting firms, Internet service providers, independent software vendors,
network integration companies and system integrators. These distribution
partners have established relationships with our prospective customer base as
well as sales forces capable of selling our ASP solutions. These indirect sales
channels extend our market reach and assist in the delivery of complete
solutions to meet customer needs. We offer our partners a discount from our
retail price on both products and services.

Marketing

         We market our ASP solutions using a variety of media and channels. We
intend to continue investing in building the Interliant brand worldwide, using
print advertisements in key industry publications, broadcast advertising, direct
marketing and online advertising, such as general rotation and keyword-specific
Web banner advertisements, as well as other marketing techniques. In addition,
we intend to employ a number of other marketing tactics and communications
vehicles, such as product literature, trade shows, promotions with key hardware
and software vendors, direct response programs and our Web site to generate
leads and increase awareness of our brand. Our products are available from our
primary Web site at www.interliant.com as well as at www.appsonline.com. We
expect to increase our marketing expenditures in order to support our brand
marketing and lead-generation efforts. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."

         When an acquired company's brand is already well-established, we may
for a period of time continue to market certain products and services under that
brand to capitalize on the competitive advantages the acquired brand may bring
to us. Our long-term goal, however, is to migrate most of our acquired product
offerings to our brands.

Technology and Network Operations

         We have developed a secure, reliable, high-performance and scalable
hosting solution, which we believe provides a significant competitive advantage
in the market. This solution is comprised of multiple hosting platforms that
incorporate automated functionality and a network infrastructure that includes
multiple Internet data centers and is monitored on a 24x7 basis. Our strategy in
developing our ASP solutions focuses on utilizing internally created
technological innovations that we integrate with leading software and hardware
providers.

         ASP Hosting Platform. Although industry-standard Web servers are
adequate for basic Web hosting, we believe that efficiently managing large
numbers of Web sites and users on a single server or managing complex,
Internet-based applications requires significant technological innovations. We
have developed proprietary hosting platforms that permit us to integrate
existing hardware and software products, such as those from Microsoft, Cisco
Systems, Compaq, Dell and Network Appliance, to create our hosting platform. We
have also developed Web server applications designed to improve performance in a
virtual server environment and we have implemented resource monitoring tools
designed to report and address scarcity of shared computer processing

                                       18
<PAGE>

units and memory resources. Our solution is scalable, allowing servers to be
added while being monitored centrally, independent of where they are located.

         Facilities and Operations. We have three state-of-the-art data centers,
located in Houston, Texas; Atlanta, Georgia and Vienna, Virginia. Our customer
service and network monitoring infrastructures are based in these primary data
centers. In order to provide our customers with high-quality service, we have
invested substantial resources in building our network infrastructure.

         We have designed our network to minimize the effect of any
interruptions. Our high-speed network is designed to continue operating in the
case of software or hardware failures. Our data centers feature separate,
redundant fiber and power connections, back-up diesel generators, environmental
control systems and uninterruptible power supplies designed to provide on-site
power for up to four weeks. Systems receive full daily back-ups and off-site
storage. We also provide remote access management and reporting tools. Quality
and security are paramount concerns for our customer base. Consequently, we
employ several security measures, including firewall, intrusion monitoring and
site security monitoring, limited access electronic card key measures and the
physical separation of servers from administrative workstations. We have also
implemented monitoring systems to identify potential sources of failure, limit
downtime and notify our staff of any problems. Although we have attempted to
build redundancy into our network and hosting facilities, our data centers are
subject to various single points of failure and a problem with one of our
routers or switches could cause an interruption in the services we provide to
some of our customers.

         Our Vienna, Virginia facility is a world-class data center located
within a mile of MAE-East, the major East Coast data hub to the Internet,
facilitating the most scalable Internet connectivity and reliable network
services available. Originally an America Online data center, this 22,270
square-foot facility features the latest in state-of-the-art equipment and
design, including MGE Uninterruptible Power Systems, multi-carrier connectivity,
environmental monitoring and conditioning and end-to-end physical security
systems. We believe these features ensure stable, reliable operation of
applications.

         Historically, our Houston data center housed our application hosting
operations and our Atlanta center housed our Web hosting operations. Each of
these centers, as well as our data center in Vienna, Virginia, are capable of
providing a full range of ASP hosting. We anticipate that over time the
functional distinctions between our data centers will diminish.

         Our Network Operations Centers are responsible for monitoring our
entire network, server farm and hosted applications on a 24x7 basis. We monitor
each piece of equipment, including routers, switches and servers. The NOCs also
monitor all Internet and telecommunications connections and ensure that they are
functional and properly loaded. The design of the NOCs enables systems
administrators and support staff to be promptly alerted to problems and we have
established procedures for rapidly resolving any technical problems that arise.
The NOCs are fully integrated into our customer service facilities.

         Connectivity.  We offer connectivity to our systems from virtually
anywhere in the world, enabling customers to deploy global solutions. Customers
can access us:

              o   via the Internet;

                                       19
<PAGE>

              o   through X.28 connections provided by Compuserve and Equant,
                  N.V. in more than 105 countries;

              o   through dedicated lines at a bandwidth they specify;

              o   over Frame Relay through AT&T, Sprint and MCI Worldcom; or

              o   domestically via a toll-free number.

         We utilize multiple DS-3 connections to the Internet provisioned
directly off a SONET ring from each of our three primary data centers. In
addition, we currently utilize four OC/3 sized circuits from our Atlanta
facility and another single OC/3 connection from our Virginia facility.
Internally developed management and monitoring systems provide insight into the
performance of our entire network, as well as consistency of security measures
across all of our current hosting platforms.

         By utilizing top tier connectivity providers and developing private
peering arrangement with bandwidth providers, we are able to offer highly
resilient, redundant and high speed connectivity between the Internet and each
of our data center facilities.

         On February 17, 1999 we entered into an agreement with UUNET
Technologies to be our primary connectivity provider on a worldwide basis. The
agreement is scheduled to expire on February 19, 2002, subject to automatic
renewal for an additional year unless either party notifies the other of its
intent not to renew. Terms of this agreement include:

              o   UUNET Technologies has agreed to provide and we have agreed to
                  purchase monthly minimum levels of connectivity ranging from
                  100 Mbps to 600 Mbps of bandwidth.

              o   Upon execution of this agreement we were committed to purchase
                  100 Mbps of bandwidth per month.

              o   Our minimum monthly bandwidth purchase commitment increased to
                  300 Mbps in December 1999 and will increase to 600 Mbps in
                  December 2000.

              o   We have agreed that, if during the second and third years of
                  this agreement, we obtain over 600 Mbps of bandwidth per month
                  for our Internet traffic, we will purchase 51 % of all
                  bandwidth in excess of 600 Mbps from UUNET Technologies. If we
                  do not purchase 51% of all bandwidth over 600 Mbps from UUNET
                  Technologies, we are obligated to pay UUNET Technologies
                  $21.66 for each Mbps we are obligated but fail to purchase
                  from them.

         Under the terms of the agreement, the connectivity may range in
capacity from T-1 to DS-3 to OC-12 which are the technical names of the physical
telecommunications connections or pipelines that will be used to transport data.
A larger pipeline can carry a greater volume of data at a greater speed. For
example, a T-1 can carry 1.544 megabytes per second; a DS-3 can carry 44.736
megabytes per second and an OC-12 can carry 622 megabytes per second. At our
Atlanta data center, we have four OC-3 connections to diverse hubs in UUNET
Technologies' network, each of which can carry 155.52 megabytes of data per
second and use diverse fiber for redundancy. In addition to the connectivity
provisions, our companies have agreed to develop and implement a joint marketing
program including:

                                       20
<PAGE>

              o   allowing us to resell UUNET Technologies services through
                  our network of resellers;

              o   cooperating on mutually beneficial hosting and co-located
                  remarketing agreements; and

              o   cooperating on an international co-location facilities
                  agreement.

         Our minimum financial commitment during each year of the agreement is
as follows: $0.7 million in year one, $2.1 million in year two and $4.1 million
in year three.

Customer Service

         We view customer service as a critical part of our business strategy.
As of December 31, 1999, our customer service group had 176 employees located
mainly in our primary data centers. This group is responsible for providing
customer service to all of our customers as well as our resellers and referral
partners, including helping customers to use our ASP solutions.

         We have invested in advanced customer service software and call routing
technology to streamline the customer service process. Through our customer
service systems, customer service representatives can generally resolve any
issue in a timely manner via e-mail or our toll-free number. We also offer a
self-service customer support alternative, which provides online access to
account and billing data and site statistics such as disk storage capacity and
bandwidth utilization. Certain customer accounts also have access to dedicated
support engineers who are familiar with each unique configuration or requirement
a larger customer may have.

         A focused support team handles all the application hosting support
requirements via several mechanisms including a facilitated discussion database
environment available over the Internet where customers, application developers
and support technicians can discuss pertinent issues and build a relevant
knowledge base. Our Web hosting customer service operations are supported by the
Vantive Support system, a customer/asset management tracking application that
enables a customer service representative to view a customer's entire account,
including past and recent interactions with such customer. This database
categorizes all reported problems so that if a particular problem reoccurs,
customer service representatives can view its prior resolution and provide
timely and accurate customer service.

Competition

         The market served by us is highly competitive. Although barriers to
entry and continued growth are increasing, there are still few substantial
barriers to entry. We expect that we will face additional competition from
existing competitors and new market entrants in the future. The principal
competitive factors in this market include:

              o   quality of service, including network capability, scalability,
                  reliability and functionality;

              o   customer service and support;

              o   variety of services and products offered;

              o   price;

                                       21
<PAGE>

              o   brand name;

              o   Internet system engineering and technical expertise;

              o   timing of introductions of additional value added services
                  and products;

              o   network security;

              o   financial resources; and

              o   conformity with industry standards.

         We may not have the resources, expertise or other competitive factors
to compete successfully in the future.

         Our current and potential competitors include:

              o   other ASPs, such as USinternetworking, FutureLink and Corio;

              o   other Web hosting and Internet services companies such as
                  Metromedia/AboveNet Communications, Exodus Communications,
                  Digital Island, GlobalCenter, Globix, NaviSite, Digex, Data
                  Return and local and regional hosting providers;

              o   national and regional Internet service providers such as
                  Concentric Network, MindSpring Enterprises, UUNET
                  Technologies, PSINet and Verio;

              o   global telecommunications companies including AT&T, British
                  Telecommunications, Telecom Italia and Nippon Telegraph and
                  Telephone;

              o   other Internet professional services companies such as iXL
                  Enterprises, USWeb/CKS and Breakaway Solutions; and

              o   regional and local telecommunications companies, including the
                  regional Bell operating companies such as Bell Atlantic and US
                  West.

         Many of our competitors have substantially greater financial, technical
and marketing resources, larger customer bases, longer operating histories,
greater name recognition and more established relationships in the industry than
we do. As a result, certain of these competitors may be able to develop and
expand their network infrastructures and service offerings more rapidly, adapt
to new or emerging technologies and changes in customer requirements more
quickly, take advantage of acquisition and other opportunities more readily,
devote greater resources to the marketing and sale of their services and adopt
more aggressive pricing policies than we can. In addition, these competitors
have entered and will likely continue to enter into joint ventures or consortia
to provide additional services competitive with those provided by us.

Intellectual Property Rights

         We rely on a combination of copyright, trademark, service mark, trade
secret laws and contractual restrictions to establish and protect certain
proprietary rights in our services. We have no patented technology that would

                                       22
<PAGE>

preclude or inhibit competitors from entering our market. The steps taken by us
to protect our intellectual property may not prove sufficient to prevent
misappropriation of our technology or to deter independent third-party
development of similar technologies. The laws of certain foreign countries may
not protect our services or intellectual property rights to the same extent as
do the laws of the United States. We also rely on certain technologies that we
license from third parties. These third-party technology licenses may not
continue to be available to us on commercially reasonable terms. The loss of the
ability to use such technology could require us to obtain the rights to use
substitute technology, which could be more expensive or offer lower quality or
performance and therefore have an adverse effect on our business.

         To date, we have not been notified that our services infringe on the
proprietary rights of third parties, but third parties could claim infringement
by us with respect to current or future services. From time to time, we are
notified that the content of one of our customer's sites infringes on a third
party's trademark or copyright. In response, we take steps pursuant to the
Digital Millenium Copyright Act to inform the customer of such claim and, where
appropriate, terminate a customer's service. We expect that participants in our
markets will be increasingly subject to infringement claims as the number of
services and competitors in our industry segment grows. Any such claim, whether
meritorious or not, could be time-consuming, result in costly litigation, cause
service installation delays or require us to enter into royalty or licensing
agreements. Such royalty or licensing agreements might not be available on terms
acceptable to us or at all. As a result, any such claim could have an adverse
effect upon our business.

Government Regulation

         We are not currently subject to direct federal, state or local
government regulation, other than regulations that apply to businesses
generally. Only a small body of laws and regulations currently applies
specifically to hosting and commerce activities, or access to the Internet. Due
to the increasing popularity and use of the Internet, however, it is possible
that laws and regulations with respect to the Internet may be adopted at
international, federal, state and local levels, covering issues such as user
privacy, freedom of expression, pricing, characteristics and quality of products
and services, taxation, advertising, intellectual property rights, information
security and the convergence of traditional telecommunications services with
Internet communications. Although sections of the Communication Decency Act of
1996 that, among other things, proposed to impose criminal penalties on anyone
distributing "indecent" material to minors over the Internet were held to be
unconstitutional by the U.S. Supreme Court, similar laws may be proposed,
adopted and upheld. The nature of future legislation and the manner in which it
may be interpreted and enforced cannot be fully determined and, therefore,
legislation similar to the Communications Decency Act could subject us and/or
our customers to potential liability, which in turn could have a material
adverse effect on our business, results of operations and financial condition.
The adoption of any such laws or regulations might decrease the growth of the
Internet, which in turn could decrease the demand for our services, increase the
cost of doing business or in some other manner have an adverse effect on our
business.

         We collect sales and other taxes in the states we have offices and are
required by law to do so. We currently do not collect sales or other taxes with
respect to the sale of services or products in all states and countries in which
we have offices and may be required by law to do so. One or more jurisdictions
have sought to impose sales or other tax obligations on companies that engage in
online commerce within their jurisdictions. A successful assertion by one or
more jurisdictions that we should collect sales or other

                                       23
<PAGE>

taxes on our products and services, or remit payment of sales or other taxes for
prior periods, could have an adverse effect on our business.

         In addition, applicability to the Internet of existing laws governing
issues such as property ownership, copyright and other intellectual property
issues, taxation, libel, obscenity and personal privacy is uncertain. The vast
majority of such laws were adopted prior to the advent of the Internet and
related technologies and, as a result, do not contemplate or address the unique
issues of the Internet and related technologies. Changes to such laws intended
to address these issues could create uncertainty in the marketplace that could
reduce demand for our services, increase the cost of doing business as a result
of costs of litigation or increased service delivery costs or could in some
other manner have an adverse effect on our business.

         Any new legislation or regulation, or the application of laws or
regulations from jurisdictions whose laws do not currently apply to our
business, could have an adverse effect on our business.

Executive Officers

         The following table sets forth certain information with respect to the
executive officers and directors of Interliant:


<TABLE>
<CAPTION>

                            Name                                 Age                    Title
                            ----                                 ---                    -----
<S>                                                              <C>
Leonard J. Fassler.......................................        68     Co-Chairman, Director
Bradley A. Feld..........................................        34     Co-Chairman, Director
Herbert R. Hribar........................................        48     Chief Executive Officer, Director
James M. Lidestri........................................        39     President
Francis J. Alfano........................................        38     Senior Vice President, Mergers and
                                                                        Acquisitions
Edward A. Cavazos........................................        31     Senior Vice President, Legal and
                                                                        Business Affairs and Assistant
                                                                        Secretary
Paul E. Chollett.........................................        40     Senior Vice President, Finance and
                                                                        Administration
Bruce S. Klein...........................................        41     Senior Vice President, General
                                                                        Counsel and Secretary
Jennifer J. Lawton.......................................        35     Senior Vice President, ASP Solutions
Kristian Nelson..........................................        36     Senior Vice President, Operations
Richard C. Rose..........................................        52     Senior Vice President, Sales
William A. Wilson........................................        54     Chief Financial Officer and Treasurer

</TABLE>

         Leonard J. Fassler is one of our co-founders and has been one of our
Co-Chairmen and a Director since our formation in December 1997. Mr. Fassler was
also our Secretary from December 1997 through April 1999. From 1992 to 1996,

                                       24
<PAGE>

Mr. Fassler was a Co-Chairman of AmeriData Technologies, Inc. ("AmeriData"), a
New York Stock Exchange-listed reseller of computer equipment and provider of
computer consulting and other services that was acquired by General Electric
Capital Corporation in 1996. Mr. Fassler was a co-founder of AmeriData which
grew into a company with sales in excess of two billion dollars a year and
locations in ten countries at the time that it was acquired. Mr. Fassler holds a
bachelor's degree in business administration from City College of New York and a
law degree from Fordham Law School.

         Bradley A. Feld is one of our co-founders and has been one of our
Co-Chairmen and a Director since our formation in December 1997. Since 1995, Mr.
Feld has been the President of Intensity Ventures Inc., a company that helps to
establish, advise and operate software companies. From 1993 to 1995, Mr. Feld
was the chief technology officer of AmeriData. From 1985 to 1993, he was
president of Feld Technologies, Inc., a computer consulting firm founded by Mr.
Feld to develop and implement information technology solutions for a wide
variety of businesses, which was acquired by AmeriData in 1993. Mr. Feld earned
a bachelor of science degree and a master of science degree from Massachusetts
Institute of Technology. Mr. Feld is a General Partner of SOFTBANK Technology
Ventures IV, L.P., SOFTBANK Technology Ventures V, L.P. and SOFTBANK Technology
Advisors Fund, L.P., venture capital funds. Mr. Feld is a director and
co-chairman of Message Media, Inc. and director of a number of privately held
companies.

         Herbert R. Hribar became our Chief Executive Officer effective January
31, 2000. Prior to joining us and since July 1998, Mr. Hribar had been President
and Chief Operating Officer of Verio, Inc., a domain-based Web hosting company.
Prior to Verio, Mr. Hribar was President of Ameritech Cellular in Chicago,
Illinois and President of Ameritech Europe in Brussels, Belgium. Mr. Hribar is a
graduate of the U.S. Naval Academy in Annapolis and has advanced degrees in
engineering, business, and computer science.

         James M. Lidestri has been our President since June 1999. Mr. Lidestri
served as our Executive Vice President from March 1999 until June 1999. From
March 1996 to March 1999, Mr. Lidestri was the President and Chief Executive
Officer of Interliant Texas. From February 1995 to March 1996, Mr. Lidestri was
employed at IBM Corporation, a vendor of technology systems, products, services
and software and financing where he served as Group Manager of the Collaborative
Services Division. As Group Manager, Mr. Lidestri was responsible for developing
market and product strategies for network-based collaborative services, with a
primary focus on Lotus Notes. From November 1990 to February 1995, Mr. Lidestri
served in a number of executive positions at Sprint Corporation, a global
communications company, including Director of Business Operations. Mr. Lidestri
holds a bachelor of science degree in computer science from Rensselaer
Polytechnic Institute and a masters degree in business administration from New
York University.

         Francis J. Alfano has served as our Senior Vice President, Mergers and
Acquisitions since December 1998. From January 1997 to November 1998, Mr. Alfano
was Vice President of Business Development at GE Capital Information Technology
Solutions, Inc., formerly AmeriData. From July 1994 to December 1996, Mr. Alfano
was Director of Taxes at GE Capital Information Technology Solutions, Inc. From
January 1991 to June 1994, Mr. Alfano was employed by Ernst & Young, an
accounting, tax and consulting firm and was a senior manager in the tax
department at the time of his departure. From 1984 to 1990, Mr. Alfano was
employed as a Certified Public Accountant with various public accounting firms.
Mr. Alfano holds a bachelor of science degree in business administration from
the University of Arizona and is a Certified Public Accountant.

                                       25
<PAGE>

         Edward A. Cavazos has served as our Senior Vice President, Legal and
Business Affairs since March 1999. In April 1999, he became our Assistant
Secretary. From March 1997 until he joined us, Mr. Cavazos was Senior Vice
President, General Counsel of Interliant Texas. From May 1994 until March 1997,
Mr. Cavazos was an associate attorney at the law firm of Andrews & Kurth, L.L.P.
In addition, Mr. Cavazos served as an Adjunct Professor at the University of
Texas School of Law from January 1998 through May 1998 and as an Adjunct
Professor at the University of Houston Law Center from September 1996 through
December 1996 and September 1997 through December 1997. Mr. Cavazos holds a
bachelor of arts degree in philosophy from the University of Texas and a law
degree from the University of Texas.

         Paul E. Chollett has served as our Senior Vice President, Finance and
Administration since March 1999. From July 1996 until he joined us, Mr. Chollett
was Senior Vice President and Chief Financial Officer of Interliant Texas. From
July 1993 to July 1996, Mr. Chollett was the Director of Finance and
Administration in the Audit Division of the accounting firm of Arthur Andersen
LLP. In this role, Mr. Chollett was responsible for managing the financial, risk
management and quality control aspects of the firm's audit practice. Mr.
Chollett holds a bachelor of science degree in accounting from the University of
Houston at Clear Lake City. Mr. Chollett is a Certified Public Accountant.

         Bruce S. Klein has served as our Senior Vice President, General Counsel
since December 1998. In April 1999, Mr. Klein became our Secretary. From April
1998 to November 1998, he was our General Counsel, Vice President. Mr. Klein had
previously been of counsel to the law firm of McCarthy, Fingar, Donovan, Drazen
& Smith, L.L.P, prior to which he was of counsel to the law firm of Spitzer &
Feldman P.C., in each case engaged in the general practice of law, with
experience in mergers and acquisitions and general corporate and business law.
Mr. Klein is admitted to practice law in New York and Massachusetts and holds a
bachelor's degree in business administration from Rutgers University and a law
degree from Western New England College School of Law.

         Jennifer J. Lawton has served as our Senior Vice President, Consulting
and Technology since February 1999. In March 2000, her title was changed to
Senior Vice President, ASP Solutions. From May 1992 until she joined us, Ms.
Lawton was the Chief Executive Officer of Net Daemons Associates, Inc., a
provider of Web development and system integration activity for Internet and IT
Networks which was acquired by Interliant in February 1999. Ms. Lawton is a
co-founder of Net Daemons Associates, Inc. Ms. Lawton holds a bachelor of
science degree in applied mathematics from Union College.

         Kristian Nelson has served as our Senior Vice President, Operations
since March 1999. From July 1997 until he joined us, Mr. Nelson was Senior Vice

                                       26
<PAGE>

President, Operations of Interliant Texas and was responsible for the direction
and control of all operational aspects of Interliant Texas's business including
product development, customer service and application and data center services.
From June 1996 through May 1997, Mr. Nelson served as Vice President, Operations
at GST Telecommunications, a full-service telecommunications provider. In this
role, Mr. Nelson was responsible for the oversight and control of GST Internet
Inc., the Internet subsidiary of GST Telecommunications. From June 1995 to
January 1996, Mr. Nelson was a Senior Management Consultant in the Technology
Strategy Practice area at Gartner Group, Inc., a company which provides IT
advisory services and consulting, where his responsibilities included providing
technical consulting services to Fortune 500 companies. From May 1986 to May
1995, Mr. Nelson was the Product Assurance Information Technology Director at
Lockheed Martin Corporation, a diversified technology company. At Lockheed
Martin, Mr. Nelson was responsible for developing and implementing information
technology strategic planning for the Product Assurance Group. Mr. Nelson holds
a bachelor of science degree in management science from Orlando College.

         Richard C. Rose has served as Senior Vice President, Sales since
January 2000. He served as President of Telephonetics, our wholly owned
subsidiary, from September 1999 to January 2000. From June 1998 until August
1999, Mr. Rose was a Vice President at Compucom, a large computer support
company, where he was responsible for sales in the company's Southeast region.
Prior to that time, Mr. Rose was Chairman and Chief Executive Officer of
Dataflex Corporation, a full service computer integrator, from 1984 until June
1998. Mr. Rose attended the U.S. Naval Academy and holds a bachelor of science
degree in mathematics from the University of Miami.

         William A. Wilson has served as our Chief Financial Officer since
September 1998 and as our Treasurer since August 1999. During the period from
February 1998 to July 1998, Mr. Wilson served as Vice President, Finance and
Chief Financial Officer at XCOM Technologies, Inc., a competitive local exchange
carrier. From October 1997 to February 1998, Mr. Wilson served as a consultant
to several private companies. From June 1997 to October 1997, Mr. Wilson served
as Senior Vice President, Finance and Chief Financial Officer of Computervision
Corporation, a software publishing and development company. Prior thereto, Mr.
Wilson was Executive Vice President and Chief Financial Officer of Arch
Communications Group, Inc., a wireless messaging company, from June 1996 to June
1997 and was Vice President, Finance and Chief Financial Officer of Arch
Communications Group, Inc. from January 1989 to June 1996. Mr. Wilson received a
bachelor of arts degree from Luther College, a master of science degree from
Northeastern University and a masters degree in business administration from
Babson College. Mr. Wilson is a Certified Public Accountant.

Employees

         As of December 31, 1999 we had 745 employees, of which 113 were in
sales, distribution and marketing, 305 were in engineering and service
development, 176 were in customer service and technical support, 144 were in
finance and administration and 7 were in acquisition integration. None of our
employees are represented by a labor union and we believe that our employee
relations are good.

Risk Factors

         In addition to the other information included in this Report on Form
10-K, you should consider the following risk factors. This Report on Form 10-K
contains forward-looking statements covered by the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements involve risks and uncertainties that may affect our business and

                                       27
<PAGE>

prospects. Our results may differ significantly from the results discussed in
the forward-looking statements as a result of certain factors which are listed
below or discussed elsewhere in this Report and our other filings with the
Securities and Exchange Commission.

We are a young company with an evolving business model.

We have a limited operating history and may not successfully implement our
business plan.

         We have a limited operating history. We were incorporated in December
1997 and began offering Web hosting services in February 1998. Through February,
2000, we have completed 23 acquisitions. As a result of our limited operating
history and numerous acquisitions, our business model is still developing. Our
business and prospects must be considered in light of the risks frequently
encountered by companies in their early stages of development, particularly
companies in the new and rapidly evolving Internet services market. Some of
these risks relate to our ability to:

              o   implement our sales and marketing strategy to support our
                  business and build the Interliant brand;

              o   identify, acquire and integrate strategic acquisitions and
                  then cross-sell our expanding range of branded services to the
                  customer bases of the acquired companies;

              o   provide reliable and cost-effective services to our customers;

              o   continue to build our operations and accounting
                  infrastructure to accommodate additional customers;

              o   respond to technological developments and new products and
                  services offered by our competitors;

              o   develop and offer new products and services or differentiate
                  such products and services from those offered by our
                  competitors;

              o   enter into strategic relationships with application software
                  vendors and other strategic partners that further advance our
                  objective to become a full service ASP;

              o   build, maintain and expand distribution channels; and

              o   attract and retain qualified personnel.

         We may not be successful in accomplishing these objectives. If we are
not successful, our business could be adversely affected.

We have a history of significant losses and cash flow deficits, which may
increase in the future.

         Since our inception in December 1997, we have experienced operating
losses and negative cash flow from operations for each quarterly and annual
period. We experienced net losses of approximately $53.9 million and $10.7
million in the years ended December 31, 1999 and 1998, respectively. As of
December 31, 1999, we had an accumulated deficit of approximately $64.8 million.
The revenue, cash flow and income potential of our business model is unproven
and our limited operating history makes it difficult to evaluate our

                                       28
<PAGE>

prospects. We anticipate that we will incur increased expenses, losses and cash
flow deficits as we expand our sales and marketing initiatives to continue to
grow the Interliant brand, fund greater levels of product development, continue
to build out our data centers, implement centralized billing, accounting and
customer service systems, implement strategic relationships and continue our
acquisition program.

         We have experienced significant growth in revenues, primarily
attributable to acquisitions. This growth rate is not necessarily indicative of
future operating results. Our future results will depend not only on continuing
our acquisition strategy but also on internal growth. We expect that future
acquisitions will increase our operating expenses and operating losses. As a
result, we expect to incur significant additional operating losses. We cannot
give any assurance that we will ever achieve profitability on a quarterly or
annual basis, or, if we achieve profitability, that it will be sustainable.

Our operating results may fluctuate in the future. As a result, period-to-period
comparisons of our results of operations are not necessarily meaningful and
should not be relied upon as indications of future performance.

         Our operating results may fluctuate in the future as a result of a
variety of factors, some of which are outside of our control. These factors
include:

                o   the quality and timing of acquisitions we complete and our
                    ability to successfully integrate these acquisitions into
                    our business;

                o   the demand for our services, pricing pressures in our market
                    and changes in the mix of products and services sold by us
                    and our competitors;

                o   technological issues, including technical difficulties
                    affecting the Internet generally or our hosting operations
                    in particular and increased technological demands of our
                    customers;

                o   the amount and timing of our costs related to our marketing
                    efforts and service introductions by us or our strategic
                    partners; and

                o   economic conditions specific to the hosting and consulting
                    industries.

         Historically, fluctuations in our operating results have resulted
principally from completed acquisitions. Due to the factors described above, our
operating results may not be indicative of future operating results. In
addition, our future operating results for any particular period may differ
materially from our expectations or those of investors or security analysts. In
this event, the market price of our common stock would likely fall dramatically.

We only recently began to offer many of our products and services and we intend
to offer new products and services in the future. If our products are not
accepted by the market or have reliability or quality problems, our business may
suffer.

         We have recently introduced new hosting solutions such as multimedia
hosting or integrated text, graphics, video, information and sound capabilities
on our customers' Web sites and the ability to rent software applications

                                       29
<PAGE>

instead of purchasing them, as well as enhanced Internet services such as
e-commerce and consulting services. If these and other new hosting solutions and
enhanced Internet services that we may introduce in the future fail to gain
market acceptance, our business could be adversely affected. In addition, if
these newly introduced hosting solutions and enhanced Internet services have
reliability, quality or compatibility problems, market acceptance of these
products could be greatly hindered and our ability to attract new customers
could be adversely affected. We cannot offer any assurance that these new
solutions and services are free from any reliability, quality or compatibility
problems.

The continued growth of the market for our products and services may not
materialize.

         Our market is new and rapidly evolving. Whether the market for our
products and services will continue to grow is uncertain. Our business would be
adversely affected if the market for our services does not continue to grow or
if businesses reduce or discontinue outsourcing these services.

         Our success depends in part on continued growth in the use of the
Internet. Our business would be adversely affected if Internet usage does not
continue to grow. Internet usage may be inhibited for a number of reasons, such
as:

                o   security and privacy concerns;

                o   uncertainty of legal and regulatory issues concerning the
                    use of the Internet,

                o   inconsistent quality of service; and

                o   lack of availability of cost-effective, high-speed
                    connectivity.

We are growing rapidly, principally through acquisitions, which presents the
following risks.

The success of our business plan depends on our ability to make additional
acquisitions. Our acquisition program entails significant risks.

         We intend to pursue opportunities to expand our business through the
acquisition of selected companies in targeted markets. The acquisition
candidates we review can be large, and their acquisition by us could have a
significant and lasting impact on our business. We cannot guarantee that:

                o   we will be able to identify appropriate acquisition
                    candidates or negotiate acquisitions on favorable terms; or

                o   we will be able to obtain the financing necessary to
                    complete all projected future acquisitions.

         Acquisitions involve numerous risks, including adverse effects on our
operating results from increases in amortization of intangible assets, inability
to integrate acquired businesses, increased compensation expense associated with
newly hired employees and unanticipated liabilities and expenses. In addition,
we cannot guarantee that we will realize the benefits or strategic objectives we
are seeking to obtain by acquiring any particular company and any acquired
company could significantly underperform relative to our expectations. In
particular, acquired companies have often experienced modest revenue declines
immediately following the closing of the acquisition.

                                       30
<PAGE>

Because we have only recently completed many of our acquisitions, we are
currently facing all of these challenges and we have not established our ability
to meet them over the long term. As a result of all of the foregoing, our
acquisition strategy could adversely affect our business.

The success of our business plan depends on the successful integration of
acquisitions.

         From February 1998 through February, 2000, we have acquired 23
businesses and are currently pursuing additional acquisitions. Our future
performance will depend in large part on our ability to integrate these
businesses or any future acquired businesses with our existing operations
successfully and profitably. To integrate acquired businesses, it is often
necessary or desirable to accomplish one or more of the following:

                o   consolidate their billing and accounting systems into our
                    systems and implement financial and other control systems;

                o   relocate the servers and other equipment of acquired
                    companies to one of our facilities;

                o   migrate the operations of acquired companies onto our
                    technology platforms;

                o   integrate the customer accounts of acquired companies into
                    our customer service system;

                o   integrate the service offerings of acquired companies into
                    the Interliant brand; and

                o   identify resellers and referral partners of the services of
                    acquired companies and migrate them to our business partner
                    program.

         We may not be able to successfully integrate acquired businesses with
existing operations without substantial costs, delays or other problems, if at
all. As we integrate acquired businesses:

                o   we may lose certain customers of acquired companies due to
                    difficulties during the integration process;

                o   we may not be able to bill customers of the acquired
                    companies accurately due to potential deficiencies in the
                    internal controls of the acquired companies, such as
                    inadequate back-office systems of the acquired companies and
                    potential difficulties in migrating records onto our own
                    systems;

                o   we may experience difficulty in collecting bills rendered by
                    acquired companies due to inaccurate record keeping of the
                    acquired companies;

                o   key employees of the acquired companies whom we wish to
                    retain may resign;

                o   management's attention and resources could be diverted from
                    our ongoing business concerns;

                                       31
<PAGE>

                .   we may not be able to integrate newly acquired technologies
                    with our existing technologies; and

                .   we may not be able to train, retain and motivate executives
                    and employees of the acquired company.

The businesses we have acquired are in various stages of the integration
process. Our integration plan is constantly changing as a result of our business
activities as well as future acquisitions. Because we employ a strategy that
includes a high level of acquisition activity, at any time there are likely to
be one or more operating businesses that have not been integrated into our
business. In addition, our recent acquisitions of reSOURCE Partners, Inc. and
Softlink, Inc., respectively, represent in the aggregate our largest
acquisitions to date, and thus the integration risks set forth above will likely
be even more significant with respect to these two acquisitions.

A significant portion of our assets consists of intangible assets, the
recoverability of which is not certain and the amortization of which will
increase losses or reduce earnings in the future.

         In connection with our acquisitions completed through December 31,1999,
$118.6 million of the aggregate purchase price has been allocated to intangible
assets such as covenants not to compete, customer lists, trade names, assembled
work force and goodwill. Annual amortization expense related to these intangible
assets in the current fiscal year will be approximately $31.3 million.
Amortization expense will increase as we acquire additional businesses. Our
business could suffer if changes in our industry or our inability to operate the
business successfully and produce positive cash flows from operations result in
an impairment in the value of our intangible assets and therefore necessitate a
write-off of all or part of these assets.

Our rapid growth and expansion has and may continue to significantly strain our
resources.

         We are experiencing rapid growth, primarily due to acquisitions. This
rapid growth has placed and is likely to continue to place a significant strain
on our operating and financial resources. Our future performance will partly
depend on our ability to manage our growth effectively, which will require that
we further develop our operating and financial system capabilities and controls.
We have invested and intend to continue to invest significant amounts in
billing, accounts receivable, customer service and financial systems. Because we
employ a strategy that includes a high level of acquisition activity, at any
time there are likely to be one or more operating businesses that have not been
integrated into our core systems and continue to produce financial and other
information from their existing systems. As a result, our ability to record,
process, summarize and report financial data could be adversely affected.

We may need additional funds which, if available, could result in an increase in
our interest expense or stockholder dilution. If these funds are not available,
our business could be hurt.

         To date, our cash flows from operations have been insufficient to fund
our operations and our acquisition and internal growth programs. We have funded
our operations principally from the proceeds of stock sales, sales of
convertible notes and from other external sources. We cannot predict when we
will be able to fund our operations entirely from internally generated cash
flow. We may never be able to do so. As a result, we may need to raise
additional funds to conduct our operations and fund our growth programs.

                                       32
<PAGE>

         We may raise funds through public or private debt or equity financing.
If funds are raised through the issuance of equity securities, the percentage
ownership of our then current stockholders may be reduced and such equity
securities may have rights, preferences or privileges senior to those of the
holders of our common stock. If additional funds are raised through the issuance
of debt securities, such securities would have certain rights, preferences and
privileges senior to those of the holders of our outstanding securities and the
terms of such debt could impose restrictions on our operations.

         If additional funds become necessary, additional financing may not be
available on terms favorable to us, or at all. If adequate funds are not
available on acceptable terms, we may not be able to continue to fund our
operations and growth or to continue our acquisition program. Our inability to
raise capital could adversely affect our business.

We have recently substantially increased our indebtedness due to our sale of
debt securities and we may not be able to pay our debt and other obligations.

         In February 2000, as a result of our sale of our 7% convertible
subordinated notes, we incurred approximately $154.8 million of additional
indebtedness increasing our ratio of debt to equity (expressed as a percentage)
from approximately 2.7% to approximately 115.2% as of December 31, 1999, on a
pro forma basis giving effect to the sale of the notes. Our other indebtedness
is principally comprised of notes payable. We may incur substantial additional
indebtedness in the future. The level of our indebtedness, among other things,
could

                o   make it difficult for us to make payments on the notes;

                o   make it difficult for us to obtain any necessary future
                    financing for working capital, capital expenditures, debt
                    service requirements or other purposes;

                o   limit our flexibility in planning for, or reacting to
                    changes in, our business; and

                o   make us more vulnerable in the event of a downturn in our
                    business.

         Our cash flow generated during the year-ended December 31, 1999, would
have been insufficient to pay the amount of interest payable on the notes, and
we cannot assure you that we will be able to pay interest and other amounts due
on the notes as and when they become due and payable. If our cash flow is
inadequate to meet our obligations, we could face substantial liquidity
problems. If we are unable to generate sufficient cash flow or otherwise obtain
funds necessary to make required payments on the notes or our other obligations,
we would be in default under the terms thereof, which would permit the holders
of the notes to accelerate the maturity of the notes and could also cause
defaults under future indebtedness we may incur. Any such default could have a
material adverse effect on our business, prospects, financial condition and
operating results.

We operate in the rapidly evolving Internet services industry, which presents
the following risks.

We depend on the growth and stability of the Internet infrastructure.

         If the use of the Internet continues to grow rapidly, its
infrastructure may not be able to support the demands placed on it by such
growth and its

                                       33
<PAGE>

performance or reliability may decline. In addition, Web sites have experienced
interruptions in their service as a result of outages and other delays occurring
throughout the Internet network infrastructure. If these outages or delays occur
frequently, use of the Internet as a commercial or business medium could, in the
future, grow more slowly or decline, which would adversely affect our business.

If we do not respond effectively and on a timely basis to rapid technological
change, our business could suffer.

         The Internet industry is characterized by rapidly changing technology,
industry standards, customer needs and competition, as well as by frequent new
product and service introductions. Our future success will depend, in part, on
our ability to accomplish all of the following in a timely and cost-effective
manner, all while continuing to develop our business model and roll-out our
services:

                o   effectively use and integrate leading technologies;

                o   continue to develop our technical expertise;

                o   enhance our products and current networking services;

                o   develop new products and services that meet changing
                    customer needs;

                o   advertise and market our products and services; and

                o   influence and respond to emerging industry standards and
                    other changes.

         We cannot assure you that we will successfully use or develop new
technologies, introduce new services or enhance our existing services on a
timely basis, or that new technologies or enhancements used or developed by us
will achieve market acceptance. Our pursuit of necessary technological advances
may require substantial time and expense.

We operate in an industry where it is difficult to attract and retain qualified
personnel.

         We expect that we will need to hire additional personnel in all areas
of our business. The competition for personnel throughout our industry is
intense. At times, we have experienced difficulty in attracting qualified new
personnel. If we do not succeed in attracting new, qualified personnel or
retaining and motivating our current personnel, our business could suffer.

Disruption of our services due to accidental or intentional security breaches
may adversely impact our business.

         A significant barrier to the growth of e-commerce and communications
over the Internet has been the need for secure transmission of confidential
information. Despite our design and implementation of a variety of network
security measures, unauthorized access, computer viruses, accidental or
intentional actions and other disruptions could occur. We may incur significant
costs to protect against the threat of security breaches or to alleviate
problems caused by such breaches. If someone were able to misappropriate our
users' personal or proprietary information or credit card information, we could
be subject to claims, litigation or other potential liabilities.

                                       34
<PAGE>

We operate in an uncertain regulatory and legal environment which may make it
more difficult to defend ourselves against any claims brought against us.

         We are not currently subject to direct regulation by the Federal
Communications Commission or any other governmental agency, other than
regulations applicable to business in general. While there are currently few
laws or regulations which specifically regulate Internet communications, laws
and regulations directly applicable to online commerce or Internet
communications are becoming more prevalent. There is much uncertainty regarding
the marketplace impact of these laws. In addition, various jurisdictions already
have enacted laws covering intellectual property, privacy, libel and taxation
that could affect our business by virtue of their impact on online commerce. In
the future, we may become subject to regulation by the FCC or another regulatory
agency. Further, the growth of the Internet, coupled with publicity regarding
Internet fraud, may lead to the enactment of more stringent consumer protection
laws. If we become subject to claims that we have violated any laws, even if we
successfully defend against these claims, our business could suffer. Moreover,
new laws that impose restrictions on our ability to follow current business
practices or increase our costs of doing business could hurt our business.

If states and countries in which we do not currently collect sales or other
taxes mandate that we do so, our business could suffer.

         We collect sales or other taxes with respect to the sale of products or
services in states and countries where we believe we are required to do so. We
currently do not collect sales and other taxes in all states and countries in
which we have offices and may be required by law to do so. One or more
jurisdictions have sought to impose sales or other tax obligations on companies
that engage in online commerce within their jurisdictions. A successful
assertion by one or more jurisdictions that we should collect sales or other
taxes on our products and services, or remit payment of sales or other taxes for
prior periods, could have an adverse effect on our business.

We could face liability for information disseminated through our network.

         It is possible that claims could be made against us in connection with
the nature and content of the materials disseminated through our networks.
Several private lawsuits are pending against other entities which seek to impose
liability upon online services companies and Internet service providers as a
result of the nature and content of materials disseminated over the Internet. If
any of these actions succeed, we might be required to respond by investing
substantial resources or discontinuing some of our product or service offerings.
The increased attention focused upon liability issues as a result of these
lawsuits and legislative proposals could impact the growth of Internet use.
Although we carry professional liability insurance, it may not be adequate to
compensate or may not cover us in the event we become liable for information
carried on or disseminated through our networks. Any costs not covered by
insurance incurred as a result of such liability or asserted liability could
adversely affect our business.

Our business operations present the following additional risks.

We intend to commit substantial funds to sales and marketing initiatives. Our
failure to develop brand recognition for the Interliant brand could hurt our
business.

         Our sales and marketing expenses were $17.2 million and $2.6 million in
the years ended December 31, 1999 and 1998, respectively. A key component of our
strategy is to significantly increase our sales and marketing activities.

                                       35
<PAGE>

This will include the expansion of our sales force, development of reseller and
referral partner channels and increased marketing efforts. As a result, sales
and marketing expenses are likely to increase substantially in future periods.
Our business could be adversely affected if the Interliant brand is not well
received by our customers, our marketing efforts are not productive or we are
otherwise unsuccessful in increasing our brand awareness. We are currently
marketing and expect to continue to market many of our products and services
under the brand names of acquired companies. In most circumstances, we intend to
change the brand under which we offer these products and services to the
Interliant brand. If we are unsuccessful in these efforts, we may not achieve
our revenues objectives and the acquired operations could lose substantial
value.

We operate in an extremely competitive market and may not be able to compete
effectively.

         Our current and prospective competitors are numerous. Many of our
competitors have substantially greater financial, technical and marketing
resources, larger customer bases, longer operating histories, greater name
recognition and more established relationships in the industry than we do. We
may not be able to compete effectively. See "Business--Competition."

We depend on the skills of key personnel.

         We depend on the continued service of our key personnel. Our key
personnel are critical to our success, and many of them would be difficult to
replace. Many of them are not bound by employment agreements, and competitors in
our industry may attempt to recruit them. We currently have agreements to retain
the services of certain members of our management team. These agreements do not,
however, as a practical matter, guarantee our retention of these persons. In
addition, our Co-Chairmen, Mr. Fassler and Mr. Feld, are each currently active
in, and serve as directors and/or executive officers of, a number of businesses
other than Interliant. Although Mr. Feld spends a significant portion of his
time, and both Mr. Fassler and Mr. Feld are active in our management, they are
not contractually committed to spend any specific amount of time at Interliant.
The loss of the services of one or more of our key personnel could adversely
affect our business.

Our application hosting solutions depend on software applications we obtain from
third parties.

         We obtain software products pursuant to agreements with vendors such as
Lotus and Microsoft and package them as part of our application hosting
solutions. The agreements are typically for terms ranging from one to three
years. We also license additional technologies that we use in our business from
other third parties. If these agreements were terminated or not renewed, we
might have to discontinue products or services that are central to our business
strategy or delay their introduction unless we could find, license and package
equivalent technology. Our business strategy also depends on obtaining
additional application software. We cannot be sure, however, that we will be
able to obtain the new and enhanced applications we may need to keep our
solutions competitive. If we cannot obtain these applications and as a result
must discontinue, delay or reduce the availability of our solutions or other
products and services, our business may be adversely affected. In addition, we
may become subject to infringement actions based upon the technologies licensed
from third parties. Any of these claims, with or without merit, could subject us
to costly litigation and divert the attention of our technical and management
personnel.

                                       36
<PAGE>

Our agreements with application software vendors are not exclusive and may not
provide us with any competitive advantage.

         None of our agreements for application software and other technology
are exclusive. Our competitors may also license and utilize the same technology
in competition with us. We cannot be sure that the vendors of technology used in
our products will continue to support this technology in its current form. Nor
can we be sure that we will be able to adapt our own products to changes in this
technology. In addition, we cannot be sure that potential financial or other
difficulties of third party vendors will not have an adverse affect on the
technologies incorporated in our products, or that, if these technologies become
unavailable, we will be able to find suitable alternatives.

We depend on our network infrastructure. If we do not have continued access to a
reliable network, our business will suffer.

         Our success partly depends upon the capacity, scalability, reliability
and security of our network infrastructure, including the capacity leased from
our telecommunications network suppliers such as UUNET Technologies. We depend
on these companies to provide uninterrupted and "bug free" service. We would be
adversely affected if such services were not provided. In addition, we would be
adversely affected if:

                o   these companies greatly increased the prices of their
                    services; or

                o   the telecommunications capacity available to us was
                    insufficient for our business purposes and we were unable to
                    use alternative networks or pass along any increased costs
                    to our customers.

Our business and expansion models assume that we will be able to scale our
network infrastructure to support increasing numbers of customers and increased
traffic. However, the scalability of our network is unproven.

         We must continue to develop and expand our network infrastructure to
accommodate:

                o   increases in the number of users we service;

                o   increases in and the amount of information they wish to
                    transport;

                o   increases in the number of products and services we offer;
                    and

                o   changing customer requirements.

         Our expansion and adaptation of our telecommunications and hosting
facility infrastructure will require substantial financial, operational and
management resources. If we are required to expand our network significantly and
rapidly due to increased usage, additional stress will be placed upon our
network hardware, traffic management systems and hosting facilities. The ability
of our network to connect and manage a substantially larger number of customers
at high transmission speeds while achieving expected performance is unknown.

         As our customers' bandwidth usage increases, we will need to make
additional investments in our infrastructure to maintain adequate data
transmission speeds, the availability of which may be limited and the cost of
which may be significant. Additional network capacity may not be available from
third-party suppliers as it is needed by us. As a result, our network may not be
able to achieve or maintain a sufficiently high capacity of data

                                       37
<PAGE>

transmission, especially if customers' usage increases. Any failure on our part
to achieve or maintain high-capacity data transmission could significantly
reduce consumer demand for our services and adversely affect our business.

We could experience system failures and capacity constraints, which could affect
our ability to compete.

         To succeed, we must be able to operate our network infrastructure on a
24x7 basis without interruption. Our operations depend upon our ability to
protect our network infrastructure, equipment and customer files against damage
from:

                o   human error;

                o   natural disasters;

                o   power loss or telecommunications failures; and

                o   sabotage or other intentional acts of vandalism.

         However, even if we take precautions, the occurrence of a natural
disaster or other unanticipated problems at our data centers could result in
interruptions in the services we provide to our customers.

         At this time, we do not have a formal disaster recovery plan. In
addition, our data centers are subject to various single points of failure. As a
result, a problem with one of our routers, switches or fiber paths or with
another aspect of our network could cause an interruption in the services we
provide to some of our customers. We have experienced interruptions in service
in the past. Any future interruptions could:

                o   require us to spend substantial amounts of money replacing
                    existing equipment or adding redundant facilities;

                o   damage our reputation for reliable service;

                o   cause existing end users, resellers and referral partners to
                    cancel their contracts;

                o   cause end users to seek damages for losses incurred; or

                o   make it more difficult for us to attract new end users,
                    resellers and referral partners.

         Any of these occurrences could adversely affect our business.

         We have entered into service level agreements with some of our
customers and we anticipate that we will offer service level agreements to a
larger group of customers in the future. In that case, we could incur
significant liability to our customers in connection with any system downtime
and those obligations may adversely affect our business.

Currency fluctuations and different standards, regulations and laws relating to
our international operations may adversely affect our business.

         On a pro forma basis, giving effect to acquisitions completed through
December

                                       38
<PAGE>

31, 1999, approximately 13% of our revenue for the year ended December 31, 1998
and 16% for the year ended December 31, 1999 were to customers located outside
the United States, primarily in Europe, Asia and South America. Our success may
depend in part on expanding our international presence. Because our sales
overseas are denominated in U.S. dollars, currency fluctuations may inhibit us
from marketing our services to potential foreign customers or collecting for
services rendered to current foreign customers.

         In February, 2000 we entered into a shareholders agreement with @viso
Limited. This agreement contemplates the formation of a corporation through
which we would launch Web hosting, application hosting and related services in
continental Europe. We expect that this arrangement will significantly expand
our international operations and consequently, increase the related risks such
as managing operations across disparate geographic areas and differences in
privacy, censorship and liability standards and regulations.

We may be liable for defects or errors in the solutions we develop.

         Many of the solutions we develop are critical to the operations of our
clients' businesses. Any defects or errors in these solutions could result in:

                o   delayed or lost client revenues;

                o   adverse customer reaction toward Interliant;

                o   negative publicity;

                o   additional expenditures to correct the problem; and

                o   claims against us.

         Claims against us may not be adequately covered by insurance, may
result in significant losses and, even if defended successfully, may raise our
insurance costs.

Our newly public status presents the following risks

Our stock price may be affected by the availability of shares for sale. The
future sale of large amounts of our stock, or the perception that such sales
could occur, could negatively affect our stock price.

         The market price of our common stock could drop as a result of a large
number of shares of our common stock in the market. As of March 2, 2000 there
were approximately 47.3 million shares of common stock outstanding,
substantially all of which are eligible for sale in the public market pursuant
to Rule 144 under the Securities Act of 1933, as amended. Holders of
approximately 36.0 million restricted shares have registration rights with
respect to such shares, which if exercised would permit the holders to sell
their shares freely in the public market. Also, in connection with the sale in
February 2000 of our 7% convertible subordinated notes, we are obligated to file
a registration statement to facilitate public resales of the notes and of the
shares of our common stock into which the notes are convertible. Additionally,
the filing of that registration statement would trigger piggyback registration
rights held by the stockholders described above, entitling most of them to cause
us to register their shares concurrently with the filing of the registration
statement relating to the notes. In addition, shares issuable upon exercise of
our outstanding options may be sold freely under our Form S-8 registration
statement.

Our existing principal stockholders, executive officers and directors control

                                       39
<PAGE>

Interliant and could delay or prevent a change in corporate control that
stockholders may believe will improve management or could depress our stock
price because purchasers cannot acquire a controlling interest.

         As of March 2, 2000, our directors, executive officers and their
affiliates beneficially owned, in the aggregate, shares representing
approximately 66.0% of our common stock. As a result, these persons, acting
together, will be able to control all matters submitted to our stockholders for
approval and to control our management and affairs. This control could have the
effect of delaying or preventing a change of control that stockholders may
believe would be beneficial to their interests. In addition, this control could
depress our stock price because purchasers will not be able to acquire a
controlling interest in Interliant.

ITEM 2.  PROPERTIES

          Our executive offices, which we lease, are located in Purchase, New
York. We also lease the facilities that house our primary data centers in
Atlanta, Georgia, Houston, Texas and Vienna, Virginia, as well as other
facilities in the Washington, D.C. and Boston metropolitan areas.

ITEM 3.  LEGAL PROCEEDINGS

     In the ordinary course of business, we may be involved in legal proceedings
from time to time. As of the date hereof, there are no material legal
proceedings pending against us.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         Not applicable

PART II

ITEM 5.  MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK

     Market for Common Stock and Holders of Record

          Our common stock commenced trading on the Nasdaq National Market under
the symbol "INIT" on July 8, 1999. The following table sets forth, for the
periods indicated, the intra-day high and low sales prices per share of common
stock on the Nasdaq National Market. Such prices reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not represent actual
transactions.

                                       40
<PAGE>

                                                      High              Low
                                                      ----              ---
1999
----

Third Quarter (from July 8, 1999)................     $23 23/64         $10 1/2
Fourth Quarter                                        $35 3/8            $9 1/4

2000
----

First Quarter (through March 2)..................     $55 7/16          $28 5/8


The last reported sale price of our common stock on March 2, 2000 was $41 11/16
as reported by Nasdaq National Market. As of March 2, 2000, there were
approximately 170 stockholders of record of our common stock

         Dividends

     We have never paid or declared cash dividends on our common stock. We
currently intend to retain all future earnings for our business and do not
anticipate paying cash dividends in the foreseeable future. Future dividends, if
any, will depend on, among other things: (1) our operating results, (2) capital
requirements and (3) restrictions in loan agreements.

USE OF PROCEEDS FROM REGISTERED SECURITIES

         On July 13, 1999, we completed an initial public offering of our common
stock whereby we sold 8,050,000 shares of common stock, including 1,050,000
shares sold pursuant to the underwriters' over-allotment option. The offering
price was $10.00 per share for an aggregate price of $80.5 million, before
underwriters' discounts and commissions and offering costs payable by us. From
the effective date of the registration statement filed in connection with such
offering to November 1, 1999, we paid an aggregate of $5.6 million in
underwriting discounts and commissions, and approximately $2.0 million of
initial public offering expenses. After deducting the underwriting discounts and
commissions and the initial public offering expenses payable directly by us, net
proceeds from the initial public offering were approximately $72.5 million.


        As of December 31, 1999, we used net proceeds of the IPO as follows:

        o   $12.8 million for repayment of debt issued or assumed in connection
            with acquisitions;

        o   $8.8 million in connection with the acquisitions of additional
            businesses;

        o   $8.1 million for capital expenditures, including data centers; and

        o   $17.2 million for working capital.

         The balance of the net proceeds of the initial public offering will be
used for acquisitions, capital expenditures, including completing and equipping
our data centers, and working capital and general corporate purposes.


ITEM 6.  SELECTED FINANCIAL DATA
         (Dollars in thousands except per share amounts)
The following selected consolidated financial data should be read in conjunction
with Interliant's Consolidated Financial Statements and Notes

                                       41
<PAGE>

thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this report on Form 10-K. The
statement of operations for the period ended December 31, 1997, and the years
ended December 31, 1998 and 1999, and the balance sheet data as of December 31,
1997, 1998 and 1999, are derived from the consolidated financial statements of
Interliant that have been audited by Ernst & Young LLP, independent auditors,
whose report with respect thereto is included elsewhere in this report on Form
10-K. Results of operations for the period from inception to December 31, 1997
and for the years ended December 31, 1998 and 1999 are not necessarily
indicative of the results of operations for future periods. Interliant's
development and expansion activities, including acquisitions, during the periods
shown below may significantly affect the comparability of this data from one
period to another.


<TABLE>
<CAPTION>
                                                                                                   Period from
                                                            Year Ended         Year Ended        December 8, 1997
                                                           December 31,       December 31,        (Inception) to
                                                               1999               1998          December 31, 1997
                                                               ----               ----          -----------------
Statement of Operations Data:
<S>                                                             <C>                  <C>                       <C>
  Revenues                                                      $ 47,114             $ 4,905                   $ -
  Costs and Expenses:
    Cost of revenues                                              27,514               3,236                     -
    Sales and marketing                                           17,236               2,555                     -
    General and administrative                                    29,062               6,849                   156
    Depreciation                                                   6,051                 696                     2
    Amortization of intangibles                                   22,069               2,439                     -
                                                          ---------------   -----------------   -------------------
                                                                 101,932              15,775                   158
                                                          ---------------   -----------------   -------------------

  Operating loss                                                 (54,818)            (10,870)                 (158)
  Interest income (expense), net                                     886                 138                     -
  Other income (expense), net                                          -                   -                     -
                                                          ---------------   -----------------   -------------------
  Net loss                                                     $ (53,932)          $ (10,732)               $ (158)
                                                          ===============   =================   ===================

  Net loss per share - basic and diluted                         $ (1.50)            $ (1.22)              $ (0.05)
                                                          ===============   =================   ===================
  Weighted average shares outstanding -
     basic and diluted                                            35,838               8,799                 3,000
                                                          ===============   =================   ===================

Other Data:
   EBITDA (1)                                                  $ (26,698)           $ (7,735)               $ (156)

Statement of Cash Flows Data:
Net cash used for operating activities                         $ (24,152)           $ (6,001)                $ (59)
Net cash used for investing activities                           (46,459)            (17,919)                  (29)
Net cash provided by financing activities                         91,406              29,821                 1,000
Net capital expenditures                                          12,084               4,322                    29

Balance Sheet Data:
Cash, cash equivalents and short-term investments               $ 31,220             $ 6,813                 $ 912
Working capital                                                   26,886               3,755                 4,815
Total assets                                                     162,875              26,197                 4,953
Debt and capital lease obligations, less current portion           2,503                   -                     -
Total stockholders' equity                                       137,575              21,693                 4,842
</TABLE>

---------------

(1) EBITDA represents earnings before net interest expense, income taxes,
depreciation and amortization and other income (expense). EBITDA is presented
because it is a widely accepted financial indicator used by certain investors
and analysts to analyze and compare companies on the basis of operating
performance and because management believes that EBITDA is an additional

                                       42
<PAGE>

meaningful measure of performance and liquidity. EBITDA is not intended to
present cash flows for the period, nor has it been presented as an alternative
to operating income (loss) as an indicator of operating performance and should
not be considered in isolation or as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles. The items
excluded from the calculation of EBITDA are significant components in
understanding and assessing our financial performance. Our computation of EBITDA
may not be comparable to the computation of similarly titled measures of other
companies. EBITDA does not represent funds available for discretionary uses.


ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS


         You should read the following description of our financial condition
and results of operations in conjunction with the Consolidated Financial
Statements and the Notes thereto included elsewhere in this Form 10-K. This
discussion contains forward-looking statements based upon current expectations
that involve risks and uncertainties. Any statements contained herein that are
not statements of historical fact are forward-looking statements. Our actual
results and the timing of certain events may differ significantly from the
results discussed in the forward-looking statements.

Overview

         We are a leading application service provider, or ASP, providing our
customers with a broad range of outsourced e-business solutions. Our customers
face significant challenges in doing business on the Internet due to its
technical complexity, their lack of technical skills, the cost of implementation
and ongoing support and the time necessary to implement solutions. By providing
comprehensive outsourced solutions that combine our hosting infrastructure with
Internet professional services expertise, we can rapidly design, implement,
deploy and effectively manage cost-effective e-business solutions for our
customers.

         As an ASP, we provide:

        o   hosting infrastructure for our customers' network-based
            applications, which allows our customers to store their databases,
            applications or Web sites on equipment owned and maintained by us or
            on our customers' equipment located in our data centers;

        o   Internet professional services for designing, implementing and
            deploying these network-based applications; and

        o   operations support, systems and applications management and customer
            care for our customers and their end-users.

         We have employed a strategy of rapidly acquiring operating companies in
the application hosting, Web hosting and Internet professional services
businesses, building or acquiring data centers and integrating the acquired
hosting operations into those data centers. We acquired 21 operating businesses
during 1998 and 1999 for total consideration of approximately $118.6 million,
including transaction costs. The purchase consideration for the acquisitions was
in the form of cash, stock or a combination of cash and stock. We have accounted
for all acquisitions using the purchase method of accounting, which has resulted
in the inclusion of substantial intangible assets on our balance sheet. Of the
total consideration, we issued $2.4 million of notes

                                       43
<PAGE>

payable and paid $10.2 million of assumed seller debt and have allocated
approximately $(9.8) million to tangible net liabilities and $118.1 million to
intangible assets, which comprise covenants not to compete, customer lists,
assembled work force, trade names and goodwill. In accordance with APB 16, an
allocation methodology was applied to each acquisition to determine the value to
be assigned to each type of intangible asset where appropriate. Amounts not
allocated to specific identifiable intangible assets have been recorded as
goodwill. Recoverability of our investment in intangible assets is dependent on
our ability to operate our businesses successfully and generate positive cash
flows from operations. Annual charges for amortization of intangible assets with
respect to acquisitions completed through December 31, 1999 will be
approximately $31.3 million, which will result in increased losses or reduced
net income. Additionally, during 1998 we issued stock valued at approximately
$2.6 million as compensation in connection with agreements entered into with
sellers of acquired operating businesses, all of which has been charged to
operations through December 31, 1999.

         Since our inception in December 1997, we have experienced operating
losses and negative cash flows from operating activities for each quarterly and
annual period. As of December 31, 1999, we had an accumulated deficit of
approximately $64.8 million. Had the companies acquired through December 31,
1999 been included since January 1, 1998, our accumulated deficit would have
been approximately $112.6 million. We anticipate increased operating expenses as
we:

        o   expand our sales and marketing initiatives to continue to grow our
            brands; o fund greater levels of product development;

        o   continue to complete and equip our data centers; and

        o   implement centralized billing, accounting and customer service
            systems; and

        o   continue our acquisition program.


Although we have experienced revenue growth, primarily attributable to
acquisitions, we do not believe that this growth is necessarily indicative of
future operating results. Future acquisitions are expected to increase operating
expenses and operating losses and as a result, we expect to continue to incur
operating losses for the foreseeable future.

Results of Operations

         We derive our revenues from application hosting, Web hosting and
Internet professional and other services. Application hosting revenues primarily
comprise monthly usage fees per number of end users, including bandwidth fees
and one-time setup fees. Web hosting revenues consist primarily of hosting fees
and setup fees, which cover costs incurred by us to establish customers' Web
sites. We provide virtual, dedicated and co-located hosting. We charge our Web
hosting customers a fixed amount for bandwidth availability and incremental fees
if those fixed amounts are exceeded. In addition, our virtual Web hosting
customers are also charged for disk space on a server, dedicated hosting
customers are charged for use of one or more dedicated servers and our
co-location customers are charged for the amount of data center space such
co-location customers' servers occupy. We charge flat rates for our enhanced
Internet services. Internet professional service charges are generally fee-based
on a time and materials basis.

                                       44
<PAGE>

         Our contracts with our application hosting customers range in length
from month- to-month to three years. Our contracts with our Web hosting
customers typically range in length from month-to-month to one year. A large
proportion of our Web hosting customer contracts are cancelable by either party
with 30 days' notice. Revenues derived from hosting are recognized ratably over
the applicable contractual period. Payments received and billings in advance of
providing services are deferred until such services are provided. Revenues from
Internet professional services are recognized as the services are rendered.
Substantially all of our Internet professional services contracts call for
billings on a time and materials basis. The Staff of the Securities and Exchange
Commission has issued Staff Accounting Bulletin No. 101 on the topic of revenue
recognition which became effective January 1, 2000. Although we anticipate that
the implementation of Staff Accounting Bulleting No. 101 will change the way we
account for setup fees with respect to our Web hosting and application hosting
services, we believe this change will not have a material effect on our results
of operations for any period.

         Cost of revenues consists primarily of salaries and related expenses
associated with Internet professional services and network operations personnel
as well as data communications expenses, including one-time fees for circuit
installation and variable recurring circuit payments to network providers.
Monthly circuit charges vary based upon circuit type, distance and usage, as
well as the term of the contract with the carrier.

         Sales and marketing expense consists of personnel costs associated with
the direct sales force, internal telesales and product marketing employees, as
well as costs associated with marketing programs, product literature, external
telemarketing costs and corporate marketing activities, including public
relations.

         General and administrative expense includes the cost of customer
service functions, finance and accounting, human resources, legal and executive
salaries, corporate overhead, acquisition integration costs and fees paid for
professional services.


<TABLE>
<CAPTION>
Years Ended December 31, 1999 and 1998
(in thousands)                                                   Year Ended December 31,
                                      -------------------------------------------------------------------------
                                         1998       % of           1999       % of          1999        % of
                                      Historical  Revenues      Historical  Revenues     Pro Forma    Revenues
                                      ----------------------    ---------------------    ----------------------
<S>                                      <C>           <C>        <C>           <C>        <C>            <C>
Revenues                                 $ 4,905       100%       $ 47,114      100%       $ 80,074       100%
Costs and expenses:
  Cost of revenues                         3,236        66%         27,514       58%         50,541        63%
  Sales and marketing                      2,555        52%         17,236       37%         20,418        25%
  General and administrative               6,849       140%         29,062       62%         37,130        46%
  Depreciation                               696        14%          6,051       13%          6,994         9%
  Amortization of intangibles              2,439        50%         22,069       47%         31,344        39%
                                      -----------               -----------              -----------
                                          15,775       322%        101,932      216%        146,427       183%
  Interest and other income, net             138         3%            886        2%            723         1%
                                      -----------               -----------              -----------
Net loss                               $ (10,732)     -219%      $ (53,932)    -114%      $ (65,630)      -82%
                                      ===========               ===========              ===========
</TABLE>


In the above table and the discussions below the unaudited pro forma statement
of operations data for the year ended December 31, 1999 assumes that the
acquisitions completed through December 31, 1999 had occurred on January 1,
1999.

Revenues

         Revenues increased $42.2 million, from $4.9 million in 1998 to $47.1
million in 1999. The increase in revenues was due primarily to the 21
acquisitions consummated during 1998 and 1999. On a pro forma basis, giving
effect to acquisitions completed through December 31, 1999, revenues for the
year ended December 31, 1999 were $80.1 million.

         For the year ended December 31, 1999, on a pro forma basis:

                                       45
<PAGE>

        o   application hosting revenues comprised 23.9% of our revenues;

        o   Web hosting revenues comprised 22.4% of our revenues;

        o   Internet professional services revenues comprised 49.0% of our
            revenues; and

        o   other services revenues comprised 4.7% of our revenues.

Cost of Revenues

         Cost of revenues increased by $24.3 million, from $3.2 million in 1998
to $27.5 million in 1999. This increase was due primarily to the 21 acquisitions
consummated during 1998 and 1999, and increased costs to support current and
future revenue growth. In the future, cost of revenues may fluctuate due to
capacity utilization, the timing of investments in data centers, changes in the
mix of services, fluctuations in bandwidth costs and increased levels of
staffing to support anticipated revenue growth.

         On a pro forma basis, cost of revenues for the year ended December 31,
1999 were $50.5 million.

         For 1999, gross margin on a pro forma basis was 36.9% as compared to
41.6% on a historical basis. The lower pro forma gross margins are the result of
an increase in the proportion of revenue from Internet professional services to
total revenues related to our recent acquisitions of Internet professional
services businesses, which typically generate lower gross margins as compared
with our hosting services.

Sales and Marketing

         Sales and marketing expense increased by $14.6 million, from $2.6
million in 1998 to $17.2 million in 1999. This increase was attributable to the
21 acquisitions consummated during 1998 and 1999. A key component of our revenue
growth strategy is to significantly increase our sales and marketing activities.
We expect that this will include the expansion of our sales force, development
of reseller and referral partner channels and increased marketing efforts to
grow recognition of our brands. As a result, sales and marketing expenses will
increase substantially in future periods to support anticipated revenue growth.

         On a pro forma basis, sales and marketing expense for the year ended
December 31, 1999 was $20.4 million. Sales and marketing costs as a percentage
of revenue was 36.6% on a historical basis versus 25.5% on a pro forma basis due
primarily to higher proportion of Internet professional services revenues for
the pro forma period, which businesses have historically incurred lower
marketing costs as a percentage of revenues.

General and Administrative

         General and administrative expense increased by $22.3 million, from
$6.8 million in 1998 to $29.1 million in 1999. This increase in general and
administrative expense was attributable to the 21 acquisitions consummated
during 1998 and 1999, and increased investments in infrastructure and levels of
staffing with respect to the billing, accounting, human resources and customer
service functions to support revenue growth. Substantial staffing and related
increases are expected to continue in future periods in order to support
anticipated revenue growth.

         In connection with an employment agreement executed in January 2000,
which included the grant of stock options to our new Chief Executive Officer, we
will incur non-cash compensation charges,

                                       46
<PAGE>

aggregating approximately $30.0 million over the four-year vesting period of
such stock options.

         On a pro forma basis, general and administrative expense for the year
ended December 31, 1999 was $37.1 million.

Depreciation

         Depreciation expense increased by $5.4 million, from $0.7 million in
1998 to $6.1 million in 1999. The increase in depreciation expense was
attributable to the 21 acquisitions consummated during 1998 and 1999 and our
investment in equipment, furniture and construction to complete and equip our
data centers in Atlanta, Georgia and Vienna, Virginia. On a pro forma basis,
depreciation expense for the year ended December 31, 1999 was $7.0 million.

Amortization

         Amortization expense increased by $19.7 million, from $2.4 million in
1998 to $22.1 million in 1999. This increase in amortization expense was
attributable to the 21 acquisitions consummated during 1998 and 1999. We expect
amortization expense to increase in future periods as we continue to make
additional acquisitions as well as reflect amortization of intangibles
associated with acquisitions consummated to date.

         On a pro forma basis, amortization expense for the year ended December
31, 1999 was $31.3 million.

Year Ended December 31, 1998 and the period December 8, 1997 (Inception) to
December 31, 1997

(in thousands)
                                                  1997               1998
                                                Historical         Historical
                                             ----------------------------------
Revenues                                                 $ -           $ 4,905
Costs and expenses:
  Cost of revenues                                                       3,236
  Sales and marketing                                                    2,555
  General and administrative                             156             6,849
  Depreciation                                             2               696
  Amortization of intangibles                                            2,439
                                             ----------------   ---------------
                                                         158            15,775
Interest income                                                            138
                                             ----------------   ---------------
Net loss                                              $ (158)        $ (10,732)
                                             ================   ===============


Revenues

         Revenues increased by $4.9 million for the year ended December 31,
1998. This increase in revenues was primarily attributable to the 12
acquisitions consummated during 1998.

Cost of Revenues

         Cost of revenues increased by $3.2 million for the year ended December
31, 1998. This increase in cost of revenues was attributable to the 12
acquisitions consummated during 1998. In the future, cost of revenues may
fluctuate due to capacity utilization, the timing of investments in data
centers, changes in the mix of services, fluctuations in bandwidth costs and
increased levels of staffing.

                                       47
<PAGE>

Sales and Marketing

         Sales and marketing expense increased by $2.6 million for the year
ended December 31, 1998. This increase in sales and marketing expense was
attributable to the 12 acquisitions consummated during 1998. A key component of
our strategy is to significantly increase our sales and marketing activities for
Web hosting products. This will include the expansion of our sales force,
development of reseller and referral partner channels and increased marketing
efforts to grow recognition of our brands. As a result, sales and marketing
expenses are expected to increase substantially in future periods.

General and Administrative

         General and administrative expense increased by $6.6 million, from $0.2
million in 1997 to $6.8 million in 1998. This increase in general and
administrative expense was attributable to the 12 acquisitions consummated
during 1998 and levels of staffing with respect to the billing, accounting,
human resources and customer service functions to support revenue growth.

Depreciation

         Depreciation expense increased by $0.7 million, to $0.7 million in
1998. This increase was due to the acquisition of approximately $5.7 million of
furniture, fixtures and equipment. This amount includes approximately $1.4
million acquired with operating businesses we acquired during 1998. Investments
included the construction of and acquisition of equipment for our Web hosting
facilities to ensure high levels of service to our customers and capacity for
future growth and of technology and infrastructure to implement centralized
billing, accounting and customer service systems to integrate the operations of
acquired companies.

Amortization

         Amortization expense increased by approximately $2.4 million in 1998.
The amortization expense was attributable to intangible assets associated with
the 12 acquisitions consummated during 1998.

Liquidity and Capital Resources

         We have financed our operations and acquisitions primarily from private
placements of equity and our initial public offering of common stock. We had
$31.2 million in cash, cash equivalents and short-term investments at December
31, 1999, and on a pro forma basis, after giving effect to the sales of common
stock and convertible notes and the acquisitions of two businesses referred to
below, we had approximately $187.5 million in cash and short-term investments.
Net cash used in operations for the year ended December 31, 1999 was $24.2
million. This reflects primarily the net loss for the period of $53.9 million
along with changes in operating assets and liabilities, offset by $6.1 million
of depreciation expense and $22.1 million of amortization of goodwill and other
intangible assets and $3.7 million of other non-cash items including provisions
for bad debts and non-cash compensation charges. Net cash used for investing
activities for the year ended December 31, 1999 was $46.5 million, of which
$12.1 million was for purchases of furniture, fixtures and equipment and $27.8
million was for acquisitions of businesses. Net cash from financing activities
for the year ended December 31, 1999 was $91.4 million, reflecting $102.0
million of net proceeds from the issuance of common stock and Series A preferred
stock and $2.6 million of proceeds from equipment financing transactions, less
repayment of acquisition-related and other debt of $13.1 million.

                                       48
<PAGE>

         In July 1999, we sold 8,050,000 shares of common stock, including
shares sold through the exercise of the underwriters' over-allotment option, in
an underwritten initial public offering for net proceeds of approximately $72.5
million, after deducting underwriters' discounts and commissions and offering
expenses paid by us. Upon the consummation of the initial public offering, all
of the 2,647,658 outstanding shares of our Series A Redeemable Convertible
Preferred Stock were converted into an equal number of shares of common stock.

         In January and February 2000 we sold an aggregate of 787,881 shares of
common stock to three strategic partners for a total purchase price of $27.5
million. In connection with this sale and with related commercial agreements
entered into at the same time with these strategic partners, we issued warrants
to purchase 157,575 shares of common stock with a weighted average exercise
price of $34.90 per share, which expire on December 31, 2000.

         In February 2000, we sold $154.8 million of 7% Convertible Subordinated
Notes, including $4.8 million sold upon exercise of the underwriters'
over-allotment option. The notes are convertible at the option of the holder, at
any time on or prior to maturity into common stock at a conversion price of
$53.10 per share, which is equal to a conversion rate of approximately 18.8324
shares per $1,000 principal amount of notes. Semi-annual interest payments of
$5.4 million commence in August 2000. The notes mature on February 16, 2005.
Upon the occurrence of certain events we may redeem the notes prior to maturity.

         In February 2000, we completed two acquisitions (see Note 15 of Notes
to Consolidated Financial Statements). The total cash consideration for these
acquisitions amounted to approximately $20.7 million.

         In addition to funding ongoing operations and capital expenditures, our
principal commitments consist of non-cancelable operating leases and contingent
payments of earnouts to certain sellers of operating companies acquired by us.
In connection with certain acquisitions, we paid $2.3 million during 1999, and
have accrued an additional $1.4 million as of December 31, 1999 for amounts
earned under contingent earnout arrangements. If all targets for earnouts
entered into through December 31, 1999 are achieved in full, total consideration
pursuant to these earnouts will be $7.3 million in cash in 2000. Certain
agreements provide for issuance of common stock in lieu of cash, at our option.

         During 1998, we constructed a data center in Atlanta into which the
majority of the Web hosting businesses we acquired have been or are being
integrated. We believe that this facility has the capacity to service a larger
number of Web hosting customers than are currently serviced there. The cost of
constructing and equipping this facility was approximately $2.0 million. In
August 1999, we commenced the operations of our Vienna, Virginia data center,
which was designed to provide managed application hosting services. We expect
the total costs to construct and equip the Vienna, Virginia facility to be
approximately $3.2 million, of which $3.0 million had been incurred as of
December 31, 1999. We intend to continue investing to construct and equip data
centers as we acquire additional operating businesses and integrate them and as
sales and marketing efforts generate internal revenue growth, requiring
additional servers, routers and related equipment. For the year ended December
31, 1999, our capital expenditures totaled $12.1 million.

         We believe that our existing cash and cash equivalents, together with
the net proceeds from the investments by strategic partners and the sale of the
notes described above will be adequate to meet operating needs through
approximately the third quarter of 2001, subject to the use of additional cash
for unspecified acquisitions, in which case the period would be shortened. The
foregoing is a forward-looking statement and is based on our current business

                                       49
<PAGE>

plan and the assumptions on which it is based, including our ability to
successfully integrate acquisitions and achieve the expected benefits, such as
operational efficiencies and revenue improvements from cross-selling
opportunities. Our plans also assume that we will complete a given number of
acquisitions, at given valuations using as consideration a given mix of cash and
stock. If our plans change or our assumptions prove to be inaccurate, we may be
required to seek additional capital sooner than we currently anticipate. We may
also seek to raise additional capital to take advantage of favorable conditions
in the capital markets. It is likely that after the third quarter of 2001 we
will need additional funds to conduct our operations and continue our
acquisition and internal growth programs. We cannot be assured, however, that if
we need or seek additional capital that we will be successful in obtaining it.

Interest Rate Risk

         We have limited exposure to financial market risks, including changes
in interest rates. At December 31, 1999, we had short-term investments,
including cash equivalents, of approximately $27.3 million. These short-term
investments consist of highly liquid investments in debt obligations of highly
rated entities with maturities of between one and 90 days, and highly rated
commercial paper with maturities of between one and 120 days. These investments
are subject to interest rate risk and will fall in value if market interest
rates increase. We expect to hold these investments until maturity and therefore
expect to realize the full value of these investments, even though changes in
interest rates may affect their market value prior to maturity. If interest
rates decline over time, this will result in a reduction of our interest income
as our cash is reinvested at lower rates.

Year 2000

In late 1999, we completed our remediation and testing of our systems for Year
2000 readiness. As a result of those planning and implementation efforts, we
experienced no significant disruptions in mission critical information
technology and non-information technology systems, and believe those systems
successfully responded to the Year 2000 date change. We are not aware of any
material problems resulting from Year 2000 issues, either with our products, our
internal systems, or the products and services of third parties. We expensed
approximately $0.7 million during 1999 in connection with remediating our
systems. During 2000, we expect to incur additional costs to remediate certain
non-critical systems. Such costs will be charged to expense as incurred and are
not expected to have a material impact on the results of operations. We will
continue to monitor our mission critical computer applications and those of our
suppliers and vendors throughout the Year 2000 to ensure that any latent Year
2000 matters that may arise are addressed promptly.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         We did not have significant exposure to changing interest rates on
invested cash at March 2, 2000. We invest primarily in money market funds,
investment grade commercial paper and short-term notes. The interest rates on
these securities are primarily fixed, the maturities are relatively short and we
generally hold the securities until maturity.

         We issued debt in the form of convertible subordinated notes in the
amount of $154,825,000 in February 2000, which bear interest at a fixed rate of
7.0%. We do not have significant exposure to changing interest rates related to
these notes because their interest rate is fixed.

                                       50
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



Report of Independent Certified Public Accountants

Consolidated Balance Sheets as of December 31, 1999 and 1998

Consolidated Statements of Operation for the Year ended December 31, 1999 and
1998 and the period December 8, 1997 (inception) to December 31, 1997

Consolidated Statements of Stockholders' Equity for the years Ended December 31,
1999 and 1998 and the period December 8, 1997 (inception) to December 31, 1997

Consolidated Statements of Cash Flow for the Year ended December 31, 1999 and
19998 and the period December 8, 1999 (inception) to December 31, 1997

Notes to Consolidated Financial Statements

                                       51
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
Interliant, Inc.

We have audited the accompanying consolidated balance sheets of Interliant, Inc.
(the "Company") as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
two years in the period ended December 31, 1999 and for the period December 8,
1997 (inception) to December 31, 1997. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial statements
and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.


In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Interliant, Inc.
at December 31, 1999 and 1998, and the consolidated results of its operations
and its cash flows for each of the two years in the period ended December 31,
1999 and for the period December 8, 1997 (inception) to December 31, 1997, in
conformity with accounting principles generally accepted in the United States.


Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.

                                                     /s/  Ernst &Young LLP



Boston, Massachusetts
January 31, 2000, except for Note 15, as to
which the date is March 2, 2000

                                       52
<PAGE>

<TABLE>
<CAPTION>

                                                               INTERLIANT, INC.

                                                          CONSOLIDATED BALANCE SHEETS



                                                                                                 December 31,
                                                                                -----------------------------------------------
                                                                                        1999                      1998
                                                                                ---------------------      --------------------
Assets
Current assets:
<S>                                                                                     <C>                        <C>
 Cash and cash equivalents                                                              $ 27,608,039               $ 6,813,360
 Restricted cash                                                                           1,011,772
 Short-term investments                                                                    3,612,229
 Accounts receivable, net of allowance of $1,378,000 and
  $320,000 at December 31, 1999 and 1998, respectively                                    13,981,358                   806,322
 Prepaid and other current assets                                                          3,469,763                   639,662
                                                                                ---------------------      --------------------
      Total current assets                                                                49,683,161                 8,259,344
                                                                                ---------------------      --------------------

 Furniture, fixtures and equipment, net                                                   18,199,010                 5,103,123
 Intangibles, net                                                                         93,636,201                12,612,228
 Other assets                                                                              1,356,696                   222,172
                                                                                ---------------------      --------------------
      Total assets                                                                     $ 162,875,068              $ 26,196,867
                                                                                =====================      ====================

Liabilities and stockholders' equity
 Current liabilities:
  Notes payable and current portion of long-term debt and
   capital lease obligations                                                             $ 1,211,835
  Accounts payable                                                                         8,359,040                 $ 787,412
  Accrued expenses                                                                         7,342,551                 2,301,507
  Deferred revenue                                                                         5,883,549                 1,414,969
                                                                                ---------------------      --------------------
      Total current liabilities                                                           22,796,975                 4,503,888
                                                                                ---------------------      --------------------

Long-term debt and capital lease obligations, less current portion                         2,503,211

Stockholders' equity:
  Preferred stock, $.01 par value; 1,000,000 shares authorized; 0 shares
     issued and outstanding
  Common stock, $.01 par value; 200,000,000 and 100,000,000
     shares authorized; 44,601,141, and 19,217,197 shares
     issued and outstanding at December 31, 1999 and 1998, respectively                      446,011                   192,172
  Additional paid-in capital                                                             201,922,128                34,160,334
  Deferred compensation                                                                                             (1,769,429)
  Accumulated deficit                                                                    (64,822,097)              (10,890,098)
  Accumulated other comprehensive income                                                      28,840
                                                                                ---------------------      --------------------
      Total stockholders' equity                                                         137,574,882                21,692,979
                                                                                ---------------------      --------------------

      Total liabilities and stockholders' equity                                       $ 162,875,068              $ 26,196,867
                                                                                =====================      ====================

         See accompanying notes to consolidated financial statements.
</TABLE>

                                       53
<PAGE>

<TABLE>
<CAPTION>

                                                              INTERLIANT, INC.

                                                   CONSOLIDATED STATEMENTS OF OPERATIONS




                                                                                                                 Period
                                                                       Year Ended December 31,              December 8, 1997
                                                               ----------------------------------------      (inception) to
                                                                      1999                 1998             December 31, 1997
                                                               --------------------  ------------------    --------------------

<S>                                                                   <C>                  <C>
Revenues                                                              $ 47,114,095         $ 4,905,027

Costs and expenses:
   Cost of revenues                                                     27,513,710           3,236,385
   Sales and marketing                                                  17,236,121           2,555,035
   General and administrative (exclusive of non-cash
     compensation shown below)                                          27,075,902           6,015,744               $ 155,898
   Non-cash compensation                                                 1,986,694             832,821
   Depreciation                                                          6,051,296             696,039                   1,850
   Amortization of intangibles                                          22,068,815           2,439,426
                                                               --------------------  ------------------    --------------------
                                                                       101,932,538          15,775,450                 157,748
                                                               --------------------  ------------------    --------------------

Operating loss                                                         (54,818,443)        (10,870,423)               (157,748)
Interest income, net of $468,408 of interest expense in 1999               886,444             138,073
                                                               --------------------  ------------------    --------------------
Net loss                                                             $ (53,931,999)      $ (10,732,350)             $ (157,748)
                                                               ====================  ==================    ====================

Net loss per share - basic and diluted                                     $ (1.50)            $ (1.22)                $ (0.05)
                                                               ====================  ==================    ====================

Weighted average shares
   outstanding - basic and diluted                                      35,837,523           8,799,432               3,000,000
                                                               ====================  ==================    ====================


         See accompanying notes to consolidated financial statements.
</TABLE>

                                       54
<PAGE>

<TABLE>
<CAPTION>
                                                                        INTERLIANT, INC.

                                                      CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY


                                                  Comprehensive             Common Stock              Additional
                                                                       ------------------------
                                                  Income (Loss)        Shares         Par Value     Paid-in Capital
                                                  -------------        ------         ---------     ---------------

<S>                                              <C>                      <C>             <C>            <C>
Sales of common stock in private placements                               3,000,000       $ 30,000       $ 4,970,000

Net loss                                               $ (157,748)
                                                 -------------------------------------------------------------------

Total comprehensive income (loss)                      $ (157,748)
                                                 =================

Balance as of December 31, 1997                                           3,000,000         30,000         4,970,000

Sales of common stock in private placements                              15,600,000        156,000        25,884,000

Deferred compensation                                                       475,000          4,750         2,600,750

Amortization of deferred compensation

Issuance of common stock in connection
  with acquisitions                                                         142,197          1,422           705,584

Net loss                                              (10,732,350)

                                                 -------------------------------------------------------------------

Total comprehensive income (loss)                   $ (10,732,350)
                                                 =================

Balance as of December 31, 1998                                          19,217,197        192,172        34,160,334

Sales of common stock in private placements                               6,600,000         66,000        10,934,000

Exercise of stock options and warrants                                    1,524,491         15,244         5,671,875

Common stock issued and stock options
   granted in connection with acquisitions                                6,561,795         65,618        65,735,891

Conversion of preferred stock                                             2,647,658         26,477        12,973,524

Initial public offering of
  common stock, net of offering costs                                     8,050,000         80,500        72,446,504

Amortization of deferred compensation

Foreign currency translation adjustment                    28,840

Net loss                                              (53,931,999)
                                                 -------------------------------------------------------------------

Total comprehensive income (loss)                   $ (53,903,159)
                                                 =================

Balance as of December 31, 1999                                          44,601,141      $ 446,011      $201,922,128
                                                                  ==================================================



<CAPTION>


                                                                                   Accumulated Other         Total
                                                   Deferred        Accumulated       Comprehensive       Stockholders'
                                                  Compensation        Deficit             Income              Equity
                                                  ------------        -------             ------              ------

<S>                                                                                                          <C>
Sales of common stock in private placements                                                                  $ 5,000,000

Net loss                                                              $ (157,748)                               (157,748)
                                                -------------------------------------------------------------------------

Total comprehensive income (loss)


Balance as of December 31, 1997                                         (157,748)                              4,842,252

Sales of common stock in private placements                                                                   26,040,000

Deferred compensation                                 (2,602,250)                                                  3,250

Amortization of deferred compensation                    832,821                                                 832,821

Issuance of common stock in connection
  with acquisitions                                                                                              707,006

Net loss                                                             (10,732,350)                            (10,732,350)

                                                -------------------------------------------------------------------------

Total comprehensive income (loss)


Balance as of December 31, 1998                       (1,769,429)    (10,890,098)                             21,692,979

Sales of common stock in private placements                                                                   11,000,000

Exercise of stock options and warrants                                                                         5,687,119

Common stock issued and stock options
   granted in connection with acquisitions                                                                    65,801,509

Conversion of preferred stock                                                                                 13,000,001

Initial public offering of
  common stock, net of offering costs                                                                         72,527,004

Amortization of deferred compensation                  1,769,429                                               1,769,429

Foreign currency translation adjustment                                                          28,840           28,840

Net loss                                                             (53,931,999)                            (53,931,999)
                                                -------------------------------------------------------------------------

Total comprehensive income (loss)


Balance as of December 31, 1999                                    $ (64,822,097)              $ 28,840     $137,574,882
                                                =========================================================================


         See accompanying notes to consolidated financial statements.
</TABLE>

                                       55
<PAGE>

<TABLE>
<CAPTION>


                                                                  INTERLIANT, INC.

                                                        CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                                                                                        Period
                                                                                  Year Ended December 31,          December 8, 1997
                                                                               -----------------------------------  (inception) to
                                                                                    1999              1998         December 31, 1997
                                                                               -------------    ------------------ ----------------
Operating activities
<S>                                                                             <C>              <C>              <C>
  Net loss                                                                      $(53,931,999)    $(10,732,350)    $   (157,748)
  Adjustments to reconcile net loss to net cash used in
    operating activities:
    Provision for uncollectible accounts                                           1,585,254          320,000
    Depreciation and amortization                                                 28,120,111        3,135,465            1,850
    Non-cash compensation, including amortization
      of deferred compensation                                                     1,986,694          832,821
    Other non-cash charges                                                           129,957
    Changes in operating assets and liabilities:
      Restricted cash                                                             (1,011,772)
      Accounts receivable                                                         (4,947,423)        (980,391)
      Prepaid and other current assets                                            (1,873,117)        (602,457)         (14,000)
      Other assets                                                                   (90,527)
      Accounts payable                                                             3,478,876          639,607           84,389
      Accrued expenses                                                             1,111,999        1,140,135           26,507
      Deferred revenue                                                             1,289,453          246,502

                                                                               -------------    ------------------ ----------------
  Net cash used in operating activities                                          (24,152,494)      (6,000,668)         (59,002)
                                                                               -------------    ------------------ ----------------

Investing activities
  Purchases of furniture, fixtures and equipment                                 (12,084,072)      (4,321,577)         (28,913)
  Payments issued in connection with non-compete agreements                       (2,000,000)
  Investments in long-term assets                                                   (952,969)
  Purchases of short-term investments                                             (3,612,229)
  Acquisitions of businesses, net of cash acquired                               (27,809,253)     (13,597,558)

                                                                               -------------    ------------------ ----------------
  Net cash used in investing activities                                          (46,458,523)     (17,919,135)         (28,913)
                                                                               -------------    ------------------ ----------------

Financing activities
  Proceeds from sales of common stock, net of offering costs of
    $7.9 million and $0.2 million in 1999 and 1998, respectively                  83,527,004       29,821,078        1,000,000
  Proceeds from issuance of Series A redeemable convertible preferred stock       13,000,001
  Proceeds from exercise of options and warrants                                   5,469,854
  Proceeds from capital lease financing                                            2,550,303
  Repayment of debt                                                              (13,141,466)

                                                                               -------------    ------------------ ----------------
  Net cash provided by financing activities                                       91,405,696       29,821,078        1,000,000
                                                                               -------------    ------------------ ----------------

Net increase in cash and cash equivalents                                         20,794,679        5,901,275          912,085
Cash and cash equivalents at beginning of period                                   6,813,360          912,085
                                                                               -------------    ------------------ ----------------
Cash and cash equivalents at end of period                                      $ 27,608,039     $  6,813,360     $    912,085
                                                                               =============    ================== ================

Supplemental Disclosures, including Noncash Investing and
  Financing Activities
  Cash paid for interest                                                        $    468,408
  Stock issued and options granted for acquisitions                             $ 65,801,509     $    707,006
  Stock issued for compensation agreements                                                       $  2,602,250
  Conversion of Series A redeemable convertible preferred stock into
    into common stock                                                           $ 13,000,001
  Debt assumed or issued in acquisitions                                        $ 22,250,186
  Stock subscription receivable                                                                                   $  4,000,000

         See accompanying notes to consolidated financial statements.

</TABLE>

                                       56
<PAGE>

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the
         period from December 8, 1997 to December 31, 1997 and the years
                        ended December 31, 1998 and 1999

         1.   Business

                  Interliant, Inc. (the Company) is a leading Application
Service Provider (ASP), providing customers with a broad range of outsourced
e-business solutions. The Company's service offerings combine hosting
infrastructure with Internet professional service expertise, which enable the
rapid design, implementation, deployment and management of cost-effective
e-business solutions for customers.

                  The Company was organized under the laws of the State of
Delaware on December 8, 1997. Web Hosting Organization LLC (WEB), a Delaware
Limited Liability Company, is the majority and controlling shareholder of the
Company. WEB's investors comprise Charterhouse Equity Partners III, L.P. and
Chef Nominees Limited (collectively, CEP Members), and WHO Management, LLC
(WHO).

         2.   Summary of Significant Accounting Policies

Basis of Presentation

                  The consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.

                                       57
<PAGE>

Cash Equivalents

                  The Company considers all highly liquid investments purchased
with an original maturity (at date of purchase) of three months or less to be
the equivalent of cash. Cash equivalents, which consist primarily of money
market accounts and commercial paper, are carried at cost, which approximates
market value.

Short-term Investments

                  Short-term investments, which consist of commercial paper with
maturities ranging from three months to one year, are carried at cost, which
approximates market value.

Fair Value of Financial Instruments

                  Carrying amounts of financial instruments held by the Company,
which include cash equivalents, short-term investments, accounts receivable,
accounts payable and accrued expenses, approximate fair value due to their short
duration.

Concentrations of Credit Risk

                  Financial instruments that potentially subject the Company to
concentrations of credit risk are comprised principally of cash, cash
equivalents, short-term investments and accounts receivable. As of December 31,
1999, the Company's cash, cash equivalents and short-term investments are
deposited with various domestic and foreign financial institutions. With respect
to accounts receivable, the Company's customer base is dispersed across many
geographic areas. The Company monitors customer payment history, generally does
not require collateral and establishes reserves for uncollectible accounts as
warranted. In addition to individual customers, the Company also provides
services to resellers, who, in turn, provide services to their own customers.


Use of Estimates

                  The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent liabilities, at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Furniture, Fixtures and Equipment

                  Furniture, fixtures and equipment are stated at cost. Major
additions and betterments are capitalized, while replacements, maintenance and
repairs that do not improve or extend the life of the assets are charged to
expense. Depreciation and amortization has been provided using the straight-line
method over the estimated useful lives of the assets as follows:

        Network software and equipment.............   3 years
        Furniture, fixtures and office equipment...   3 to 7 years
        Leasehold improvements.....................   Remaining lease term or
                                                      useful life, whichever is
                                                      shorter

                                       58
<PAGE>

Intangible Assets

         Intangible assets consist primarily of customer lists, covenants not to
compete, assembled workforce, trade names and goodwill, all of which arose from
the acquisitions of 21 hosting and related Internet professional services
companies. Such assets are being amortized on a straight-line basis over periods
ranging from one to five years (see Note 4).

Impairment of Long-Lived Assets

         The Company continually reviews amortization periods and the carrying
value of long-lived assets, including furniture, fixtures and equipment, and
intangible assets to determine whether there are any indications of reduction in
useful lives or impairment losses. With respect to intangible assets, certain
events that would cause the Company to conduct an impairment assessment include
significant losses of customers or acquired workforce, or if operating results
of acquired businesses continually failed to meet management's performance
expectations. If after conducting such assessment indications of impairment are
present in long-lived assets, the estimated future undiscounted cash flows
associated with the corresponding assets would be compared to its carrying
amount to determine if a change in useful life or a write-down to fair value is
necessary.

Revenue Recognition

         The Company's revenues primarily are derived from Web hosting,
application hosting, and Internet professional services.

         The Company sells its Web hosting services for contractual periods
ranging from one to twelve months. These contracts generally are cancelable by
either party without penalty. Revenues from these contracts are recognized
ratably over the contractual period as service is delivered. Incremental fees
for excess bandwidth usage and data storage are billed and recognized as
revenues in the period customers utilize such services. Payments received for
billings in advance of providing services are deferred until the period such
services are provided.

         Non-refundable set-up fees charged to Web hosting customers are
separately priced from hosting services and are recognized at the time a new
customer account is created. Set-up costs consist primarily of labor by
technical support personnel to activate the new Web site and are incurred at the
time of set-up. No future set-up costs are incurred, and there is no obligation
of the Company to perform any future set-up services. Following expiration of
the initial contract period and upon renewal of the contract by the customer,
there are no additional set-up charges and the renewal prices for Web hosting
services are generally unchanged from the original contract period.

         Application hosting revenues comprise monthly usage fees, including
communications charges, and customization fees, all of which are recorded as
revenue at the time the services are used by the customer.

         The Staff of the Securities and Exchange Commission has issued Staff
Accounting Bulletin No. 101 on the topic of revenue recognition, which the
Company will adopt effective with the quarter beginning January 1, 2000. The
Company anticipates that such adoption will result in a change in the accounting
for set-up fees with respect to Web hosting and application hosting services.
While the Company has not yet determined the impact of the change, it is not
expected to have a material effect on the ongoing results of operations.

                                       59
<PAGE>

         Revenues from Internet professional services are recognized as the
services are rendered, provided that no significant obligations remain and
collection of the receivable is considered probable. Generally, contracts call
for billings on a time and materials basis; however, in instances when a fixed
fee contract is signed, revenue is recognized on a percentage-of-completion
basis. In connection with certain professional service arrangements, the Company
provides hardware and software to customers. Such products are purchased from
third party vendors as required. Revenue from the sale of products is generally
recorded over the period that the related professional services are performed.
Product revenues and cost of revenues were $3.4 million and $2.7 million for the
twelve months ended December 31, 1999, respectively.

Advertising Expenses

         All advertising costs are expensed as incurred. Advertising expenses
for the year ended December 31, 1999 and 1998 were $6.0 million and $0.7
million, respectively.

Income Taxes

         The Company accounts for income taxes using the liability method under
which deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.

Net Loss Per Share

         Net loss per share is presented in accordance with the provisions of
Statement of Financial Accounting Standards No. 128, Earnings Per Share. Basic
net loss per share is computed based on the weighted average number of shares of
common stock outstanding. Diluted loss per share does not differ from basic loss
per share since potential common shares to be issued upon exercise of stock
options are anti-dilutive for the periods presented. As of December 31, 1999,
the number of potentially dilutive shares of common stock were 2.5 million
shares, based on the number outstanding stock options as of that date.

Stock-Based Compensation

         The Company accounts for its stock-based compensation plan utilizing
the provisions of Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees (APB 25). The Company has adopted the disclosure
provisions only of Statement of Financial Accounting Standards No. 123,
Accounting For Stock-Based Compensation (SFAS 123).

Foreign Currency Translation

         The financial statements of foreign subsidiaries have been translated
into U.S. dollars in accordance with FASB Statement No. 52, Foreign Currency
Translation. The functional currency of the Company's foreign operating units is
the local currency in the country that the entity operates. All balance sheet
accounts have been translated using the exchange rate in effect at the balance
sheet date. Statement of operations amounts have been translated using the
average exchange rate for the period. Adjustments resulting from such
translation have been reported separately as a component of other comprehensive
income in stockholders' equity.

Reclassifications

Certain 1998 amounts have been reclassified to conform to the 1999 presentation.

                                       60
<PAGE>

3.   Furniture, Fixtures and Equipment

Furniture, fixtures and equipment consist of the following:

<TABLE>
<CAPTION>

                                                                 December 31,
                                                      ---------------------------------
                                                           1999              1998
                                                      ----------------  ---------------
<S>                                                      <C>               <C>
      Network software and equipment                     $ 18,693,426      $ 5,213,879
      Furniture, fixtures and office equipment              2,081,599          303,742
      Leasehold improvements                                3,800,282          283,391
                                                      ----------------  ---------------
                                                           24,575,307        5,801,012
        Less accumulated depreciation and
           amortization                                     6,376,297          697,889
                                                      ----------------  ---------------
                                                         $ 18,199,010      $ 5,103,123
                                                      ================  ===============
</TABLE>




         Assets financed under capital leases were $3.9 million and $0 in 1999
and 1998, respectively. Depreciation expense, including amortization of
leasehold improvements, amounted to $6.1 million, $0.7 million and $1,850 for
the years ended 1999, 1998 and 1997, respectively.

         4.   Intangible Assets

         The Company has allocated the purchase price of acquired companies to
identifiable tangible assets and liabilities and intangible assets based on the
nature and the terms of the various purchase agreements and evaluation of the
acquired businesses. Covenants not to compete are amortized over periods not to
exceed the term of the respective agreement. Values are assigned to covenants
not to compete in accordance with Accounting Principles Board Opinion No. 16
(APB 16), using the Company's estimate of fair value of the covenant. Amounts
not allocated to tangible assets and liabilities and identifiable intangible
assets have been recorded as goodwill.

         Intangible assets consist of the following:

<TABLE>
<CAPTION>

                                                                   December 31,
                                                      --------------------------------------    Amortization
                                                            1999                 1998              Period
                                                      ------------------   -----------------   ---------------
<S>                                                        <C>                  <C>              <C>
      Covenants not to compete                             $ 19,275,302         $ 3,759,202      1-5 Years
      Customer lists                                         22,605,369           3,295,369       3 Years
      Assembled work force                                    6,877,031           1,127,031       3 Years
      Trade names                                             6,773,983             573,982       3 Years
      Goodwill                                               62,610,535           6,296,070       5 Years
                                                      ------------------   -----------------
                                                            118,142,220          15,051,654
      Less accumulated amortization                          24,506,019           2,439,426
                                                      ------------------   -----------------
                                                           $ 93,636,201         $12,612,228
                                                      ==================   =================
</TABLE>

         Amortization expense amounted to $22.1 million and $2.4 million in 1999
and 1998, respectively.


         5.   Acquisitions

         During 1999 and 1998, the Company acquired 21 businesses at an
aggregate cost of $118.6 million, excluding assumed liabilities. Each of the
acquisitions have been accounted for using the purchase method of accounting.
The operations of each of the acquired companies are included in the operating
results of the Company from their respective dates of acquisition.

         The following is a summary of acquisitions:

                                       61
<PAGE>

         1999 Acquisitions
         -----------------

         In February 1999, the Company purchased the assets of Digiweb, Inc., a
Web hosting company. The purchase price consisted of cash of $5.0 million and
450,000 shares of the Company's common stock (Common Stock) valued at $6.67. The
agreement provides for contingent purchase consideration of $1.0 million, which
has been accrued and recorded as additional purchase price (goodwill) as of
December 31, 1999, due to the attainment of specified revenue and earnings
targets.

         In February 1999, the Company purchased certain assets of Telephonetics
International, Inc., a provider of customized music and messages on hold
recording services to businesses utilizing on-hold telephone equipment. The
purchase price consisted of cash of $3.0 million and 140,000 shares of Common
Stock valued at $6.67 per share.

         In February 1999, the Company purchased all of the outstanding stock of
Net Daemons Associates, Inc. (NDA), a provider of Web development and
Internetworking services. The purchase price consisted of cash of $0.5 million
and 425,000 shares of Common Stock valued at $6.67 per share. In addition, the
Company paid certain officers of NDA $2.4 million to induce them to enter into
non-compete agreements and paid approximately $0.4 million to cancel certain NDA
stock options. The agreement also provides for contingent purchase consideration
of $0.5 million in cash and 74,963 shares of Common Stock if specified gross
revenue and gross margin targets are achieved in the twelve-month period
following the acquisition. As of December 31, 1999, the Company paid $0.3
million in cash and issued 37,481 shares of Common Stock, valued at $10.91 per
share, in connection with the attainment of specified targets. The payment of
contingent consideration has been recorded as additional purchase price. The
shares of stock and cash to be paid for the remaining contingent purchase
consideration have been deposited with an escrow agent.

         In March 1999, the Company purchased substantially all of the assets
and assumed specified liabilities of Interliant, Inc., a Texas corporation,
(hereinafter "Interliant Texas"), a provider of groupware hosting and
application outsourcing services. The purchase price consisted of $0.1 million
in cash and 4,091,642 shares of Common Stock valued at $6.67 per share, and
options to purchase up to 1,523,461 shares of Common Stock at $0.13 per share.
The difference between the fair value of the vested options at the date of grant
($6.67 per share) and the exercise price has been included in the purchase price
allocation. In addition, at closing the Company paid $7.9 million on an
outstanding note payable of Interliant Texas, and assumed a note payable in the
amount of $8.0 million, which was paid in full in July 1999 from a portion of
the proceeds from the Company's initial public offering of Common Stock (IPO)
(See Note 9).

         In May 1999, the Company purchased certain assets and assumed specified
liabilities of Advanced Web Creations, Inc., a Web hosting company. The purchase
price consisted of cash of approximately $0.3 million, 225,000 shares of Common
Stock valued at $8.50 per share, and a promissory note in the amount of $2.4
million, which was paid in full in July 1999 from a portion of the proceeds from
the Company's IPO (See Note 9). The agreement also provides for contingent
purchase consideration of $0.4 million, which has been accrued and recorded as
additional purchase price (goodwill) as of December 31, 1999, due to the
attainment of specified revenue targets.

         In August 1999, the Company purchased substantially all of the assets
of The Daily-e Corporation, a provider of business process re-engineering and
Web development services. The purchase price consisted of 70,000 shares of the
Common Stock, valued at $11.13 per share. The agreement also provides for
contingent purchase consideration of up to $3.9 million, payable in cash,

                                       62
<PAGE>

Common Stock, or any combination thereof at the Company's option, if specified
net revenue and earnings targets are achieved for the twelve-month period ending
July 31, 2000. The payment of contingent consideration, if any, will be recorded
as additional purchase price. In 1999, contingent consideration of $0.4 million
was earned and paid in the form of Common Stock (38,952 shares).

         In September 1999, the Company, through its wholly-owned subsidiary,
Interliant International, Inc., a Delaware corporation, acquired all of the
outstanding stock of Sales Technology Limited, a United Kingdom-based
professional services firm that provides Customer Relationship Management (CRM)
implementation solutions and groupware application services. The total
consideration consisted of cash of $0.4 million, 235,410 shares of Common Stock
valued at $11.23 per share, and assumed debt of $0.3 million. In addition,
contingent consideration of up to $3.6 million is payable in Common Stock, the
issuance of unsecured notes, or any combination thereof at the Company's option,
to certain sellers if specified revenue and earnings targets are achieved during
specified periods. The payment of contingent consideration, if any, will be
recorded as additional purchase price.

         In November, 1999, the Company purchased all of the outstanding stock
of Triumph Technologies, Inc. and Triumph Development, Inc., an affiliated
company (collectively, "Triumph"), a provider of comprehensive Internet
professional services and e-business security solutions. The purchase price
consisted of cash of $3.2 million, 650,995 shares of Common Stock valued at
$15.94 per share, assumption of $2.0 million of bank debt which was paid shortly
after closing, and options to purchase 90,824 shares of Common Stock at $1.63
per share. The difference between the fair value of the options at the date of
grant ($15.94 per share) and the exercise price has been included in the
purchase price allocation. The agreement also provides for contingent
consideration of up to $3.0 million in cash or shares of Common Stock, or any
combination thereof, if certain revenues and earnings targets are met for the
twelve month period from December 1, 1999 to November 30, 2000. The payment of
contingent consideration, if any, will be recorded as additional purchase price.

         In December, 1999, the Company purchased all of the outstanding stock
of The Jacobson Group, Inc., an Internet professional services firm specializing
in custom application development primarily using the Lotus Notes/Domino
platform. The purchase price consisted of cash of $4.1 million and 159,832
shares of Common Stock valued at $24.50 per share. The agreement also provides
for contingent consideration up to $4.8 million if certain revenue and earnings
targets are met in the years ending December 31, 2000 and 2001. The payment of
contingent consideration, if any, will be recorded as additional purchase price.

         1998 Acquisitions
         -----------------

         In February 1998, the Company purchased certain Web hosting assets of
Omnetrix, Inc., dba DirectNet, a Web hosting provider, for cash of approximately
$0.1 million.

         In April 1998, the Company purchased the operating assets of Clever
Computers, Inc., a Web hosting company, for cash of approximately $2.5 million.
Pursuant to a three-year employment agreement, a shareholder of Clever received
150,000 shares of the Company's Common Stock, valued at $3.32 per share, which
vests and is being accounted for as compensation expense over the term of the
employment agreement.

         In April 1998, the Company purchased certain Web hosting assets from
KnowledgeLink Interactive, Inc. for cash of approximately $0.6 million.

         In May 1998, the Company purchased the operating assets of Tri Star Web

                                       63
<PAGE>

Creations, Inc., a Web hosting company, for cash of approximately $1.0 million
and 9,000 shares of Common Stock valued at $4.07 per share.

         In June 1998, the Company purchased certain Web hosting assets of
HostAmerica, the Web hosting division of HomeCom Communications, Inc., for cash
of approximately $4.3 million.

         In June 1998, the Company purchased the operating assets of All
Information Systems, Inc., a Web hosting company, for cash of approximately $0.2
million and 115,707 shares of Common Stock valued at $5.00 per share.

         In July 1998, the Company purchased certain Web hosting assets of
Software Business Technologies, Inc. for 12,000 shares of Common Stock valued at
$5.00 per share.

         In July 1998, the Company purchased certain Web hosting assets of
DevCom, the Web hosting division of Nextron, Inc., for cash of approximately
$0.6 million.

         In July 1998, the Company purchased certain Web hosting assets of
BestWare, Inc., dba Maikon, for cash of approximately $0.4 million and 5,490
shares of Common Stock valued at $5.38 per share.

         In August 1998, the Company purchased all of the outstanding stock of
B.N. Technology, Inc., dba ICOM, a Web hosting company, for cash of
approximately $2.0 million. The purchase agreement also provides for additional
payments of cash of up to $2.0 million to the shareholders of ICOM if certain
earnings targets are achieved. As of December 31, 1999, all of the earnings
targets had been achieved and $2.0 million has been paid. Pursuant to one-year
employment agreements, two shareholders of ICOM received a total of 300,000
shares of Common Stock valued at $6.47 per share, which are vested as of
December 31, 1999 and have been accounted for as compensation expense over the
terms of the agreements.

         In Sepember 1998, the Company purchased certain Web hosting assets of
GEN International, Inc. (GEN) for cash of $0.5 million and substantially all the
assets of Global Entrepreneurs Network, Inc. (a wholly-owned subsidiary of GEN)
for $0.3 million. Pursuant to a consulting agreement with a shareholder of GEN,
the Company issued 25,000 shares of Common Stock valued at $6.66 per share,
which is fully vested as of December 31, 1999 and has been accounted for as
compensation expense over the term of the consulting agreement.

         In December 1998, the Company purchased certain Web hosting assets of
Dialtone, Inc. a Web hosting company for cash of $0.4 million.

         The allocation of purchase price for the acquisitions completed in 1999
as reflected in the December 31, 1999 consolidated balance sheet is preliminary
based on the Company's initial assessment of the fair value of assets acquired.
The allocations may be modified between components of intangible assets as the
Company finalizes the purchase accounting for such acquisitions.

         The following unaudited condensed pro forma information presents the
unaudited results of operations of the Company as if the acquisitions completed
through December 31, 1999 had occurred on January 1, 1998:

                                       64
<PAGE>

<TABLE>
<CAPTION>

                                                            Year Ended December 31,
                                                      -------------------------------------
                                                            1999                1998
                                                      ------------------  -----------------
<S>                                                        <C>                 <C>
         Revenues                                          $ 80,074,000        $69,927,000
         Net loss                                           (65,630,000)       (46,858,000)
         Net loss per share - basic and diluted                 $ (1.74)           $ (2.73)

</TABLE>



6.   Accrued Expenses

Accrued expenses consist of the following:

<TABLE>
<CAPTION>
                                                                            December 31,
                                                               --------------------------------------
                                                                     1999                 1998
                                                               ------------------   -----------------
<S>                                                                  <C>                   <C>
     Compensation and related costs                                  $ 2,109,398           $ 226,641
     Communications costs                                                376,343             121,000
     Marketing and advertising                                           758,101
     Amounts due to former owners under contingent
        consideration arrangements (see Note 5)                        1,400,000           1,000,000
     Other                                                             2,698,709             953,866
                                                               ------------------   -----------------
                                                                     $ 7,342,551         $ 2,301,507
                                                               ==================   =================
</TABLE>



7.   Long-Term Debt and Capital Lease Obligations

    At December 31, 1999 long-term debt consisted of the following:

<TABLE>
<CAPTION>

<S>                                                                                     <C>
Obligations related to the sale/leaseback of data center
   equipment, approximate interest rate of 15%, payable in monthly
   installments over 36 months                                                          $ 2,350,102
Notes payable to former owners of acquired
  companies                                                                               1,031,684
Capital lease obligations and other debt                                                    333,260
                                                                                  ------------------
                                                                                          3,715,046
Less amounts included in current liabilities                                              1,211,835
                                                                                  ------------------
                                                                                        $ 2,503,211
                                                                                  ==================
</TABLE>


    Maturities of long-term debt are as follows:

                         2000                $ 1,211,835
                         2001                  1,268,707
                         2002                    976,499
                         2003                    196,778
                         2004                     61,227
                                       ------------------
                                             $ 3,715,046
                                       ==================


8.  Series A Redeemable Convertible Preferred Stock

         In January 1999, the Company's Board of Directors and stockholders

                                       65
<PAGE>

approved an amendment to the Company's certificate of incorporation (Charter) to
authorize the issuance and sale of 2,647,658 shares of Preferred Stock, par
value $0.01 per share, all of which was designated as Series A Redeemable
Convertible Preferred Stock (Series A Preferred). In January 1999, pursuant to a
Securities Purchase Agreement (the Purchase Agreement), the Company sold to
SOFTBANK Technology Ventures IV L.P. and one of its affiliates (the SOFTBANK
Investors), 2,647,658 shares of its Series A Preferred at a price of $4.91 per
Series A Preferred share and issued warrants to purchase 749,625 shares of
Common Stock at $6.67 per share, for cash of $13.0 million. The warrants were
exercised in April 1999 for total proceeds of $5.0 million.

9.   Stockholders' Equity

Preferred Stock

         In May 1999, the Company's stockholders approved an amendment to the
Company's Charter to authorize the issuance of 1,000,000 shares of undesignated
preferred stock with a par value of $0.01 per share.


Common Stock

         In May 1999, the Company's stockholders approved an amendment to the
Company's Charter to increase the number of authorized shares of Common Stock to
200,000,000.

         Pursuant to a Stock Subscription Agreement dated December 8, 1997
between the Company and WEB, WEB purchased 6,600,000 shares of Common Stock
during 1999, and 18,600,000 shares during the period December 8, 1997
(inception) to December 31, 1998, all at $1.67 per share.

         In July 1999, the Company sold 8,050,000 shares of Common Stock,
including shares sold through the exercise of the underwriters' over-allotment
option, in an underwritten IPO for net proceeds of approximately $72.5 million,
after deducting underwriters' discounts and commissions and offering costs paid
directly by the Company. Upon the consummation of the IPO, all of the 2,647,658
outstanding shares of Series A Preferred were converted into an equal number of
share of Common Stock (See Note 8).

         During 1999, 6,561,795 shares of Common Stock were issued in connection
with acquistions (See Note 5).

Stock Option Plan

         In February 1998, the Company adopted its 1998 Stock Option Plan (the
Plan), which is administered by the Board of Directors (the Committee). Under
the terms of the Plan, the Committee may grant stock options to officers,
employees and consultants of the Company. The Plan permits the grant of
incentive stock options (ISOs) and nonqualified stock options (NSOs). In
December 1999, the Board of Directors amended the Plan to include directors of
the Company among the class of persons eligible to receive grants. As of
December 31, 1999, the Company has reserved 3.8 million shares of Common Stock
for issuance under the Plan. The Plan provides that stock options may not be
granted at less than fair market value of the Common Stock on the date of the
grant and may not expire more than ten years from the date of the grant. Options
granted under the Plan generally will become exercisable over a four-year period
in equal annual installments unless the Committee specifies a different vesting
schedule. In the event of a change in control of the Company, each option
becomes immediately vested and exercisable, provided that no

                                       66
<PAGE>

written provision has been made, in connection with any such event, for (1) the
continuation of the stock option plan and/or the assumption of all outstanding
options by a successor corporation or (2) the substitution for such options of
new options covering the stock of a successor corporation. The Plan has a term
of ten years, subject to earlier termination or amendment by the Committee, and
all options under the Plan prior to its termination remain outstanding until
they have been exercised or terminated.

         The following table sets forth the Plan activity for the years ended
December 31, 1999 and 1998:

<TABLE>
<CAPTION>
                                                         1999                              1998
                                             ----------------------------       ---------------------------
                                              Number of         Price            Number of        Price
                                                Shares          Range              Shares         Range
                                             -------------   ------------       ------------   ------------
<S>                                             <C>           <C>                   <C>         <C>     <C>
      Options outstanding, beginning of year      440,500     $1.67 - $6.67
      Options granted                           2,998,815     $0.13 - $29.50        440,500     $1.67 - $6.67
      Options exercised                          (768,867)    $0.13 - $6.67
      Options terminated                         (135,850)    $1.67 - $14.00
                                             -------------                      ------------
      Options outstanding, end of year          2,534,598     $0.13 - $29.50        440,500     $1.67 - $6.67
                                             =============                      ============

</TABLE>


         The weighted average exercise price of options granted was $5.61 and
$4.11 in 1999 and 1998, respectively. In connection with certain acquisitions,
the Company granted options to purchase 1,523,461 shares of Common Stock at
$0.13 per share in substitution for Interliant Texas vested options, and options
to purchase 90,824 shares of Common Stock at prices ranging from $1.63 to $3.79
per share in substitution for Triumph vested options. At December 31, 1999 and
1998, 1,030,385 and 0 options, respectively were vested.

Stock-Based Compensation

         As discussed in Note 2, the Company applies APB 25 and related
interpretations in accounting for its stock option plan. During 1999, options to
purchase 40,250 shares of Common Stock were given accelerated vesting in
connection with termination arrangements, and as a result, the Company charged
approximately $0.3 million to compensation expense. During 1998, no compensation
expense was recognized relating to option grants in 1998.

         As required under FAS 123, the following pro forma net loss and net
loss per share presentations reflect the amortization of the option grant fair
value as expense. For purposes of this disclosure, the estimated fair value of
the options is amortized to expense over the options' vesting periods. The
Company's pro forma information follows for the years ended December 31, 1999
and 1998:

<TABLE>
<CAPTION>

                                                           Year Ended December 31,
                                                      -----------------------------------
                                                            1999               1998
                                                      -----------------   ---------------
<S>                                                       <C>               <C>
Pro forma net loss                                        $(54,574,000)     $ (9,756,000)
Pro forma net loss per share - basic and diluted               $ (1.52)          $ (1.11)
</TABLE>


         The weighted average grant date value was $10.90 and $0.83 for stock
options issued in 1999 and 1998, respectively, and the weighted-average
remaining contractual life for options outstanding as of December 31, 1999 is
9.2 years. Significant assumptions used in determining this value include a risk
free interest rate of 6.0%, expected life of the options of four years, and a
dividend rate of zero.

         The effects on pro forma disclosures of applying SFAS 123 are not
likely

                                       67
<PAGE>

to be representative of the effects on pro forma disclosures in future years as
the period presented includes only two years of option grants under the Plan.

10.   Income Taxes

         As of December 31, 1999, the Company has federal and state net
operating loss carryforwards of approximately $40.8 million. The net operating
loss carryforwards will expire at various dates beginning in the years 2003
through 2019 if not utilized.


         Significant components of the Company's deferred tax assets and
liabilities for federal and state income taxes consist of the following at
December 31, 1999:

<TABLE>
<CAPTION>
                                                         Year Ended December 31,
                                                        1999                 1998
                                                  ------------------    ---------------
          Deferred tax assets:
<S>                                                    <C>                 <C>
            Net operating loss carryforwards           $ 16,270,000        $ 3,063,000
            Depreciation                                     49,000            (14,000)
            Other, net  (principally related to
               amortization of intangible assets)         8,000,000            813,000
                                                  ------------------    ---------------
          Total deferred tax assets, net                 24,319,000          3,862,000
          Valuation allowance                           (24,319,000)        (3,862,000)
                                                  ------------------    ---------------
          Net deferred tax asset                                $ -                $ -
                                                  ==================    ===============

</TABLE>

         The Company believes that, based on a number of factors, the available
objective evidence creates sufficient uncertainty regarding the realization of
the deferred tax assets such that a full valuation allowance has been recorded.
The Company will continue to assess the realization of the deferred tax assets
based on actual and forecasted operating results. The valuation allowance
increased by $20.5 million from 1998 to 1999.

11.   Leases

         The Company leases its data centers and certain office space under
noncancelable operating leases, which expire at various dates through April
2010. Some of the leases contain renewal options. Total rent expense for all
operating leases was approximately $3.4 million, $0.4 million and $7,000 for the
years ended December 31, 1999, 1998 and 1997, respectively. In connection with
certain of the leases, the Company has given the landlords standby letters of
credit in the amount of approximately $0.8 million in lieu of security deposits.

         Future minimum lease commitments for noncancelable operating leases are
as follows at December 31, 1999:

                 2000                 $ 3,932,000
                 2001                   3,768,000
                 2002                   3,275,000
                 2003                   2,883,000
                 2004                   2,731,000
              Thereafter                8,242,000
                                ------------------
                                     $ 24,831,000
                                ==================


12. Related-Party Transactions

                                       68
<PAGE>

         In connection with the acquisitions of certain Web hosting assets of
various entities (see Note 5), the Company paid transaction fees of
approximately $361,000 and $337,000 for the years ended December 31, 1999 and
1998, respectively, to Charterhouse Group International, Inc., a related party
of WEB. These fees are included in the respective purchase price allocations as
capitalized transaction costs.

         The Company received consulting services from Sage Equities, Inc. and
Intensity Ventures, Inc., whose principals are the co-chairmen of the Company
and members of WHO, for the purpose of identifying and executing potential
acquisitions as well as providing strategic management oversight. In 1999, the
principal of Sage Equities, Inc. was compensated as an employee of the Company.
For the year ended December 31, 1998, and for the period December 8, 1997
(inception) to December 31, 1997, the Company incurred costs of $120,000, and
$25,000, respectively, for Sage Equities, Inc. For the years ended December 31,
1999 and 1998, and for the period December 8, 1997 (inception) to December 31,
1997, the Company incurred costs of $338,000 (of which $141,000 were expenses),
$232,000 (of which $112,000 were expenses), and $17,000, respectively, for
Intensity Ventures.


13. Employee Benefit Plan

         In 1998, the Company instituted a 401k Plan for all employees who have
attained age 19 and have been employed by the Company or by an acquired business
for one month. Participating employees may make contributions to the plan up to
15% of their eligible compensation contributed to the 401k Plan. The Plan
provides that the Company may make discretionary contributions to the Plan on
behalf of participating employees. In 1999 the Company initiated a matching
contribution policy wherein it agreed to match the employee's contributions 100%
up to 5% of the participating employee's compensation. The total amount
contributed by the Company during 1999 was $0.6 million, which was charged to
expense.

14.  Segment Reporting

         Pursuant to FAS 131, the Company has determined that it currently has
three reportable segments: Web hosting, application hosting, and Internet
Professional Services. For the year ended December 31, 1998, the Company
operated only in the Web hosting segment. The results of operations for the year
ended December 31, 1999 for each of the segments is shown below.

<TABLE>
<CAPTION>
                                                             Internet
                              Web          Application     Professional
                            Hosting          Hosting         Services          Other              Total
                            -------          -------         --------          -----              -----
<S>                        <C>              <C>             <C>               <C>                <C>
Revenues                   $ 16,892,000     $ 15,639,000    $ 11,493,000      $ 3,090,095        $ 47,114,095
Operating income (loss)     (17,302,000)      (6,173,000)        755,000      (32,098,443)        (54,818,443)

Segment assets              $ 7,716,000     $ 11,223,000    $ 11,704,000    $ 132,232,068       $ 162,875,068
</TABLE>



         The Company's management generally reviews the results of operations of
each segment exclusive of depreciation and amortization (aggregating $28.1
million) and interest related to each segment. Accordingly, such expenses are
excluded from the segment operating loss and are shown under the Other caption.
In addition, all intangible assets and corporate expenses of the Company are
included in the Other caption.

         The Company believes that the reportable segments may change in future
periods as management continues to broaden its outsourced e-business solutions.

                                       69
<PAGE>

         For the years ended December 31, 1999 and 1998, approximately 16% and
19%, respectively, of revenues were from sources outside the United States,
primarily from Europe, Latin America and Asia.

15.  Subsequent Events

         In January and February 2000, the Company sold 787,881 shares of Common
Stock in private placements for total proceeds of $27.5 million. In connection
with the sales, the Company issued warrants to purchase 157,575 shares of Common
Stock at an average exercise price of $34.90 per share which approximated the
market price at the date of issuance. The warrants expire December 31, 2000.

         In January 2000, the Company entered into a four-year employment
agreement with a new Chief Executive Officer. In connection with this agreement,
the Company issued this employee options to purchase 1,500,000 shares of Common
Stock, at an average exercise price of $18.00 per share. Such options were not
issued pursuant to the Plan. The exercise price of the options were below the
fair value of the Common Stock as of the measurement date, and as a result, the
Company will recognize approximately $30.0 million as compensation expense over
the four-year vesting period of the options.


         In February 2000, the Company sold $154.8 million of 7% Convertible
Subordinated Notes, including $4.8 million sold upon exercise of the
underwriters' over-allotment option. The notes are convertible at the option of
the holder, at any time on or prior to maturity into Common Stock at a
conversion price of $53.10 per share, which is equal to a conversion rate of
18.8324 shares per $1,000 principal amount of notes. Interest is payable
semi-annually, beginning August 2000. The notes mature on February 16, 2005.
Upon the occurrence of certain events the Company may redeem the notes prior to
maturity.

         In February 2000, the Company and @viso Limited (@viso), a company
incorporated under the laws of England and Wales and owned 50% by Softbank
Holdings, Inc. and 50% by Vivendi S.A., agreed to form a corporation, Interliant
Europe B.V., to be owned 51% by the Company, and 49% by @viso. Through
Interliant Europe, the Company plans to launch Web hosting, application hosting
and related services in continental Europe. @viso has loaned the Company the
amount required to purchase its equity interest in Interliant Europe
(approximately $7.7 million). The Company has also agreed to license some of its
technology and intellectual property to and enter into a service agreement with
Interliant Europe.

         The note underlying the @viso loan agreement bears interest at 8% per
annum, and is repayable in full at the earlier of a sale of Interliant Europe's
common stock in an initial public offering or February 2005. The Company intends
to consolidate the operations of Interliant Europe with the results of
operations of the Company with appropriate adjustments for the minority
interest's share of the income or loss of Interliant Europe.

         In February 2000, the Company acquired all of the outstanding stock of
Soft Link, Inc., a provider of Enterprise Resource Planning (ERP) solutions
based on PeopleSoft software. The purchase price consisted of $18.2 million in
cash, subject to adjustment based on the net worth of Soft Link, Inc. as of the
closing date, and 254,879 shares of Common Stock valued at approximately $37.00
per share. The agreement provides for contingent consideration, not to exceed
$10.0 million, if specified revenues and earnings targets are met for the
calendar year 2000. The contingent consideration is payable 50% in cash, and the
remaining 50% in cash or Common Stock at the Company's option. The payment of
contingent consideration, if any, will be recorded as additional purchase price.

                                       70
<PAGE>

         In February 2000, the Company purchased substantially all of the assets
and assumed certain liabilities of reSOURCE PARTNER, Inc., a provider of hosting
services for outsourced human resources and finance solutions primarily using
PeopleSoft software. The purchase price consisted of $2.5 million in cash,
subject to adjustment based on the determination of closing net equity, and the
issuance of 1,041,179 shares of Common Stock valued at approximately $37.00 per
share.


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

     Not applicable.

PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS

         Information with respect to directors is included in Interliant's Proxy
Statement to be filed pursuant to Regulation 14A (the "Proxy Statement") under
the caption "Election of Directors," and such information is incorporated herein
by reference. Set forth in Part I, Item I are the names and ages (as of March 2,
2000), the positions and offices held by, and a brief account of the business
experience during the past five years of each executive officer.

         Each director holds office for a one-year term or until a successor has
been duly elected and qualifies, or until his or her earlier death, resignation
or removal.

ITEM 11.  EXECUTIVE COMPENSATION

         The section entitled "Executive Compensation" and the information set
forth under the caption "Election of Directors-Director Compensation" included
in the Proxy Statement are incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The common stock information is the section entitled "Principal
Shareholders" of the Proxy Statement is incorporated herein by reference.

ITEM 13.  RELATED PARTY TRANSACTIONS

         The section entitled "Related Party Transactions" of the Proxy
Statement is incorporated herein by reference.


PART IV

ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

         Item 14(a)

         The following documents or the portions thereof indicated are filed as
a part of this Report in Item 8:

                                       71
<PAGE>

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



         Report of Independent Certified Public Accountants

         Consolidated Balance Sheets as of December 31, 1999 and 1998

         Consolidated Statements of Operation for the Year ended December 31,
         1999 and 1998 and the period December 8, 1997 (inception) to December
         31, 1997

         Consolidated Statements of Stockholder's Equity for the years Ended
         December 31, 1999 and 1998 and the period December 8, 1997 (inception)
         to December 31, 1997

         Consolidated Statements of Cash Flow for the Year ended December 31,
         1999 and 19998 and the period December 8, 1999 (inception) to December
         31, 1997

         Notes to Consolidated Financial Statements


Schedule II Valuation and qualifying accounts

         Item 14(b)Reports on Form 8-K

The Company filed a Current Report on Form 8-KA, dated November 22, 1999, which
contained the financial statements of the acquired company Sales Technology
Limited.


         Item 14(c) EXHIBITS

         The following is a list of exhibits filed as part of this Annual Report
on Form 10-K.

2.1 -- Asset Purchase Agreement among Sage Networks Acquisition Corp., Sage
Networks, Inc., Interliant, Inc. and the shareholders of Interliant, Inc., dated
March 8, 1999.*

2.2 -- Agreement to Deliver Shares between Interliant, Inc., Sage Networks
Acquisition Corp. and Sage Networks, Inc., dated as of March 10, 1999.*

2.3 Agreement and Plan of Merger by and among Net Daemons, Inc., the
Shareholders Party hereto and Sage Networks, Inc. and Sage NDA Acquisition
Corp., dated as of February 17, 1999.*

2.4 -- Asset Purchase Agreement between DigiWeb, Inc., a Delaware corporation,
Yi Wen Chung, Diane X. Chen and DigiWeb, Inc., a Maryland corporation, dated
February 4, 1999.*

2.5 -- Asset Purchase Agreement between Telephonetics International, Inc., Alan
Kvares and Telephonetics, Inc., dated February 4, 1999.*

2.6 -- Asset Purchase Agreement between Sage Networks Acquisition Corp., Thomas
Heimann and GEN International Inc., dated September 16, 1998.*

                                       72
<PAGE>

2.7 -- Asset Purchase Agreement between Global Entrepreneurs Network, Inc. and
Sage Networks Acquisition Corp., dated as of September 16, 1998.*

2.8 -- Stock Purchase Agreement among B.N. Technology, Inc., Bernd Neumann,
Annedore Sommer and Sage Networks, Inc., dated August 31, 1998.*

2.9 -- Asset Purchase Agreement between Sage Networks, Inc. and HomeCom
Communications, Inc. dated June 10, 1998.*

2.10 -- Asset Purchase Agreement between Sage Networks Acquisition Corp., Bonnie
Shimel, William Nicholson and James Kucharski, Alan Shimel and Tri-Star Web
Creations, Inc., dated May 1, 1998.*

2.11 -- Asset Purchase Agreement between Sage Networks Acquisition Corp., Steven
C. Dabbs and Clever Computers, Inc., dated April 7, 1998.*

2.12 -- Share Purchase Agreement and certain related documents pertaining to the
acquisition of the entire issued share capital of Sales Technology Limited,
between Brett Raynes and others, and Interliant, Inc., and Interliant
International, Inc., dated September 14, 1999.**

2.13 -- Stock Purchase Agreement pertaining to the acquisition of all of the
outstanding shares of Soft Link Inc., between Gretchen Artig-Swomley and Dale
Swomley, and Interliant, Inc., and its wholly owned subsidiary Soft Link Holding
Corp., dated February 29, 2000.***

2.14 -- Asset Purchase Agreement dated February 29, 2000 pertaining to the
purchase of assets and assumption of certain liabilities of reSOURCE PARTNER,
Inc. by reSOURCE PARTNER Acquisition Corp., a wholly owned subsidiary of
Interliant, Inc.***

3.1 -- Form of Amended and Restated Certificate of Incorporation of the
Registrant.*

3.2 -- Form of Amended and Restated By-Laws of the Registrant.*

4.1 -- Specimen Certificate for common stock of the Registrant.*

4.2 -- Investors Agreement, dated as of January 28, 1999, by and among Sage
Networks, Inc., SOFTBANK Technology Ventures IV, L.P. and SOFTBANK Technology
Advisors Funds, L.P.*

4.3 -- Securities Purchase Agreement between Sage Networks, Inc. and SOFTBANK
Technology Ventures IV, L.P. and SOFTBANK Technology Advisors Funds, L.P. dated
January 28, 1999.*

4.4 -- Registration Rights Agreement, dated as of December 8, 1997, by and
between Sage Networks, Inc. and Web Hosting Organization LLC.*

4.5 -- Shareholders Agreement by and among Sage Networks, Inc. and each of the
Stockholders of Sage Networks, Inc., dated as of March 10, 1999.*

4.6 -- Letter Agreement, dated November 26, 1997, between Leonard J. Fassler,
Bradley A. Feld, Chef Nominees Limited and Charterhouse Equity Partners III L.P.
(Agreement has now been terminated.)*

10.1 -- Professional Services Agreement by and between Sage Networks, Inc. and
Portal Software, Inc., dated as of July 31, 1998.*

10.2 -- Software License and Support Agreement by and between Sage Networks,
Inc. and Portal Software, Inc., dated as of July 31, 1998.*

10.3 -- The Vantive Corporation Software License and Support Agreement by and
between Interliant Networks, Inc. and The Vantive Corporation, dated as of
September 29, 1998.*

10.4 -- Addendum to The Vantive Corporation Software License and Support
Agreement by and between Sage Networks, Inc. and The Vantive Corporation, dated
as of September 29, 1998.*

                                       73
<PAGE>

10.5 -- Master Discounted Internet Services Agreement by and between UUNET
Technologies, Inc. and Sage Networks, Inc., dated February 17, 1999.*

10.6 -- Joint Development Agreement between Lotus Development Corporation and
Interliant, Inc., dated as of April 27, 1998.*

10.7 -- Sage Networks, Inc. 1998 Stock Option Plan.*

10.8 -- Form of ISO Award Agreement.*

10.9 -- Form of Incentive Stock Option Award Agreement between Sage Networks,
Inc. and the individual Optionee.*

10.10 -- Form of Nonqualified Stock Option Award Agreement between Sage
Networks, Inc. and the individual Optionee.*

10.11 -- Employment Agreement by and between Sage Networks, Inc. and Leonard J.
Fassler, dated January 1, 1999.*

10.12 -- Consulting Agreement by and between Sage Networks, Inc. and Intensity
Ventures, Inc., dated January 1, 1999.*

10.13 -- Employment Agreement by and between Sage Networks, Inc. and Stephen W.
Maggs, dated January 1, 1999.*

10.14 -- Employment Agreement by and between Sage Networks, Inc. and Rajat
Bhargava, dated January 1, 1999.*

10.15 -- Employment Agreement between Sage Networks, Inc. and James M. Lidestri,
dated March 3, 1999.*

10.16 -- Deed of Lease by and between Westwood Center, LLC and Sage Networks,
Inc., dated February 11, 1999.*

10.17 -- Sublease Agreement by and between Southern Company Services, Inc. and
Sage Networks, Inc., dated May 29, 1998.*

10.18 -- First Amendment to Sublease Agreement by and between Southern Company
Services, Inc. and Sage Networks, Inc., dated December 15, 1998.*

10.19 -- Sublease Agreement by and between Leuko Site, Inc. and Sage Networks,
Inc., dated November 17, 1998.*

10.20 -- Agreement for Terminal Facilities Collocation Space by and between
Comstor Corporation and Sage Networks, Inc., dated as of July 2, 1998.*

10.21 -- Standard Lease Agreement, dated June 11, 1995, between LaSalle Partners
Management Limited (as agent for Fannin Street Limited Partnership) and Wolf
Communications Company.*

10.22 -- First Amendment to Standard Lease, dated January 18, 1996, between
LaSalle Partners Management Limited (as agent for Fannin Street Limited
Partnership) and Wolf Communications Company.*

10.23 -- Second Amendment to Standard Lease, dated August 8, 1996, between
LaSalle Partners Management Limited (as agent for Fannin Street Limited
Partnership) and Wolf Communications Company.*

                                       74
<PAGE>

10.24 -- First Amendment to Lease Agreement, between Westwood Center, L.L.C. and
Interliant, Inc., dated June 28, 1999.*

10.25 -- Master Lease Agreement between Leasing Technologies International, Inc.
and Interliant, Inc., dated June 9, 1999.*

10.26 -- Agreement of Lease between Purchase Corporate Park Associates and
Courtaulds United States Inc., dated August 23, 1991.*

10.27 -- Sublease, by and between Akzo Nobel Courtalds United States, Inc. and
Interliant, Inc., dated as of May 11, 1999.*

10.28 -- Agreement of Lease, between Purchase Corporate Park Associates, L.P.
and Interliant, Inc., dated as of June 16, 1999 (Interliant I).*

10.29 -- Agreement of Lease, between Purchase Corporate Park Associates, L.P.
and Interliant, Inc., dated as of June 16, 1999 (Interliant II).*

10.30 -- Agreement of Lease, between Purchase Corporate Park Associates, L.P.
and Interliant, Inc., dated as of June 16, 1999 (Interliant III).*

10.31 -- Employment Agreement by and between Sage Networks, Inc. and Jennifer A.
Lawton, dated February 17, 1999.+

10.32 -- Second Amendment to Sublease Agreement, dated as of October 31, 1999,
by and between Interliant, Inc. and Southern Company Services, Inc.+

10.33 -- Employment Agreement by and between Interliant, Inc. and William A.
Wilson, dated November 5, 1999.+

10.34 -- Employment Agreement by and between Interliant, Inc. and Kristian
Nelson, dated as of January 1, 2000.+

10.35 -- Employment Agreement by and between Interliant, Inc. and Herbert R.
Hribar, dated January 14, 2000.+

10.36 -- Second Amendment to Lease Agreement, dated as of February 3, 2000,
between Westwood Center L.L.C. and Interliant, Inc.+

10.37 -- Third Amendment to Sublease Agreement, dated as of February 10, 2000,
by and between EOP-Perimeter Center, L.L.C. and Interliant, Inc.+

21.1 -- List of Subsidiaries.+

23.1 -- Consent of Ernst & Young LLP with respect to the financial statements of
Interliant, Inc. (formerly known as Sage Networks, Inc.).+

27.1 -- Financial Data Schedule.+

             ---------------------
* Previously filed as an exhibit to the Company's Registration Statement on Form
S-1, Commission File No. 333-74403, and incorporated by reference herein.

** Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated September 14, 1999, and incorporated by reference herein.

*** Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated February 16, 2000, and incorporated by reference herein.

+ Filed herewith

                                       75
<PAGE>

ITEM 15.  SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                            INTERLIANT, INC.

                                            By: /s/ Herbert R. Hribar
                                                -------------------------------
                                                Name:  Herbert R. Hribar
                                                Title: Chief Executive Officer



Dated: March 23, 2000

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities indicated and
on the dates indicated:

<TABLE>
<CAPTION>

                 Signature                                  Title                                Date
                 ---------                                  -----                                ----
<S> /s/ Leonard J. Fassler                                                                           <C>
  -----------------------------------------
  Leonard J. Fassler                        Co-Chairman of the Board                         March 23, 2000

  /s/ Bradley A. Feld
  -----------------------------------------
  Bradley A. Feld                           Co-Chairman of the Board                         March 23, 2000

  /s/ Herbert R. Hribar
  -----------------------------------------
  Herbert R. Hribar                         Chief Executive Officer, Director                March 23, 2000
                                            (Principal Executive Officer)

  -----------------------------------------
  James M. Lidestri                         President                                        March 23, 2000

  /s/ William A. Wilson
  ----------------------------------------
  William A. Wilson                         Chief Financial Officer and Treasurer            March 23, 2000
                                            (Principal Financial and Accounting
                                            Officer)
  /s/ Thomas C. Dircks
  -----------------------------------------
  Thomas C. Dircks                          Director                                         March 23, 2000

  /s/ Jay M. Gates
  -----------------------------------------
  Jay M. Gates                              Director                                         March 23, 2000

  /s/ Merril M. Halpern
  -----------------------------------------
  Merril M. Halpern                         Director                                         March 23, 2000

</TABLE>

                                       76
<PAGE>

<TABLE>
<CAPTION>

                 Signature                                  Title                                Date
                 ---------                                  -----                                ----
<S>                                                                                                  <C>
  /s/ John P. Landry
  -----------------------------------------
  John P. Landry                                           Director                           March 23, 2000

  /s/ Charles R. Lax
  -----------------------------------------
  Charles R. Lax                                           Director                           March 23, 2000

  /s/ Stephen W. Maggs
  -----------------------------------------
  Stephen W. Maggs                                         Director                           March 23, 2000

  /s/ Patricia A.M. Riley
  -----------------------------------------
  Patricia A.M. Riley                                      Director                           March 23, 2000


</TABLE>

                                       77
<PAGE>


Interliant,Inc. and Consolidated Subsidiaries
Schedule II Valuation and Qualifying Accounts

<TABLE>
<CAPTION>

Classification                              Balance at           Additions                              Deductions       Balance at
                                                             -------------------------------------    ------------------ End of
                                            Beginning of     Charged to        Charged to                                Period
                                            Period           Expense           Other accounts
-----------------------------------------------------------------------------------------------------------------------------------

Year ended December 31, 1999
<S>                                            <C>             <C>                  <C>        <C>      <C>              <C>
Allowance for uncollectible accounts           $ 320,000       $ 1,585,254          $ 507,078  1        $ 1,034,332      $1,378,000

Year ended December 31, 1998
Allowance for uncollectible accounts                             $ 320,000                                                $ 320,000

1-includes allowances of acquired companies
</TABLE>