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 (NO FEE REQUIRED)

                   For the fiscal year ended December 31, 2000

            |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
              THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

           For the transition period from ___________ to _____________

                        Commission file number: 000-31111

                                 INTERLAND, INC.
                                 ---------------
             (Exact name of registrant as specified in its charter)

              Georgia                                 58-1632664
     (State of incorporation)          (I.R.S. employer identification number)

            303 Peachtree Center Avenue, Suite 500, Atlanta, GA 30303
               (Address of principal executive offices) (Zip Code)

       Registrant's Telephone Number, Including Area Code: (404) 720-8301

           Securities registered pursuant to Section 12(b) of the Act:
                                      None

           Securities registered pursuant to Section 12(g) of the Act:
                     Common Stock, Par Value $.001 Per Share
                         Preferred Stock Purchase Rights

      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. |X|

      Aggregate market value of Common Stock held by non-affiliates as of
February 15, 2001: $51,993,657

               Number of shares of Common Stock outstanding as of
                         February 15, 2001: 47,348,585

                       DOCUMENTS INCORPORATED BY REFERENCE

      The following documents (or portions thereof) are incorporated by
reference into the Parts of this Form 10-K noted:

      Part III incorporates by reference from the definitive proxy statement for
the Registrant's 2001 Annual Meeting of Shareholders to be filed with the
Commission pursuant to Regulation 14A not later than 120 days after the end of
the fiscal year covered by this Form.

<PAGE>

                                 INTERLAND, Inc.
                                TABLE OF CONTENTS

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PART  ITEM 1.  BUSINESS ...................................................    3
 I    ITEM 2.  PROPERTIES .................................................   19
      ITEM 3.  LEGAL PROCEEDINGS ..........................................   19
      ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ........   19
               EXECUTIVE OFFICERS OF THE REGISTRANT .......................   19

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PART  ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
 II            SHAREHOLDER MATTERS ........................................   22
      ITEM 6.  SELECTED FINANCIAL DATA ....................................   23
      ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
               CONDITION AND RESULTS OF OPERATIONS ........................   24
      ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
               MARKET RISK ................................................   38
      ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ................   39
      ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
               ACCOUNTING AND FINANCIAL DISCLOSURE ........................   39

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PART  ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT .........   40
III   ITEM 11  EXECUTIVE COMPENSATION .....................................   40
      ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
               MANAGEMENT .................................................   40
      ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS .............   40

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PART  ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
IV             ON FORM 8-K ................................................   41
      EXHIBITS ............................................................   41
      SIGNATURES ..........................................................   44


                                       2
<PAGE>

      The statements contained in this Annual Report on Form 10-K that are not
historical facts are "forward-looking statements" (as such term is defined in
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934). Forward-looking statements are typically identified by
the use of terms such as "may," "will," "expect," "intend," "anticipate,"
"estimate" and similar words, or by discussions of strategy that involve risks
and uncertainties, although some forward-looking statements are expressed
differently. You should be aware that our actual results could differ materially
from those contained in the forward-looking statements due to a number of
factors, including without limitation, changes in external competitive market
factors, changes in our business strategy or an inability to execute our
strategy, changes in the hosting industry, changes in the economy in general and
changes in the use of the Internet. We cannot guarantee future results, levels
of activity, performance or achievements. Our actual results could differ
materially from those anticipated in such forward-looking statements as a result
of certain factors, including those set forth in the section entitled "Factors
Affecting Future Operating Results." You are cautioned not to place undue
reliance on any forward-looking statements contained in this report. All written
and oral forward-looking statements made in connection with this Annual Report
on Form 10-K that are attributable to us or persons acting on our behalf are
expressly qualified in their entirety by the "Factors Affecting Future Operating
Results" and other cautionary statements included herein. We disclaim any
obligation to update information contained in any forward-looking statement. We
undertake no obligation to publish the results of any adjustments to these
forward-looking statements that may be made to reflect events on or after the
date of this report or to reflect the occurrence of unexpected events.

                                     PART I

ITEM 1. BUSINESS

Overview

      Interland provides a broad range of Web and applications hosting and other
related Web-based business solutions specifically designed to meet the needs of
small to medium-sized businesses. Since beginning operations as a Web hosting
business in September 1997, we have experienced growth in the number of our
customer accounts and revenue. The following are among the key factors that we
believe will continue to drive our growth:

      o     A broad and expanding range of high quality services designed to
            enable us to provide one-stop shopping for the specific hosting and
            related needs of small to medium-sized businesses. Our goal is to
            deliver a bundle of services that not only meets a customer's needs
            today, but that also can easily and seamlessly be augmented to
            provide greater capacity and functions to address the customer's
            growing needs in the future. In so doing, we expect to maintain our
            high customer retention rate, while continuing to increase our
            average revenue per customer.

      o     Key strategic relationships with Microsoft, Verizon, and VeriSign,
            all of which have made equity investments in Interland. In addition
            we have a private label distribution relationship with Road Runner.
            We also have strong business relationships with leading technology
            providers including Cisco, Cobalt Networks, Compaq, Hewlett-Packard,
            Red Hat, Internet Security Systems, Systar, BMC Patrol, Veritas, and
            Open Wave.

      o     A state-of-the-art data center that provides a secure operating
            environment and facilitates the delivery of high quality and
            reliable services. In addition, because our current data centers are
            located in close proximity to the major access points of our
            Internet connectivity providers, we are able to provide our
            customers with greater data speeds while we enjoy lower overall
            connectivity costs.

      o     An experienced, direct sales force that is motivated to meet quotas,
            trained in consultative selling and skilled in assessing the needs
            of small and medium-sized businesses. Once a customer makes contact
            with an Interland salesperson, that salesperson is the primary
            ongoing contact for the customer. Through a continuing dialogue, the
            salesperson assesses the customer's needs and works with the
            customer to create tailored solutions. The salesperson will
            continually monitor the customer's account to proactively offer
            additional products and services as the customer's needs change and
            expand. In addition, we also have created a growing network of
            resellers who provide us with a highly effective distribution
            channel for our services. Our current largest private label reseller
            is Road Runner, whose cable affiliates include AOL Time Warner.
            Under our exclusive private label agreement with Road Runner, we
            have agreed to provide Web hosting services to the customers of Road
            Runner under Road Runner's name.


                                       3
<PAGE>

      o     Our proprietary customer management system that allows our
            salespeople, during the order process, to activate a Web site or
            provide other services for a customer in real time. This system also
            supports and integrates our internal functions such as customer
            relationship management, automatic provisioning of servers, and
            administration of accounts, billing and reporting. We believe these
            systems allow us to activate and support our customers at a lower
            cost compared to our competitors, and enables us to sell additional
            and more complex services to our existing customer base.

      o     Experienced customer service and technical support teams that are
            trained in support procedures and skilled in assessing and resolving
            customer issues. These teams are trained to escalate service issues
            and work with the customer to resolve technical issues associated
            with Interland services. The team is also trained to redirect
            technical calls that are beyond its scope of service to the
            appropriate software and hardware vendors.

The Industry

The Internet

      The Internet continues to experience significant growth. International
Data Corporation (IDC) estimates that the number of Internet users world-wide
will grow from approximately 239.6 million at the end of 1999 to 602.4 million
by the end of 2003. This represents a compound annual growth rate of 25.9%. The
number of Internet users in the United States is predicted to increase from
approximately 101.5 million at the end of 1999 to 197.2 million by the end of
2003, a 18.1% compound annual growth rate.

      One of the many reasons for the overall growth in Internet users has been
the rapid emergence of the Internet as a global business-to-business and
business-to-consumer commerce medium. Since the commercialization of the
Internet in the early 1990s, businesses have rapidly established Web sites as a
means to expand customer reach and improve communications and operational
efficiency. As businesses become more familiar with the Internet as a
communications and commerce platform, an increasing number of businesses have
begun to implement more complex and critical applications over the Internet.
These applications include sales, customer service, customer acquisition and
retention programs, communication tools such as e-mail and messaging, and
business-to-business and business-to-consumer e-commerce.

      The increasing reliance on the Internet and the growing complexity of Web
sites and the number of functions available on Web sites has made the management
and maintenance of Web sites an increasingly complex task. As a result, many
businesses, particularly small and medium-sized businesses, have elected to
contract with third parties for the implementation and management of their Web
sites. We believe that the practice of contracting with third parties to provide
key services, also known as outsourcing, can provide a business with a number of
benefits including:

      o     lower start-up and operating costs;

      o     faster time to market;

      o     access to scarce, highly skilled information technology employees;

      o     greater security and reliability; and

      o     less attention diverted from a company's core business activities.

Web Hosting Market

      IDC predicts that the United States market for Web hosting will grow from
$3.96 billion in 2000 to $24.8 billion in 2004, representing a compound annual
growth rate of 58.2%. According to IDC, the Web hosting market will grow as more
businesses grasp the full potential of Web-based opportunities. IDC estimates
that in 1999 only 27% of U.S. businesses had Web sites, and small businesses,
those with less than 100 employees, had the lowest levels of Web site
penetration at 26%, compared with 84% for medium-sized and 89% for large
businesses. Of the 26% of small businesses with Web sites at the end of 1999,
approximately 58% outsourced the hosting of their site. By 2004, it is estimated
that 64% of small businesses will have Web sites, and 82% of these will be
hosted with Web hosting firms.

      In addition, IDC estimates that small businesses made up the majority of
Web hosting revenues accounting for 58% of the total Web hosting market in 2000
in the U.S., and IDC predicts this percentage will grow to 62% by 2004, at which
time small businesses are projected to account for $15.3 billion of the total
$24.8 billion U.S. Web hosting market. IDC also predicts that the small business
segment of the market will grow at a compound annual growth rate of
approximately 60.6% between 2000 and 2004, versus 53.7% for medium and 59.4% for
the large business segments.


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<PAGE>

According to IDC, at the end of 1999 only 26% of all small businesses in the
U.S. had Web sites. IDC predicts that by the end of 2004, the number of small
businesses in the U.S. will grow to 8.3 million, 64% of which are estimated to
have Web sites.

Applications Hosting Market

      Applications hosting enables software applications to be deployed,
managed, supported and upgraded from an applications service provider's
centrally located servers, rather than on individual desktop computers.
Applications service providers typically rent software applications over the
Internet to customers for a monthly fee. Advantages of applications hosting to
customers include reduced upfront capital expenditures, lower operating costs
and faster applications implementation. Due to these advantages, the
applications hosting market is growing rapidly. Forrester Research, Inc.
projects that the applications services market will grow to over $11.3 billion
in 2003 from less than $1 billion in 1999 and those e-commerce applications will
account for 42% or $4.7 billion of this market in 2003. In particular, Forrester
predicts that the application services market for small businesses will grow to
over $3.8 billion in 2003 from $316 million in 1999 while the market for
medium-sized businesses will grow to over $6.6 billion in 2003 from $562 million
in 1999. According to Forrester, smaller companies anticipating explosive growth
grasp the benefits of working with a third party that can scale with their
changing application needs. Furthermore, applications hosting gives smaller
firms the flexibility to acquire and upgrade new apps every couple of years
without paying high acquisition costs associated with buying them, and provides
them with access to shared infrastructure and ongoing support for additional
cost savings. Forrester also projects that 22% of all U.S.-based applications
revenue will flow through applications service providers in 2003.

Managed Services

      Managed services is the management of the hardware, software, network,
systems operations, Web site and applications monitoring within a data center.
These services are designed to be utilized in conjunction with a dedicated
server solution and can include an array of service offerings including
security, system backup and recovery, system administration, as well as system
monitoring and reporting services. According to Forrester Research, in 2000 the
managed services market was approximately $1.6 billion, and Forrester predicts
that it will grow to $17.8 billion in 2004.

Current Market Fragmentation

      Web hosting, managed services, and applications hosting markets today are
fragmented and consist of the following types of providers:

      o     small Web hosting providers who do not have the capital, resources
            and focus to develop and offer a broad selection of high quality
            services and support at competitive prices;

      o     large providers whose core service offerings tend to be geared
            toward large businesses or only toward those businesses which seek
            to implement or maintain the most complex types of Web sites;

      o     national and local Internet service providers or ISPs whose core
            business focus centers around the provision of Internet connectivity
            rather than hosting; and

      o     Web design and consulting firms for which hosting is not their core
            expertise.

Our Opportunity

      We believe that small to medium-sized businesses, while representing a
large and rapidly growing segment of the market, have traditionally been
underserved by Web and applications hosting companies. For a number of small and
medium-sized businesses, many of who do not have internal technical resources
dedicated to Internet services, establishing a presence on the Internet and
realizing the various benefits of the Internet has proven to be a complicated
and time consuming task. In addition, many small and medium-sized businesses
have not had access to the type and quality of Internet-based services that
larger, more sophisticated companies currently enjoy. We therefore believe that
a significant market opportunity exists for us to deliver a comprehensive and
easy-to-use suite of services designed to address the specific needs of the
small and medium-sized business customer.


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<PAGE>

Our Solution

      We are dedicated to providing small to medium-sized businesses with a
comprehensive suite of services, which enables them to quickly, easily and
affordably capitalize on the benefits of the Internet. The key elements of our
solution include:

      o     a broad array of high-quality Web and applications hosting, managed
            services and other related services;

      o     solutions which are affordable, quick to deploy, and easy to use;

      o     state-of-the-art security and reliability; and

      o     personalized customer service and technical support that is
            available 24 hours a day, seven days a week.

Our Strategy

      Our goal is to become the leading provider of Web and applications
hosting, managed services and other related business solutions to the small and
medium-sized business market. Our strategy for achieving our goal is comprised
of the following key components:

Provide a Broad Range of Services on Multiple Operating Systems

      A key element of our growth to date has been our ability to provide and
support a wide variety of hosting services on multiple hardware and software
platforms. Currently, we have three key service areas comprised of shared
hosting, dedicated hosting and managed services, and applications hosting and
consulting services. Within these service categories, we believe we have a
solution which can effectively address the Web hosting and related needs of most
small and medium-sized businesses, both now and as their needs evolve and
expand. For example, many of our customers may outgrow the capabilities of
shared hosting services and may ultimately need a dedicated server and managed
services. When this need arises, we are able to provide this service for them
with relative ease. In addition, a business that begins a relationship with us
as a dedicated hosting customer may desire access to the applications we host or
the managed and e-commerce services we provide. We intend to continue to provide
additional services in order to better serve our existing customers and further
enhance our ability to attract new customers. We have also developed the
technical expertise to provide our services on multiple operating systems,
including Microsoft Windows 2000 and NT and Red Hat Linux. We can therefore
offer our customers additional flexibility in deploying their Web sites and
applications. In short, our goal is to ensure that a customer or potential
customer need never look beyond Interland to fulfill any hosting or e-commerce
need.

Expand Sales Capabilities and Distribution Channels

      We intend to grow our revenue through the continued expansion of our sales
and distribution channels. Our sales efforts currently occur through a number of
channels, including our direct sales force, active resellers and strategic
relationships we have developed. We will expand all of these efforts.
Specifically, we will continue to hire new sales employees for our internal
direct sales efforts. The Company also introduced an outside sales force focused
on higher- value solutions. This group utilizes a direct sales approach to
identify and close higher-valued sales of more complex Web hosting solutions. To
complement our direct sales efforts, we will also distribute our services
through a network of over 100 active resellers. These resellers typically offer
our services under the Interland brand name to their existing and new customers
and retain responsibility for most of their clients' customer service needs. We
believe this reseller network, which accounted for 16% of our revenue for the
year ended December 31, 2000, is a highly effective distribution channel for our
services with minimal cost to us. Some of our most valued resellers offer our
services under their own private label brand names. We will also continue to
seek strategic relationships that enable us to reach new customers. For example,
our marketing arrangements with Microsoft, VeriSign, and Verizon allow us to
introduce our services to potential customers that we might not otherwise reach.
All of these efforts should increase the exposure of our service offerings to
potential customers.

Take Advantage of Innovative and Proprietary Technology

      We have developed proprietary technology that assists in our customer
support efforts and our internal processes. One of the internally developed
tools provides an auto-provisioning function that allows our customers to alter
their sites through the Internet without having to contact us. We have also
developed a platform for complex Web sites that allow our customers to
incorporate sophisticated Internet functions into their Web sites easily,
including e-commerce, merchant capabilities, on-line transactions and e-mail. We
believe these technologies help us attract and support our customers at a lower
cost compared to our competitors. Our integrated customer manager system
supports our internal


                                       6
<PAGE>

processes with features such as customer relationship management, automated
installation and provisioning of services, administration of accounts, billing,
and reporting. We also use these tools to offer additional services to our
existing customer base. We will continue to develop specialized technology and
systems to give us advantages in delivering quality and price competitive
services to our customers.

Pursue Additional Strategic Alliances and Relationships

      We will continue to pursue strategic alliances that will enable us to
expand our services, our technological capabilities and our customer base and to
reduce the cost of customer acquisition. In December 1999, we entered into a
license development and an applications services agreement with Microsoft. In
January 2000, we entered into an agreement with Road Runner to provide Web
hosting services for the cable customers of its affiliates. In March 2000 we
entered into a premier program agreement with VeriSign. In October 2000 we
entered into co-marketing and service provider relationships with Verizon. We
intend to seek additional opportunities like these as well as to explore
possible acquisitions.

Our Services

      We offer an integrated suite of Web and applications hosting and related
business services designed to specifically address the needs of small and
medium-sized businesses. These services include:

      o     shared hosting;

      o     dedicated hosting and managed services (including high availability
            hosting);

      o     applications hosting; and

      o     consulting services.

During the year ended December 31, 2000, we derived 60.6% of revenues from our
shared services, 25.1% from dedicated services and 14.3% from applications
hosting and consulting services.

Shared Hosting

      Shared hosting services are entry-level service plans designed for Web
sites with relatively low volumes of traffic. Our shared hosting packages
minimize the cost for customers by providing hosting services for multiple
customers on a single shared server, spreading the cost of the service over many
users. Shared hosting is particularly attractive to small to medium-sized
businesses looking to build their Web presence. Our shared hosting service plans
also include many standard features and more complex options for database
support, e-commerce support, multi-media services and extensive e-mail support.
The large majority of our customers currently use our shared hosting services.
Our intention is to reassess continually the needs of our shared hosting
customers and, when appropriate, to encourage them to add capacity and the
ability to provide additional functions to their Web sites by migrating to
dedicated and high availability hosting and managed services.

Dedicated Hosting and Managed Services

      Dedicated hosting services are designed for customers with complex
requirements and high traffic volumes. Web sites on dedicated servers typically
have database driven content that requires multiple applications and database
servers to operate. Our dedicated service plans provide each customer with a
complete Web site hosting solution including all of the hardware, software,
network equipment and support necessary to run the Web site. These service plans
offer a number of advantages to our customers in addition to those received in
our shared hosting packages, including:

      o     capacity -- the customer receives greater processing and storage
            resources;

      o     reliability -- the customer's Web site is located on its own server
            reducing the possibility of server related difficulties;

      o     flexibility -- we can custom configure a specific customer's server
            or servers to optimize performance and enhance security; and


                                       7
<PAGE>

      o     speed -- dedicated servers can reduce response time and increase
            processing speed of the customer's Web site, allowing for faster
            access to the Web sites information and services and an improved
            experience for the end-user.

      We also offer our high availability, dedicated services to customers whose
Web sites typically require sophisticated databases for critical application
needs or typically experience high user traffic volumes. This service allows
customers to use multiple servers and is designed to allow our customers'
applications to continue operating in the event of a server failure. The use of
multiple servers therefore provides enhanced reliability and performance to our
customers so that they may securely and efficiently distribute Web site content
and related data. Our high performance, high availability dedicated hosting
service plans provide each customer with hardware, software, network equipment
and high-end customer support necessary to run the Web site.

      In October 2000 we began offering managed services including system
administration, data backup and recovery, and network monitoring. These services
complement our dedicated hosting plans and are utilized by customers that choose
high performance Web hosting that is fully managed by Interland. Some of these
managed services agreements are backed by service level agreements (SLAs)
relating to the overall uptime and availability of a customer's Web site.

      As our customer base continues to migrate from shared hosting to more
sophisticated, higher margin services such as dedicated hosting, we believe our
average revenue per customer will continue to increase.

Applications Hosting

      Our applications hosting services allow our customers to outsource to us
the deployment, configuration, hosting, management and support of various
software applications. Our applications hosting services allow our customers to
deploy a software application more quickly and with reduced up-front costs. In
addition, many small and medium-sized businesses do not have the internal
technical resources to support multiple software applications. We therefore
believe that outsourcing these functions to us is a desirable and increasingly
preferred alternative for these businesses. The types of applications we host
for our customers include collaboration tools, business tools, mail-service
tools, and e-commerce applications. Currently, the applications we host consist
mainly of Microsoft Exchange Server, Office Server Extension and various
e-commerce and security products.

Consulting Services

      Our consulting and professional services provide assistance to customers
with unique requirements. These services include:

      o     Web site design and re-modeling or enhancement of existing sites to
            optimize performance;

      o     e-commerce enabling;

      o     system configuration and integration; and

      o     provisioning of customized applications.

      Our consulting engagements typically range from a few hours to a few days
depending upon the complexity of the services needed. Because many of our
customers are new to the Internet, we believe these services are critical to the
success of our customers and are necessary for us to be a complete hosting
services provider. We bill most of the services on an hourly basis that we
pre-package and price in standard blocks.


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<PAGE>

Pricing

      We sell our services under contracts that typically range from three
months to two years in length for shared servers. We typically require payment
for the full contract amount at the initiation of the service. Our Web site
hosting offerings and prices for new installations as of February 15, 2001 are
generally described in the table below.

<TABLE>
<CAPTION>
Service Type                    Service Level                       Set-up Fee               Monthly Fee (1)
------------                    -------------                       ----------               ---------------
<S>                             <C>                                 <C>                      <C>
Shared Hosting Services         Microsoft:
                                TrueBasic                           $49.95                   $27.95
                                TrueAdvantage                       $49.95                   $55.95
                                TrueBusiness                        $49.95                   $105.95
                                Unix
                                TrueBasic                           $49.95                   $22.95
                                TrueAdvantage                       $49.95                   $49.95
                                TrueBusiness                        $49.95                   $99.95
                                Enterprise Plan                     $349.95-$699.95          $399.95
Dedicated Hosting Services      Basic Business                      $599.00-$699.00          $499.95
                                Select Business                     $699.00-$899.00          $799.95
                                Corporate Business                  $1,199.00-$1,399.00      $999.95
                                Corporate Business Plus             $2,299.00-$2,499.00      $1,499.95
                                Advanced Business                   $2,799.00-$2,999.00      $2,799.95
Managed Services                Managed Web Services                $350-525                 $599-$899.00
                                Managed Database Services           $1,199                   $1,199
                                Managed Web & Database Services     $1,999                   $1,999
High Availability Services      High Availability Silver            $3,499.00-$6,599.00      $3,999.00-$7,599.00
                                High Availability Platinum          $14,599.00-$17,599.00    $15,599.00-$18,599.00

</TABLE>

(1)   The monthly fees listed above are for short-term contracts. We typically
      offer our customers discounts for longer-term contracts.

      Our applications hosting services are also provided on a monthly basis.
The fees for these services vary depending on the applications being provided.

      To further simplify the purchasing process for our customers, we describe
all Web hosting service plans, including features and prices, on our Web site.
This enables our customers to evaluate the various service offerings before
contacting one of our sales representatives, which in turn shortens our selling
cycle, reduces our customer acquisition costs and ultimately enhances customer
satisfaction by making readily available the necessary technical and business
information for choosing the appropriate service level. We upgrade our Web site
regularly to provide more product information and enhanced purchasing
capabilities for our existing and prospective customers.

Sales and Marketing

      We utilize multiple sales and distribution channels in an effort to
maximize our market share. These channels include direct sales through sales
professionals, indirect sales through reseller and private-label arrangements,
co-marketing relationships, and other channels.

      Direct Sales

      Our direct sales efforts are carried out by three primary groups, in-bound
and out-bound sales professionals, both located in Atlanta, and an outside sales
force based in five regional offices.


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<PAGE>

      Inbound Sales Force

      Our in-bound sales force responds to incoming inquiries about our
services. Our sales force is trained in a relationship selling methodology that
allows them to better assess the needs of customers and to recommend tailored
solutions. This methodology gives our customers a one-on-one consultative
relationship with a sales professional in which the specific desires of the
customer are appropriately addressed. As this relationship develops and our
customer grows, the salesperson can assess the customer's needs and work to
provide the customer with tailored services. The salesperson can also carefully
monitor the customer's account to make sure that we are proactive in offering
additional products and services as the customer's needs change and expand.

      Outbound Sales Force

      Our out-bound sales force generates sales leads through direct contact
with potential customers. These sales specialists generate new business through
telemarketing, direct mail and Internet contact. These sales specialists are
also provided specific training so that they can effectively consult and sell to
potential customers.

      Outside Regional Sales Force

      During the second half of 2000, we initiated the deployment of our outside
sales force. This sales team focuses on selling our higher-value solutions,
including dedicated hosting, high availability hosting and managed services, to
customers. Currently there are five regional sales offices located in Atlanta,
Chicago, Dallas, Los Angeles and New York with approximately 20 sales
representatives. These sales specialists are also actively involved with
managing the customer relationship through the entire Web development and
building process.

      In addition to initial training, every sales specialist must attend two
hours per week of on-going training. This training helps to educate all of our
sales personnel about our technological advances and our latest service
offerings.

Resellers and Private Label Relationships

      We currently have a network of resellers consisting of businesses
including system integrators, value added hardware and software resellers, Web
developers and Web consulting companies and Internet service providers. These
resellers allow us to cost-effectively address a large customer audience that we
could not otherwise reach. Our largest reseller is Road Runner.

Other Sales and Distribution Channels

      We also pursue sales through a number of other indirect channels,
including Internet marketing, customer referrals, and industry referrals.

      Internet Marketing

      A portion of our new customers come to us through on-line registrations.
Our Internet marketing sales programs offer an automated on-line sales interface
to potential customers. This enables our customers to purchase services at any
time from our Web site.

      Customer Referrals

      We believe that customer referrals are an excellent source of new
customers. Many new customers have come to us through referrals from other
customers who have had a good relationship with us. While we reward our
customers for these referrals with discounts on their services, we also believe
that our reputation for excellent customer service leads to many of these
referrals.

      Industry Referrals

      We received many referral customers from other providers of Internet
related services, including Web designers. Web designers and other Internet
industry professionals who work with us on a regular basis have experience and
knowledge of our services that make them a valuable source of new customers.

      Customer Manager System

      All of our sales efforts are supported by our customer manager system, a
proprietary system that helps us manage our entire relationship with our
customers. After a customer has initiated service with us, the customer manager
system


                                       10
<PAGE>

automatically provisions the service on the Web server the customer has
selected, verifies correct setup, e-mails the customer its contract and service
information, prints a label to mail the new customer information (including a 30
page manual), and queues the customer for future billing. All calls for customer
service and any invoicing are also stored inside the customer manager system,
along with usage statistics, referral information, and other pertinent customer
information. The system automatically invoices, debits checking accounts and
credit cards, generates late notices, initiates human follow-up calls, and
cancels delinquent accounts. The system also provides us with useful information
to spot troubled servers, estimate cost of customer acquisitions by advertising
medium or lead source, and spot abusive users, among dozens of other reports.

Marketing

      Our product marketing team supports the direct advertising and marketing
activities that we conduct. The focus of this team is to develop and launch a
range of products and services that will meet our customer's needs. Product
marketing activities include product strategy and definition, pricing,
competitive analysis, product launch, channel program management and product
life cycle management. By aligning the product marketing organization around our
three key services areas, we are able to focus and deliver product and services
quickly.

Key Strategic Relationships

      We have established and will continue to forge strategic relationships
with leading technology providers, including major software, hardware,
development and Internet marketing organizations, to enhance our products and
services. These relationships enable us to more quickly gain access to
innovative technologies, provide more creative solutions for our customers, and
allow us to offer our customers many of the same resources that would otherwise
be prohibitively expensive for them to acquire. We are also able to build upon
the research and development and expertise of these companies in developing and
launching new products. We therefore believe that these relationships will
enable us to continue to provide our customers with the necessary tools to
create, host and maintain a successful Web presence and have access to
sophisticated e-commerce and applications solutions. These relationships also
provide us with unique marketing and sales opportunities to customers to which
we might not otherwise have access.

Microsoft Corporation

      We are a Microsoft Certified Solution Partner and are currently engaged in
several initiatives with Microsoft. We recently entered into a development,
license and co-marketing agreement with Microsoft. We agreed to develop software
and related materials that will enable the installation of packaged hosted
service on Microsoft's Windows 2000 and NT platforms and have granted Microsoft
a perpetual, irrevocable license to the software. We will pay Microsoft five
percent of the total gross revenues that we receive from licensing or otherwise
exploiting the software for five years following Microsoft's acceptance of the
software. In return, Microsoft provides us with an opportunity to be involved in
beta programs and training initiatives for Microsoft's IIS program and the
Windows 2000 and Exchange Server products. In addition, Microsoft has agreed to
include us at trade show events. The agreement will continue until terminated by
either party for cause or by Microsoft if we fail to deliver the software or
related documentation. Microsoft has invested $12.5 million in our common stock
and holds warrants to purchase 1,015,230 shares of our common stock at an
average price of $8.43 per share.

      We have recently entered into an updated application services agreement
that revises the framework under which we can obtain and license various
Microsoft products. The updated agreement governs our use of Exchange Server,
Officer Server Extension and other products in our hosting operations and
requires us to flow-down certain licensing terms to our end-users. Under the
agreement, we have a choice of paying Microsoft on a per processor or unique
individual user basis for each of the covered products. The agreement has a term
of two years, and expires on January 31, 2003.

VeriSign

      We have a strategic alliance with VeriSign, a leading Internet trust
authority. We have are a premier partner and utilize VeriSign's domain name
registration, secure socket layer digital certificate, and secure payment
processing services. This relationship provides us with the ability to license
access to VeriSign's domain name record servers and registry database. VeriSign
promotes us as a preferred hosting partner and in return we use them as our
exclusive registrar of generic top-level domain names (gTLD's). In 2000, we paid
referral fees to each other when customers signed up for the other's services.
Starting in January 2001, the agreement with VeriSign was amended, and the
Company will pay VeriSign for domain registration services through a wholesale
cost model and also has the ability to offer domain name registration services
for a period of ten years. The term of the agreement is four years and will
renew automatically for one-year terms.


                                       11
<PAGE>

      In addition, VeriSign has invested $10.0 million in our common stock and
holds warrants to purchase 747,413 shares of our common stock at an average
price of $8.70 per share.

Road Runner

      Road Runner is an affiliate of AOL Time Warner Inc. Road Runner provides
high-speed Internet access through the cable television infrastructure. One of
the services Road Runner offers to its customers is Web hosting. Pursuant to our
agreement, Road Runner has engaged us as the exclusive provider of these
services. These services are branded under the Road Runner brand, but we provide
all Web hosting and support services. Road Runner is responsible for the
collection of payments from its customers and pays us with respect to each of
its customers. We also provide training for the sales and support
representatives of Road Runner. The term of this agreement is for two years, but
may be terminated by either party upon 120 days written notice. In connection
with this relationship, we granted a warrant to Road Runner to purchase up to
376,920 shares of our common stock based on its achievement of performance
criteria.

Verizon

      In October 2000, we entered into a business relationship with Verizon,
Inc., a leading provider of communications and information services. The
business relationship consists of a marketing channel relationship and a service
provider relationship. Under the marketing channel relationship, we jointly
market and promote a co-branded version of our products and services to some of
Verizon's customers. In return for Verizon's identification of customers, we
will pay Verizon 12.5% of revenue received by us under the marketing channel
relationship. Under the service provider relationship, Verizon has the right to
market and sell a co-branded version of our products and services to its
business customers. In addition, we are the only shared Web hosting service
provider with which Verizon has a co-branded marketing arrangement, other than
Verizon's existing arrangements. The term of the business relationship is three
years and automatically renews for three-year terms. As part of the Marketing
Channel relationship, Verizon and Interland have committed $6 million towards
marketing efforts over the term of the agreement. Verizon has invested $25.0
million in our common stock and holds a warrant to purchase 3,132,000 shares of
our common stock at $18.00 per share.

Other Co-Marketing and Supplier Arrangements

      We have entered into a number of other co-marketing and supplier
relationships. Some of these relationships include:

<TABLE>
<CAPTION>
Co-Marketing Relationships     Supplier Relationships                Referral Relationships
--------------------------     ----------------------                ----------------------
<S>                            <C>                                   <C>
Stamps.com                     Allaire (Software -- Cold Fusion)     International Webmasters Association
Verizon                        Cisco (Hardware)                      Small Business Alliance
VeriSign                       Sun Cobalt Networks (Hardware)        World Organization of Webmasters
Microsoft                      Red Hat (Linux platform)              SmallBusinessDepot.com
                               SoftQuad Software Inc.                International Profit Associates (IPA)
                                   (Software -- HotMetal Pro 6.0)    Online Data Corp (Merchant Accounts)
                               Miva (software - E-commerce)          Fleet Financial of Boston
                               Hewlett-Packard (Hardware)
                               Openwave Systems (Hardware/Email)
                               Veritas (Backup Software)
                               Internet Security Systems
                               (Security -- Managed Services)
                               Inex (Software -- E-commerce)
                               Webtrends (Software)
                               RealNetworks (Software)
                               Systar (Server Management Software)
                               BMC (Server Management Software)
                               MacroMedia
                               Adobe
                               Compaq
                               Worldpay
                               Software.com
</TABLE>


                                       12
<PAGE>

      The nature of these relationships is generally to enable us to further
promote our brand identity while seeking cost-effective access to a larger
addressable market. Some of these relationships impose mutual minimum levels of
advertising expenditure commitment.

Customers

      We began our operations in the Web solutions market in September 1997. As
of December 31, 2000 we were delivering services to 86,010 customer Web sites. A
large majority of our customers are located in the United States and are
traditional small and medium-sized businesses. Approximately 10% of our
customers are in other countries with some of them being local Internet service
providers in their countries.

      The number of our customer Web sites grew from 10,611 at December 31, 1998
to 46,094 at December 31, 1999 and to 86,010 at December 31, 2000. This growth
resulted from the internal development of our customer base through advertising
and reseller efforts.

      We enter into contracts with shared and low-end dedicated customers, the
majority of which range from three months to two years. As of December 31, 2000
we had contracts with an average length of 12.5 months and approximately 69% of
our contracts have a length of at least 12 months. These contracts are typically
prepaid at the time they are initiated. If the contract is canceled in the first
thirty days we give the customer a full refund.

      We enter into 12 or 24-month non-cancelable contracts with our high-end
dedicated customers. These contracts are typically paid on a month-to-month
basis, one month in advance.

Customer Service and Support

      We believe customer service and support is critical to our future success
and growth. We offer superior customer service by understanding the technical
requirements and business objectives of our customers and by fulfilling their
needs proactively on an individual basis. Our customer service staff is focused
on direct and indirect customer service and support. We provide technical
support 24 hours a day, seven days a week, 365 days a year, and have developed a
customized, life-cycle support management approach to our operations.

      In servicing and supporting our customers, we utilize a number of
sophisticated automated systems, including a problem resolution and
trouble-ticketing system, an enterprise system-monitoring platform,
sophisticated telephone system, on-line trouble management system, and workforce
management system. We also conduct customer satisfaction surveys on a regular
basis to help us improve our support and product offerings. We believe that our
approach to customer service and our ability to respond rapidly to customer
needs provides us with a significant competitive advantage.

Network and Technology Infrastructure

      We designed our high performance server network to provide superior
availability and reliability for our customers' hosting operations. The network
currently consists primarily of one data center in Atlanta connected by a high
performance network to the Internet with our second, original data center
scheduled to close in April 2001. Within the data center a virtual
local-area-network provides redundant, high-speed internal connectivity.

Data Center

      Our new data center is a secure, redundant, and high-speed hosting
facility. The data center is in close proximity to all major carrier network
centers and is capable of supporting any of the current and future products we
plan to deploy. We maintain two backup systems for each component of the hosting
process ranging from backup servers to multiple access lines. Additionally, we
have purchased several power generators to ensure that even in the event of a
power failure, our facilities will continue to operate. Our server computer
rooms have cooling and fire suppression systems. We remove all tape backups to a
remote facility for storage in a fireproof facility. We also have a highly
trained and experienced technical staff that continually monitors the operations
of the network and servers on a 24 hours a day, seven days a week basis through
our network operations center.

Customer Load Balancing

      We maintain a customer ratio on our shared servers that allows quick
access to our shared customers' Web sites, even under heavy loads. More
importantly, as our customer's Web sites become more interactive, our customer
ratio will allow the Web server to handle the additional loads without further
hardware investment. We believe that this future planning will offer significant
advantages over competitors who have higher customer ratios and central


                                       13
<PAGE>

processing unit utilization. We believe these competitors will have to purchase
additional hardware and move customers onto multiple Web servers as the sites
become more interactive, and thus more central processing unit intensive.

Proprietary Technology

      We have developed various proprietary technologies that address the
back-end processing and customer interface components of our services, allowing
customers to order, change and manage their Web hosting accounts easily
regardless of their level of technical expertise. We designed our auto-provision
technology to let customers make modifications to their sites from the Internet
without having to contact one of our support staff members. For example, we
provide customers with the ability to change passwords, protect specific
directories, and create database sources without interacting with one of our
representatives. The technology allows us to provide graphical statistics free
to all customers. These statistics provide detailed reports on Web site usage,
including categories such as top referring sites, number of unique Web hits,
origin of Web hits, and periods of highest usage. In sum, our proprietary
technology allows us to provide flexibility to our customers and help them
create the services they need.

      Our proprietary technology also results in greater operational efficiency
for us. We have developed innovative billing technology that simplifies the
accounting process and leads to effective cash management.

Connectivity

      We utilize multiple DS-3 connections to the Internet. Our data center is
provisioned directly off Packet of Sonet interconnections to the major Internet
carriers. Our new facility opened in March 2000 with multiple OC3 and OC12
connections.

      We designed our high-speed network and high-speed Internet backbone to
have sufficient capacity to assure that our customers' Web site traffic is
processed as quickly as possible. By utilizing top tier connectivity, we are
able to offer highly resilient, redundant, and high-speed connectivity between
the Internet and our data center.

Location Advantage

      An important component of our connectivity is our Atlanta location. We use
multiple connectivity providers, including UUnet, Sprint, Qwest, Cable &
Wireless, and Digex, to prevent any single failure point.

      Our proximity to our connectivity providers provides us with several
benefits. First, it enhances the connection speed to the Internet as the
distance to the providers has been reduced. Second, the cost of connecting to
our connection points of our major providers is minimized. Third, we are able to
add capacity to our connections to Internet access providers more quickly as our
needs expand. We therefore believe that our location provides us with a
competitive advantage over hosting companies located in remote locations,
relative to major Internet connection points. These competitors may experience
delays in adding capacity to handle increased demand and will probably pay
premiums to have the capacity delivered to their locations.

Network Operations Center

      We fully staff our Atlanta network operations center 24 hours a day, seven
days a week with technical experts in Windows 2000 and NT and Linux operating
platforms. The network operations center personnel monitor each piece of
equipment, including routers, switches, and servers. The design and systems used
in the network operations center allow our systems engineers and administrators
and support staff to be promptly alerted to problems. We have documented
procedures for rapidly resolving any technical problems that arise. The network
operations center and our customer care center are fully integrated and have
documented communication and escalation procedures. Our network operations
center is also responsible for monitoring all Internet and communication
connections to make sure they are functional and properly loaded.

Network Security

      Our network incorporates host-based security with Cisco router access
control lists, as well as SecurID token-based authentication. In addition to
these physical security measures, we have a formal security policy in place,
including employee training, that governs all facets of our business and
guidelines governing internal and external access to information housed in our
network system.


                                       14
<PAGE>

Competition

      The markets in which we compete are highly competitive. Because there are
no substantial barriers to entry, we expect that we will face competition from
both existing competitors and new market entrants in the future. We believe that
participants in these markets must grow rapidly and achieve a significant
presence to compete effectively. We believe that the primary competitive factors
determining success in our markets include:

      o     technical expertise in developing advanced Web hosting solutions;

      o     Internet system engineering and technical expertise;

      o     quality of service, including speed, network capability, expansion
            capability, reliability, security and ability to support multiple
            functions;

      o     brand name recognition;

      o     competitive pricing;

      o     ability to maintain and expand distribution channels;

      o     customer service and support;

      o     broad geographic presence;

      o     a complete range of services and products;

      o     timing of introductions of new and enhanced services and products;

      o     network security and reliability;

      o     financial resources; and

      o     conformity with industry standards.

      As a developing company, we may lack the financial and other resources,
expertise or capabilities to capture increased market share in this environment
in the future.

      Our current and prospective competitors include:

      o     Web site hosting and related services providers, including Digex
            Corporation, Globix Corporation, Interliant, Inc., Data Return
            Corp., Inflow, Inc., Navisite, Inc. and USinternetworking, Inc. and
            a large number of local and regional hosting providers;

      o     application-specific hosting service providers such as Critical
            Path;

      o     co-location providers such as AboveNet Communications, Inc., Exodus,
            Digital Island and Frontier GlobalCenter Inc.;

      o     national and regional Internet service providers, including XO,
            EarthLink, Inc., PSINet Inc., UUnet, NTT Verio, Inc., and Genuity;

      o     customized application service providers, including AppNet Systems,
            Inc., CORIO, Inc., USinternetworking, Inc. and USWeb/CKS;

      o     application developers and Internet application software vendors,
            including Open Market, Inc., DoubleClick Inc. and Broadcast.com,
            inc.;

      o     large system integrators and information technology outsourcing
            firms, including Electronic Data Systems Corporation and
            International Business Machines Corporation;


                                       15
<PAGE>

      o     global telecommunications companies, including AT&T Corp., MCI
            WorldCom, Inc. and Sprint Corporation, and regional and local
            telecommunications companies, including AT&T Broadband, Inc. and
            regional Bell operating companies; and

      o     computer hardware providers, including Dell Computer Corporation,
            Gateway, Inc., Compaq Computer Corporation and Micron Technology.

      Although it is impossible to quantify our relative competitive position in
our market, many of these 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 have. As a result, many 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 acquisitions, consolidation
opportunities 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 trademark, service mark, copyright and trade
secret laws and contractual restrictions to establish and protect our
proprietary rights and promote our reputation and the growth of our business. We
do not own any patents that would prevent or inhibit competitors from using our
technology or entering our market although we are evaluating whether to apply
for patent protection on aspects of our technology and business. While it is our
practice to require all of our employees to enter into agreements containing
non-disclosure, non-competition and non-solicitation restrictions and covenants,
and while our agreements with some of our customers and suppliers include
provisions prohibiting or restricting the disclosure of proprietary information,
we cannot be sure that these contractual arrangements or the other steps taken
by us to protect our proprietary rights will prove sufficient to prevent illegal
use of our proprietary rights or to deter independent, third-party development
of similar proprietary assets. In addition, we provide our services in other
countries where the laws may not afford adequate protection for our proprietary
rights.

      We license or lease many technologies used in our Internet application
services. Our technology suppliers may become subject to third-party
infringement claims, which could result in their inability or unwillingness to
continue to license their technology to us. The loss of some of our technologies
could impair our ability to provide services to our customers or require us to
obtain substitute technologies of lower quality or performance standards or at
greater cost. We expect that we and our customers increasingly will be subject
to third-party infringement claims as the number of Web sites and third-party
service providers for Web-based businesses grows. Although we do not believe
that our technologies or services otherwise infringe the proprietary rights of
any third parties, we cannot be sure that third parties will not assert claims
against us in the future or that these claims will not be successful. Any
infringement you claim as to our technologies or services, regardless of its
merit, could be time-consuming, result in costly litigation, cause delays in
service, installation or upgrades, adversely impact our relationships with
suppliers or customers or require us to enter into royalty or licensing
agreements.

Government Regulation

      We are not currently subject to direct federal, state or local government
regulation, other than regulations applicable to businesses generally. There is
currently only a limited body of laws and regulations directly applicable to
businesses that provide access or commerce on the Internet.

      The "Digital Millennium Copyright Act" became effective in October 1998
and provides a limitation on liability of on-line service providers for
copyright infringement for transmitting, routing or providing connections,
transient storage, caching or storage at the direction of a user, if the service
provider had no knowledge or awareness that the transmitted or stored material
was infringing and meets other conditions. Since this law is new and does not
apply outside of the United States, we are unsure of how it will be applied to
limit any liability we may face in the future for any possible copyright
infringement or copyright-related issues. This new law also requires service
providers to follow "notice and take-down" procedures and to meet other
conditions in order to be able to take advantage of the limitation on liability.
We have recently implemented the procedures and believe we meet the conditions
to qualify for the protection provided by the Digital Millennium Copyright Act.
Moreover, our customers are subject to an acceptable use policy which prohibits
them from transmitting, storing or distributing material on or through any of
our services which, in our sole judgment is (1) in violation of any United
States local, state or federal law or regulation, or infringes on the copyright
of a third party (2) fraudulent on-line marketing or sales practices or (3)
fraudulent customer information, including identification and payment
information. Although this policy is designed to promote the security,
reliability


                                       16
<PAGE>

and privacy of our systems and network, we cannot be certain that our policy
will accomplish this goal or effectively limit our liability.

      Despite enactment of the Digital Millennium Copyright Act, the law
relating to the liability of on-line services companies and Internet access
providers for information carried on or distributed through their networks
remains largely unsettled. It is possible claims could be made against on-line
services companies and Internet access providers under both United States and
foreign law for defamation, obscenity, negligence, copyright or trademark
infringement, or other theories based on the nature and content of the materials
distributed through their networks. Several private lawsuits seeking to impose
such liability upon on-line services companies and Internet access providers are
currently pending.

      Although sections of the Communications Decency Act of 1996 that 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, in
October 1998, Congress passed the Child Online Privacy Protection Act, which
sought to make it illegal to communicate, for commercial purposes, information
that is harmful to minors. In February 1998, the United States District Court
judge issued a preliminary injunction against the enforcement of the Child
Online Protection Act on constitutional grounds. An appeal from the District
Court's ruling is pending. While we cannot predict the ultimate outcome of this
proceeding, even if the Child Online Protection Act is ruled unconstitutional,
similar laws may be proposed, adopted, or upheld in the future. 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 harm our business. The adoption of any of these
types of laws or regulations might decrease the growth of the Internet, which in
turn could decrease the demand for our services or increase our cost of doing
business or in some other manner harm our business.

      The Children's Online Privacy Protection Act of 1998, and the rules
promulgated by the Federal Trade Commission implementing the provisions of the
act, regulate the collection, use or disclosure of personally identifiable
information from and about children on the Internet by operators of Web sites or
on-line services directed to children, and operators of general audience Web
sites who knowingly collect information from children. The act and the FTC rules
require the operators of such Web sites and on-line services to (1) provide
notice of its information collection, use, and disclosure practices, (2) obtain
parental consent before any collection, use or disclosure of personal
information collected from children, (3) provide an opportunity for parental
review of personal information collected from children and the right to prohibit
further use or maintenance of that information, (4) not condition a child's
participation in any on-line activity on disclosing more personal information
than is necessary, and (5) to establish and maintain reasonable procedures to
protect the confidentiality, security and integrity of personal information
collected from children. An operator will be deemed to be in compliance with the
requirements of the act and the FTC rules if the operator complies with any
industry self-regulatory guidelines approved by the FTC. The FTC is authorized
to bring enforcement actions and impose civil penalties for violations of the
FTC rule. We may operate Web sites that are directed to children on behalf of
some of our customers. The Children's Online Privacy Protection Act and the FTC
rules implementing it went into effect on April 21, 2000. We have not yet taken
affirmative steps to adopt or comply with any FTC-approved industry
self-regulatory guidelines.

      In February 1995, the European Union adopted Directive 95/46/EC on the
protection of individuals with regard to the processing of personal data and on
the free movement of such data. As a result of this directive the 15 member
countries of the European Union are required to pass specific privacy protection
legislation by October 1998 regarding the collection and use of personally
identifiable information. One section of the directive requires member states to
ensure that personally identifiable information is only transferred outside of
the EU to countries with adequate privacy protection. In response to the
directive, the U.S. Department of Commerce has proposed seven "Safe Harbor"
principles designed to serve as guidelines for United States companies. In light
of the "Safe Harbor" principles, the EU announced in the fall of 1998 that it
would avoid disrupting the exchange of information with the United States by
allowing its member countries to transfer information to the U.S. so long as it
continues good faith negotiations with the EU. However, if an EU member country
determines that a Web site administered by a U.S. company has a significant
presence in the country and is in violation of the Safe Harbor Principles, it
may nonetheless prosecute and sanction the U.S. company through its regulatory
agency for improper data collection. Most EU member countries, including the
United Kingdom, have enacted legislation consistent with the directive that has
forced some U.S. companies to take actions to comply with the directive.
Although we currently provide services over the Internet in the United Kingdom
and other countries that are members of the EU, we have not taken affirmative
steps to comply with the "Safe Harbor" principles announced by the Department of
Commerce.

      While there currently are relatively few laws or regulations directly
applicable to the Internet or to applications hosting providers, due to the
increasing popularity of the Internet and Web-based applications it is likely
that such laws and regulations may be adopted. These laws may cover a variety of
issues including, for example, user privacy and the pricing, characteristics and
quality of products and services. The adoption or modification of laws or
regulations


                                       17
<PAGE>

relating to commerce over the Internet could substantially impair the future
growth of our business or expose us to unanticipated liabilities. Moreover, the
applicability of existing laws to the Internet and Internet application service
providers is uncertain. These existing laws could expose us to substantial
liability if they are found to be applicable to our business. For example, we
provide services over the Internet in many states in the United States and in
the United Kingdom, and we facilitate the activities of our customers in those
jurisdictions. As a result, we may be required to qualify to do business, be
subject to taxation or be subject to other laws and regulations in these
jurisdictions, even if we do not have a physical presence or employees or
property there. The application of existing laws and regulations to the Internet
or our business, or the adoption of any new legislation or regulations
applicable to the Internet or our business, could materially adversely affect
our financial condition and operating results.

Employees

      As of February 15, 2001, we had 557 employees, of which 141 were in sales
and marketing, 45 were in information technology, 318 were in customer service,
engineering, consulting and technical support and 53 were in finance and
administration. None of our employees are represented by a labor union, and
management believes that employee relations are good.


                                       18
<PAGE>

ITEM 2. PROPERTIES

      Our executive offices and data center are located in two buildings in
downtown Atlanta, Georgia and consist of approximately 200,000 square feet
leased under agreements that expire in July 2010. We also have short-term leases
on four sales offices in four major cities in the United States. Our original
data center, which is in process of being closed, is located in a nearby
building in Atlanta and consists of approximately 11,000 square feet leased
under an agreement that expires in the year 2009. We expect to sublet this space
during 2001. We are also in process of subletting two facilities in Amsterdam
following the closure of European operations in January 2001.

ITEM 3. LEGAL PROCEEDINGS

      We are not currently a party to any legal proceedings that we believe are
likely to have a material adverse affect on our results of operations or
financial condition.

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

No matters were submitted to a vote of our security holders during the fourth
quarter of the fiscal year covered by this report.

EXECUTIVE OFFICERS OF THE REGISTRANT

The following sets forth information regarding our executive officers:

<TABLE>
<CAPTION>
           Name                Age                    Position
           ----                ---                    --------
<S>                            <C>    <C>
Kenneth Gavranovic.........    30     Chairman of the Board and Chief Executive Officer

David N. Gill..............    46     President, Chief Operating Officer, Chief Financial Officer,
                                      and Director

Mark K. Alexander..........    35     Senior Vice President of Sales, Marketing and Business
                                      Development

H. Christopher Covington...    51     Senior Vice President, General Counsel, and Secretary

Jeffrey Ehrlich............    55     Senior Vice President of Operations

Nicholas Farsi.............    47     Senior Vice President and Chief Information Officer

Robert Malally.............    30     Senior Vice President and Chief Technology Officer

Other key employees:

Maryjane Stevens...........    45     Senior Vice President of Finance

C. Timothy Allaway.........    42     Vice President of Customer Service

Fabrice Klein .............    32     Vice President of Corporate Development

Edward Wolff  .............    29     Vice President of Human Resources
</TABLE>

      Kenneth Gavranovic has served as our Chairman of the Board of Directors
since March 2000, Chief Executive Officer since December 1999, President from
December 1999 to January 2001, a director since September 1997, and is one of
our co-founders. During his ten years of technology related entrepreneurial
experience, Mr. Gavranovic served as Vice President with Worldwide Internet
Publishing Corporation, a Web hosting company that he co-founded, from 1995 to
1997. From 1992 to 1994, he founded and served as Vice President with
Interactive Media Solutions, a telecommunications software company.


                                       19
<PAGE>

      David N. Gill has served as our President, Chief Operating Officer and
Chief Financial Officer since January 2001 and as our Executive Vice President
and Chief Financial Officer from February 2000 to January 2001. Mr. Gill served
as Chief Financial Officer from July 1996 to February 2000 and as Chief
Operating Officer from February 1997 to February 2000 of Novoste Corporation, a
publicly traded medical device company. From August 1995 to June 1996, he served
as Chief Financial Officer of SPEA Software AG before its sale to Diamond
Multimedia, Inc. From 1992 to 1995, Mr. Gill served as President and director of
Dornier Medical Systems, Inc., a medical device company and a member of the
Daimler Benz Group, and from 1990 to 1992 he served as Dornier's Vice President
of Finance. Mr. Gill received an M.B.A. from Emory University and a B.S. degree
in Accounting from Wake Forest University, and was formerly a Certified Public
Accountant.

      Mark K. Alexander has served as our Senior Vice President of Sales,
Marketing and Business Development since April 2000. From October 1998 to April
2000, he was employed by the international division of BellSouth Corporation as
the Vice President of Marketing from December 1999 to April 2000 and Executive
Director of Marketing from October 1998 to November 1999. Before joining
BellSouth, Mr. Alexander was employed by Scientific-Atlanta from August 1994 to
October 1998. At Scientific-Atlanta, Mr. Alexander served as the Managing
Director of the Asia Pacific region from July 1995 to October 1998 and the
Regional Sales Director of the Europe, Middle East and Africa region from August
1994 to July 1995. Mr. Alexander received a B.S. in Management from the Georgia
Institute of Technology and an MBA from Emory University.

      H. Christopher Covington has served as our Senior Vice President, General
Counsel and Secretary since February 2000. From October 1990 to February 1999,
Mr. Covington served in various capacities for Vanstar Corporation, a publicly
traded seller of computer products and services. These capacities included
Senior Vice President, General Counsel and Secretary from August 1994 to
February 1999, Vice President from March 1993 to August 1994 and Assistant
General Counsel from November 1990 to August 1994. Mr. Covington received a B.A.
degree in Political Science from the University of California at Santa Barbara,
a J.D. from the University of the Pacific, McGeorge School of Law and an L.L.M.
from the University of the Pacific, McGeorge School of Law.

      Jeffrey Ehrlich has served as Senior Vice President of Operations at
Interland since December 2000. Previously, Mr. Ehrlich held the position of
Chief Technology Officer at National Data Corporation, from Oct 1992 to Dec
2000, where he was responsible for technology strategy and technology
operations. Prior to this, he held a number of management and technology
positions with the General Electric Company for 23 years where he started his
career. Most recently at GE, he was Manager of Information Technology for GE
Medical Systems and Manager of Applications Technology at GE Corporate
Headquarters. Earlier with GE, he held positions as Manager - Systems
Architecture (GE Corporate and GE Capital), Manager - Computer Applications (GE
Applications Center), Manager - Computer Techniques (GE Sea Systems Command)
plus a number of design and engineering positions earlier in his career. Mr.
Ehrlich received a B.S. in Electrical Engineering from the University of Rhode
Island, an M.S. degree in Computer Science from Rensselaer Polytechnic
Institute, and an M.S. degree in Management from Rensselaer Polytechnic
Institute.

      Nicholas Farsi has served as Senior Vice President and Chief Information
Officer since September 2000. From March 2000 to September 2000 he was employed
by Avana Communication as Chief Information Officer. From January 1994 to March
2000 Mr. Farsi served as Senior Director of Information Technology for BellSouth
Cellular Corporation. In July 1979, Mr. Farsi started his information technology
career with Federated Systems Group, a subsidiary of Federated Department Stores
as a computer programmer and from February 1991 to January 1994 served as
Divisional Vice President of Application Development. Mr. Farsi received his
B.S. in Business Administration from the Citadel, Military College of South
Carolina.

      Robert Malally has served as our Chief Technology Officer since February
2000 and as Senior Vice President since July 2000. From March 1999 to February
2000 he was employed by Sprint Paranet as Chief Network Architect. From March
1997 to March 1999, Mr. Malally served as Senior WAN Technical Consultant for
Sun Data, Inc. In addition, from December 1996 to March 1997, he was employed by
Universal Data Consultants as WAN technical consultant and from August 1994 to
December 1996, Mr. Malally was employed by IBM as a network specialist. Mr.
Malally received a B.S. in Applied Physics from Auburn University.

Other Key Employees

      Maryjane Stevens has served as our Senior Vice President, Finance since
March 1999 and as a director from December 1999 to March 2000. From August 1996
to February 1999, she was employed by Vanstar Corporation in the roles of
Finance Director, Mergers and Acquisitions and Internal Audit Director. Before
her employment with Vanstar, from 1983 to 1994, Ms. Stevens served in a number
of financial positions with Digital Equipment Corporation. Ms. Stevens received
a B.S. in Accounting from Bentley College in Waltham, Massachusetts.


                                       20
<PAGE>

      C. Timothy Allaway has served as our Vice President of Customer Service
since January 2001. Previously, Mr. Allaway was Vice President, Customer Service
for Cypress Communications, a comprehensive provider of bundled communication
services. From June 1996 to December 1999, Mr. Allaway was Director, Customer
Services for IBM, supporting the full line of hardware and software offerings
for North America. From June 1986 to June 1996, Mr. Allaway was with MCI
Communications where he most recently served as Director, Small Business Sales
and Partnerships. Prior to that, Mr. Allaway held various sales and service
management positions. From September 1981 to June 1986, Mr. Allaway was with
Xerox Corporation. Mr. Allaway received a Bachelor of Science degree in
Management from Jacksonville State University and a Master of Business
Administration from Auburn University.

      Fabrice Klein has served as our Vice President of Corporate Development
since March 2000. Before joining Interland, Mr. Klein was a Vice President in
Chase H&Q's Global Telecom and Media group where he focused on the Internet
sector. Before joining Chase Securities in 1998, Mr. Klein managed the
development of Internet banking services in Chase.com's Electronic Commerce
group. From 1994 to 1997, Mr. Klein was with Coopers & Lybrand Consulting,
focusing on Internet strategy for clients in the media and telecom industries.
Mr. Klein previously served in the French Army as a Lieutenant. Mr. Klein
graduated with honors from the Institut Superieur de Gestion in Paris, France,
and received an MBA from the Yale School of Management.

      Edward Wolff has served as Vice President of Human Resources since July
2000. From May 1998 to July 2000, Mr. Wolff served as Director of Human
Resources for EarthLink, Inc. From August 1993 to May 1998, he served as
Director of Human Resources for Charter Communications. Mr. Wolff received a
B.B.A. degree in Business Administration from Hofstra University. He currently
serves as Chapter President for Society for Human Resource Management of Atlanta
and resides on the Board of Directors for the Society for Human Resource
Management.


                                       21
<PAGE>

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

      Our common stock is traded on the Nasdaq National Market under the symbol
"ILND." The following table sets forth the range of the high and low closing
sale prices of our common stock by quarter as reported on the Nasdaq National
Market since July 25, 2000, the date our common stock commenced trading.

                 Quarter                 High             Low
                 -----------------------------------------------

                 2000:
                     Fourth Quarter     $ 8.563         $ 2.000
                     Third Quarter      $ 9.500         $ 6.500

      As of February 15, 2001, we had 317 shareholders of record. Investors who
beneficially own our common stock that is held in street name by brokerage firms
or similar holders are not included in this number. Accordingly, based upon the
quantities of periodic reports requested by such brokerage firms, we believe
that the actual number of individual beneficial owners of our common stock
exceeds is approximately 3,190.

      We have never declared or paid any cash dividends on our stock. We
currently intend to retain any earnings for use in our business and do not
anticipate paying any cash dividends in the foreseeable future.


                                       22
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

      The following table shows our selected financial data for the period from
inception (September 18, 1997) to December 31, 1997, and for the years ended
December 31, 1998, 1999 and 2000. We have derived the financial data for the
period from inception (September 18, 1997) to December 31, 1997 and for the
years ended December 31, 1998, 1999 and 2000 from our audited financial
statements, which Arthur Andersen LLP, independent public accountants has
audited.

      You should read the following selected financial data together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the consolidated financial statements and accompanying notes and
the other financial data included elsewhere in this report. The following data
is in thousands, except per share, share, Web site, customer and average monthly
revenue per customer data.

<TABLE>
<CAPTION>
                                                ----------------------------------------------------------------------
                                                For the Period                    Year ended December 31
                                                From Inception     --------------------------------------------------
                                                (Sept. 18, 1997)
                                                to Dec. 31, 1997        1998               1999               2000
                                                ----------------    ------------       ------------       ------------
<S>                                              <C>                <C>                <C>                <C>
Statements of Operations Data:
Revenues .................................       $          5       $      1,387       $      9,121       $     34,263
                                                 ------------       ------------       ------------       ------------
Costs and expenses:
   Cost of revenue .......................                 --              1,022              7,054             33,494
   Sales and marketing ...................                 --              1,803              7,901             38,653
   General and administrative ............                119                768              9,944             24,076
   Depreciation and amortization .........                 --                115                992              6,304
                                                 ------------       ------------       ------------       ------------

Total operating expenses .................                119              3,708             25,891            102,527
                                                 ------------       ------------       ------------       ------------

Operating loss ...........................               (114)            (2,321)           (16,770)           (68,264)
Other income (expense) ...................                 --                (18)               (14)             1,308
                                                 ------------       ------------       ------------       ------------

Net loss .................................               (114)            (2,339)           (16,784)           (66,956)
Preferred stock beneficial conversion
  and dividends ..........................                 --                 --             (9,559)            (5,996)
                                                 ------------       ------------       ------------       ------------
Net loss applicable to common
  shareholders ...........................       $       (114)      $     (2,339)      $    (26,343)      $    (72,952)
                                                 ============       ============       ============       ============
Basic and diluted net loss per common
  share ..................................       $      (0.01)      $      (0.13)      $      (1.23)      $      (2.14)
                                                 ============       ============       ============       ============

Shares used in computing net loss per ....
  share ..................................         17,631,191         18,316,449         21,461,161         34,125,579
                                                 ------------       ------------       ------------       ------------
Other Financial Data:
Adjusted EBITDA (1) ......................       $       (114)      $     (2,206)      $    (12,220)      $    (55,851)
Net cash used in operating activities ....               (110)               (30)            (2,247)           (37,393)
Net cash used in investing activities ....                 (2)            (1,102)            (8,752)           (39,939)
Net cash provided by financing activities                 139              1,811             34,803            109,136
Number of Web sites ......................                  0             10,611             46,094             86,010
Number of customers ......................                  0              6,796             27,173             52,162
Average monthly revenue per customer .....       $          0       $         34       $         45       $         69
</TABLE>

(1)   Adjusted EBITDA consists of net loss excluding interest income (expense),
      net, and depreciation and amortization, as further adjusted to exclude
      non-cash stock compensation expense and non-cash operating expenses
      incurred as a result of the issuance of equity securities in connection
      with strategic relationships in the total amount of $0, $3.6 million and
      $6.1 million for the years ended December 31, 1998, 1999, and 2000,
      respectively. Adjusted EBITDA does not represent funds available for
      discretionary use and is not intended to represent cash flow from
      operations as measured under generally accepted accounting principles.
      Adjusted EBITDA should not be considered as an alternative to net loss or
      net cash used in operating activities, but may be useful to investors as
      an indication of operating performance. Our calculations of Adjusted
      EBITDA may not be consistent with similarly titled calculations used by
      other companies.


                                       23
<PAGE>

                                                      December 31,
                                               -----------------------
                                                 1999          2000
                                               --------       --------
                                                 (dollars in thousands)
         Balance Sheet Data:
         Working capital ...............       $ 13,566       $ 25,836
         Total assets ..................         35,976        106,835
         Notes payable and capital lease
           obligations--long-term ......          2,406          9,180
          Total shareholders' equity ...         17,495         55,119

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

Overview

      We provide a broad range of Web hosting and applications hosting and other
related Web-based business solutions specifically designed to meet the needs of
small and medium-sized businesses. Our business is rapidly evolving and we have
limited operating history. As a result, we believe that period-to-period
comparisons of our revenue and operating results, including our cost of revenue
and other operating expenses as a percentage of total revenue, are not
meaningful and should not be relied upon as indicators of future performance. We
do not believe that our historical growth rates are an indication of future
results.

      Currently, we derive a substantial majority of our revenues from shared
and dedicated hosting and managed services. We also derive revenue from
applications hosting and consulting services. Our strategy is to grow our
customer base and revenues by marketing value-added services to small and
medium-sized businesses. We expect that our number of customer accounts will
grow rapidly, and that the revenue from the sale of higher margin services, such
as dedicated hosting and managed services, will increase more rapidly than our
base shared hosting revenue. Currently, most of our hosting revenues are
generated from recurring monthly fees. The remainder is derived from
one-time-set-up fees for installation. We currently sell our services under
agreements having terms of three months to two years. Most of our customer
agreements may be canceled within the first thirty days. For shared servers we
receive payment in advance typically for the full contract amount by direct
charges to credit or debit cards. We recognize all revenues, including set-up
fees, ratably over the term of the contract.

            Our expenses consist of:

      o     cost of revenue, which is mainly comprised of compensation and
            related expenses for technical operations, Internet connectivity and
            other related telecommunications expense, and operating lease
            expense related to our data center;

      o     sales and marketing, which is mainly comprised of compensation costs
            and costs associated with marketing our products and services.
            Compensation costs include salaries and related benefits,
            commissions and bonuses. Our marketing expenses include the costs of
            direct mail, advertising and other mass-market programs;

      o     general and administrative, which is mainly comprised of
            compensation and related expenses, occupancy costs, and non-cash
            stock compensation expense, which relates to stock and options
            granted at exercise prices less than the fair market value of our
            common stock at the time of grant; and

      o     depreciation and amortization of property and equipment.

      We have incurred significant losses and experienced negative cash flow
from operations since our inception and, as of December 31, 2000, had an
accumulated deficit of approximately $86.2 million. We intend to continue to
invest in sales and marketing and the continued development of our network
infrastructure and technology. We expect to expand our operations and workforce,
including our network operations, technical support, and administrative
resources in response to sales growth. In addition, we intend to continue to
expand our existing inside and outside sales force to develop new sales channels
and relationships. We expect to continue to incur substantial losses through
2002, if not longer. Our ability to achieve profitability and positive cash flow
from operations will be dependent upon our ability to grow our revenues and
achieve operating efficiencies.


                                       24
<PAGE>

Results of Operations

The following table shows percentage of revenue data for the years ended
December 31, 1998, 1999, and 2000.

                                                       % of Revenues
                                               -----------------------------
                                               1998         1999        2000
                                               -----       -----       -----
    Revenues ............................      100.0%      100.0%      100.0%
    Operating expenses:
      Cost of revenue ...................       73.6        77.3        97.7
      Sales and marketing ...............      130.0        86.6       112.8
      General and administrative ........       55.4       109.0        70.3
      Depreciation and amortization .....        8.3        11.0        18.4
                                               -----       -----       -----

    Operating loss ......................     (167.3)     (183.9)     (199.2)
      Interest income ...................        0.1         2.3         8.5
      Interest expense ..................       (1.4)       (2.4)       (4.7)
                                               -----       -----       -----
              Net loss ..................     (168.6)%    (184.0)%    (195.4)%
                                               =====       =====       =====

Comparison of the Years Ended December 31, 1999 and 2000

Revenues

      Our revenues increased $25.2 million, or 276.7%, to $34.3 million during
the year ended December 31, 2000 from $9.1 million during the year ended
December 31, 1999. This increase was due mainly to internal growth of our
business, the number of customers served, and the shift in the mix of our
business between shared and dedicated customers. During the years ended December
31, 2000 and 1999, we derived 60.6% and 75.9% of revenues from our shared
services, 25.1% and 9.8% of revenues from dedicated services and 14.3% and 14.3%
of revenues from applications hosting and professional services, respectively.
The number of Web sites increased from 46,094 at December 31, 1999 to 86,010 at
December 31, 2000. International revenues contributed approximately 10% and 7.5%
of the Company's total revenues for the years ended December 31, 2000 and 1999,
respectively.

Cost of revenue

      Our cost of revenue increased $26.4 million to $33.5 million, or 97.7% of
revenue, during the year ended December 31, 2000 from $7.1 million, or 77.3% of
revenue during the year ended December 31, 1999, due to the growth of our
business and related expenses, including $11.1 million in increased salary
expense related to a significant increase in the number of data center and
customer support personnel, non-cash expense of $3.2 million, increased
telecommunication and Internet connection costs of $1.1 million, increased
operating lease expense of $2.8 million, increased license fees for third-party
products used in delivering our services of $2.5 million, and increased
engineering consulting fees of $1.5 million. The non-cash expense largely
relates to deferred expenses associated with our strategic relationships with
Microsoft, VeriSign, and Verizon. The increase in cost of revenue as a
percentage of revenue was partially attributable to our incurring these costs in
anticipation of growth and in advance of revenues. We anticipate that costs of
revenues will increase in absolute dollars, but decline as a percentage of
revenues as we continue to grow, and achieve a more cost-effective scale of
operations.

Sales and marketing

      Sales and marketing expenses increased $30.8 million to $38.7 million, or
112.8% of revenues, during the year ended December 31, 2000 from $7.9 million,
or 86.6% of revenues, during the year ended December 31, 1999. This increase was
due mainly to a $5.1 million increase in salary expense from a higher number of
sales personnel and a $24.4 million increase in advertising expense. We expect
our sales and marketing expenditures to decrease in both absolute dollars and as
a percentage of revenue in 2001.

General and administrative

      General and administrative expense increased $14.2 million to $24.1
million, or 70.3% of revenue, during the year


                                       25
<PAGE>

ended December 31, 2000 from $9.9 million, or 109.0% of revenue, for the year
ended December 31, 1999. The main factors contributing to this increase include
an increase in salary expense of $7.6 million, a $900,000 increase in rent and a
$1.9 million increase in consulting and professional fees. We expect our general
and administrative expenses in absolute dollars to increase in the future but
decline as a percentage of revenues as we grow, and achieve a more
cost-effective scale of operations.

      We also recorded non-cash deferred stock compensation expense of $9.0
million and $4.5 million for the years ended December 31, 2000 and 1999,
respectively, in connection with the grant of restricted stock and options and
issuance of common stock to consultants and employees. In the case of stock
option grants, this amount represents the difference between the fair market
value of our common stock (as calculated consistent with applicable accounting
principles) and the exercise price of the options granted on the dates the
options were granted. In those cases where common stock was issued, this amount
represents the fair market value of our common stock on the date of issuance as
determined by our board of directors. This amount is included as a reduction of
shareholders' equity and is being amortized ratably over the vesting period of
the options and restricted stock, which range from 18 months to three years. For
the years ended December 31, 2000 and 1999, respectively, we recorded $2.9
million and $3.6 million in non-cash stock compensation expense, as general and
administrative expense.

Depreciation and amortization

      Depreciation and amortization expenses increased $5.3 million to $6.3
million, or 18.4% of revenues, during the year ended December 31, 2000 from $1.0
million during the year ended December 31, 1999, as a result of our investment
in a new data center in Atlanta.

Interest income (expense), net

      Interest income (expense), net consists primarily of interest income on
our cash and cash equivalent balances less interest expense on our capital lease
obligations. Interest earned on our cash and cash equivalents increased $2.7
million during the year ended December 31, 2000 from $206,000 during the year
ended December 31, 1999. This increase was primarily due to the completion of an
initial public offering on July 25, 2000, which resulted in higher cash balances
available for investment. During the year ended December 31, 2000 we incurred
interest expense in the amount of $1.6 million on capital lease obligations.

Income taxes

      No provision for federal income taxes has been recorded as we have
incurred net operating losses from inception through December 31, 2000. As of
December 31, 2000 we had approximately $77 million of federal net operating loss
carry-forwards available to offset future taxable income which expire in varying
amounts beginning in 2013. We have recorded a valuation reserve for all our net
deferred tax benefit in the years ended December 31, 2000 and 1999 due to
uncertainty that we will generate sufficient taxable income during the
carry-forward period to realize the benefit of our net deferred tax asset.

Net Loss

      Our net loss increased $50.2 million to $67.0 million during the year
ended December 31, 2000 from $16.8 million during the year ended December 31,
1999. Our net loss increased mainly as a result of increased cost of revenue,
sales and marketing, and general and administrative expense. These expense
increases were partially offset by an increase in revenue of $25.2 million to
$34.3 million during the year ended December 31, 2000 from $9.1 million during
the year ended December 31, 1999.

Comparison of the Years Ended December 31, 1998 and 1999

Revenues

      Our revenues increased $7.7 million, or 557.6%, to $9.1 million during the
year ended December 31, 1999 from $1.4 million during the year ended December
31, 1998. This increase was mainly due to the growth of our business and number
of customers served. The number of Web sites increased from 10,611 at December
31, 1998 to 46,094 at December 31, 1999. Approximately 42% of our fiscal 1999
revenue was recognized in the fourth quarter.

Cost of revenue

      Our cost of revenue increased $6.0 million to $7.0 million, or 77.3% of
revenue, during the year ended December


                                       26
<PAGE>

31, 1999 from $1.0 million, or 73.6% of revenue during the year ended December
31, 1998, due to the growth of our business and related expenses, including
increased salary costs of $3.2 million related to additional systems and
customer support personnel, increased telecommunication and Internet connection
costs of $1.3 million, and increased license fee payments of $655,000.

Sales and marketing

      Sales and marketing expenses increased $6.1 million to $7.9 million, or
86.6% of revenues, during the year ended December 31, 1999 from $1.8 million, or
130.0% of revenues during the year ended December 31, 1998. This increase was
largely due to a $1.8 million increase in salary expense due to an increase in
the number of sales personnel at higher compensation levels and increased
placement of advertising of $4.0 million.

General and administrative

      General and administrative expense increased $9.2 million to $9.9 million,
or 109.0% of revenue, during the year ended December 31, 1999 from $768,000, or
55.4% of revenue, during the year ended December 31, 1998. This increase was
mostly due to increased salary expense of $2.0 million, increased professional
fees of $401,000 and travel costs of $419,000, as well as severance expense of
$660,000 related to the termination of an officer.

      We recorded non-cash stock compensation expense of $3.6 million for the
year ended December 31, 1999, in connection with the grant of stock options and
issuance of common stock to employees and consultants. During the year ended
December 31, 1999 we granted stock options to purchase shares of our common
stock to employees and consultants at exercise prices below fair market value.
We recorded deferred compensation expense of approximately $4.5 million to
additional paid in capital, which will be amortized over the vesting period.
There were no stock based compensation awards before 1999 and accordingly there
was no non-cash stock compensation expense in 1998.

Depreciation and amortization

      Depreciation and amortization expense increased $900,000 to $1.0 million,
or 11.0% of revenues, during the year ended December 31, 1999 from $115,000
during the year ended December 31, 1998, as a result of the growth of our
business and number of customers served.

Interest income (expense), net

      Interest expense, net consists of interest income on our cash balances
less interest expense on our capital lease obligations. Interest earned on our
cash and cash equivalents increased $204,000 to $206,000 during the year ended
December 31, 1999 from $2,000 during the year ended December 31, 1998. This
increase was mainly due to the closing of private placements of preferred stock
in December 1999, which resulted in higher cash balances available for
investment. During the year ended December 31, 1999 we incurred interest expense
of $220,000, compared to $20,000 in 1998.

Income taxes

      No provision for federal income taxes has been recorded as we have
incurred net operating losses from inception through December 31, 1999. As of
December 31, 1999, we had approximately $19.8 million of federal net operating
loss carry-forwards available to offset future taxable income, which expire in
varying amounts beginning in 2013. We have recorded a valuation reserve for all
our net deferred tax benefit for the year ended December 31, 1999 due to
uncertainty that we will generate sufficient taxable income during the
carry-forward period to realize the benefit of our net deferred tax asset.

Net Loss

      Our net loss increased $14.5 million to $16.8 million during 1999 from
$2.3 million during 1998. Our net loss increased mainly as a result of increased
cost of revenues, sales and marketing, and general and administrative expense in
1999 from 1998. These increases were partially offset by an increase in revenue
of $7.7 million to $9.1 million for 1999 from $1.4 million for 1998.

Liquidity and Capital Resources

      We have financed our operations to date mainly through public and private
equity placements and capital leases from vendors. At December 31, 2000 we had
an accumulated deficit of $86.2 million and cash and cash equivalents of $59.8
million. This balance of cash and cash equivalents is largely the result of our
completion of an initial public


                                       27
<PAGE>

offering on July 25, 2000, which raised net proceeds of $53 million and by our
raising an additional $28.5 million from the sale of 2,375,000 shares of common
stock to three investors on July 26, 2000.

      During the years ended December 31, 1998, 1999, and 2000, we used cash to
fund operations of $30,000, $2.2 million, and $37.3 million, respectively. The
increase in cash used in operations was due mainly to working capital
requirements and net losses, offset by increases in accounts payable, unearned
revenue and accrued expenses. Net cash used in investing activities was $1.1
million, $8.8 million, and $39.9 million for the years ended December 31, 1998,
1999, and 2000, respectively, and is comprised mainly of equipment purchases of
$1.1 million, $7.7 million, and $37.0 million, respectively. Net cash provided
by financing activities was $1.8 million, $35.0 million, and $109.0 million
during the years ended December 31, 1998, 1999, and 2000, respectively, and is
related mainly to public and private equity placements as well as borrowings
under capital leases. Total borrowings under our capital lease obligations as of
December 31, 2000 were approximately $15.7 million.

      On December 24, 1999 we entered into a stock purchase agreement with
Microsoft Corporation. In connection with this financing transaction, we issued
2,484,000 shares of Series A preferred stock to Microsoft, at a purchase price
of $2.02 per share. We also issued a warrant to Microsoft to purchase 546,480
shares of common stock at an exercise price of $5.37 per share. In addition,
under the stock purchase agreement, Microsoft invested an additional $7,500,000
on July 26, 2000 and we issued 625,000 shares of common stock to Microsoft, at a
purchase price of $12.00 per share. In connection with this issuance, we also
issued an additional warrant to purchase up to 468,750 shares of common stock at
an exercise price of $12.00 per share. In connection with the initial
investment, we entered into a five-year co-marketing agreement with Microsoft.
We recorded deferred development costs for the value of the warrant issued on
December 24, 1999 of $2,144,000. This deferred expense will be amortized over
the five-year term of the co-marketing agreement to cost of revenue. Other than
payments we will make to Microsoft in connection with the sale of software that
we have licensed to Microsoft, we do not have any further financial obligations
during the term of the co-marketing agreement.

      On January 28, 2000 we issued a warrant to purchase up to 376,920 shares
of our common stock to Road Runner whose cable affiliates include Time Warner,
Media One, and Cox Communications, in connection with a co-marketing agreement.
Of the shares subject to this warrant, 108,000 vested immediately upon the
execution of our co-marketing agreement and the balance vest in equal
installments on September 30, 2000, December 31, 2000 and December 31, 2001,
subject to performance criteria. In January 2000, we recorded expense of
$650,000 associated with the vested portion of the warrant. We will record
additional expense to cost of revenue in the future based on the fair value of
the portion of the warrant that has been earned and that vests in each period
based on meeting the performance criteria. We do not have any further financial
obligations to Road Runner during the term of the co-marketing agreement. As of
December 31, 2000, no additional warrants have vested.

      On March 15, 2000 we entered into a stock purchase agreement with
VeriSign. In connection with this financing transaction, we issued 744,827
shares of Series A preferred stock to VeriSign, at a purchase price of $5.37 per
share, for a total proceeds of $4.0 million. We also issued a warrant to
VeriSign to purchase 372,413 shares of common stock at an exercise price of
$5.37 per share. In addition, under the stock purchase agreement, VeriSign
invested an additional $6 million in the Company on July 26, 2000 and we issued
500,000 shares of common stock to VeriSign at a purchase price of $12.00 per
share. In connection with this issuance, we issued an additional warrant to
purchase up to 375,000 shares of common stock at an exercise price of $12.00 per
share. In connection with the initial investment, we entered into a four-year
premier program agreement with VeriSign. We recorded deferred expense of
$2,444,000 for the value of the warrant issued on March 15, 2000 and deferred
expense of $2,207,000 for the difference between the purchase price of $5.37 per
share and the fair value of our common stock on that date of $8.33 per share and
deferred expense of $3,011,000 for the values of the warrants issued on July 26,
2000. This deferred expense will be amortized over the four-year term of the
premier program agreement to cost of revenue. We do not have any further
financial obligations during the term of the premier program agreement.

      On May 8, 2000 we entered into a stock purchase agreement with a
subsidiary of Verizon. In connection with this financing transaction, we issued
1,199,999 shares of Series A preferred stock to Verizon, at a purchase price of
$8.33 per share, for total proceeds of $10 million. As a result of this sale of
preferred stock at a conversion price below the fair market value, determined as
of May 8, 2000 to be equal to $12.00 per share of common stock, we recorded a
preferred stock dividend of approximately $4,400,000. The net income applicable
to common shareholders in our statement of operations has been adjusted to
reflect the dividend. In addition, under the stock purchase agreement, Verizon
invested an additional $15 million in the Company on July 28, 2000 and we issued
1,250,000 shares of common stock at a purchase price of $12.00 per share.

      Additionally, on May 8, 2000 the Company entered into a non-binding letter
of intent with Verizon to enter into a business relationship. The non-binding
letter of intent indicated that the parties would work to complete final
versions of a marketing channel relationship agreement and a service provider
agreement. On October 11, 2000, the parties


                                       28
<PAGE>

executed final versions of these agreements. These agreements provide for
Verizon to promote and co-brand the Company's products and services. The term of
the agreements is three years and the Company will pay to Verizon 12.5% of any
revenue received from customers with whom Verizon originates contact. The
Company will record this amount as an offset to revenue in the income statement.
In return for access to Verizon's customer base and for other consideration, the
Company issued to Verizon a warrant to purchase 3,132,000 shares of common stock
at an exercise price of $18 per share. The warrant will be exercisable for three
years. The Company has measured the fair value of warrants issued using the
Black-Scholes pricing model as $4,885,000 and recorded this value as deferred
expense to be amortized over the 3 year term of the agreements starting in the
fourth quarter of 2000.

      We are pursuing an internal growth strategy that we anticipate may require
additional funding before we begin to generate positive cash flow. We believe
that our current cash and cash equivalent balances will be sufficient to fund
execution of our current business plan through the end of 2001. However, the
execution of our business plan may require additional capital to fund our
operating losses, working capital needs, sales and marketing expenses, lease
payments and capital expenditures. In view of future expansion plans, we will
consider our financing alternatives, which may include the incurrence of debt,
additional public or private equity offerings, or an equity investment by a
strategic partner. Actual capital requirements may vary based upon the timing
and success of the expansion of our operations. Our capital requirements may
also change based upon technological and competitive developments. In addition,
several factors may affect our capital requirements:

      o     demand for our services or our anticipated cash flow from operations
            being less than expected;

      o     our development plans or projections proving to be inaccurate;

      o     our engaging in strategic relationships or acquisitions; and

      o     our acceleration of, or otherwise altering, the schedule of our
            expansion plan.

      On May 15, 2000 we executed a loan agreement in the amount of $3.0 million
to finance a portion of these capital expenditures. The loan is secured by the
related assets, bears interest at 16.1% per year and has a three-year term. On
October 3, 2000 we received an additional $3.0 million under this loan, and as
of December 31, 2000, we drew down approximately $2.0 million.

      On June 30, 2000 we executed an amendment to a master lease and financing
agreement with Compaq Financial Services Corporation, which provides a line of
credit for the purchase and lease of equipment in the amount of $29.5 million.
Additionally, on June 30, 2000 we executed a supplemental master lease and
financing agreement with Hewlett-Packard Corporation, which increased the
equipment financing line of credit by $12.0 million to $20.0 million.

      On December 14, 2000 we executed a master lease agreement with a
diversified financial services company for up to $12.0 million to finance
expansion of our data center.

      At December 31, 2000 we have made commitments of approximately $2.3
million in capital expenditures outstanding for expanded network and facilities.

      There can be no assurance that additional financing, if required, will be
available on satisfactory terms, or at all. If we do not obtain additional
financing, we intend to reduce our level of spending on both capital and
operating expenses in order to utilize our existing cash balances to continue
expanding the operations on a reduced scale.

Recent Accounting Pronouncements

      In June 1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 established accounting and
reporting standards for derivative instruments and for hedging activities. SFAS
is effective for fiscal years beginning after June 15, 2000. We do not believe
the adoption of SFAS 133 (as amended by SFAS 138) will have a material effect on
our results of operations or financial condition.

Factors Affecting Future Operating Results

Our business and prospects are difficult to evaluate because we have a limited
operating history and our business model is still evolving.

      We began operations as a Web hosting business in September 1997. As a
result, we have a limited operating history and our business model is still
evolving. Our limited operating history therefore makes predicting our future


                                       29
<PAGE>

results difficult and makes it difficult to evaluate the execution of our
business model thus far. You should consider our ability to execute our plans
and our prospects in light of the risks, expenses and difficulties that
companies in the new and rapidly evolving market for Web hosting and
applications hosting services encounter. We may not achieve a significant rate
of future revenue growth and may not achieve or sustain profitability in future
quarterly or annual periods.

We have a history of significant losses and expect these losses to continue in
the foreseeable future.

      We have experienced operating losses and negative cash flows from
operations in each quarterly and annual period since we began operations as a
Web hosting business in 1997. As of December 31, 2000, our accumulated losses
since September 17, 1997 have amounted to approximately $ 86.2 million. We had a
net loss of $ 67.0 million for the year ended December 31, 2000. While our
revenues have grown in recent periods, future growth will depend upon the
success of our expansion plans. In connection with our expansion plans, we
anticipate making significant investments in sales, marketing, technical and
customer support personnel, as well as in our data centers and related
equipment. As a result of our expansion plans, we expect our net losses and
negative cash flow from operations to continue for the foreseeable future.

We may not effectively execute our strategy and as a result, others may seize
the market opportunity that we have identified.

      If we fail to execute our strategy in a timely or effective manner, our
competitors may be able to seize the opportunity we have identified to address
Web hosting needs of small and medium-sized businesses. Our business strategy is
complex and requires that we successfully and simultaneously complete many
tasks, and the failure to complete any one of these may jeopardize our strategy
as a whole. Execution of our strategy may be more difficult because our
management team has worked together for less than nine months. In order to be
successful, we will need to:

      o     market our services and build our brand name effectively;

      o     provide reliable and cost-effective services that can be expanded to
            meet the demands of our customers;

      o     continue to grow our infrastructure to accommodate additional
            customers and increased use of our network bandwidth;

      o     expand our channels of distribution and our international
            operations;

      o     continue to respond to competitive developments; and

      o     attract, retain and motivate qualified personnel.

We operate in an extremely competitive market, and our business will suffer if
we are unable to compete effectively.

      The Web hosting and applications hosting markets are highly competitive
and are becoming more so. There are few substantial barriers to entry, and we
expect that we will face additional competition from existing competitors and
new market entrants in the future. We may not have the resources, expertise or
other competitive factors to compete successfully in the future.

      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, these competitors may be able to:

      o     develop and expand their network infrastructures and service
            offerings more rapidly;

      o     adapt to new or emerging technologies and changes in customer
            requirements more quickly;

      o     take advantage of acquisition and other opportunities more readily;
            and

      o     devote greater resources to the marketing and sale of their services
            and adopt more aggressive pricing policies than we can.

      In an effort to gain market share, some of our competitors have offered
Web hosting services similar to ours at


                                       30
<PAGE>

lower prices than ours or with incentives not matched by us, including free
start-up and domain name registration, periods of free service, low-priced
Internet access or free software. In addition, some of our competitors may be
able to provide customers with additional benefits, including reduced
communications costs, which could reduce the overall costs of their services
relative to ours. We may not be able to reduce the pricing of our services or
offer incentives in response to the actions of our competitors without harming
our business. Because of the fierce competition in the Web hosting and
applications hosting industry, the number of competitors could lead to a surplus
in service providers, leading to further reductions in the prices of services.
We also believe that the market in which we compete is likely to consolidate in
the near future, which could result in increased price and other competition
that could damage our business.

      Our current and potential competitors in the market include Web hosting
service providers, applications hosting providers, Internet service providers,
telecommunications companies, large information technology firms that provide a
wide array of information technology services and computer hardware suppliers.
Our competitors may operate in one or more of these areas and include companies
such as Data Return Corp., Hostpro, Digex Corporation, EarthLink, Inc., Exodus
Communications, Inc., Interliant, NTT Verio Inc., and Navisite, Inc.

Our quarterly and annual results may fluctuate, resulting in fluctuations in the
price of our common stock.

      As our business develops and expands, we may experience significant
quarterly fluctuations in our results of operations. Because of these
fluctuations, comparisons of our operating results from period to period are not
necessarily meaningful and you should not rely on them as an indicator of future
performance. We expect to continue to experience significant fluctuations in our
quarterly and annual results of operations due to a variety of factors, many of
which are outside our control. These factors include:

      o     demand for and market acceptance of our services;

      o     introductions of products or services or enhancements by us and our
            competitors;

      o     the mix of services we sell;

      o     customer retention;

      o     the timing and success of our advertising and marketing efforts and
            introductions of new services to customers and the timing and
            success of the marketing efforts and introductions of new services
            to customers of our resellers;

      o     the timing and magnitude of capital expenditures, including
            construction costs relating to the expansion of operations;

      o     increased competition in the Web hosting and applications hosting
            markets;

      o     changes in our pricing policies and the pricing policies of our
            competitors;

      o     gains or losses of key strategic relationships; and

      o     other general and industry-specific economic factors.

      In addition, a relatively large portion of our expenses is fixed in the
short-term, and therefore our results of operations are particularly sensitive
to fluctuations in revenues. Also, if we were unable to continue using
third-party products in our services offerings, our service development costs
could increase significantly.

We may need additional capital to fund our operations and finance our growth,
and we may not be able to obtain it on terms acceptable to us or at all.

      We believe that our existing capital resources will enable us to implement
our current business plan through at least the end of 2001. However, we may
require additional funds during or after that period. Any required financing may
not be available or may be available only on terms that are not favorable to us.
Further, sales of our equity securities to raise additional funds would dilute
the percentage ownership of our shareholders. Any new equity securities may have
rights, preferences or privileges senior to those of our common stock. The
failure to generate sufficient cash flows or to raise sufficient funds may
require us to delay or abandon some or all of our development and expansion
plans or otherwise forego market opportunities and may make it difficult for us
to respond to competitive pressures, any of which could harm our business.


                                       31
<PAGE>

If we are unable to expand our network infrastructure to meet increasing demand,
we could lose customers and we may not be able to sustain or increase our
revenues.

      We must continue to expand and adapt our network infrastructure to meet
the increase in the number of users and the amount of information they wish to
transport and to meet changing customer requirements. The expansion and
adaptation of our telecommunications infrastructure will require substantial
financial, operational and management resources as we negotiate for access to
telecommunications systems with existing and other network infrastructure
suppliers. Significant and rapid expansion of our network due to increased usage
will place additional stress upon our network hardware and traffic management
systems. The ability of our network to connect and manage a substantially larger
number of customers at high transmission speeds is as yet unknown. In addition,
our ability to expand our network to its expected customer levels while
maintaining superior performance is unknown.

If we are unable to continue to obtain sufficient telecommunications network
capacity at reasonable costs, we may not be able to provide our services at
prices acceptable to our customers, thereby reducing demand for our services.

      Our success will depend upon the capacity, ease of expansion, reliability
and security of our network infrastructure, including the capacity leased from
our telecommunications network suppliers. Our operating results depend, in part,
upon the pricing and availability of telecommunications network capacity from a
limited number of providers. If capacity is not available to us as our
customers' usage increases, our network may not be able to achieve or maintain
sufficiently high data transmission capacity, reliability or performance. In
addition, our business would suffer if our network suppliers increased the
prices for their services and we were unable to pass along any increased costs
to our customers. Any failure on our part or the part of our third-party
suppliers to achieve or maintain high data transmission capacity, reliability or
performance could significantly reduce customer demand for our services, damage
our business reputation and increase our costs.

We may not be able to deliver our services if our third-party suppliers do not
provide us with key components of our network infrastructure on reasonable terms
or at all.

      We depend on other companies to supply key components of our network
infrastructure. Any failure to obtain needed products or services in a timely
fashion or at an acceptable cost could adversely affect our business. We have no
guaranteed supply arrangements with our vendors and do not carry significant
inventories. In the event of equipment failure, we may not have the necessary
hardware or parts on hand and may not be able to obtain them from our suppliers
in a timely manner. Our inability or failure to obtain the necessary hardware or
parts on a timely basis could result in sustained equipment failure and a loss
of revenue due to customer loss or claims for service credits under our
guaranteed levels of service. In addition, the inability to obtain equipment or
technical services on terms acceptable to us would force us to spend time and
money selecting and obtaining new equipment, training our personnel to use
different equipment and deploying alternative components needed to integrate the
new equipment.

We depend on our reseller sales channel to market and sell many of our services.
We do not control our resellers, and if we fail to develop or maintain good
relations with resellers, we may not achieve the growth in customers and
revenues that we expect.

      An element of our strategy for growth is to continue to develop our use of
third parties who resell our services. Many of our resellers are Web development
or Web consulting companies that also sell our Web hosting services, but that
generally do not have established customer bases to which they can market our
services. Therefore, in those markets where we do not focus our direct marketing
efforts -- mainly international markets -- we are dependent on third parties to
stimulate demand for our services. Although we attempt to provide our resellers
with incentives such as price discounts on our services that the resellers seek
to resell at a profit, the failure of our services to be commercially accepted
in some markets, whether as a result of a reseller's performance or otherwise,
could cause our current resellers to discontinue their relationships with us,
and we may not be successful in establishing additional reseller relationships
as needed.

Because we operate in a new and evolving market with uncertain prospects for
growth, we may be unable to sustain growth in our customer base.

      The market for Web hosting and applications hosting services for small and
medium-sized businesses has only recently begun to develop and is evolving
rapidly. Our future growth, if any, will depend upon the willingness of small
and medium-sized businesses to outsource Web hosting and applications hosting
services and our ability to increase our average revenue per customer and our
customers' willingness to execute long-term contracts for hosting services. The
market for our services may not develop further, consumers may not widely adopt
our services, and significant numbers of businesses or organizations may not use
the Internet for commerce and communication. If this market fails


                                       32
<PAGE>

to develop further or develops more slowly than expected, or if our services do
not achieve broader market acceptance, we will not be able to grow our customer
base.

      In addition, we must be able to differentiate ourselves from our
competition through our service offerings and brand recognition in order to
attract customers and to grow our average revenue per customer. These activities
may be more expensive than we anticipate, and we may not be successful in
differentiating ourselves, achieving market acceptance of our services or
selling additional services to our existing customer base. We may also
experience difficulties that could delay or prevent the successful development,
introduction or marketing of these services. If we are unable, for technical or
other reasons, to develop and introduce new services or products or enhancements
to existing services in a timely manner, or if new services do not achieve
market acceptance in a timely manner or at all, it would be difficult for us to
attract customers or to grow our average revenue per customer.

We may not be able to adapt to evolving technologies and customer demands.

      In the Web and applications hosting industry, service providers must keep
pace with evolving technologies in order to offer relevant, sophisticated
services on a timely basis to meet rapidly changing customer demands. Our future
success will depend, in part, upon our ability to offer services that
incorporate leading technologies, address the increasingly sophisticated and
varied needs of our current and prospective Web and applications hosting
customers and respond to technological advances and emerging industry standards
and practices on a timely and cost-effective basis. The market for our services
is characterized by rapidly changing and unproven technologies, evolving
industry standards, changes in customer needs, emerging competition and frequent
introductions of new services. To be successful, we must continually improve the
performance, features and reliability of our services, including our proprietary
technologies, and modifying our business strategies accordingly. We could also
incur substantial costs if we need to modify our services or infrastructure in
order to adapt to these changes. Technological advances may have the effect of
encouraging some of our current or future customers to rely on in-house
personnel and equipment to furnish the services that we currently provide.

If we are unable to maintain the compatibility of our services with products
offered by our vendors, we could lose or fail to attract customers.

      We believe that our ability to compete successfully also depends upon the
continued compatibility of our services with products offered by various
vendors. Enhanced or newly developed third-party products may not be compatible
with our infrastructure, and such products may not adequately address the needs
of our customers. Although we currently intend to support emerging standards,
industry standards may not be established, and, even if they are established, we
may not be able to conform to these new standards in a timely fashion in order
to maintain a competitive position in the market. Our failure to conform to the
prevailing standard, or the failure of a common standard to emerge, could cause
us to lose customers or fail to attract new customers. In addition, products,
services or technologies developed by others could render our services
noncompetitive or obsolete.

Our recent growth has strained our resources, and if we are unable to manage our
anticipated growth, we may not be able to maintain the quality of our services
and operations or control our costs effectively.

      We are currently experiencing a period of rapid expansion of our customer
base. In addition, the number of our employees increased from 17 on March 31,
1998 to 557 on February 15, 2001. This growth has placed and, if it continues,
will place a significant strain on our financial, management, operational, and
other resources. In addition, we must manage relationships with a growing number
of third parties as we seek to complement our service offerings and increase our
indirect sales efforts. Our management, personnel, systems, procedures and
controls may not be adequate to support our existing and future operations. Our
ability to manage our growth effectively will require us to continue:

      o     enhancing management information systems and forecasting procedures;

      o     further developing our operating, administrative, financial,
            billing, and accounting systems and controls;

      o     maintaining close coordination among our engineering, accounting,
            finance, marketing, sales and operations organizations;

      o     expanding, training and managing our employee base; and

      o     expanding our finance, administrative and operations staff.

      The failure to manage our growth effectively could adversely affect the
quality of our services, our business and our financial condition. We may not be
able to maintain the quality of our operations, to control our costs and to


                                       33
<PAGE>

expand our internal systems in order to support our desired growth.

If Internet usage does not continue to increase or if the Internet fails to
perform reliably, we may not be able to attract customers.

      Use of the Internet for retrieving, sharing and transferring information
among businesses, consumers, suppliers and partners has recently begun to
increase rapidly. The adoption of the Internet for information retrieval and
exchange, commerce and communications, particularly by those enterprises that
have historically relied upon alternative means of information gathering,
commerce and communications, generally requires the adoption of a new medium of
conducting business and exchanging information. If the Internet as a commercial
or business medium fails to develop further or develops more slowly than
expected, we would not be able to grow our customer base as quickly as desired
and our customers would be less likely to require more complex, higher revenue
services from us.

      As a Web and applications hosting company, our success depends in large
part on continued growth in the use of the Internet. The lack of continued
growth in the usage of the Internet would adversely affect our business because
we would not gain additional customers and our existing customers might not have
any further use for our services. Internet usage and growth may be inhibited for
a number of reasons, such as:

      o     inadequate network infrastructure;

      o     security concerns;

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

      o     inconsistent quality of service;

      o     lack of availability of cost-effective, reliable, high-speed
            service; and

      o     failure of Internet use to expand internationally.

      If Internet usage grows, the Internet infrastructure may not be able to
support the demands placed on it by this growth, or its performance and
reliability may decline. For example, Web sites have experienced interruptions
in 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.

We could experience system failures, which could harm our reputation, cause
customers to seek reimbursement for services, and cause customers to seek
another provider for services.

      We must be able to operate the systems that manage our network around the
clock without interruption. Our operations depend upon our ability to protect
our network infrastructure, equipment and customer files against damage from
human error, fire, earthquakes, hurricanes, floods, power loss,
telecommunications failures, sabotage, intentional acts of vandalism and similar
events. Despite precautions we have taken, and plan to take, we do not have a
formal disaster recovery plan and the occurrence of a natural disaster or other
unanticipated problems at our data centers could result in interruptions in our
services. Although we have attempted to build redundancy into our network, our
network is currently subject to various points of failure, and a problem with
one of our routers (devices that move information from one computer network to
another) or switches could cause an interruption in our services to a portion of
our customers. In the past we have experienced periodic interruptions in
service. In addition, failure of any of our telecommunications providers to
provide the data communications capacity we require, as a result of human error,
a natural disaster or other operational disruption, could result in
interruptions in our services. Any future interruptions could:

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

      o     require us to replace existing equipment or add redundant
            facilities;

      o     damage our reputation for reliable service;

      o     cause existing customers to cancel their contracts; or

      o     make it more difficult for us to attract new customers.


                                       34
<PAGE>

      We currently offer to all customers a 99.9% service level warranty. Under
this policy, we guarantee that each customer's Web site will be available at
least 99.9% of the time in each calendar month for as long as the customer is
using our Web hosting services. If we were to experience widespread system
failures, we could incur significant costs under this warranty.

Our data centers and networks may be vulnerable to security breaches.

      A significant barrier to electronic commerce and communications is the
need for secure transmission of confidential information over public networks.
Some of our services rely on security technology licensed from third parties
that provides the encryption and authentication necessary to effect the 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. In
the past, we have experienced and may in the future experience delays or
interruptions in service as a result of the accidental or intentional actions of
Internet users, current and former employees or others. In addition,
inappropriate use of the network by third parties could also potentially
jeopardize the security of confidential information, such as credit card and
bank account numbers stored in our computer systems. These security problems
could result in our liability and could also cause the loss of existing
customers and potential customers. In addition, third parties could interfere
with the operation of our customers' Web sites through intentional attacks
including causing an overload of traffic to these Web sites.

      Although we intend to continue to implement industry-standard security
measures, third parties may be able to overcome any measures that we implement.
The costs required to eliminate computer viruses and alleviate other security
problems could be prohibitively expensive and the efforts to address such
problems could result in interruptions, delays or cessation of service to our
customers, and harm our reputation and growth. Concerns over the security of
Internet transactions and the privacy of users may also inhibit the growth of
the Internet, especially as a means of conducting commercial transactions.

Disruption of our services caused by unknown software defects could harm our
business and reputation.

      Our service offerings depend on complex software, including our
proprietary software tools and software licensed from third parties. Complex
software often contains defects, particularly when first introduced or when new
versions are released. We may not discover software defects that affect our new
or current services or enhancements until after they are deployed. Although we
have not experienced any material software defects to date, it is possible that
defects may occur in the software. These defects could cause service
interruptions, which could damage our reputation or increase our service costs,
cause us to lose revenue, delay market acceptance or divert our development
resources.

Providing services to customers with critical Web sites and Web-based
applications could potentially expose us to lawsuits for customers' lost profits
or other damages.

      Because our Web hosting and applications hosting services are critical to
many of our customers' businesses, any significant interruption in our services
could result in lost profits or other indirect or consequential damages to our
customers. Although the standard terms and conditions of our customer contracts
disclaim our liability for any such damages, a customer could still bring a
lawsuit against us claiming lost profits or other consequential damages as the
result of a service interruption or other Web site or application problems that
the customer may ascribe to us. A court might not enforce any limitations on our
liability, and the outcome of any lawsuit would depend on the specific facts of
the case and legal and policy considerations even if we believe we would have
meritorious defenses to any such claims. In such cases, we could be liable for
substantial damage awards. Such damage awards might exceed our liability
insurance by unknown but significant amounts, which would seriously harm our
business.

We may not be able to successfully sustain our growth if we are unable to
attract and retain additional highly skilled personnel.

      We are currently experiencing rapid growth and intend to continue
expanding. Since beginning our operations as a Web hosting business in September
1997, we have grown to 557 employees as of February 15, 2001. We believe that we
will need to hire approximately 170 additional personnel in all areas of our
business over the next 12 months. Our future success will also depend on our
ability to attract, train, retain and motivate highly qualified technical,
marketing, sales and management personnel. Competition for qualified personnel
among Internet-related businesses is intense, and we may not be able to attract
and retain key personnel.

If our management team, which has worked together for only a brief time, is
unable to work together effectively, we may not be able to implement our plans
successfully.

      During the year ended December 31, 2000 we have hired several key
employees and officers, including our


                                       35
<PAGE>

President, Chief Operating Officer and Chief Financial Officer, Senior Vice
President of Sales, Marketing and Business Development, Senior Vice President of
Operations, General Counsel, Chief Technical Officer, and Chief Information
Officer. As a result, our management team has worked together for only a brief
time. Our success depends in significant part upon the continued services of our
senior management personnel. Any of our officers or employees can terminate his
or her relationship with us at any time. We currently have employment agreements
with only our most senior management personnel and we carry key-man life
insurance only for our Chief Executive Officer.

Impairment of our intellectual property rights could negatively affect the
reputation of our brand or could allow competitors to minimize any advantage
that our proprietary technology gives us.

      We rely on a combination of copyright, trademark, service mark and trade
secret laws and contractual restrictions to establish and protect proprietary
rights in our services, particularly including the name "Interland" and our
proprietary customer management system. We have filed trademark registration
applications in the U.S. that, even if granted, may not fully protect our
ability to use these trademarks in all areas of the U.S. In addition, we have
spent and expect to continue to invest significant amounts to build brand
recognition of our name, and we could lose the return on this significant
marketing investment if we were to lose or be restricted in the use of the
Interland name to market our services. Third parties may object to our use of
some of our trademarks, service marks, trade names, slogans or other devices,
which could require that those indicia be changed or altered. At this point, we
have no patented technology that would preclude or inhibit competitors from
entering our market. While we believe that we may file several patent
applications on particular aspects of our technology, we cannot be sure that we
will receive any patents. We have entered into confidentiality and other
agreements with our employees and contractors, including agreements in which
they assign their rights in inventions to us. We have also entered into
nondisclosure agreements with our suppliers, distributors and some of customers
in order to limit access to and disclosure of our proprietary information. These
contractual arrangements or the other steps we have taken to protect our
intellectual property may not prove sufficient to prevent illegal use of our
technology or to deter independent third-party development of similar
technologies. The laws of some foreign countries may not protect our services or
intellectual property rights to the same extent, as do the laws of the United
States. For example, there may be potential conflicts with the use of our name
in other countries. We do not know what the impact of being unable to use our
name in other countries may be, although this inability may cause us to incur
significant additional expenses to build brand recognition in those countries.

      We also rely on several 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.

We may be accused of infringing the proprietary rights of others, which could
subject us to costly and time-consuming litigation.

      In addition to the technologies we develop or have developed, we license
technologies from third parties and may license additional technologies in the
future. To date, we have not been notified that our services infringe on the
proprietary rights of any third parties, but third parties could claim that we
have infringed on their technology with respect to current or future services.
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. These royalty or
licensing agreements might not be available on terms acceptable to us or at all.
In addition, third parties may change the terms of their license agreements in
ways that would prevent us from using technologies licensed from them on
commercially reasonable terms or that would prevent us from using them at all.
We may not be able to replace those technologies with technologies that have the
same features or functions on commercially reasonable terms or at all.

We could face liability for information distributed through our network.

      The law relating to the liability of on-line services companies for
information carried on or distributed through their networks is currently
unsettled. On-line services companies could be subject to claims under both
United States and foreign law for defamation, negligence or copyright or
trademark infringement, or other theories based on the nature and content of the
materials distributed through their networks. Several private lawsuits seeking
to impose such liability upon other entities are currently pending against other
companies. In addition, we may become subject to proposed legislation that would
impose liability for or prohibit the transmission over the Internet of some
types of information. Other countries may also enact legislation or take action
that could impose liability on us or cause us not to be able to operate in those
countries. The imposition upon us and other on-line services of potential
liability for information carried on or distributed through our systems could
require us to implement measures to reduce our exposure to such liability, which
may require us to expend substantial resources, or to discontinue service
offerings. The increased


                                       36
<PAGE>

attention focused upon liability issues as a result of these lawsuits and
legislative proposals also could affect the growth of Internet use.

Our business may be impacted by government regulation and legal uncertainties.

      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 access to,
or commerce on, the Internet. Due to the increasing popularity and use of the
Internet, however, laws and regulations with respect to the Internet may be
adopted at 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. We cannot fully predict the nature of future
legislation and the manner in which government authorities may interpret and
enforce. As a result, we and our customers could be subject to potential
liability under future legislation, which in turn could have a material adverse
effect on our business, results of operations and financial condition. For
example, if legislation that makes transacting business over the Internet, such
as e-commerce, less favorable or otherwise curtails the growth of the Internet
were adopted in the U.S. or internationally, our business would suffer. 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 or increase
the cost of doing business or in some other manner harm 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. These laws
generally pre-date the advent of the Internet and related technologies and, as a
result, do not consider or address the unique issues of the Internet and related
technologies. Changes to laws intended to address these issues could create
uncertainty in the marketplace that could reduce demand for our services or
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 a material
adverse effect on our business, results of operations and financial condition.
In addition, because our services are available over the Internet virtually
worldwide, and because we facilitate sales by our customers to end users located
in multiple states and foreign countries, such jurisdictions may claim that we
are required to qualify to do business as a foreign corporation in each such
state or that we have a permanent establishment in each such foreign country.

We face risks inherent in doing business in international markets that could
adversely affect the success of our international operations.

      We have historically derived a portion of our revenues from foreign sales.
As a Web and applications hosting company, we face challenges in offering these
services to customers in foreign markets that can differ significantly from the
challenges we face in the United States, such as:

      o     different Internet access fees;

      o     different technology standards;

      o     different regulatory requirements;

      o     different privacy, censorship and liability standards and
            regulations; and

      o     less protective intellectual property laws.

      Any of these risks could adversely affect our ability to operate or expand
internationally, which would limit the growth of our business. In addition, we
could suffer significant operating losses if the revenue generated by future
international operations is not adequate to offset the expense of establishing
and maintaining those international operations.

Our principal shareholders, directors and executive officers own approximately
69% of our common stock, which may allow them to exert influence over us or to
prevent a change of control.

      Our shareholders who currently own over 5% of our common stock, our
directors and our executive officers beneficially own approximately 69% of our
outstanding common stock. These shareholders will be able to exercise
significant influence over all matters requiring shareholder approval, including
the election of directors and approval of significant corporate transactions.
This concentration of ownership may also delay or prevent a change in control of
us even if beneficial to our shareholders.


                                       37
<PAGE>

Some provisions of our articles of incorporation and bylaws may discourage
takeovers.

      Our articles of incorporation and bylaws contain some provisions that may
delay, discourage or prevent an attempted acquisition or change in control. Our
articles and bylaws establish:

      o     the authority of the board of directors to issue series of preferred
            stock with special powers, preferences and rights without
            shareholder approval;

      o     the authority of the board of directors to consider constituencies
            other than the shareholders -- including employees, customers,
            suppliers and the community -- in making decisions, including
            decisions regarding control of Interland;

      o     the right of the board of directors to alter our bylaws without
            prior shareholder approval; and

      o     the right of the board of directors to elect a director to fill a
            vacancy created by the expansion of the board of directors.

      In addition, our bylaws establish three classes of directors to serve
three year staggered terms. These provisions of our articles of incorporation
and bylaws could discourage tender offers or other transactions that might
otherwise result in your receiving a premium over the market price for your
common stock.

      We have adopted a shareholder rights plan. This plan entitles our
shareholders to acquire additional shares of our preferred stock when a third
party acquires 15% of our common stock or commences or announces its intent to
commence a tender offer for at least 15% of our common stock. This plan could
delay, deter, or prevent a change of control.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      Most of our customer contracts are currently denominated in United States
dollars with an immaterial amount of contracts denominated in euro or pounds
sterling. We do not currently invest in derivative financial instruments.
However, we invest our excess cash balances in cash equivalents and are
therefore subject to market risk related to changes in interest rates. We
believe, but cannot be certain, that the effect on our financial position,
results of operations and cash flows of any reasonably likely changes in
interest rates would not be material.


                                       38
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Financial Statements and Financial Statement Schedule

      The following financial statements of the company and the notes thereto
and the related report thereon of the independent auditors, and financial
statement schedule, are filed pursuant to Item 8 of this Report:

   Financial Statements                                                     Page
   --------------------                                                     ----

   Index to Financial Statements                                             F-1

   Report of Independent Public Accountants                                  F-2

   Consolidated Balance Sheets as of December 31, 1999 and 2000              F-3

   Consolidated Statements of Operations for the years ended December 31,
      1998, 1999 and 2000                                                    F-4

   Consolidated Statements of Shareholders' Equity for the years ended
      December 31, 1998, 1999 and 2000                                       F-5

   Consolidated Statements of Cash Flows for the years ended December 31,
      1998, 1999 and 2000                                                    F-6

   Notes to Consolidated Financial Statements                                F-7

Financial Statement Schedule

   Valuation and Qualifying Accounts                                        F-20

      All other financial statement schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange Commission (the
"Commission") are not required pursuant to the instructions to Item 8 or are
inapplicable and therefore have been omitted.

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

      None


                                       39
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      The sections entitled "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" appearing in our proxy statement for
the annual meeting of shareholders to be held on or about May 11, 2001 (the
"2001 Proxy Statement"), set forth certain information with respect to the
directors of Interland and with respect to reporting under Section 16(a) of the
Securities Exchange Act of 1934, and are incorporated herein by reference.

      Certain information with respect to the executive officers of Interland is
set forth under the caption "Executive Officers of the Registrant" in Part I of
this report.

ITEM 11. EXECUTIVE COMPENSATION

      The section entitled "Executive Compensation" appearing in the 2001 Proxy
Statement sets forth certain information with respect to the compensation of our
management, and, except for the report of the compensation committee of the
board of directors of Interland on executive compensation and the information
therein under "Performance Graph," is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The section entitled "Voting Securities and Principal Shareholders"
appearing in the 2001 Proxy Statement sets forth certain information with
respect to the ownership of voting securities and equity securities of
Interland, and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The section entitled "Certain Transactions" appearing in the 2001 Proxy
Statement sets forth certain information with respect to transactions with
related parties and is incorporated herein by reference.


                                       40
<PAGE>

                                     PART IV

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

      (a) The following documents are filed as part of this report:

      A list of the financial statements and the schedule filed as a part of
this report is set forth in Item 8 on page 39 and is incorporated herein by
reference.

      All other schedules are omitted because they are either not applicable or
required information is shown in the financial statements or notes thereto.

Exhibits

      The exhibits set forth below are required to be filed with this report
pursuant to Item 601 of Registration S-K:

             Exhibit
             Number      Description
             ------      -----------

            *3.1(a)      Amended and Restated Articles of Incorporation of the
                         Company dated October 5, 1999

            *3.1(b)      Articles of Amendment of the Company dated December 2,
                         1999

            *3.1(c)      Articles of Amendment of the Company dated December 23,
                         1999

            *3.1(d)      Articles of Amendment of the Company dated March 14,
                         2000

            *3.1(e)      Articles of Amendment of the Company dated May 9, 2000

            *3.2(a)      Bylaws of the Company

            *3.2(b)      Amendment to Bylaws of the Company

            *4.1         Form of Certificate for Common Stock

            *10.1        Stock Purchase Agreement among the Company, Crest
                         Communications Partners L.P., Crest Entrepreneurs Fund
                         L.P., Boulder Ventures III, L.P. and other investors
                         dated December 2, 1999

            *10.2        Subscription Agreement dated December 24, 1999 between
                         the Company and Microsoft Corporation

            *10.3        Subscription Agreement dated March 15, 2000 between the
                         Company and Network Solutions, Inc.

            *10.4(a)     Stockholders' Agreement among the Company, Crest
                         Communications Partners L.P., Crest Entrepreneurs Fund
                         L.P., Boulder Ventures III, L.P. and other investors
                         dated December 2, 1999

            *10.4(b)     Amendment to Stockholders' Agreement dated December 23,
                         1999

            *10.4(c)     Amendment to Stockholders' Agreement dated March 15,
                         2000

            *10.4(d)     Amendment to Stockholders' Agreement dated May 8, 2000

            *10.5(a)     Registration Rights Agreement among the Company, Crest
                         Communications Partners, L.P., Crest Entrepreneurs Fund
                         L.P., Boulder Ventures III, L.P. and other investors
                         dated December 2, 1999


                                       41
<PAGE>

            *10.5(b)     Amendment to Registration Rights Agreement dated
                         December 24, 1999

            *10.5(c)     Amendment to Registration Rights Agreement dated March
                         15, 2000

            *10.5(d)     Amendment to Registration Rights Agreement dated May 8,
                         2000

            *10.6        Employment Agreement dated December 2, 1999 between the
                         Company and Ken Gavranovic

            *10.7(a)     Employment Agreement dated February 14, 2000 between
                         the Company and H. Christopher Covington

            **10.7(b)    Amendment to Employment Agreement dated November 10,
                         2000 between the Company and H. Christopher Covington

            *10.8        Employment Agreement dated February 16, 2000 between
                         the Company and David N. Gill

            *10.10       Form of Indemnification Agreement for Officers and
                         Directors of the Company

            *10.11(a)    Interland, Inc. Stock Incentive Plan

            *10.11(b)    First Amendment to Interland, Inc. Stock Incentive Plan

            *10.11(c)    Second Amendment to Interland, Inc. Stock Incentive
                         Plan

            *10.12       Interland, Inc. Employee Stock Purchase Plan

            *10.13       Interland, Inc. Shareholder Rights Plan

            *10.14       Separation Agreement and General Release with Waldemar
                         Fernandez dated November 19, 1999

            *10.15       Promissory Note of Ken Gavranovic in favor of the
                         Company dated December 10, 1998

            *10.16       Promissory Note of Waldemar Fernandez in favor of the
                         Company dated December 15, 1998

            *10.17       Promissory Note of Ken Gavranovic in favor of the
                         Company dated May 14, 1999

            *10.18       Promissory Note of Waldemar Fernandez in favor of the
                         Company dated May 19, 1999

            *10.19       Stock Pledge Agreement between the Company and Ken
                         Gavranovic dated May 14, 1999

            *10.20       Stock Pledge Agreement between the Company and Waldemar
                         Fernandez dated May 19, 1999

            *10.21(a)    Agreement of Lease between the Company and 34 Peachtree
                         Associates, L.P. dated November 19, 1997

            *10.21(b)    First Amendment to Agreement of Lease between the
                         Company and TCB #4, L.L.C. (f/k/a 34 Peachtree
                         Associates, L.P.) dated July 6, 1998

            *10.21(c)    Second Amendment to Agreement of Lease between the
                         Company and TCB #4, L.L.C. (f/k/a 34 Peachtree
                         Associates, L.P.) dated September 15, 1999


                                       42
<PAGE>

            *10.22(a)    Amended and Restated Lease Agreement between the
                         Company and 101 Marietta Street Associates dated
                         September 29, 1999

            *10.22(b)    First Amendment to Amended and Restated Lease between
                         the Company and 101 Marietta Street Associates dated
                         November 23, 1999

            *10.23       Employment Agreement dated April 1, 2000 between the
                         Company and Mark K. Alexander

            *10.24       Employment Agreement dated February 15, 2000 between
                         the Company and Robert Malally

            *10.25       SunTrust Plaza Garden Offices Lease Agreement by and
                         between SunTrust Plaza Associates, LLC and the Company
                         dated May 16, 2000

            *10.26       Stock Purchase Agreement dated May 8, 2000 between Bell
                         Atlantic Investments, Inc. and the Company

              21.1       Subsidiaries

            **23.1       Consent of Arthur Andersen LLP

            *27.1        Financial Data Schedule (for SEC use only)

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

              *   Incorporated by reference from the Company's Registration
                  Statement on Form S-1 (File No. 333-32556)

              **  Filed herewith.

                  Reports on Form 8-K

                  The Company did not file any reports on Form 8-K during the
            last quarter of the fiscal year ended December 31, 2000.

              (b) Financial Statement Schedule

                  Report of Independent Public Accountants on Financial
                  Statement Schedule


                                       43
<PAGE>

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.

                                            Interland, Inc.


Date: March 14, 2001                        By: /s/ Kenneth Gavranovic
                                                --------------------------------
                                            Kenneth Gavranovic
                                            Chairman and Chief Executive Officer

      Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following individuals on behalf of the Registrant
and in the capacities and on the dates indicated.

--------------------------------------------------------------------------------
       Signature               Capacity in Which Signed               Date
       ---------               ------------------------               ----
--------------------------------------------------------------------------------

/s/ Kenneth Gavranovic        Chairman of the Board, Chief        March 14, 2001
----------------------      Executive Officer and Director
  Kenneth Gavranovic         (Principal Executive Officer)

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

   /s/ David N. Gill           President, Chief Operating         March 14, 2001
   -----------------      Officer, Chief Financial Officer and
     David N. Gill                     Director

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

     /s/ Ted Field                     Director                   March 14, 2001
     -------------
       Ted Field

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

 /s/ Clyde Heintzelman                 Director                   March 14, 2001
 ---------------------
   Clyde Heintzelman

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

   /s/ Andrew Jones                    Director                   March 14, 2001
   ----------------
     Andrew Jones

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

 /s/ Gregg Mockenhaupt                 Director                   March 14, 2001
 ---------------------
   Gregg Mockenhaupt

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

  /s/ William Whitmer                  Director                   March 14, 2001
  -------------------
    William Whitmer

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


                                       44
<PAGE>

                                 INTERLAND, INC.

                          INDEX TO FINANCIAL STATEMENTS

                                                                            Page
                                                                            ----

Report of Independent Public Accountants .................................   F-2

Consolidated Balance Sheets as of December 31, 1999 and 2000 .............   F-3

Consolidated Statements of Operations for the Years Ended
December 31, 1998, 1999 and 2000 .........................................   F-4

Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1998, 1999 and 2000 .............................   F-5

Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1999 and 2000 .........................................   F-6

Notes to Consolidated Financial Statements ...............................   F-7


                                      F-1
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Interland, Inc.:

      We have audited the accompanying consolidated balance sheets of INTERLAND,
INC. (a Georgia corporation) And Subsidiary as of December 31, 1999 and 2000 and
the related consolidated statements of operations, shareholders' equity, and
cash flows for the three years ended December 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Interland,
Inc. and subsidiary as of December 31, 1999 and 2000 and the results of their
operations and their cash flows for the three years ended December 31, 2000 in
conformity with accounting principles generally accepted in the United States.


ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 9, 2001


                                      F-2
<PAGE>

                                 INTERLAND, INC.

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                                          ------------
                                                                                   1999                 2000
                                                                                   ----                 ----
                                                                                (in thousands, except share and
                                                                                         per share data)
<S>                                                                              <C>                  <C>
ASSETS
Current Assets:
  Cash and cash equivalents .............................................        $ 24,510             $  56,314
  Restricted cash .......................................................           1,007                 3,488

  Accounts receivable, net of allowance for doubtful accounts of
    $0 and $185 as of December 31, 1999 and 2000, respectively ..........             655                   991
  Prepaid commissions ...................................................             825                 1,475
  Notes receivable-- related parties ....................................             481                   532
  Other current assets ..................................................             730                 4,061
                                                                                 --------             ---------
        Total current assets ............................................          28,208                66,861
                                                                                 --------             ---------

Property and Equipment:
  Internet access and computer equipment ................................           4,072                15,672
  Construction in progress ..............................................           2,499                 4,492
  Other furniture and equipment .........................................             660                 6,644
  Office computer equipment .............................................             445                 2,165
  Purchased software ....................................................             451                 7,830
  Leasehold improvements ................................................             398                 8,754
                                                                                 --------             ---------
                                                                                    8,525                45,557
  Less accumulated depreciation and amortization ........................            (982)               (7,178)
                                                                                 --------             ---------
    Property and equipment, net .........................................           7,543                38,379
                                                                                 --------             ---------

Other Long-Term Assets:
  Intangible assets, net ................................................              --                   456
  Deposits and other long-term assets ...................................             225                 1,139
                                                                                 --------             ---------
        Total other long-term assets ....................................             225                 1,595
                                                                                 --------             ---------
        Total assets ....................................................        $ 35,976             $ 106,835
                                                                                 ========             =========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
  Accounts payable ......................................................        $  3,387             $  11,724
  Accrued expenses ......................................................           3,028                 9,792
  Capital lease obligation ..............................................           1,185                 6,557
  Current portion of unearned revenue ...................................           7,042                12,952
                                                                                 --------             ---------
        Total current liabilities .......................................          14,642                41,025
Unearned revenue ........................................................           1,433                 1,511
Capital lease obligation ................................................           2,406                 9,180
Commitments and Contingencies (Note 6)

Shareholders' Equity:
Preferred stock, no par value, 25,000,000 shares authorized:
  Series A, $2.02 stated value, 15,000,000 shares authorized;
    12,392,258 and 0 shares issued and outstanding as of December 31,
    1999 and 2000, respectively .........................................          34,423
  Series B, 2,000,000 shares authorized, no shares issued and outstanding
     as of December 31, 1999 and 2000 ...................................              --                    --
  Common stock, no par value; 200,000,000 shares authorized;
    23,590,390 and 47,323,585 shares issued and outstanding as
    of December 31, 1999 and 2000, respectively .........................           3,252               145,931
  Warrants ..............................................................           2,144                18,280
  Deferred product development costs ....................................          (2,133)               (5,076)
  Deferred marketing costs ..............................................              --               (10,818)
  Deferred compensation .................................................            (954)               (7,005)
  Accumulated deficit ...................................................         (19,237)              (86,193)
                                                                                 --------             ---------
       Total shareholders' equity .......................................          17,495                55,119
                                                                                 --------             ---------
       Total liabilities and shareholders' equity .......................        $ 35,976             $ 106,835
                                                                                 ========             =========
</TABLE>

              The accompanying notes are an integral part of these
                          consolidated balance sheets.


                                      F-3
<PAGE>

                                 INTERLAND, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                          Years Ended
                                                                          December 31,
                                                         ----------------------------------------------
                                                             1998             1999            2000
                                                         ------------     ------------     ------------
                                                         (In thousands, except share and per share data)
<S>                                                      <C>              <C>              <C>
Revenues:
  Shared services hosting .........................      $      1,278     $      6,926     $     20,766
  Dedicated and managed services hosting ..........               109              893            8,588
  Application hosting .............................                --            1,064            2,077
  Professional services ...........................                --              238            2,832
                                                         ------------     ------------     ------------
                                                                1,387            9,121           34,263
                                                         ------------     ------------     ------------

Operating expenses:
  Cost of revenues (including non-cash
    development and marketing expense of
    $0, $11 and $3,209 for the years ended
    December 31, 1998, 1999 and 2000,
    respectively) .................................             1,022            7,054           33,494
  Sales and marketing .............................             1,803            7,901           38,653
  General and administrative (including
    non-cash stock compensation expense
    of $0, $3,557, and $2,900 for the years ended
    December 31, 1998, 1999 and 2000, respectively)               768            9,944           24,076
  Depreciation and amortization ...................               115              992            6,304
                                                         ------------     ------------     ------------
         Total operating expenses .................             3,708           25,891          102,527
                                                         ------------     ------------     ------------

Operating loss ....................................            (2,321)         (16,770)         (68,264)

Other income (expense):
  Interest income .................................                 2              206            2,917
  Interest expense ................................               (20)            (220)          (1,609)
                                                         ------------     ------------     ------------
         Total other income (expense) .............               (18)             (14)           1,308
                                                         ------------     ------------     ------------
Net loss ..........................................            (2,339)         (16,784)         (66,956)
Preferred stock beneficial
  conversion and dividends ........................                --           (9,559)          (5,996)
                                                         ------------     ------------     ------------
Net loss applicable to common shareholders ........      $     (2,339)    $    (26,343)    $    (72,952)
                                                         ============     ============     ============

Basic and diluted net loss per common share .......      $      (0.13)    $      (1.23)    $      (2.14)
                                                         ============     ============     ============
Shares used in computing net loss per share .......        18,316,449       21,461,161       34,125,579
                                                         ============     ============     ============
</TABLE>

  The accompanying notes are an integral part of these consolidated statements.


                                      F-4
<PAGE>

                                 INTERLAND, INC.

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
              For the Years Ended December 31, 1998, 1999 and 2000

<TABLE>
<CAPTION>

                                                Preferred     Preferred       Common        Common
                                                  Stock         Stock         Stock         Stock
                                                  Shares        Amount        Shares        Amount     Warrants
                                               -----------    ---------     ----------    ---------    ---------
                                                                 (in thousands, except share data)
<S>                                            <C>             <C>          <C>           <C>           <C>
Balance, January 1, 1998 ..................             --     $     --     17,631,167    $     139     $    --
 Issuance of common stock .................             --           --      1,811,984        1,376          --
 Net loss .................................             --           --             --           --          --
                                               -----------     --------     ----------    ---------     -------
Balance, December 31, 1998 ................             --           --     19,443,151        1,515          --
 Issuance of common stock .................             --           --      4,003,230        8,441          --
 Issuance of Series A preferred stock .....     12,392,258       25,014             --       (1,657)         --
 Issuance of options and stock to
   consultants and bankers ................             --           --        144,009        4,212          --
 Issuance of options to employee at
   below fair value .......................             --           --             --          300          --
 Issuance of warrants in connection
   with development agreement .............             --           --             --           --       2,144
 Dividends on preferred stock .............             --           --             --         (150)         --
 Beneficial conversion of preferred
   stock ..................................             --        9,409             --       (9,409)         --
 Amortization of deferred
   development costs ......................             --           --             --           --          --
 Amortization of deferred compensation ....             --           --             --           --          --
 Net loss .................................             --           --             --           --          --
                                               -----------     --------     ----------    ---------     -------
Balance, December 31, 1999 ................     12,392,258       34,423     23,590,390        3,252       2,144
Issuance of Series A preferred stock ......      1,944,824       14,000             --           --          --
Issuance of common stock for
  intangible assets and legal fees ........             --           --         49,154          389          --
Issuance of common stock, net of offering
  expenses ................................             --           --      7,375,000       82,687          --
Beneficial conversion of
  preferred stock .........................             --        4,400             --       (4,400)         --
Conversion of preferred stock
  to common stock .........................    (14,337,082)     (55,030)    14,337,082       55,030          --
Issuance of warrants in connection
  with leasing agreements .................             --           --             --           --       1,373

Amortization of deferred marketing,
 development costs and compensation .......             --           --             --           --          --
Issuance of warrants in connection
  with development and reseller
  agreements ..............................             --           --             --           --       4,418
Issuance of options and restricted stock to
 employees at below fair value ............             --           --        600,000        8,951          --
Issuance of warrants and stock in
 connection with marketing agreement ......             --        2,207             --           --      10,345
Exercise of common stock options ..........             --           --      1,371,959        1,618          --
Dividends on preferred stock ..............             --           --             --       (1,596)         --
Net loss ..................................             --           --             --           --          --
                                               -----------     --------     ----------    ---------     -------
Balance, December 31, 2000 ................             --     $     --     47,323,585    $ 145,931     $18,280
                                               ===========     ========     ==========    =========     =======

<CAPTION>
                                                                                                             Total
                                                   Deferred       Deferred                               Shareholders'
                                                  Development     Marketing     Deferred    Accumulated     Equity
                                                     Costs          Costs     Compensation     Deficit     (Deficit)
                                                  -----------     ---------   ------------  -----------  -------------
                                                                   (in thousands, except share data)
<S>                                                 <C>           <C>            <C>         <C>          <C>
Balance, January 1, 1998 ..................         $    --       $     --       $    --     $   (114)    $     25
 Issuance of common stock .................              --             --            --           --        1,376
 Net loss .................................              --             --            --       (2,339)      (2,339)
                                                    -------       --------       -------     --------     --------
Balance, December 31, 1998 ................              --             --            --       (2,453)        (938)
 Issuance of common stock .................              --             --            --           --        8,441
 Issuance of Series A preferred stock .....              --             --            --           --       23,357
 Issuance of options and stock to
   consultants and bankers ................              --             --          (890)          --        3,322
 Issuance of options to employee at
   below fair value .......................              --             --          (300)          --           --
 Issuance of warrants in connection
   with development agreement .............          (2,144)            --            --           --           --
 Dividends on preferred stock .............              --             --            --           --         (150)
 Beneficial conversion of preferred
   stock ..................................              --             --            --           --           --
 Amortization of deferred
   development costs ......................              11             --            --           --           11
 Amortization of deferred compensation ....              --             --           236           --          236
 Net loss .................................              --             --            --      (16,784)     (16,784)
                                                    -------       --------       -------     --------     --------
Balance, December 31, 1999 ................          (2,133)            --          (954)     (19,237)      17,495
Issuance of Series A preferred stock ......              --             --            --           --       14,000
Issuance of common stock for
  intangible assets and legal fees ........              --             --            --           --          389
Issuance of common stock, net of offering
  expenses ................................              --             --            --           --       82,687
Beneficial conversion of
  preferred stock .........................              --             --            --           --           --
Conversion of preferred stock
  to common stock .........................              --             --            --           --           --
Issuance of warrants in connection
  with leasing agreements .................              --             --            --           --        1,373

Amortization of deferred marketing,
 development costs and compensation .......             821          2,388         2,900           --        6,109
Issuance of warrants in connection
  with development and reseller
  agreements ..............................          (3,764)          (654)           --           --           --
Issuance of options and restricted stock to
 employees at below fair value ............              --             --        (8,951)          --           --
Issuance of warrants and stock in
 connection with marketing agreement ......              --        (12,552)           --           --           --
Exercise of common stock options ..........              --             --            --           --        1,618
Dividends on preferred stock ..............              --             --            --           --       (1,596)
Net loss ..................................              --             --            --      (66,956)     (66,956)
                                                    -------       --------       -------     --------     --------
Balance, December 31, 2000 ................         $(5,076)      $(10,818)      $(7,005)    $(86,193)    $ 55,119
                                                    =======       ========       =======     ========     ========
</TABLE>

 The accompanying notes are an integral part of these consolidated statements.


                                      F-5
<PAGE>

                                 INTERLAND, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                             For the Years Ended
                                                                                 December 31,
                                                                      ----------------------------------

                                                                        1998        1999         2000
                                                                        ----        ----         ----
                                                                               (in thousands)
<S>                                                                   <C>         <C>          <C>
Cash flows from operating activities:
    Net loss .....................................................    $(2,339)    $(16,784)    $ (66,956)

   Adjustments to reconcile net loss to net cash used in operating
     activities:
   Depreciation and amortization .................................        115          992         6,304
   Amortization of non-cash stock
     compensation expense ........................................         --        3,557         2,900
   Loss on disposal of property and equipment ....................         --          198            --
   Amortization of deferred
     development and marketing costs .............................         --           11         3,209

   Changes in operating assets and liabilities:
   Accounts receivable ...........................................         --         (655)         (336)
   Prepaid commissions ...........................................        (36)        (789)         (650)
   Other current assets ..........................................         --         (730)       (2,238)
   Note receivable--related parties ..............................        (50)        (431)          (51)
   Other assets ..................................................         --         (225)         (664)
   Accounts payable and accrued liabilities ......................      1,347        5,067        15,101
   Unearned revenue ..............................................        933        7,542         5,988
                                                                      -------     --------     ---------
   Total adjustments .............................................      2,309       14,537        29,563
                                                                      -------     --------     ---------
   Net cash used in operating activities .........................        (30)      (2,247)      (37,393)
                                                                      -------     --------     ---------

Cash flows from investing activities:
    Purchases of property and equipment ..........................     (1,102)      (7,745)      (37,032)
    Deposit of restricted cash ...................................         --       (1,007)       (2,481)
    Purchase of long-term investment .............................         --           --          (250)
    Purchase of intangible asset .................................         --           --          (176)
                                                                      -------     --------     ---------
        Net cash used in investing activities ....................     (1,102)      (8,752)      (39,939)
                                                                      -------     --------     ---------

Cash flows from financing activities:
   Net proceeds from issuance of common stock ....................      1,376        8,441        84,305
   Net proceeds from issuance of preferred stock .................         --       23,357        14,000
   Payment of preferred dividend .................................         --         (150)       (1,596)
   Borrowings on capital lease obligations .......................        491        3,628        16,702
   Payments on capital lease obligations .........................        (56)        (473)       (4,275)
                                                                      -------     --------     ---------
       Net cash provided by financing activities .................      1,811       34,803       109,136
                                                                      -------     --------     ---------
Net increase in cash and cash equivalents ........................        679       23,804        31,804
Cash and cash equivalents, beginning of year .....................         27          706        24,510
                                                                      -------     --------     ---------
Cash and cash equivalents, end of year ...........................    $   706     $ 24,510     $  56,314
                                                                      =======     ========     =========
Supplemental cash flow disclosure:
   Cash paid for interest ........................................    $    20     $    178     $   1,438
                                                                      =======     ========     =========
Non cash disclosure:
    Issuance of stock and options for
     consultant and employee compensation ........................    $    --     $  4,512     $   8,951
                                                                      =======     ========     =========
    Issuance of warrants and stock in connection
      with strategic agreements and leases lines .................    $    --     $     --     $  18,343
                                                                      =======     ========     =========
</TABLE>

 The accompanying notes are an integral part of these consolidated statements.


                                      F-6
<PAGE>

                                 INTERLAND, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Nature of Business

Nature of Business

      Interland, Inc. (the "Company") commenced operations on September 18,
1997. The Company provides a broad range of Web site and application hosting and
other related Web based business solutions specifically to meet the needs of
small to medium-sized businesses. The Company focuses on delivering
high-quality, reliable, and flexible services that are backed by customer
support 24 hours a day, 7 days a week, and 365 days a year. The Company offers
its solutions directly and through third-party dealers that resell the Company's
Web hosting services.

History of Operating Losses

      The Company has incurred net losses since it commenced operations. As of
December 31, 2000, the Company had an accumulated deficit of $86.2 million.
These losses have occurred because of the costs incurred by the Company to
develop its products, build a customer support infrastructure, and expand its
market share in an extremely competitive market. The Company's success depends
on its ability to achieve profitability and on its ability to raise funds as
needed. The Company plans to continue to increase its operating expenses in
order to fund higher levels of market share, increase its sales and marketing
efforts, broaden its customer support capabilities, and expand its
administrative resources in anticipation of future growth. To the extent that
increases in such expenses precede or are not offset by increased revenues, the
Company's business, results of operations, and financial condition would be
materially adversely affected.

      The Company must expand and adapt its network infrastructure to meet the
increasing number of users and their increased demand for services. This
expansion depends on financial, operational and management resources as well as
telecommunications capacity and pricing and third party suppliers. Any failure
of these could adversely affect our business.

      The Company is pursuing an internal growth strategy, and it is anticipated
that the Company may require additional funding before beginning to generate
positive cash flow. The Company believes that its current cash and cash
equivalent balances will be sufficient to fund execution of its current business
plan through 2001. However, the execution of the business plan may require
additional capital to fund operating losses, working capital needs, sales and
marketing expenses, lease payments and capital expenditures. In view of future
expansion plans, the Company will consider financing alternatives, which may
include the incurrence of debt, additional public or private equity offerings,
or an equity investment by a strategic partner. Actual capital requirements may
vary based upon the timing and success of the expansion of operations. Capital
requirements may also change based upon technological and competitive
developments. In addition, several factors may affect the Company's capital
requirements:

      o     demand for services or anticipated cash flow from operations being
            less than expected;

      o     development plans or projections proving to be inaccurate;

      o     engaging in strategic relationships or acquisitions; and

      o     acceleration of, or otherwise altering, the schedule of the
            expansion plan.

      There can be no assurance that additional financing, if required, will be
available on satisfactory terms, or at all. If the Company does not obtain
additional financing, it intends to reduce the level of spending on capital and
operating expenses in order to utilize existing cash balances to continue
expanding the operations on a reduced scale.

Consolidated Financial Statements

      The consolidated financial statements include the accounts of Interland,
Inc. and its wholly owned subsidiary incorporated in The Netherlands. This
subsidiary was closed subsequent to year-end (see note 9). Significant
intercompany accounts and transactions have been eliminated.


                                      F-7
<PAGE>

2. Summary of Significant Accounting Policies

Use of Estimates

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

Cash, Cash Equivalents and Restricted Cash

      The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be the equivalent of cash for the
purpose of balance sheet and statement of cash flows presentation. Cash
equivalents, which consist primarily of money market accounts, are carried at
cost, which approximates market value.

      At December 31, 1999 and 2000 the Company held several certificates of
deposits, which have maturities ranging from 6 to 12 months. These investments
are restricted to use by certain vendors for rent, credit card processing, lease
payments and other items. These deposits have been classified as restricted cash
in the accompanying consolidated balance sheets.

Prepaid Commissions

      The Company typically pays commissions to its sales representatives within
four months after the sale is consummated; however, revenue for the service
provided is deferred and recognized ratably over the customer service period.
The Company defers commissions paid prior to the revenue being earned and
amortizes those commissions over the same period for which revenue is
recognized.

Property and Equipment

      Property and equipment is stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the various classes
of property, which is three years for all software, computer and Internet
equipment, including capital leases, and seven years for other furniture and
equipment. Leasehold improvements are amortized over the lesser of the useful
life of the asset or the term of the lease. Construction in progress represents
primarily computer equipment and leasehold improvements to expand the Company's
network and facilities that have not been placed in operation as of December 31,
2000. Total depreciation and amortization expense on property and equipment for
the years ended December 31, 1998, 1999 and 2000 was $115,000, $992,000, and
$6,196,000, respectively.

      Expenditures for maintenance and repairs are charged to expense as
incurred, and the costs of renewals and betterments are capitalized. Cost and
the related accumulated depreciation of assets sold or retired are removed from
the respective accounts. Any resulting gain or loss is reflected in the
statements of operations.

      The Company leases certain Internet access and computer equipment under
capital leases. Equipment recorded under capital leases is amortized using the
straight-line method over the lease term. See Note 6 for further discussion.

      The Company periodically reviews the cost basis of long-lived assets based
on the undiscounted future cash flow to be generated by those assets to
determine whether any permanent impairment exists. Management believes that the
long-lived assets in the accompanying balance sheets are appropriately valued.

Accrued Liabilities

      Accrued liabilities include the following (in thousands):

                                                           December 31,
                                                       ------------------
                                                        1999        2000
                                                       ------      ------
       Accrued compensation and employee benefits      $  886      $3,382
       Accrued construction in progress .........       1,297       2,223
       Other accrued liabilities ................         845       4,187
                                                       ------      ------
                                                       $3,028      $9,792
                                                       ======      ======


                                      F-8
<PAGE>

      During 1999 the Company recorded accrued severance of approximately
$330,000 related to the termination of an officer. Of the total accrual,
$165,000 is included in accrued expenses in the accompanying balance sheet as of
December 31, 2000, and is payable in November 2001.

Fair Values of Financial Instruments

      The book values of cash and cash equivalents, accounts receivable,
accounts payable, and other financial instruments approximate their fair values,
principally because of the short-term maturities of these instruments.

Intangible Assets

      On May 15, 2000 the Company obtained the tradename and trademark
"Interland" in the Netherlands and the domain name "Interland.nl". In exchange,
the Company paid $150,000 and issued 32,400 shares of common stock with a value
of $388,800. On August 18, 2000 the Company purchased the domain name
"Interland.com.mx" for $25,000. Both of these intangible assets were recorded at
cost and are being amortized on a straight-line method over a three-year period.
Total amortization expense for the year ended December 31, 2000 was $108,000.

Impairment of Long-Lived Assets

      In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 131, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," the Company reviews its long-lived assets for
impairment when events or changes in circumstances indicate the carrying value
of such assets may not be recoverable. This review consists of a comparison of
the carrying value of the asset with the asset's expected future undiscounted
cash flows without interest costs. In estimating the expected future cash flows,
assets are grouped at the lowest level for which there is identifiable cash
flows that are largely independent of the cash flows of other groups of assets.
Estimates of expected future cash flows represent management's best estimate
based on reasonable and supportable assumptions and projections. If the expected
future cash flow exceeds the carrying value of the asset, no impairment
indicator is considered present. If the carrying value exceeds the future cash
flow, an impairment indicator is considered present. Such impairment would be
measured and recognized using a discounted cash flow method.

Software Development

      The Company adopted the American Institute of Certified Public Accountants
Statement of Position No. 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use," effective January 1, 1998. The Company
capitalizes certain external costs related to software and implementation
services in connection with its internal-use software systems.

      In 2000, the Company had several software development projects and
capitalized approximately $633,000 in consulting fees related to a data center
back-up system, other data center management tools, and a new general ledger
system. In 1999 the Company did not have any significant software development
projects but did capitalize approximately $400,000 related to finance and
accounting software and call center software to be used internally. These costs
primarily related to external direct costs of materials and services used in
obtaining the internal-use software. The Company did not incur significant
payroll and payroll-related costs for employees. Internal training costs and
maintenance costs are expensed as incurred.

      The Emerging Issues Task Force ("EITF") has issued Issue No. 00-02
regarding Web site development costs. The Company has not incurred significant
Web site development costs to date.

Revenue Recognition

      The Company realizes revenue from providing shared, dedicated and managed
services hosting, application hosting and professional services. The Company's
hosting contracts typically require up-front payment for service periods ranging
from 1 to 24 months. The Company follows the guidance in Staff Accounting
Bulletin ("SAB") No. 101 regarding revenue recognition. Therefore, fees received
from the customer, including set-up fees for hosting services, are deferred and
recognized ratably over the contract period. Substantially all of the shared
hosting end-user subscribers pay for services with major credit cards for which
the Company receives remittances from the credit card carriers. Dedicated and
managed services subscribers enter into 12 or 24 month non-cancelable contracts
that are paid on a month-to-month basis, one month in advance. Deferred revenues
represent the liability for advance billing to customers for services not yet
provided.


                                      F-9
<PAGE>

      Professional services revenue is recognized as the services are performed,
provided that no significant obligations remain. The Company generally receives
all payments for consulting services prior to the services being performed;
therefore, collection is considered probable.

      The Company provides a 30-day money back guarantee to its customers and
offers its customers a 99.9% service level warranty. The Company records an
allowance for returns and an accrual for warranty claims on a monthly basis
based on historical experiences. The Company has not experienced significant
returns or warranty claims to date and does not have a significant returns or
warranty claims reserve as of December 31, 1999 or 2000.

Advertising Costs

      The Company expenses the costs of advertising as incurred. Advertising
expenses included in sales and marketing expense is $1,438,000, $5,473,000, and
$29,874,000 for 1998, 1999 and 2000, respectively.

Income Taxes

      The Company uses the liability method of accounting for income taxes, as
set forth in SFAS No. 109, "Accounting for Income Taxes." Under the liability
method, deferred tax assets or liabilities are determined based on the
differences between the financial reporting and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to be settled or realized.

Basic and Diluted Net Loss Per Share

      The Company follows SFAS No. 128, "Earnings Per Share." That statement
requires the disclosure of basic net income (loss) per share and diluted net
income (loss) per share. Basic net income (loss) per share is computed by
dividing net income (loss) available to common shareholders by the
weighted-average number of common shares outstanding during the period and does
not include any other potentially dilutive securities. Diluted net income (loss)
per share gives effect to all potentially dilutive securities. The Company's
convertible preferred stock, restricted stock, stock options and stock warrants
are potentially dilutive securities and are not included in historical diluted
net loss per share in any periods presented as they would reduce the loss per
share.

      Pursuant to Securities and Exchange Commission SAB No. 98, for periods
prior to the Company's anticipated initial public offering, basic net loss per
share is computed by using the weighted average number of shares of common stock
outstanding during the period. Diluted net loss per share is computed using the
weighted average number of common stock outstanding during the period and
nominal issuances of common stock and common stock equivalents, regardless of
whether they are anti dilutive, as well as the potential dilution of common
stock equivalents, if dilutive. The Company has not issued common stock or
common stock equivalents for considerations that management considers nominal.

Stock-Based Compensation Plan

      The Company accounts for its stock option plan under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees." The Company
adopted the disclosure option of SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 requires that companies, which do not choose to
account for stock-based compensation, as prescribed by the statement shall
disclose the pro forma effects on earnings and earnings per share as if SFAS No.
123 had been adopted.

Options and Stock Issued to Non-Employees

      Transactions for goods or services in which consideration provided by the
Company is in the form of stock options or stock are treated in accordance with
SFAS No. 123. SFAS No. 123 requires the Company to record the fair value of the
equity instrument issued or the fair value of the services received, whichever
is readily measurable. When the fair value of the goods or services received
cannot be reliably measured, the fair value of the equity instrument issued is
calculated using the Black-Scholes option-pricing model.

      During 2000, the Company issued 16,754 shares of common stock for legal
services rendered in connection with the issuance of common stock. These shares
were recorded at the fair value of the services received, which approximated the
fair value of the common stock, and is reflected as a reduction of the proceeds
from the issuance of common stock in the accompanying consolidated balance
sheets.


                                      F-10
<PAGE>

Comprehensive Income (Loss)

      Comprehensive income (loss) equals net loss for the periods presented.

Recent Accounting Pronouncements

      In June 1998 the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS 133
established accounting and reporting standards for derivative instruments and
for hedging activities. SFAS is effective for fiscal years beginning after June
15, 2000. The Company does not believe the adoption of SFAS 133 (as amended by
SFAS 138) will have a material effect on its results of operations or financial
condition.

3. Related-Party Transactions

      During December 1998 and May 1999 the Company loaned two shareholder
officers a total of $50,000 and $400,000, respectively. The notes are full
recourse and are also secured by the common stock of the Company owned by the
officers and bear interest at 10% per annum. Of the aggregate principal of
$450,000, $250,000 is due on demand and $200,000 is due on January 25, 2001. The
notes and accrued interest are reflected as notes receivable -- related parties
in the accompanying consolidated balance sheets.

4. Income Taxes

      Deferred tax assets and liabilities as of December 31, 1999 and 2000 are
determined based on the difference between the financial accounting and tax
bases of assets and liabilities. Deferred tax assets and liabilities at the end
of the year are determined using the enacted statutory tax rates expected to
apply to taxable income in the years in which the deferred tax assets or
liabilities are expected to be realized or settled.

      The Company has incurred net operating losses ("NOL") since commencing
operations. As of December 31, 2000, the Company has total NOLs of approximately
$77,000,000 available to offset its future income tax liability. The NOL carry
forward begins expiring in 2012. A valuation allowance is provided when it is
determined that some portion or all of the deferred tax assets may not be
realized. Accordingly, since it currently is more likely than not that the net
deferred tax assets resulting from the remaining NOLs and other deferred tax
items will not be realized, a valuation allowance has been provided in the
accompanying financial statements as of December 31, 1999 and 2000. The Company
established the valuation allowance for the entire amount of the deferred tax
assets attributable to the NOL carry forwards as well as for the net deferred
tax assets created as a result of temporary differences between book and tax.

      If there is a change in ownership of greater than 50% of the outstanding
shares of the Company's capital stock, the Company's ability to utilize its NOLs
will be subject to limitations imposed by Internal Revenue Code Section 382.
These limitations could significantly affect the Company's utilization of those
NOLs. As of December 31, 2000, the Company had experienced no such change.
Significant components of the Company's deferred tax assets and liabilities as
of December 31, 1999 and 2000 are as follows (in thousands):

                                                       1999        2000
                                                     --------    --------
      Deferred tax assets:
        Net operating loss carry forwards ........   $  7,537    $ 29,393
        Deferred revenue .........................        283       2,222
        Other ....................................         75         145
                                                     --------    --------
                                                        7,895      31,760
                                                     --------    --------
      Deferred tax liabilities:
        Depreciation .............................         --        (776)
        Prepaid commissions ......................         --        (247)
                                                     --------    --------
                                                           --      (1,023)
                                                     --------    --------
      Net deferred tax assets before valuation
      allowance ..................................      7,895      30,737
      Valuation allowance ........................     (7,895)    (30,737)
                                                     --------    --------
      Net deferred tax assets ....................   $     --    $     --
                                                     ========    ========


                                      F-11
<PAGE>

5. Shareholders' Equity

Preferred Stock and Warrants

      The Company is authorized to issue 25,000,000 shares of preferred stock,
including 15,000,000 shares which are designated as Series A preferred stock,
2,100,000 shares which are designated as Series A-1 preferred stock and
2,000,000 shares which are designated as Series B preferred stock. The remaining
preferred stock has not been designated by the Company.

      The Series A and Series A-1 preferred stock are convertible and rank
junior to any other preferred stock that may be issued by the Company, but rank
senior to common stockholders upon liquidation. The Series A preferred
stockholders have the right to receive dividends equal to 9% of the stated value
of the preferred stock. The dividends accrue on a semi-annual basis with the
dividend period ending on the last day of May and November. Dividends are
cumulative from the date the Series A preferred stock is issued and accrue
whether or not declared by the Company. Dividends can be paid in cash, or in the
form of Series B preferred stock or a combination of both at the option of the
Company. The preferred stock is convertible at the then current conversion
price, which is equal to the stated value on the date of issuance adjusted from
time to time as a result of stock splits, recapitalizations or if the Company
issues stock at prices below the stated value of the preferred stock.

      On December 2, 1999 and December 24, 1999 the Company issued 9,908,258 and
2,484,000 shares, respectively, of Series A convertible preferred stock for
$2.02 per share for proceeds of $25,014,000. The convertible preferred stock was
issued to third party investors. The conversion price of the outstanding shares
as of December 31, 1999 was $2.02 per share. Prior to these transactions, the
Company sold common stock at $2.78 per share to third party investors. As a
result of the sale of the convertible preferred stock at conversion prices below
the prices sold to common shareholders, the Company recorded a preferred stock
dividend of $9,409,000 related to this beneficial conversion feature in
accordance with EITF Issue 98-5 "Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratios."
This dividend is reflected as an adjustment to arrive at net loss applicable to
common shareholders in the accompanying consolidated statement of operations.

      On December 24, 1999 the Company issued warrants to purchase 546,480
shares of common stock at an exercise price of $5.37 per share to Microsoft
Corporation ("Microsoft"). This warrant was issued in connection with entering
into a five year Development, License, and Co-marketing Agreement (the
"Agreement") with Microsoft that expires December 23, 2004. The warrant can be
exercised by paying the cash exercise price or by surrendering common shares
owned by Microsoft equal to the exercise price. The Agreement grants to
Microsoft a non-exclusive perpetual license to proprietary installation tools
for third-party hosted applications on Windows NT or Windows 2000. Microsoft has
the sole right to terminate the Agreement if the Company fails to deliver the
tools on a timely basis or if the Company fails to correct any errors in the
tools on a timely basis, and Microsoft will provide technical consulting and
writing services during the development of the tools. Additionally, in
consideration of the obligations of Microsoft, the Company agreed to pay
Microsoft 5% of the total gross revenues that the Company receives from third
parties in consideration of its licensing and other exploitation of the tools
for the five years following acceptance of the tools by Microsoft. During 2000,
the Company made no payments to Microsoft under this arrangement. The Company
recorded the value of the warrants, calculated using the Black-Scholes pricing
model, of approximately $2,144,000 as deferred development costs and will
amortize this amount to the cost of revenues over the five-year term of the
Agreement. The Company recognized non-cash stock compensation expense related to
these warrants of $11,000 and $428,800 for the years ended December 31, 1999 and
2000, respectively.

      In connection with a stock purchase agreement, on July 26, 2000, Microsoft
invested an additional $7,500,000 in the Company in exchange for 625,000 shares
of common stock. Microsoft also received an additional warrant to purchase
468,750 shares of common stock at an exercise price of $12.00 per share. The
value of the warrants of approximately $3,764,000 was recorded as additional
deferred development costs and will be amortized over the remaining term of the
five-year Agreement. The Company recognized non-cash stock compensation expense
related to these warrants of $392,000 for the year ended December 31, 2000.

      On January 28, 2000 the Company issued warrants to purchase up to 376,920
shares of common stock to Road Runner at an exercise price of $8.33 per share.
These warrants were issued in connection with the entering into a Web hosting
reseller agreement. This agreement requires the Company to provide hosting
services at wholesale prices, to provide customers and technical support and to
provide other services. Upon signing the Web hosting agreement, 108,000 of the
warrants vested immediately. The remaining 268,920 vest based on the number of
new customers provided through the Web hosting agreement; therefore, the total
remaining warrants may never vest if the new customer targets are not met. In
January 2000 the Company recorded expense of $654,000 related to the 108,000
warrants that vested upon the signing of the agreement. The Company will record
additional expense in the future


                                      F-12
<PAGE>

based on the number of warrants that vest based on performance targets as valued
using the Black-Scholes pricing model at the time of vesting. As of December 31,
2000, no additional warrants have vested.

      On March 15, 2000 the Company entered into a stock purchase agreement with
VeriSign. In connection with this financing transaction, the Company issued
744,825 shares of Series A preferred stock to VeriSign, at a purchase price of
$5.37 per share for total proceeds of $4 million. The Company also issued a
warrant to VeriSign to purchase 372,413 shares of common stock at an exercise
price of $5.37 per share. The number of shares subject to the warrant may be
adjusted to prevent dilution and each warrant will expire five years after its
issuance. In addition, under the stock purchase agreement, on July 26, 2000, the
Company issued 500,000 shares of common stock to VeriSign in exchange for an
additional $6,000,000 in cash. In connection with the additional investment, the
Company issued an additional warrant to purchase 375,000 shares of common stock
at an exercise price of $12.00 per share. In conjunction with the initial
investment, the Company entered into a 4-year premier program agreement with
VeriSign. The Company recorded deferred expense of $2,444,000 for the value of
the warrant issued on March 15, 2000, deferred expense of $2,207,000 for the
difference between the purchase price of $5.37 per share and the fair value of
the Company's common stock on that date of $8.33 per share and deferred expense
of $3,011,000 for the values of the warrants issued on July 26, 2000. This
deferred expense will be amortized over the remaining 4 year term of the premier
program agreement entered into with VeriSign and the Company recognized non-cash
cost of revenue of $1,233,000 for the year ended December 31, 2000.

      On May 8, 2000 the Company entered into a stock purchase agreement with
Verizon Communications. In connection with this financing transaction, the
Company issued 1,199,999 shares of Series A preferred stock to Verizon
Communications at a purchase price of $8.33 per share. As a result of the sale
of the convertible preferred stock at conversion prices below the fair market
value of $12.00 for the common stock on the date of the issuance of the
preferred stock, the Company recorded a preferred stock dividend of
approximately $4,400,000 related to this beneficial conversion feature in
accordance with EITF Issue 98-5 "Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratios."
This dividend is reflected as an adjustment to arrive at net income applicable
to common shareholders in the statement of operations for the year ended
December 31, 2000. In addition, under the stock purchase agreement on July 28,
2000, the Company issued 1,250,000 shares of common stock to Verizon
Communications ("Verizon") in exchange for an additional $15,000,000 in cash.

      Additionally, on May 8, 2000, the Company entered into a non-binding
letter of intent with Verizon to enter into a business relationship. The
non-binding letter of intent indicated that the parties would work to complete
final versions of a marketing channel relationship agreement and a service
provider agreement. On October 11, 2000 the parties executed final versions of
these agreements. These agreements provide for Verizon to promote and co-brand
the Company's products and services. The term of the agreements is three years
and the Company will pay to Verizon 12.5% of any revenue received from customers
with whom Verizon originates contact. The Company will record this amount as an
offset to revenue in the statement of operations. In return for access to
Verizon's customer base and for other consideration, on October 11, 2000 the
Company issued to Verizon a warrant to purchase 3,132,000 shares of common stock
at an exercise price of $18 per share. The warrant is exercisable for three
years. The Company has measured the fair value of warrants issued to Verizon
using the Black-Scholes pricing model as $4,885,000 and recorded this value of
the warrants as deferred expense to be amortized over the 3 year term of the
agreements starting in the fourth quarter of 2000. The Company recognized
non-cash cost of revenue of $501,000 for the year ended December 31, 2000.

      The Company paid preferred stock dividends of $150,000 and $1,596,000 for
the years ended December 31, 1999 and 2000, respectively.

      Simultaneous with the Company's initial public offering and pursuant to
the contractual agreements with the preferred stockholders, all 14,337,082
shares of the Company's Series A preferred stock were converted into shares of
common stock.

Common Stock

      During 1999 the Company sold 4,003,230 shares of common stock for net
proceeds of $8,441,000. The common stock was sold to third-party investors and
consultants at prices ranging from $0.46 to $2.78 per share. Of the total shares
sold, 453,600 shares were sold to consultants at prices less than fair market
value. The Company recognized non-cash compensation expense of $516,000 for the
year ended December 31, 1999, related to these sales of common stock. The
compensation expense is included in general and administrative expense in the
accompanying statements of operations. During the third quarter of 1999 the
Company issued 144,009 shares of common stock valued at $400,000 for costs
related to sale of the above mentioned common stock and paid cash expenses of
$256,000. The payment for stock issuance costs is reflected as a reduction of
the proceeds from the issuance of common stock in the accompanying balance
sheets.


                                      F-13
<PAGE>

      The Company completed its initial public offering on July 25, 2000. The
Company sold 5,000,000 shares of common stock to the public and received net
proceeds of approximately $53 million. On June 14, 2000, the Company's board of
directors approved a 1.08 for one stock split on the Company's common stock,
which was affected, in the form of a stock dividend on July 24, 2000. All share
and per share data in the accompanying consolidated financial statements have
been adjusted to reflect the split.

Stock Options

      During July 1999 the board of directors approved the Stock Incentive Plan
(the "Plan"). As of December 31, 2000, 7,560,000 shares of common stock are
reserved for the grant of qualified and nonqualified stock options and other
incentive awards to employees of the Company. As of December 31, 2000, the
Company has 933,090 options available for issuance under the Plan. The Plan
provides for the grant of options to eligible employees and the board of
directors determines the specific terms of each option grant, including vesting
period and exercise price. The options generally vest over a three-year period,
and 2,769,400 of the outstanding options and restricted stock grants fully vest
upon a change of control, while the balance vest upon a change of control and
loss of employment within six months of a change of control.

      On July 1, 1999 the Company issued options to purchase 108,000 shares of
common stock to an employee at an exercise price of $0.01 per share. The fair
market value on the date of grant was estimated to be $2.78 per share. The
Company recorded deferred compensation of $300,000 related to this grant. The
deferred compensation will be amortized over the vesting period of the options,
which is three years from July 1, 1999. The Company amortized $51,000 and
$100,000 for the years ended December 31, 1999 and 2000, respectively. The
compensation expense is included in non-cash general and administrative
compensation expense in the accompanying consolidated statements of operations.

      During 1999 the Company granted options to purchase 1,728,000 shares of
common stock to consultants at exercise prices ranging from $0.01 to $2.78 per
share. The Company recognized non-cash compensation expense of $3,695,000
related to the issuance to these options. The options were valued using the
Black Scholes pricing model. The Company amortized $2,970,000 and $705,000 for
the years ended December 31, 1999 and 2000, respectively in non-cash general and
administrative compensation expense in the accompanying consolidated statements
of operations.

      In 2000, the Company granted options under the Plan to purchase 3,505,796
shares of common stock to employees at exercise prices ranging from $2.56 to
$8.88 per share, of which 2,486,996 vest ratably over a three-year period. Of
the remaining balance, 793,800 options vest over a three-year period beginning
July 25, 2000 and 225,000 vests monthly over a 2-year period. In addition, on
December 22, 2000, the Company granted 600,000 restricted shares under the Plan.
These shares vest 50% at 12 months and 50% at eighteen months from the grant
date, and accelerate upon change of control. The Company recorded deferred
compensation of $8,951,000 related to the grant of stock options and restricted
stock at less than fair market value. The Company amortized $2,095,000 for the
year ended December 31, 2000 in non-cash general and administrative compensation
expense in the accompanying statements of operations.


                                      F-14
<PAGE>

      The following table summarizes the issuance of options (excluding 600,000
shares of restricted stock issued under the Plan):

<TABLE>
<CAPTION>
                                                                                   Weighted
                                                           Number      Range of     Average
                                                             of        Exercise    Price Per
                                                          Options       Prices      Share
                                                         ----------   -----------  ---------
      <S>                                                <C>          <C>           <C>
      Outstanding at December 31, 1998 ..............            0                  $0.00
        Granted .....................................    4,765,500    $0.01-$5.37   $2.53
        Forfeited ...................................      (42,660)   $2.78-$5.37   $3.18
                                                        ----------
      Outstanding at December 31, 1999 ..............    4,722,840    $0.01-$2.78   $2.50
                                                        ==========
      Vested Options exercisable at December 31, 1999    1,728,000    $0.01-$2.78   $1.56
                                                        ==========

      Options Granted in 2000:
          Option Price equals Fair Market Value .....      969,880    $2.56-$8.88   $5.70
          Option Price less than Fair Market Value ..    2,535,916    $2.78-$8.88   $6.65
        Options Exercised ...........................   (1,371,959)   $0.01-$2.78   $1.18
        Options Forfeited ...........................     (905,726)   $2.78-$8.88   $4.04
                                                        ----------
      Options Outstanding as of December 31, 2000 ...    5,950,951    $0.01-$8.88   $4.86
                                                        ==========
      Options Exercisable as of December 31, 2000 ...    1,465,257    $2.78-$8.33   $3.83
                                                        ==========
      Weighted Average Fair Value ...................   $   6.0874
                                                        ==========
          Option Price equals Fair Market Value .....   $   5.3369
                                                        ==========
          Option Price less than Fair Market Value ..   $   6.3393
                                                        ==========
</TABLE>

Statement of Financial Accounting Standards No. 123

      In accordance with SFAS No. 123 the Company has computed, for pro forma
disclosure purposes, the estimated fair value of all options for shares of the
Company's common stock granted to employees during the years ended December 31,
1999 and 2000 using the Black-Scholes option-pricing model and based on the
following assumptions:

                                                       1999     2000
                                                     ---------------
                 Risk-free interest rate ..........  5.8%-6.6%   6.2%
                 Expected dividend yield ..........         0%     0%
                 Expected forfeiture rate .........       5.0%   6.8%
                 Expected volatility ..............        88%   116%

      No options were granted for the year ended December 31, 1998. The total
fair value of the options granted to employees during the year ended December
31, 1999 and 2000 was computed as $5,660,131 and $18,750,626, which would be
amortized over the vesting period of the options. If the Company had accounted
for these options in accordance with SFAS No. 123, the Company's reported pro
forma net loss attributable to common shareholders and net income (loss) per
share attributable to common shareholders for the years ended December 31, 1999
and 2000 would have been as follows (in thousands, except per share data):

                                                       1999         2000
                                                     --------    --------
      Net loss:
        As reported ..............................   $(16,784)   $(66,956)
        Loss applicable to common shareholders ...    (26,343)    (72,952)
        Loss applicable to common shareholders
           pro forma for SFAS No. 123 ............    (26,829)    (82,654)
      Net loss per share:
        Loss applicable to common shareholders as
           reported ..............................      (1.23)      (2.14)
        Loss applicable to common shareholders pro
           forma for SFAS No. 123 ................      (1.25)      (2.42)


                                      F-15
<PAGE>

      The following table summarizes the exercise price range, weighted average
exercise price, and remaining contractual lives by year of grant for the number
of options outstanding and exercisable as of December 31, 2000:

<TABLE>
<CAPTION>
                                 OPTIONS OUTSTANDING                                      OPTIONS EXERCISABLE
      ---------------------------------------------------------------------------   ------------------------------------
                           Outstanding as   Weighted-Average                         Exercisable as
           Range of       of December 31,       Remaining       Weighted-Average    of December 31,     Weighted-Average
      Exercisable Prices        2000        Contractual Life    Exercisable Price         2000           Exercise Price
      ------------------  ---------------   ----------------    -----------------   ---------------     ----------------
         <S>                    <C>                  <C>              <C>              <C>                   <C>
         $0.00-$1.00               72,000            9.8              $0.01                    0             $0.00
         $1.01-$2.78            2,296,611            7.0              $2.78              978,671             $2.78
         $2.79-$5.37            2,123,780            9.0              $5.07              390,154             $5.36
         $5.38-$8.88            1,458,560            8.9              $8.08               96,432             $8.33
                                ---------            ---              -----            ---------             -----
                                5,950,951            8.4              $4.86            1,465,257             $3.83
                                =========                                              =========
</TABLE>

6. Commitments and Contingencies

Lease Obligations

      The Company leases certain buildings and equipment under capital and
operating leases expiring at various dates through 2009. Some of the leases
contain bargain purchase options. The following details operating and capital
lease obligations as of December 31, 2000 (in thousands):

                                                          Operating Leases
                                                          and Other Future
                                         Capital Leases  Minimum Commitments
                                         --------------  -------------------

             2001....................        $ 8,276           $13,990
             2002....................          7,471            12,512
             2003....................          2,095            10,617
             2004....................             57             5,608
             2005 and thereafter.....             --            32,558
                                             -------           -------
                       Total.........        $17,899           $75,285
                                             =======           =======

      The total amount of assets under capital lease as of December 31, 1999 and
2000 was $4,119,000 and $20,606,000, respectively, and the total obligation
related to those capital leases was $3,591,000 and $15,737,000, respectively.
Operating rent expense was $115,000, $820,000, and $6,144,000 for the years
ended December 31, 1998, 1999 and 2000, respectively.

Equipment Commitments

      As of December 31, 2000, the Company had commitments of approximately
$2,300,000 in capital expenditures outstanding for expanded network and
facilities. The expansion of the Company's network and facilities began in 1999
and will be completed during 2001. The assets were classified as construction in
progress as of December 31, 1999 and 2000.

      On May 15, 2000, the Company executed a loan agreement in the amount of
$3,000,000 to finance a portion of these capital expenditures. On October 3,
2000, this agreement was increased to $6,000,000. The loan is secured by the
related assets, bears interest at 16.1% per year and has a three-year term.

      On June 30, 2000, the Company executed an amendment to a master lease and
financing agreement with Compaq Financial Services Corporation, which provides a
line of credit for the purchase and lease of equipment in the amount of
$29,500,000. Additionally, on June 30, 2000 the Company executed a supplemental
master lease and financing agreement with Hewlett-Packard Corporation, which
increased the equipment financing line of credit by $12,000,000 to $20,000,000.


                                      F-16
<PAGE>

      In connection with these agreements, the Company issued warrants to
purchase 190,653 shares of common stock at exercise prices ranging from $8.33 to
$12.00 per share. The Company recorded prepaid interest of $1,373,000 related to
the issuance of these options using the Black Scholes pricing model. Interest
expense is incurred ratably over the life of the financing arrangements. The
Company amortized $178,000 for the year ended December 31, 2000 in interest
expense in the accompanying consolidated statements of operations.

      On December 14, 2000 the Company executed a master lease agreement with a
diversified financial services company for up to $12,000,000 to finance
expansion of the data center.

Advertising Commitments

      In July 2000, the Company entered into an agreement with a strategic
partner, which required both parties to spend $6 million in joint marketing over
a three-year period ending November 2003. For the year ended December 31, 2000,
the Company incurred $887,000 of marketing expenses under this agreement, which
is reflected in sales and marketing expenses in the accompanying consolidated
statement of operations.

7. Employee Benefit Plans

      On January 1, 2000 the Company adopted a 401(k) Plan, a defined
contribution plan covering substantially all employees of the Company. Under the
plan's deferred compensation arrangement, eligible employees who elect to
participate in the plan may contribute between 1% and 15% of eligible
compensation, as defined, to the plan. The Company, at its discretion, may elect
to provide for either a matching contribution or a discretionary profit-sharing
contribution or both. The Company did not elect to provide a discretionary match
in 2000.

      In July 2000 the Company adopted an Employee Stock Purchase Plan under
which qualified employees have the right to purchase common stock on a
semi-annual basis through payroll deductions. The price to be paid for each
share of common stock under the plan is 85% of the fair market value at the
beginning or the end of each six-month period, whichever is lower. Total payroll
deductions may not exceed 10% of the employee's annual compensation and may not
exceed $25,000 per year. Under the plan, 540,000 shares of common stock have
been reserved, and no shares were issued in 2000.

8. Geographic Area Information

      The Company's business activities are represented by a single industry
segment, web site and application hosting. For management purposes, the Company
is segmented into two geographic areas: North America and Europe. The Company's
net sales by geographic area are as follows:

                              United States     Europe        Total
                              -------------     ------        -----
                1998              $ 1,387        $  0        $ 1,387
                1999                9,121           0          9,121
                2000               33,728         535         34,263

      At December 31, 2000 the Company's assets outside of the United States,
consisting principally of cash, accounts receivable and office equipment, are
approximately $2,728,000.

9. Subsequent Event

      On January 2, 2001 the Company decided to shut down its office in
Amsterdam, The Netherlands. A Plan was put into place during January and a
reserve for $2,300,000 was booked in January to cover the costs associated with
the closure of the office. The Company has transferred all European customers to
its U.S. facility and will service and support them from the U. S.


                                      F-17
<PAGE>

10. Quarterly Information (Unaudited)

<TABLE>
<CAPTION>
                         Q1         Q2        Q3          Q4          Q1          Q2          Q3          Q4
                        1999       1999      1999        1999        2000        2000        2000        2000
                      -------    -------    -------    --------    --------    --------    --------    --------
<S>                   <C>        <C>        <C>        <C>         <C>         <C>         <C>         <C>
Revenues ..........   $ 1,009    $ 1,688    $ 2,582    $  3,842    $  6,268    $  8,157    $  9,430    $ 10,408
Cost of revenues ..       766      1,317      1,953       3,018       6,289       7,942       8,159      11,104
                      -------    -------    -------    --------    --------    --------    --------    --------
Gross margin ......       243        371        629         824         (21)        215       1,271        (696)
                      -------    -------    -------    --------    --------    --------    --------    --------
Net Loss ..........    (1,436)    (3,610)    (4,887)     (6,851)    (10,784)    (17,968)    (18,124)    (20,080)
                      =======    =======    =======    ========    ========    ========    ========    ========
Net loss applicable
  to common
  shareholders ....    (1,436)    (3,610)    (4,887)    (16,410)    (11,335)    (23,168)    (18,369)    (20,080)
                      =======    =======    =======    ========    ========    ========    ========    ========
Basic and diluted
  net loss per
  shareholders ....   $ (0.07)   $ (0.17)   $ (0.23)   $  (0.70)   $  (0.48)   $  (0.93)   $  (0.45)      (0.43)
                      =======    =======    =======    ========    ========    ========    ========    ========
</TABLE>


                                      F-18
<PAGE>

    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE

      We have audited in accordance with auditing standards generally accepted
in the United States, the financial statements of Interland, Inc. and subsidiary
included in this Form 10-K, and have issued our report thereon dated February 9,
2001. Our audit was made for the purpose of forming an opinion on those
statements taken as a whole. The schedule listed in the index on page 43 is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.

ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 9, 2001


                                      F-19
<PAGE>

Schedule

                                 Interland, Inc.
                        VALUATION AND QUALIFYING ACCOUNTS
                  Years Ended December 31, 1998, 1999, and 2000

<TABLE>
<CAPTION>
                                           Balance at     Charged to                                    Balance at
                                          Beginning of    Costs and       Charged to                        End
                 Classification               Year        Expenses     Other Accounts     Deductions      of Year
                 --------------               ----        --------     --------------     ----------      -------
<S>                                         <C>           <C>            <C>              <C>              <C>
1998    Allowance for doubtful accounts     $    --       $     --       $       --       $        --      $     --
        Allowance for customer returns           --             --               --                --            --

1999    Allowance for doubtful accounts          --             --               --                --            --
        Allowance for customer returns           --             --           29,000                --        29,000

2000    Allowance for doubtful accounts          --        185,000               --                --       185,000
        Allowance for customer returns       29,000             --        1,302,000        (1,204,000)      127,000
</TABLE>


                                      F-20