<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-Q


[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

For The Quarterly Period Ended June 30, 1999

[]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

For The Transition Period From _____ To _____

                         Commission File Number 0-26115

                                INTERLIANT, INC.
             (Exact Name Of Registrant As Specified In Its Charter)


                DELAWARE                                   13-3978980
        (State of Incorporation)               (IRS Employer Identification No.)

Two Manhattanville Road, Purchase, New York                   10577
  (Address of Principal Executive Offices)                 (Zip Code)

                                 (914) 640-9000
              (Registrant's Telephone Number, Including Area Code)

      (Former Name, Former Address and Former Fiscal Year, if Changed Since
                                  Last Report)

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) Yes X No    , and (2) has been
subject to such filing requirements for the past 90 days. Yes     No X .

  The number of shares outstanding of the Registrant's Common Stock as of July
30, 1999 was 43,295,745.
<PAGE>   2
                                INTERLIANT, INC.

                                      INDEX


                                                                        PAGE NO.
                                                                        --------

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets as of
 June 30, 1999 and December 31, 1998                                        1

Condensed Consolidated Statements of Operations
  for the Three Months and Six Months Ended June 30, 1999 and 1998          2

Condensed Consolidated Statements of Cash Flows
  for the Six Months Ended June 30, 1999 and 1998                           3

Notes to Condensed Consolidated Financial Statements                        4

Item 2.  Management's Discussion and Analysis of Financial
  Condition and Results of Operations                                      10


PART II.  OTHER INFORMATION                                                19

Item 2.  Changes in Securities and Use of Proceeds                         19

Item 5.  Other Information                                                 20

Item 6.  Exhibits and Reports on Form 8-K                                  20

<PAGE>   3
PART I.  FINANCIAL INFORMATION

                                  INTERLIANT, INC.

                       CONDENSED CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                                                     PRO FORMA
                                                                                     JUNE 30,         JUNE 30,      DECEMBER 31,
                                                                                       1999             1999            1998
                                                                                  -------------    -------------    -------------
                                                                                   (unaudited)      (unaudited)
                                                                                                      Note 10          Note 2
<S>                                                                               <C>              <C>              <C>
Assets
Current assets:
 Cash and cash equivalents                                                        $   3,269,491    $  66,739,491    $   6,813,360
 Cash-restricted                                                                      1,256,772        1,256,772
 Accounts receivable, net of allowance of $1,013,000 and
  $320,000 at June 30, 1999 and December 31, 1998, respectively                       5,166,477        5,166,477          806,322
 Prepaid and other current assets                                                     1,002,576        1,002,576          639,662
                                                                                  -------------    -------------    -------------
      Total current assets                                                           10,695,316       74,165,316        8,259,344
                                                                                  -------------    -------------    -------------

 Furniture, fixtures and equipment, net                                              12,417,328       12,417,328        5,103,123
 Intangibles, net                                                                    77,486,021       77,486,021       12,612,228
 Other assets                                                                         3,130,370        1,130,370          222,172
                                                                                  -------------    -------------    -------------
      Total assets                                                                $ 103,729,035    $ 165,199,035    $  26,196,867
                                                                                  =============    =============    =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Notes payable and current portion of long-term debt                             $  10,983,866    $     588,866
  Accounts payable                                                                    3,994,192        3,994,192    $     787,412
  Accrued expenses                                                                    6,679,260        5,679,260        2,301,507
  Deferred revenue                                                                    4,347,112        4,347,112        1,414,969
                                                                                  -------------    -------------    -------------
      Total current liabilities                                                      26,004,430       14,609,430        4,503,888
                                                                                  -------------    -------------    -------------

Long-term debt, less current portion                                                  1,660,970        1,660,970

Series A redeemable convertible preferred stock                                      13,000,000             --

Stockholders' equity:
  Preferred stock, $.01 par value; 1,000,000 shares authorized; 0 shares
     issued and outstanding
  Common stock, $.01 par value; 200,000,000, 200,000,000 and 100,000,000 shares
     authorized; 32,567,610, 43,265,268, and 19,217,197 shares
     issued and outstanding, respectively                                               325,676          432,653          192,172
  Additional paid-in capital                                                         96,102,605      181,860,628       34,160,334
  Deferred compensation                                                                (634,304)        (634,304)      (1,769,429)
  Accumulated deficit                                                               (32,730,342)     (32,730,342)     (10,890,098)
                                                                                  -------------    -------------    -------------
      Total stockholders' equity                                                     63,063,635      148,928,635       21,692,979
                                                                                  -------------    -------------    -------------

      Total liabilities and stockholders' equity                                  $ 103,729,035    $ 165,199,035    $  26,196,867
                                                                                  =============    =============    =============
</TABLE>

     See accompanying notes to condensed consolidated financial statements.


                                       1
<PAGE>   4
                                INTERLIANT, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (unaudited)


<TABLE>
<CAPTION>
                                              THREE MONTHS ENDED               SIX MONTHS ENDED
                                                   JUNE 30,                        JUNE 30,
                                         ----------------------------    ----------------------------
                                             1999            1998            1999            1998
                                         ------------    ------------    ------------    ------------
<S>                                      <C>             <C>             <C>             <C>
Service revenues                         $ 10,647,650    $    844,678    $ 16,081,813    $    857,804

Costs and expenses:
   Cost of service revenues                 6,088,440         457,059       9,339,143         510,833
   Sales and marketing                      4,072,779         422,842       5,969,136         533,724
   General and administrative               6,738,636       1,322,829      11,501,942       1,712,954
   Depreciation                             1,400,754          64,170       2,100,306          73,587
   Amortization of intangibles              6,190,585         370,040       8,784,915         373,879
                                         ------------    ------------    ------------    ------------
                                           24,491,194       2,636,940      37,695,442       3,204,977
                                         ------------    ------------    ------------    ------------

Operating loss                            (13,843,544)     (1,792,262)    (21,613,629)     (2,347,173)
Interest income (expense), net               (168,338)         29,957        (114,427)         43,602
Other income (expense)                        (70,741)                       (112,188)
                                         ------------    ------------    ------------    ------------
Net loss                                 $(14,082,623)   $ (1,762,305)   $(21,840,244)   $ (2,303,571)
                                         ============    ============    ============    ============

Net loss per share - basic and diluted   $      (0.44)   $      (0.33)   $      (0.77)   $      (0.55)
                                         ============    ============    ============    ============

Weighted average shares
   outstanding - basic and diluted         31,968,991       5,380,619      28,369,440       4,190,310
                                         ============    ============    ============    ============
</TABLE>


     See accompanying notes to condensed consolidated financial statements.


                                       2
<PAGE>   5
                                INTERLIANT, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                                        SIX MONTHS ENDED
                                                                                            JUNE 30,
                                                                                 -------------------------------
                                                                                     1999               1998
                                                                                 ------------       ------------
<S>                                                                              <C>                <C>
OPERATING ACTIVITIES
  Net loss                                                                       $(21,840,244)      $ (2,303,571)
  Adjustments to reconcile net loss to net cash used in
    operating activities:
    Provision for uncollectible accounts                                              662,813             52,500
    Depreciation and amortization                                                  10,885,221            447,466
    Amortization of deferred compensation                                           1,135,125             55,333
    Other non-cash charges                                                            163,715
    Changes in operating assets and liabilities:
      Accounts receivable                                                            (456,439)          (336,374)
      Prepaid expenses and other current assets                                       (12,692)          (212,589)
      Other assets                                                                   (167,951)
      Accounts payable                                                                406,561            548,702
      Accrued expenses                                                              2,931,244            770,710
      Deferred revenue                                                                548,793           (131,720)
                                                                                 ------------       ------------
  Net cash used in operating activities                                            (5,743,854)        (1,109,543)
                                                                                 ------------       ------------

INVESTING ACTIVITIES
  Purchases of furniture, fixtures and equipment                                   (3,238,932)          (783,590)
  Payments issued in connection with non-compete agreements                        (1,000,000)
  Investments in restricted securities                                               (952,969)
  Transfers to restricted cash                                                     (1,256,772)
  Acquisitions of businesses, net of cash acquired                                (20,701,570)        (8,788,580)
                                                                                 ------------       ------------
  Net cash used in investing activities                                           (27,150,243)        (9,572,170)
                                                                                 ------------       ------------

FINANCING ACTIVITIES
  Proceeds from sale of common stock                                               11,000,000         15,040,000
  Proceeds from issuance of Series A redeemable convertible preferred stock        13,000,000
  Proceeds from exercise of options and warrants                                    5,098,518
  Proceeds from capital lease financing                                             1,277,255
  Repayment of debt                                                                  (243,870)
  Offering costs                                                                     (781,675)
                                                                                 ------------       ------------
  Net cash provided by financing activities                                        29,350,228         15,040,000
                                                                                 ------------       ------------

Net increase (decrease) in cash and cash equivalents                               (3,543,869)         4,358,287
Cash and cash equivalents at beginning of period                                    6,813,360            912,085
                                                                                 ------------       ------------
Cash and cash equivalents at end of period                                       $  3,269,491       $  5,270,372
                                                                                 ============       ============

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
  FINANCING ACTIVITIES
  Stock issued and options granted for acquisitions                              $ 45,937,237       $    615,165
  Stock issued for compensation agreements                                                          $    498,000
  Debt assumed or issued in acquisitions                                         $ 10,395,000
</TABLE>


     See accompanying notes to condensed consolidated financial statements.


                                       3
<PAGE>   6
                                Interliant, Inc.

              Notes to Condensed Consolidated Financial Statements
                            June 30, 1999 (unaudited)

1. BUSINESS

         Interliant, Inc. (formerly Sage Networks, Inc.) (the Company) is a
provider of a wide range of Internet hosting and enhanced Internet services that
enable customers to deploy and manage their Web sites and network-based
applications more effectively than internally developed solutions. The Company's
hosting services store customers' Web sites, software applications, and data on
servers typically housed in the Company's data centers so that others on the
Internet can access and interact with the customer's Web sites and network-based
applications. The Company has grown rapidly through the acquisition of 17
hosting and related Internet service businesses.

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


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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

Condensed Interim Financial Information

         The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the regulations of the Securities and Exchange
Commission (SEC), but omit certain information and footnote disclosure necessary
to present the statements in accordance with generally accepted accounting
principles. The interim financial information as of June 30, 1999 and for the
three months and six months ended June 30, 1999 and 1998 is unaudited and has
been prepared on the same basis as the audited financial statements. In the
opinion of management, such unaudited information includes all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the interim information.

         The balance sheet at December 31, 1998 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.

         For further information, refer to the Financial Statements and Notes
thereto and Management's Discussion and Analysis of Financial Condition and
Results of Operations included in the Company's Registration Statement on Form
S-1(Registration No. 333-74403) (the Registration Statement). Operating results
for the three months and six months ended June 30, 1999 and 1998 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999.


                                       4
<PAGE>   7
                                Interliant, Inc.

       Notes to Condensed Consolidated Financial Statements - (Continued)
                            June 30, 1999 (unaudited)


Use of Estimates

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

Net Loss Per Share

         Net loss per share is presented in accordance with the provisions of
Statement of Financial Accounting Standards No. 128, "Earnings Per Share". Basic
net loss per share is computed based on the weighted average number of shares of
common stock outstanding during the period. Diluted loss per share does not
differ from basic loss per share since potential common shares to be issued upon
the exercise of stock options are anti-dilutive for the periods presented.


3. INTANGIBLE ASSETS

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


4. ACQUISITIONS

         During the six months ended June 30, 1999, the Company consummated the
following acquisitions, each of which has been accounted for using the purchase
method of accounting.

         In February 1999, the Company purchased certain assets and assumed
specified liabilities of Telephonetics International, Inc., a provider of
customized music and messages on- hold recording services to businesses
utilizing on-hold telephone equipment. The purchase price consisted of cash of
$3,000,000 and 140,000 shares of the Company's common stock, par value $0.01 per
share (Common Stock), valued at $6.67 per share.

         In February 1999, the Company purchased certain assets of Digiweb,
Inc., a Web hosting company. The purchase price consisted of cash of
approximately $5,000,000 and 450,000 shares of Common Stock valued at $6.67 per
share. The agreement provides for contingent purchase consideration of
$1,000,000 if specified revenue and earnings targets are achieved for the year
ending December 31, 1999. The payment of contingent consideration, if any, will
be recorded as additional purchase price.


                                       5
<PAGE>   8
                                Interliant, Inc.

       Notes to Condensed Consolidated Financial Statements - (Continued)
                            June 30, 1999 (unaudited)


         In February 1999, the Company purchased of all of the outstanding stock
of Net Daemons Associates, Inc. (NDA), a provider of Web development and network
systems integration services. The purchase price consisted of cash of $500,000
and 425,000 shares of Common Stock valued at $6.67 per share. In addition, the
Company has paid certain officers of NDA $2,371,000 to induce them to enter into
non-compete agreements and paid approximately $436,000 to cancel certain NDA
stock options. The agreement also provides for contingent purchase consideration
of $500,000 in cash and 74,963 shares of Common Stock if specified gross revenue
and gross margin targets are achieved in the twelve-month period following the
acquisition. The payment of contingent consideration, if any, will be recorded
as additional purchase price. The shares of Common Stock and cash to be paid for
the contingent purchase consideration have been deposited with an escrow agent
and the cash is included in the balance sheet as restricted cash.

         In March 1999, the Company purchased substantially all of the assets
and assumed specified liabilities of Interliant, Inc., a Texas corporation,
(hereinafter "Interliant Texas"), a provider of groupware hosting and
application outsourcing services. Following the acquisition, the Company changed
its name from Sage Networks, Inc. to Interliant, Inc. The purchase price
consisted of $100,000 in cash and 4,091,642 shares of Common Stock valued at
$6.67 per share, and options to purchase up to 2,322,179 shares of Common Stock
at $0.13 per share. The difference between the fair value of the vested options
at the date of grant ($6.67 per share) and the exercise price has been included
in the purchase price allocation. In addition, at closing the Company paid
$7,900,000 on an outstanding note payable of Interliant Texas, and assumed a
note payable in the amount of $8,000,000, due in full at the earlier of the
completion of an initial public offering (IPO) of Common Stock or September
1999. The note, along with accrued interest, was paid in full in July 1999 from
a portion of the proceeds from the Company's IPO (See Note 10).

         In May 1999, the Company purchased certain assets and assumed specified
liabilities of Advanced Web Creations, Inc., a Web hosting company. The purchase
price consisted of cash of approximately $276,000, 225,000 shares of Common
Stock valued at $8.50 per share, and a promissory note in the amount of
$2,395,000, which was paid in full in July 1999 from a portion of the proceeds
from the Company's IPO (See Note 10). The agreement also provides for contingent
purchase consideration of $400,000 in cash if specified gross revenue targets
are achieved in the six-month period following the acquisition. The payment of
contingent consideration, if any, will be recorded as additional purchase price.

         The allocation of purchase price for the acquisitions completed in 1999
as reflected in the June 30, 1999 condensed consolidated balance sheet is
preliminary based on the Company's initial assessment of the fair value of
assets acquired. The allocations may be modified between components of
intangible assets as the Company finalizes the purchase accounting for such
acquisitions.


                                       6
<PAGE>   9
                                Interliant, Inc.
       Notes to Condensed Consolidated Financial Statements - (Continued)
                            June 30, 1999 (unaudited)


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

<TABLE>
<CAPTION>
                                                       Six Months Ended
                                                           June 30,
                                                -------------------------------
                                                    1999               1998
                                                ------------       ------------
<S>                                             <C>                <C>
Service revenues                                $ 21,774,527       $ 21,778,592
Net loss                                         (28,166,576)       (18,085,910)
Net loss per share - basic and diluted          $      (0.93)      $      (1.55)
</TABLE>


5. EQUIPMENT FINANCING

         In June 1999, the Company entered into a sale/leaseback transaction
whereby certain network and office equipment was financed under equipment leases
payable over thirty-six months, with an effective interest rate of approximately
14%. The Company has the option to repurchase the equipment at the end of the
lease at fair market value (which is defined as not lower than 7.5 percent nor
higher than 12.5 percent of the original purchase price). The transaction has
been accounted for as a capital lease obligation. As of June 30, 1999 the total
proceeds received by the Company under this arrangement were approximately $1.3
million.


6. SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK

         On January 28, 1999, the Company's Board of Directors and stockholders
approved an amendment to the Company's certificate of incorporation (Charter) to
authorize the issuance and sale of 2,647,658 shares of Preferred Stock, par
value $0.01 per share, all of which is designated as Series A Redeemable
Convertible Preferred Stock (Series A Preferred). On January 28, 1999, pursuant
to a Securities Purchase Agreement (the Purchase Agreement), the Company sold to
SOFTBANK Technology Ventures IV L.P. and one of its affiliates (the SOFTBANK
Investors), 2,647,658 shares of its Series A Preferred at a price of $4.91 per
Series A Preferred share and issued warrants to purchase 749,625 shares of
Common Stock at $6.67 per share, for cash of $13,000,000. The Common Stock
warrants were exercised on April 19, 1999 for total proceeds of $5,000,000. In
addition, immediately prior to the effectiveness of the Company's IPO, all
2,647,658 shares of Series A Preferred were automatically converted into Common
Stock on a share for share basis (See Note 10).


7. STOCKHOLDERS' EQUITY

Preferred Stock

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

Common Stock

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


                                       7
<PAGE>   10
                                Interliant, Inc.

       Notes to Condensed Consolidated Financial Statements - (Continued)
                            June 30, 1999 (unaudited)


         Pursuant to a Stock Subscription Agreement dated December 8, 1997
between the Company and WEB, WEB purchased 6,600,000 shares of Common Stock
during the six months ended June 30, 1999, and 18,600,000 shares during the
period December 8, 1997 (inception) to December 31, 1998, all at $1.67 per
share.

Stock Option Plan

         During the six months ended June 30, 1999, the Company granted options
to purchase 950,855 shares of Common Stock, at exercise prices ranging from
$6.67 to $10.00 per share. The weighted-average exercise price of the options
granted was $7.25 per share. In addition, in connection with the March 1999
acquisition of Interliant Texas, the Company granted options to purchase
2,322,139 shares of Common Stock at $0.13 per share in substitution for existing
Interliant Texas vested options, of which 1,523,461 were vested at June 30,
1999. Pursuant to the terms of the acquisition of Interliant Texas, the
remaining options to purchase 798,678 shares of Common Stock were forfeited upon
the closing of the IPO since the Company's pre-IPO value, based on the public
offering price per share, was greater than $300 million. The difference between
the fair value of the vested options at the date of grant ($6.67 per share) and
the exercise price has been included in the purchase price allocation.

         During the six months ended June 30, 1999, options to purchase 588,183
shares of Common Stock were exercised. Options to purchase 1,013,778 shares of
Common Stock are vested at June 30, 1999.


8. SEGMENT INFORMATION

         The Company currently has three reportable segments: Web hosting,
application hosting, and consulting. For the year ended December 31, 1998, the
Company operated only in the Web hosting segment. The summary unaudited results
of operations for the six months ended June 30, 1999 for each of the segments is
shown below and reflects actual results of operations including those of
acquired companies since the respective dates of acquisition.


<TABLE>
<CAPTION>
                         Web             Application
                       Hosting             Hosting           Consulting             Other               Total
                    -------------       -------------       -------------       -------------       -------------
<S>                 <C>                 <C>                 <C>                 <C>                 <C>
Revenues            $   6,732,044       $   6,044,793       $   2,068,267       $   1,236,708       $  16,081,812
Operating loss      $  (6,108,052)      $  (1,537,364)      $    (313,218)      $ (13,654,995)      $ (21,613,629)

Segment assets                          $  10,515,490       $   1,254,063       $  91,959,484       $ 103,729,037
</TABLE>


         The Company's management generally reviews the results of operations of
each segment exclusive of depreciation, amortization and interest expenses
related to each segment. Accordingly, such expenses are excluded from the
segment operating loss and are shown under the Other caption. The assets
pertaining to the Web hosting segment are included in the Other caption since
such assets are not accounted for separately from corporate assets. In addition,
all intangible assets and corporate expenses of the Company are included in the
Other caption.

         The Company believes that the reportable segments may change in future
periods as management continues to integrate acquisitions.


                                       8
<PAGE>   11
                                Interliant, Inc.

       Notes to Condensed Consolidated Financial Statements - (Continued)
                            June 30, 1999 (unaudited)

9. SUBSEQUENT EVENTS

         In July 1999, the Company sold 8,050,000 shares of Common Stock,
including shares sold through the exercise of the underwriters' over-allotment
option, in an underwritten IPO for net proceeds of approximately $72.9 million,
after deducting underwriters' discounts and commissions and estimated offering
costs payable by the Company.


10. UNAUDITED PRO FORMA BALANCE SHEET INFORMATION

         The unaudited pro forma balance sheet information is presented to
reflect certain transactions that occurred subsequent to June 30, 1999 (See Note
9) as if they had occurred as of that date. The transactions reflected in the
pro forma presentation include (1) the Company's completion of its IPO and the
underwriters' exercise of the over-allotment option in July 1999 pursuant to the
Registration Statement for net proceeds of $72.9 million, after deducting
underwriters' discounts and commissions and estimated offering costs payable by
the Company, (2) the conversion of 2,647,658 shares of Series A Preferred into
an equal number of shares of Common Stock upon the consummation of the IPO, and
(3) the repayment of notes payable totaling $10.4 million, which were paid in
full in July 1999 upon completion of the IPO, as required in the respective
agreements.


                                       9
<PAGE>   12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

You should read the following description of our financial condition and results
of operations in conjunction with the Unaudited Condensed Consolidated Financial
Statements and the Notes thereto. This discussion contains forward-looking
statements based upon current expectations that involve risks and uncertainties.

FORWARD LOOKING STATEMENTS AND ASSOCIATED RISKS

         This Form 10-Q contains forward-looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended, and Section
27A of the Securities Act of 1933, as amended. Certain forward-looking
statements relate to, among other things, future results of operations,
profitability, growth plans, sales, expense trends, capital requirements and
general industry and business conditions applicable to our business. Any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. Our actual results and the timing of
certain events may differ significantly from the results discussed in the
forward-looking statements. These forward-looking statements are based largely
on our current expectations and are subject to a number of risks and
uncertainties. The words "anticipate," "believe," "estimate" and similar
expressions used herein are generally intended to identify forward-looking
statements. In addition to the other risks described elsewhere and in the
Company's Registration Statement, important factors to consider in evaluating
such forward-looking statements include but are not limited to: changes in
external competitive market factors; changes in our business strategy; an
inability to execute our strategy due to unanticipated changes in the emerging
hosting and Internet services industries or the economy in general; difficulties
in the timely expansion of our network and data centers or in the acquisition
and integration of new businesses; difficulties in retaining and attracting new
employees or customers; difficulties in developing or deploying new services;
risks associated with rapidly changing technology, including but not limited to
Year 2000 compliance; and various other competitive factors that may prevent us
from competing successfully in existing or future markets. In light of these
risks and uncertainties, there can be no assurance that the forward-looking
statements contained herein will in fact be realized and we assume no obligation
to update this information.


OVERVIEW

         We are a provider of a wide range of Internet hosting and enhanced
Internet services that enable our customers to deploy and manage their Web sites
and network-based applications more effectively than internally developed
solutions. Our hosting services store customers' Web sites, software
applications, and data on servers typically housed in our data centers so that
others on the Internet can access and interact with the customer's Web sites and
network-based applications. Our Web hosting services provide virtual, dedicated
and co-located hosting solutions to meet the needs of businesses of all sizes,
as their Web sites develop from low-end marketing brochures to more complex,
interactive Web sites and finally to Web sites that are integral to the
operating, marketing and sales and customer support functions, or
mission-critical, of a business. Our application hosting services consist of
groupware hosting and application outsourcing solutions that can provide our
customers with 24 hours a day, seven days a week, remote access to
mission-critical applications and data required by their businesses. Our
consulting services provide our customers with intranet, extranet and
application hosting solutions, as well as internal networking implementations
and Web development solutions.

         During 1998 and 1999, our strategy has been to rapidly acquire
operating companies in the Web hosting and application hosting services
businesses, to build or acquire data centers, and to integrate the acquired
operations into those data centers. We acquired 17 operating businesses during
1998 and 1999 for total consideration of approximately $87.0 million, including
transaction costs. We have accounted for all acquisitions using the purchase
method of


                                       10
<PAGE>   13
accounting which has resulted in the inclusion of substantial intangible assets
on our balance sheet. Of the total consideration, we paid $7.9 million of
assumed seller debt and have allocated approximately $(9.5) million to tangible
net assets and $88.6 million to intangible assets which are comprised of
covenants not to compete, customer lists, assembled work force, trade names and
goodwill. In accordance with APB 16, an allocation methodology was applied to
each acquisition to determine the value to be assigned to each type of
intangible asset where appropriate. Amounts not allocated to specific intangible
assets have been recorded as goodwill. Recoverability of our investment in
intangible assets is dependent on our ability to operate our businesses
successfully and generate positive cash flows from operations. Annual charges
for amortization of intangible assets with respect to acquisitions completed to
date will be approximately $25.9 million which will result in increased losses
or reduced net income. Additionally, during 1998 we issued stock valued at
approximately $2.6 million as compensation in connection with agreements entered
into with sellers of acquired operating businesses of which $2.0 million has
been charged to operations through June 30, 1999 and substantially all of the
balance will be charged to operations in the second half of 1999. The purchase
consideration for the acquisitions was in the form of cash, stock or a
combination of cash and stock.

         Since our inception in December 1997, we have experienced operating
losses and negative cash flows from operating activities for each quarterly and
annual period. As of June 30, 1999, we had an accumulated deficit of
approximately $32.7 million. Had the companies acquired to date been included
since January 1, 1998, our accumulated deficit would have been approximately
$46.4 million. The revenue and income potential of our business is unproven and
our limited operating history makes an evaluation of us and our prospects
difficult. We anticipate increased operating expenses as we:

         -        expand our sales and marketing initiatives to continue to grow
                  our brands;

         -        fund greater levels of product development;

         -        continue to complete and equip our data centers;

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

         -        continue our acquisition program.

Although we have experienced revenue growth, primarily attributable to
acquisitions, we do not believe that this growth is necessarily indicative of
future operating results. Future acquisitions are expected to increase operating
expenses and operating losses and as a result, we expect to continue to incur
operating losses for the foreseeable future. We cannot assure you that we will
ever achieve profitability on a quarterly or annual basis, or, if achieved, that
we will sustain profitability.

RESULTS OF OPERATIONS

         We derive our revenues from Web hosting, enhanced Internet services and
consulting services. In March 1999, we acquired Interliant Texas to enter the
application hosting market. Revenues for our Web hosting business consist
primarily of hosting fees and setup fees, which cover costs incurred by us to
establish a customer's Web site. We provide virtual, dedicated and co-located
hosting. We charge our Web hosting customers a fixed amount for bandwidth
availability and incremental fees if those fixed amounts are exceeded. In
addition, our virtual Web hosting customers are also charged for disk space on a
server, dedicated hosting customers are charged for use of one or more dedicated
servers and our co-located customers are charged for the amount of physical
space such co-located customers' servers occupy. We charge flat rates for our
enhanced Internet services. For application hosting, our revenues are comprised
primarily of monthly usage fees per number of end users, including bandwidth
fees. For our consulting services, charges are generally fee-based on time and
materials basis.


         Our contracts with our Web hosting customers typically range in length
from month-to-month to one year, a large proportion of which are cancelable by
either party with 30 days' notice.


                                       11
<PAGE>   14
Our contracts with our application hosting customers typically range in length
from one year to three years. Revenues derived from hosting are recognized
ratably over the applicable contractual period. Payments received and billings
in advance of providing services are deferred until such services are provided.
Revenues from consulting services are recognized as the services are rendered.
Substantially all of our consulting contracts call for billings on a time and
materials basis. We are aware that the Staff of the Securities and Exchange
Commission is developing a Staff Accounting Bulletin on the topic of revenue
recognition. There can be no assurance as to what revenue recognition policies
will be required by the Staff when that Bulletin is released. If that Bulletin
requires revenue recognition policies different from those we are currently
using, our results of operations may be affected.

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

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

General and administrative expense includes the cost of customer service
functions and also includes:

         -        finance;

         -        accounting;

         -        human resources;

         -        legal and executive salaries;

         -        acquisition integration costs; and

         -        fees paid for professional services and corporate overhead.


THREE MONTHS ENDED JUNE 30, 1999 AND 1998

Service revenues

         Service revenues were $10.6 million for the three months ended June 30,
1999, representing an increase of $9.8 million from the comparable 1998 period.
The increase in service revenues was due primarily to the 16 acquisitions
consummated during the last three quarters of 1998 and the first six months of
1999.

Cost of Revenues

         Cost of revenues increased by $5.6 million to $6.1 million for the
three months ended June 30, 1999. This increase was attributable to the 16
acquisitions consummated during the last three quarters of 1998 and the first
six months of 1999. In the future, cost of revenues may fluctuate due to
capacity utilization, the timing of investments in data centers, changes in the
mix of services, fluctuations in bandwidth costs and increased levels of
staffing to support anticipated revenue growth.

Sales and Marketing

         Sales and marketing expense increased by $3.7 million to $4.1 million
for the three months ended June 30, 1999. This increase was attributable to the
16 acquisitions consummated during the last three quarters of 1998 and the first
six months of 1999. A key component of our strategy is to significantly increase
our sales and marketing activities for application hosting and


                                       12
<PAGE>   15
Web hosting products. This will include the expansion of our sales force,
development of reseller and referral partner channels and increased marketing
efforts to grow recognition of our brands. As a result, sales and marketing
expenses are expected to increase substantially in future periods to support
anticipated revenue growth.

General and Administrative

         General and administrative expense increased by $5.4 million to $6.7
million for the three months ended June 30, 1999. This increase in general and
administrative expense was attributable to the 16 acquisitions consummated
during the last three quarters of 1998 and the first six months of 1999, and
increased investments in infrastructure and levels of staffing to implement
centralized billing, accounting, human resources and customer service systems to
integrate the operations of acquired companies. Substantial staffing and related
increases are expected to continue in future periods in order to support
anticipated revenue growth.

Depreciation

         Depreciation expense increased by $1.3 million to $1.4 million for the
three months ended June 30, 1999. This increase in depreciation expense was
attributable to the 16 acquisitions consummated during the last three quarters
of 1998 and the first six months of 1999, and investment in plant and equipment
by us to complete one of our primary data centers in Atlanta, Georgia. We expect
depreciation expense to increase in the future as we continue to invest in data
centers and systems to integrate future acquisitions and support future growth.

Amortization

         Amortization expense increased by $5.8 million to $6.2 million for the
three months ended June 30, 1999. This increase in amortization expense was
attributable to the 16 acquisitions consummated during the last three quarters
of 1998 and the first six months of 1999. We expect amortization expense to
increase in future periods as we continue to make additional acquisitions as
well as reflect amortization of intangibles associated with acquisitions
consummated to date.

SIX MONTHS ENDED JUNE 30, 1999 AND 1998

Service revenues

         Service revenues were $16.1 million for the six months ended June 30,
1999, representing an increase of $15.2 million from the comparable 1998 period.
The increase in revenues was due primarily to the 16 acquisitions consummated
during the last three quarters of 1998 and the first six months of 1999.

         On a pro forma basis, giving effect to acquisitions completed to date,
revenues for the six months ended June 30, 1999 and 1998 were $21.8 million for
each period. Excluding a one-time sale of internally developed intellectual
property in the amount of $2.0 million in the 1998 period, revenues increased by
$2.0 million, or 9.3%. Revenues for the Web hosting segment increased
approximately $1.7 million, primarily as a result of increased marketing and
advertising efforts. Revenues for the application hosting segment decreased by
approximately $2.0 million, due substantially to the one-time sale of internally
developed intellectual property described above.

         For the six months ended June 30, 1999, on a pro forma basis and giving
effect to acquisitions completed to date:

         -        Web hosting revenues comprised 36% of our revenues;

         -        Application hosting revenues comprised 44% of our revenues;

         -        Consulting services revenues comprised 13% of our revenues;
                  and


                                       13
<PAGE>   16
         -        Revenues from disk space, excess bandwidth and one-time
                  implementation fees have each been de minimis.

Cost of Revenues

         Cost of revenues increased by $8.8 million to $9.3 million for the six
months ended June 30, 1999. This increase was due primarily to the 16
acquisitions consummated during the last three quarters of 1998 and the first
six months of 1999. In the future, cost of revenues may fluctuate due to
capacity utilization, the timing of investments in data centers, changes in the
mix of services, fluctuations in bandwidth costs and increased levels of
staffing to support anticipated revenue growth.

         On a pro forma basis, giving effect to acquisitions completed to date,
cost of revenues for the six months ended June 30, 1999 and 1998 were $12.2
million and $9.8 million, respectively. Cost of revenues for the Web hosting
segment increased approximately $2.4 million for the six months ended June 30,
1999, primarily related to operating costs of our Atlanta, Georgia data center,
which was completed during the first quarter of 1999.

Sales and Marketing

         Sales and marketing expense increased by $5.4 million to $6.0 million
for the six months ended June 30, 1999. This increase was attributable to the 16
acquisitions consummated during the last three quarters of 1998 and the first
six months of 1999. A key component of our strategy is to significantly increase
our sales and marketing activities for application hosting and Web hosting
products. This will include the expansion of our sales force, development of
reseller and referral partner channels and increased marketing efforts to grow
recognition of our brands. As a result, sales and marketing expenses will
increase substantially in future periods to support anticipated revenue growth.

         On a pro forma basis, giving effect to acquisitions completed to date,
sales and marketing expense for the six months ended June 30, 1999 and 1998 was
$7.7 million and $3.8 million, respectively. Sales and marketing costs increased
by approximately $3.9 million, reflecting increases in all operating segments
during the six months ended June 30, 1999. Such increases were the result of
increased staffing levels and increased marketing and advertising activities.

General and Administrative

         General and administrative expense increased by $9.8 million to $11.5
million for the six months ended June 30, 1999. This increase in general and
administrative expense was attributable to the 16 acquisitions consummated
during the last three quarters of 1998 and the first six months of 1999, and
increased investments in infrastructure and levels of staffing to implement
centralized billing, accounting, human resources and customer service systems to
integrate the operations of acquired companies. Substantial staffing and related
increases are expected to continue in future periods in order to support
anticipated revenue growth.

         On a pro forma basis, giving effect to acquisitions completed to date,
general and administrative expense for the six months ended June 30, 1999 and
1998 was $13.8 million and $11.2 million, respectively. General and
administrative costs increased by $2.6 million, mainly from increased
investments in infrastructure and levels of staffing to implement centralized
billing, accounting, human resources and customer service systems to integrate
the operations of acquired companies.

Depreciation

         Depreciation expense increased by $2.0 million to $2.1 million for the
six months ended June 30, 1999. The increase in depreciation expense was
attributable to the 16 acquisitions


                                       14
<PAGE>   17
consummated during the last three quarters of 1998 and the first six months of
1999 and investment in plant and equipment by us to complete our data center in
Atlanta. We expect depreciation expense to increase in the future as we continue
to invest in data centers and systems to integrate future acquisitions and
support future growth.

         On a pro forma basis, giving effect to acquisitions completed to date,
depreciation expense for the six months ended June 30, 1999 and 1998 was $2.7
million and $1.5 million, respectively. Depreciation expense increased by $1.2
million as a result of increased capital expenditures during the last six months
of 1998 and the first six months of 1999.

Amortization

         Amortization expense increased by $8.4 million to $8.8 million for the
six months ended June 30, 1999. This increase in amortization expense was
attributable to the 16 acquisitions consummated during the last three quarters
of 1998 and the first six months of 1999. We expect amortization expense to
increase in future periods as we continue to make additional acquisitions as
well as reflect amortization of intangibles associated with acquisitions
consummated to date.

         On a pro forma basis, giving effect to acquisitions completed to date,
amortization expense for the six months ended June 30, 1999 and 1998 was $12.9
million for each period.

LIQUIDITY AND CAPITAL RESOURCES

         We have historically financed our operations and acquisitions primarily
from private placements of equity. Net cash used in operations for the six
months ended June 30, 1999 was $5.7 million. This reflects primarily the net
loss for the period of $21.8 million along with changes in operating assets and
liabilities, offset by $2.1 million of depreciation expense and $8.8 million of
amortization of goodwill and other intangible assets. Net cash used for
investing activities for the six month period ended June 30, 1999 was $27.1
million, of which $3.2 million was for purchases of furniture, fixtures and
equipment, and $20.7 million was for acquisitions of businesses. Net cash from
financing activities for the six month period ended June 30, 1999 was $29.4
million, reflecting $29.1 million of proceeds from issuance of common stock and
Series A preferred stock and $1.3 million of proceeds from equipment financing
transactions, less issuance costs and repayment of debt under equipment
financing facilities.

         We had $3.3 million in cash and cash equivalents at June 30, 1999. On
July 7, 1999, we completed our initial public offering (IPO) of common stock for
net proceeds of approximately $72.9 million, after deducting underwriters'
discounts and commissions and estimated offering costs payable by us.

         In connection with our acquisition of Interliant Texas, we assumed a
promissory note in the amount of $8.0 million. Upon the closing of this
acquisition, we canceled the note and replaced it with a note issued by us for
the same principal amount bearing interest at a rate of 9% per annum and payable
in full upon the completion of our IPO. The note, along with accrued interest
thereon, was repaid in full in July 1999 with a portion of the proceeds from the
IPO.

         In connection with our acquisition of Advanced Web Creations, Inc., we
issued a note to the sellers in the amount of $2.4 million which was paid in
full in July 1999 with a portion of the proceeds from the IPO.

         In addition to funding ongoing operations and capital expenditures, our
principal commitments consist of non-cancelable operating leases and contingent
payments of earnouts to certain sellers of operating companies acquired by us.
If all earnout targets are achieved in full, total payments pursuant to all
earnouts will be $1.8 million in cash and 37,481 shares of common stock in 1999
and $1.7 million in cash and 37,481 shares of common stock in 2000.


                                       15
<PAGE>   18
         During 1998, we constructed a data center in Atlanta into which the
majority of the operating businesses we acquired have been or are being
integrated. We believe that this facility has the capacity to service a larger
number of customers than are currently serviced there. The cost of constructing
and equipping this facility was approximately $2.0 million. We intend to
continue investing to construct and equip our data centers as more operating
businesses are acquired and integrated into these facilities, and as sales and
marketing efforts generate internal revenue growth, requiring additional
servers, routers and related equipment. We may decide to construct one or more
additional facilities in 1999, depending upon acquisition activity. For the six
months ended June 30, 1999, our capital expenditures totaled $3.2 million. Our
current anticipated level of capital expenditures for the remainder of 1999 is
expected to range from $15.0 million to $20.0 million, but may vary
significantly from such amounts depending upon acquisitions and changes in
operating plans.

         In June 1999, we entered into a sale/leaseback transaction whereby
certain network and office equipment was financed under equipment leases payable
over thirty-six months, with an effective interest rate of approximately 14%. As
of June 30, 1999 the total proceeds received by us under this arrangement were
approximately $1.3 million. We anticipate that we can finance future equipment
purchases under similar arrangements, however no assurances can be given that
such financing will continue to be available to us.

         At June 30, 1999, restricted cash totaled $1.3 million. In connection
with our acquisition of Interliant Texas, we entered into an Assignment and
Assumption Agreement, dated March 10, 1999, pursuant to which we were assigned
all right, title and interest in and to, and assumed all obligations under, the
lease for one of our primary data centers located in Houston, Texas. In
connection with receiving the landlord's consent to assignment of the lease, we
were required to issue letters of credit in favor of the landlord totaling
approximately $0.6 million to replace the letters of credit previously issued by
Interliant Texas. The aggregate dollar amount which may be drawn upon by the
landlord under these letters of credit shall be reduced at specified dates in
specified amounts such that by August 8, 2000 all of the letters of credit shall
have lapsed. In addition, restricted cash includes approximately $0.5 million
held in escrow in connection with one of our acquisitions and approximately $0.2
million held to secure outstanding letters of credit used as security deposits
on our facilities.

         We believe that our existing cash and cash equivalents together with
the net proceeds from the IPO will be adequate to meet operating needs through
the end of 1999 and will provide enough funds to continue our acquisition
program through 1999 and into 2000. Thereafter, we expect to require additional
financing. If our plans or assumptions change or prove to be inaccurate, we may
be required to seek additional sources of capital or seek additional capital
sooner than currently anticipated. We may also seek to raise additional capital
to take advantage of favorable conditions in the capital markets, however no
assurance can be given that we will be successful in obtaining such financing.
We have no working capital credit line under which we may borrow funds for
working capital or other general corporate purposes.

Interest Rate Risk

         We have limited exposure to financial market risks, including changes
in interest rates. At June 30, 1999, we had short-term investments of
approximately $1.0 million. These short-term investments consist of highly
liquid investments in debt obligations of highly rated entities with maturities
of between one and 90 days. These investments are subject to interest rate risk
and will fall in value if market interest rates increase. We expect to hold
these investments until maturity, and therefore expect to realize the full value
of these investments, even though changes in interest rates may affect their
value prior to maturity. If interest rates decline over time, this will result
in a reduction of our interest as our cash is reinvested at lower rates.


                                       16
<PAGE>   19
YEAR 2000 RISKS
("Y2K Readiness Disclosure")

         Currently, many computer and software products are coded to accept
two-digit entries in the date code field. These date code fields will need to
accept four-digit entries to distinguish 21st century dates from 20th century
dates. As a result, many companies' software and computer systems, including our
own, may need to be upgraded or replaced in order to comply with Year 2000
requirements. If our software and computer systems experience Year 2000-related
problems or failures, our operations could be materially adversely impacted.
Consequently, we are taking steps to ensure that our systems will be Year 2000
compliant in order to mitigate or eliminate such Year 2000-related problems and
failures.

         Our plan to address Year 2000 compliance includes: (i) identifying all
material IT and non-IT systems, (ii) contacting third-party suppliers, vendors,
and licensors of material hardware, software, and services that are both
directly and indirectly related to the delivery of our solutions to customers,
(iii) assessing the significance of those systems and suppliers, and the risk of
a Year 2000-related failure, (iv) obtaining a third-party assessment of our
operations, which is expected to be completed by September 1999, (v) remediating
or replacing material IT and non-IT systems, (vi) quality assurance testing, and
(vii) creating a contingency plan in the event of Year 2000 failures.

         We are in the process of making a preliminary assessment of the Year
2000 readiness of our information technology ("IT") systems, and our non-IT
systems. Our IT systems include the hardware and software that enable us to
provide and deliver our solutions to customers, as well as to operate our
internal infrastructure systems. Our non-IT systems include, without limitation,
electric power, uninterruptable power supplies and generators,
telecommunications services and equipment, and office equipment used in the
operations of our business. We have been informed by our vendors of material
hardware and software components comprising our internal infrastructure IT
systems that such hardware and software is either currently Year 2000 compliant,
or may be upgraded or remediated to render it compliant. We will also seek
assurances of Year 2000 compliance from vendors and providers of our material
non-IT systems. Until our assessment is complete and the responses of such
vendors and providers have been compiled by us, we will not be able to determine
whether, and to what extent, our IT and non-IT systems will need to be upgraded
or replaced in order to render them Year 2000 compliant.

         We are currently assessing the Year 2000 readiness of the hardware and
software used to deliver hosting and Internet services to our customers,
including the Web servers and operating systems on which customer Web sites are
hosted. We are examining the extent to which such servers and systems may
require remediation to be Year 2000 compliant. However, until the assessment is
complete, we cannot, with any certainty, make a determination as to the extent
of the Year 2000 non-compliance of such Web servers and system or the cost of
remediating such non-compliance.

         As part of our plan, an independent, third-party assessment of all of
our IT and non-IT operations is underway. That assessment is expected to be
completed by September 1999, at which time we will continue or begin remediation
efforts to address any findings of such assessment. There is no assurance that
we will complete remediation of all our systems prior to year-end, or that a
Year 2000-related failure, if it were to occur, would not materially adversely
affect us. In addition, there is no assurance that third party software,
hardware or services incorporated into our material IT and non-IT systems will
not need to be revised or replaced, all of which could be material, time
consuming and expensive. Our failure to fix or replace our software, hardware or
services on a timely basis could result in lost revenues, increased operating
costs and the loss of customers and other business interruptions, any of which
could have a material adverse effect on our business. Moreover, the failure to
adequately address Year 2000 compliance issues relating to our IT and non-IT
systems could result in claims of mismanagement, misrepresentation or breach of
contract and related litigation, which could be costly and time-consuming to
defend. In addition, there can be no assurance that governmental


                                       17
<PAGE>   20
agencies, utility companies, telecommunication companies, other Internet service
providers, third party service providers, hardware and software manufacturers
and others outside of our control will be Year 2000 compliant. The failure by
such entities and other third parties to be Year 2000 compliant could result in
a systemic failure beyond our control, such as a prolonged Internet,
telecommunications or electrical failure, which could also prevent us from
delivering services to our customers, decrease the use of the Internet or
prevent users from accessing the Web sites of our customers. Any of these
occurrences could have a material adverse effect on our business.

         While there can be no assurances of their enforceability, the majority
of our customer contracts for our application hosting services have limitations
of liability that may act to decrease our liability. Moreover, under the vast
majority of the acquisition agreements for the Web hosting and other businesses
we have previously acquired, the sellers have provided Year 2000 compliance
representations and warranties and have agreed to indemnify and hold us harmless
against any loss or damage resulting from Year 2000-related claims arising from
the purchased assets. However, there can be no assurance as to our ability to
collect any amounts pursuant to those indemnification provisions.

         To date, we have not incurred any material expenses in connection with
identifying or evaluating Year 2000 compliance issues. Most of the expenses we
have incurred thus far relate to the internal staffing costs associated with the
evaluation process and Year 2000 compliance matters generally. We do not
presently possess the information necessary to estimate the total cost of
revisions to our software and systems should such revisions be required, or the
cost of upgrading or replacing third party software, hardware or services that
are ultimately determined not to be Year 2000 compliant. Consequently, we
currently are unable to assess the potential total costs associated with our
Year 2000 preparedness/readiness efforts. Such expenses could be material and
have a material adverse effect on our business.

         We anticipate completing our contingency plan for Year 2000 compliance
issues by the early part of the fourth quarter of 1999. Upon receipt of the
third-party assessment of our operations and the responses from third-party
vendors and service providers concerning their products which comprise a part of
our IT and non-IT systems, we will immediately begin to develop, implement and
staff an appropriate remediation initiative. Despite our efforts to sufficiently
finance and staff a Year 2000 readiness program, there are no assurances that we
will timely identify and remedy all Year 2000 issues. There is also no assurance
that, despite our efforts, our business will not be materially adversely
affected by Year 2000 problems.


                                       18
<PAGE>   21
PART II.   OTHER INFORMATION

                                INTERLIANT, INC.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

(c)      In the six months ended June 30, 1999, options to purchase 588,183
shares of Common Stock were exercised at a weighted average exercise price of
$0.18 per share.

(d)      Use of Proceeds from Sales of Registered Securities.

         On July 13, 1999, we completed an initial public offering of our common
stock (the "IPO"). The managing underwriters in the IPO were Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Donaldson, Lufkin & Jenrette and CIBC World
Markets Corp. ("Underwriters"). The IPO was registered under the Securities Act
of 1933, as amended pursuant to a registration statement on Form S-1 (Number
333-74403) (the "Registration Statement"). The Registration Statement was
declared effective by the Securities and Exchange Commission (the "SEC") on July
7, 1999. On July 8, 1999, we commenced the IPO. We sold all of the 8,050,000
shares of common stock, including 1,050,000 shares sold pursuant to the
underwriters' over-allotment option. The offering price was $10.00 per share for
an aggregate price of $80.5 million, before underwriters' discounts and
commissions and offering costs payable by us. From the effective date of the
Registration Statement to August 1, 1999, we paid an aggregate of $5.6 million
in underwriting discounts and commissions.

         In addition, the following table sets forth an estimate of all expenses
incurred in connection with the IPO, other than underwriting discounts and
commissions. All of the amounts shown are estimated except for the registration
fees of the SEC, the National Association of Securities Dealers, Inc. (the
"NASD") and the Nasdaq National Market. None of the amounts shown were paid
directly or indirectly to any of our directors, officers, general partners or
their associates, persons owning 10 percent or more of any class of our equity
securities, or an affiliate of ours.

<TABLE>
<S>                                                                   <C>
Registration Fee -- Securities and Exchange Commission .......        $   21,375
NASD Filing Fee ..............................................             9,125
Blue Sky fees and expenses ...................................             1,000
Accountants' fees and expenses ...............................           400,000
Legal fees and expenses ......................................           800,000
Printing and engraving expenses ..............................           750,000
Transfer agent and registrar fees ............................             5,000

Miscellaneous ................................................            13,500
                                                                      ----------
         Total ...............................................        $2,000,000
                                                                      ==========
</TABLE>

         After deducting the underwriting discounts and commissions and the IPO
expenses described above, net proceeds to us from the IPO were approximately
$72.9 million.

         As of August 1, 1999, we used net proceeds of the IPO as follows:

         -        $8.0 million for repayment in full of a 9% promissory note
                  issued in connection with the acquisition of Interliant Texas.

         -        $2.4 million for repayment in full of a promissory note,
                  bearing interest at the prime rate, issued in connection with
                  the acquisition of Advanced Web Creations, Inc.

         -        $4.1 million for working capital.


                                       19
<PAGE>   22
         The balance of the net proceeds of the IPO will be used for
acquisitions, capital expenditures, including completing and equipping our data
centers, and working capital and general corporate purposes.



ITEM 5. OTHER INFORMATION.

                  For information concerning acquisitions refer to Footnote 5 to
         the Condensed Consolidated Financial Statements for the six months
         ended June 30, 1999, included in Part I of this Form 10-Q and
         incorporated herein by reference.


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

                  (a.)     Exhibits -

                           Exhibit 27 - Financial Data Schedule

                  (b.)     Reports on Form 8-K

                           None


                                       20
<PAGE>   23
                                   SIGNATURES



Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                     Interliant, Inc.


Date:  August 13, 1999               /s/ James M. Lidestri
                                     ------------------------------------------
                                     James M. Lidestri
                                     President


Date:  August 13, 1999               /s/ William A. Wilson
                                     -----------------------------------------
                                     William A. Wilson
                                     Chief Financial Officer


Date:  August 13, 1999               /s/ Paul E. Chollett
                                     -----------------------------------------
                                     Paul E. Chollett
                                     Senior Vice President, Finance and
                                     Chief Accounting Officer

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