<PAGE>

                                  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 March 31, 2001

[_]    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  X   No __.

  The number of shares outstanding of the Registrant's Common Stock as of April
30, 2001 was 49,699,121.

--------------------------------------------------------------------------------
<PAGE>

                                INTERLIANT, INC.

                                      INDEX

                                                                  PAGE NO.
                                                                  --------
PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets as of
 March 31, 2001 and December 31, 2000                                   1

Condensed Consolidated Statements of Operations
  for the Three Months Ended March 31, 2001 and 2000                    2

Condensed Consolidated Statements of Cash Flows
  for the Three Months Ended March 31, 2001 and 2000                    3

Notes to Condensed Consolidated Financial Statements                    4

Item 2.  Management's Discussion and Analysis of Financial
  Condition and Results of Operations                                  11

Item 2. Quantitative and Qualitative  Disclosure of Market Risk        21


PART II.  OTHER INFORMATION                                            22

Item 2.  Changes in Securities and Use of Proceeds

Item 6.  Exhibits and Reports on Form 8-K



<PAGE>

                                INTERLIANT, INC.

                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                       March 31,                December 31,
                                                                         2001                       2000
                                                                -----------------------     ---------------------
                                                                      (unaudited)
Assets
Current assets:
<S>                                                               <C>                         <C>
 Cash and cash equivalents                                        $         17,743,645        $       26,678,329
 Restricted cash                                                             1,599,873                 1,557,529
 Short-term investments                                                     29,792,332                53,233,387
 Accounts receivable, net                                                   29,741,941                35,032,640
 Prepaid and other current assets                                            9,171,837                10,473,251
 Payroll and benefit funds held for customers                                5,264,463                 3,862,856
                                                                -----------------------     ---------------------
      Total current assets                                                  93,314,091               130,837,992
                                                                -----------------------     ---------------------

 Fixed assets, net                                                          74,405,631                77,023,282
 Intangibles, net                                                           87,450,848               126,389,311
 Other assets                                                                7,598,892                 8,101,395
                                                                -----------------------     ---------------------
      Total assets                                                $        262,769,462        $      342,351,980
                                                                =======================     =====================

Liabilities and stockholders' equity Current liabilities:

  Notes payable and current portion of long-term debt             $         14,060,506        $       11,789,385
  Accounts payable                                                          13,082,464                10,691,074
  Accrued expenses                                                          26,267,670                36,610,486
  Deferred revenue                                                           9,603,858                 7,989,950
  Payroll and benefit funds held for customers                               5,264,463                 3,862,856
  Restructuring reserve                                                        420,703                 1,042,555
                                                                -----------------------     ---------------------
      Total current liabilities                                             68,699,664                71,986,306
                                                                -----------------------     ---------------------

Long-term debt, less current portion                                        15,250,115                12,839,647
7% Convertible Subordinated Notes                                          164,825,000               164,825,000
Other long-term liabilities                                                    195,961                   195,961
Minority interest in subsidiary                                              3,542,765                 5,227,593

Stockholders' equity:
  Common stock                                                                 494,501                   487,962
  Additional paid-in capital                                               322,337,253               319,821,622
  Deferred Compensation                                                    (14,111,829)              (16,336,488)
  Accumulated deficit                                                     (297,273,667)             (216,051,382)
  Accumulated other comprehensive loss                                      (1,190,301)                 (644,241)
                                                                -----------------------     ---------------------
      Total stockholders' equity                                            10,255,957                87,277,473
                                                                -----------------------     ---------------------

      Total liabilities and stockholders' equity                  $        262,769,462        $      342,351,980
                                                                =======================     =====================
</TABLE>

      See accompanying notes to condensed consolidated financial statements

                                       1
<PAGE>



                                INTERLIANT, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                                   (unaudited)

<TABLE>
<CAPTION>
                                                                                     Three Months Ended
                                                                                         March 31,
                                                                      ------------------------------------------------
                                                                              2001                      2000
                                                                      ---------------------     ----------------------

 Revenues:
<S>                                                                     <C>                       <C>
   Service revenues                                                     $       33,342,443        $        21,440,686
   Product revenues                                                              6,227,124                  5,417,481
                                                                      ---------------------     ----------------------
      Total revenues                                                            39,569,567                 26,858,167

Costs and expenses:
  Cost of service revenue                                                       23,995,785                 13,926,954
  Cost of product revenue                                                        5,005,363                  4,606,662
  Sales and marketing                                                           13,101,054                  7,999,118
  General and administrative (exclusive of non-cash
    compensation shown below)                                                   18,496,359                 11,339,031
  Non-cash compensation                                                          2,354,659                  4,453,187
  Depreciation                                                                   8,164,192                  2,466,533
  Amortization of intangibles                                                   12,571,217                  9,316,043
  Impairment loss on long-lived assets                                          36,200,000
                                                                      ---------------------     ----------------------
                                                                               119,888,629                 54,107,528
                                                                      ---------------------     ----------------------

Operating loss                                                                 (80,319,062)               (27,249,361)
Other income, net                                                                  454,470
Interest income (expense), net                                                  (2,980,707)                  (111,892)
                                                                      ---------------------     ----------------------
Loss before minority interest and cumulative effect
  of accounting change                                                         (82,845,299)               (27,361,253)

Minority interest                                                                1,623,013
                                                                      ---------------------     ----------------------

Loss before cumulative effect of accounting change                             (81,222,286)               (27,361,253)

Cumulative effect of accounting change                                                   -                 (1,219,712)

                                                                      ---------------------     ----------------------
Net loss                                                                $      (81,222,286)       $       (28,580,965)
                                                                      =====================     ======================

Basic and diluted loss per share:

  Loss before cumulative effect of accounting change                               $ (1.65)                   $ (0.59)
  Cumulative effect of accounting change                                                 -                      (0.03)
                                                                      ---------------------     ----------------------
  Net loss                                                                         $ (1.65)                   $ (0.62)
                                                                      =====================     ======================


Weighted average shares outstanding - basic and diluted                         49,150,034                 45,989,468
                                                                      =====================     ======================
</TABLE>

      See accompanying notes to condensed consolidated financial statements

                                       2
<PAGE>
                                INTERLIANT, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                                       Three Months Ended
                                                                                            March 31,
                                                                         -----------------------------------------------
                                                                                 2001                      2000
                                                                         ---------------------      --------------------
Operating activities
<S>                                                                        <C>                        <C>
  Net cash used in operating activities                                    $      (15,961,277)        $     (13,715,082)
                                                                         ---------------------      --------------------

Investing activities
  Purchases of fixed assets                                                       (13,541,380)               (6,464,743)
  Sales and purchases of short-term investments, net                               23,441,055               (96,794,431)
  Acquisitions of businesses, net of cash acquired                                 (1,058,301)              (18,869,248)
                                                                         ---------------------      --------------------
  Net cash provided by (used in) investing activities                               8,841,374              (122,128,422)
                                                                         ---------------------      --------------------

Financing activities
  Proceeds from sale of common stock                                                                         26,833,766
  Proceeds from issuance of 7% Subordinated Convertible Notes                                               158,848,179
  Proceeds from exercise of options                                                    10,129
  Proceeds from issuance of debt and capital lease financing                        2,295,907                   936,544
  Repayment of debt and capital lease obligations                                  (3,880,607)                 (511,015)
                                                                         ---------------------      --------------------
  Net cash (used in) provided by financing activities                              (1,574,571)              186,107,474
                                                                         ---------------------      --------------------

Effect of exchange rate changes on cash                                              (240,210)

Net (decrease) increase in cash and cash equivalents                               (8,934,684)               50,263,970
Cash and cash equivalents at beginning of period                                   26,678,329                27,608,039
                                                                         ---------------------      --------------------
Cash and cash equivalents at end of period                                 $       17,743,645         $      77,872,009
                                                                         =====================      ====================
</TABLE>

      See accompanying notes to condensed consolidated financial statements

                                       3
<PAGE>

                                Interliant, Inc.

              Notes to Condensed Consolidated Financial Statements
                           March 31, 2001 (unaudited)


1. BUSINESS

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

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

     For the period from inception to March 31, 2001, the Company has incurred
net losses and negative cash flows from operations, and also has expended
significant funds for capital expenditures (property and equipment) and the
acquisition of businesses. The Company's principal sources of cash to fund the
aforementioned activities has been from the sale of $152.3 million in Common and
Preferred Stock in public and private sales and the sale of $164.8 million of
Convertible Subordinated Notes. As of March 31, 2001, the Company had $47.5
million in cash, cash equivalents and short-term investments, of which $43.8
million is available for use by the Company's wholly-owned businesses; $3.7
million is available for use by the Company's 51% owned subsidiary, Interliant
Europe B.V. The Company's financial forecast indicates that such funds on hand
at March 31, 2001, will not alone be sufficient to fund operations, including
expected restructuring costs, through March 31, 2002.

     The Company has entered into definitive agreements for the $20 Million
Funding (see Note 9). The Company believes that the funds on hand as of March
31, 2001, combined with the committed $20 Million Funding, will be sufficient to
fund its operations and meet its obligations through 2001. Thereafter, it is
highly likely that the Company will need to raise additional cash to fund its
operations and meet its obligations. In March 2001, the Company made a decision
to offer for sale certain businesses and assets, which it no longer considers
core to its ongoing business plans. The proceeds, if any, from such sales will
be used to fund the Company's ongoing operations (see Note 9).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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

Interim Financial Information

     The accompanying unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
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 accounting principles
generally accepted in the United States. The interim financial information

                                       4
<PAGE>
as of March 31, 2001 and for the three-month periods ended March 31, 2001 and
2000 is unaudited and has been prepared on the same basis as the audited
consolidated financial statements included in the Company's annual report on
Form 10-K for the year ended December 31, 2000. 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, 2000 has been derived from the audited
consolidated financial statements at that date but does not include all of the
information and footnotes required by accounting principles generally accepted
in the United States 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 Annual Report on Form 10-K.
Operating results for the three month period ended March 31, 2001 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2001.

Accounting Change

     In December 1999, the SEC issued Staff Accounting Bulletin 101, Revenue
Recognition in Financial Statements (SAB 101), which provides guidance related
to revenue recognition. In connection therewith, the Company recorded a
cumulative effect change in accounting principle, effective January 1, 2000, for
revenue recognized in 1999 for set up fees associated with Web hosting and
application hosting services. Effective January 1, 2000, such fees are being
amortized over the longer of the contractual period or expected life of the
customer relationship. For the three months ended March 31, 2000, the Company
recorded a cumulative effect charge of $1.2 million to reflect the change in
accounting principle.

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 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, warrants and conversion of notes are
anti-dilutive for the periods presented.

3. ACQUISITIONS

     During the three months ended March 31, 2001, the Company did not
consummate any acquisitions. The following unaudited condensed pro forma
information presents the unaudited results of operations of the Company as if
the acquisitions completed in 2000 had occurred on January 1, 2000:


                                       5
<PAGE>
<TABLE>
<CAPTION>
                                                                          Three Months Ended
                                                                             March 31,
                                                             ------------------------------------------
                                                                   2001                   2000
                                                             -------------------    -------------------
                                                              (in thousands, except per share data)
<S>                                                             <C>                    <C>
Revenues                                                        $ 39,570               $ 38,445
Loss before cumulative effect of accounting change               (81,222)               (33,525)
Net loss                                                         (81,222)               (34,725)

Loss per share before cumulative effect
   of accounting change - basic and diluted                     $  (1.65)              $  (0.71)
Net loss per share - basic and diluted                          $  (1.65)              $  (0.74)
</TABLE>



4. DEBT

     During the three months ended March 31, 2001, the Company financed
approximately $8.4 million of computer equipment and furniture with various
lenders under capital lease arrangements. The leases are payable in monthly
installments over 24 to 36 months, with interest rates ranging from 11% to 17%
per annum.

5. STOCKHOLDERS' EQUITY

Common Stock

     During the three months ended March 31, 2001, the Company issued
approximately 0.7 million shares of Common Stock in connection the attainment of
performance-based earnout targets for the period ended December 31, 2000. Such
contingent consideration was accrued as of December 31, 2000 and recorded as
additional purchase price (goodwill).

Stock Options

     During the three months ended March 31, 2001, under the 1998 Stock Option
Plan (the "Plan"), the Company granted options to purchase 2.3 million shares of
Common Stock at exercise prices ranging from $1.88 to $4.09 per share. The
weighted-average exercise price of the options granted was $3.17 per share.

     During the three months ended March 31, 2001, options to purchase 3,913
shares of Common Stock under the Plan were exercised. As of March 31, 2001,
options to purchase 5.1 million shares of Common Stock under the Plan were
outstanding, of which options to purchase 0.4 million shares were vested.

     During the first quarter of 2001, the Company issued to certain Company
executives options to purchase 1.4 million shares of Common Stock, of which, 0.3
million shares were immediately vested, at exercise prices ranging from $3.25 to
$3.56 per share. Such options were issued outside of the Plan.

     In January 2000, the Company issued its CEO options to purchase 1.5 million
shares of Common Stock at an average exercise price of $18.00 per share. Such
options were issued outside of the Plan. The average exercise price of the
options was below the fair value of the Common Stock as of the measurement date,
which would result in the recognition of approximately $30.0 million as
compensation expense over the four-year vesting period of the options on a
graded vesting basis. For the three months ended March 31, 2001, the Company
expensed $2.4 million under this arrangement. In April 2001, the CEO terminated
his

                                       6
<PAGE>
employment with the Company. In connection therewith, the Company will record an
adjustment in the quarter ending June 30, 2001 to reverse compensation charges
aggregating approximately $9.3 million, which were recorded during 2000 and the
quarter ended March 31, 2001, which reflects the excess of the charge recognized
on a graded vesting basis over the intrinsic value of his vested options.

6. SEGMENT INFORMATION

     The Company currently has three reportable segments: application hosting,
Web hosting, and ASP professional services. The summary unaudited results of
operations for the three months ended March 31, 2001 and 2000 for each of the
segments is shown below.

<TABLE>
<CAPTION>
                                                        Three Months Ended
                                                            March 31,
                                           ---------------------------------------------
                                                  2001                     2000
                                           --------------------     --------------------
                                                          (in thousands)
Revenues from external customers:
<S>                                                   <C>                       <C>
  Application hosting                        $          11,486        $           6,394
  Web hosting                                            4,027                    5,770
  ASP professional services                             21,867                   13,813
  Other                                                  2,190                      881
                                           --------------------     --------------------
    Total                                    $          39,570        $          26,858
                                           ====================     ====================

Operating income (loss):
  Application hosting                        $          (7,542)       $          (4,201)
  Web hosting                                           (4,983)                  (2,845)
  ASP professional services                                439                      716
  Other                                                (68,233)                 (20,919)
                                           --------------------     --------------------
    Total                                    $         (80,319)       $         (27,249)
                                           ====================     ====================
</TABLE>


<TABLE>
<CAPTION>
                                             March 31, 2001          December 31, 2000
                                           --------------------     --------------------
Segment assets:
<S>                                                   <C>                      <C>
  Application hosting                        $          45,865        $          54,187
  Web hosting                                           23,275                   17,281
  ASP professional services                             36,297                   32,376
  Other                                                157,332                  238,508
                                           --------------------     --------------------
    Total                                    $         262,769        $         342,352
                                           ====================     ====================
</TABLE>



     The Company's management generally reviews the results of operations of
each segment exclusive of depreciation and amortization (aggregating $20.7
million and $11.8 million, respectively, for the three months ended March 31,
2001 and 2000), corporate expenses, non-cash compensation and interest related
to each segment. Accordingly, such expenses are excluded from the segment
operating income (loss) and are shown under the Other caption. In addition, all
intangible assets and corporate assets of the Company are included in the Other
caption in segment assets. The Other caption for the 2001 period includes $36.2
million of charges associated with long-lived asset impairment loss (see Note
8).

     The Company believes that the reportable segments may change in future
periods as management continues to integrate acquisitions and further develop
and enhance its service offerings.


                                       7
<PAGE>
7. RESTRUCTURING CHARGE - SEPTEMBER 2000

     In September 2000, the Company announced a plan to accelerate its
acquisition integration program by consolidating geographically dispersed
functions. The plan includes the elimination of approximately 300 jobs including
employee attrition, the exit of certain leased facilities and other related
contractual arrangements, and the termination of a software development project.
The workforce reduction plan included reductions in operations and information
systems, customer care, sales, marketing, business development, finance and
administration. Consequently, the Company recorded a charge of $2.5 million for
the three months ended September 30, 2000. As of March 31, 2001, 137 employees
were terminated and approximately $2.1 million of the restructuring reserve was
utilized.

The following table summarizes the status of the restructuring reserve by major
component:


<TABLE>
<CAPTION>
                                                    Total Reserve               Charges              Reserve Balance at
                                                charged to expense          Against Reserve            March 31, 2001
                                                ------------------          ---------------            --------------
                                                                             (in thousands)
<S>                                                            <C>                    <C>                           <C>
    Severance and related costs                   $              1,802     $            (1,396)(1)   $                406
    Facilities' exit and related costs                             309                    (185)                       124
    Capitalized software writeoff                                  389                    (499)                      (110)
                                                -----------------------  ----------------------    -----------------------
      Total                                       $              2,500     $            (2,080)      $                420
                                                =======================  ======================    =======================

    (1) represents cash payments to terminated employees
</TABLE>

8. ASSET IMPAIRMENT LOSSES

     In response to certain events and circumstances that transpired in the
first quarter of 2001 (see Note 9), the Company performed a review of its
long-lived assets to ascertain if such decisions resulted in an impairment in
its long-lived assets pursuant to Statement of Financial Accounting Standards
No. (SFAS) 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, and SEC Staff Accounting Bulletin No. 100
(SAB 100), Restructuring and Impairment Charges.

     An impairment assessment was made with respect to the long-lived assets
associated with businesses to be sold or shut down. The assessment indicated
that, on a held for use basis, there was impairment evident in such assets.
Further, based on the Company's assessment of both internal and external facts
and circumstances to which the impairment was attributable, management concluded
that the impairment indicators arose in the latter half of the first quarter of
2001. Consequently, the Company recorded an impairment charge in the first
quarter of 2001 of $36.2 million. It is reasonably possible that the ultimate
charge will vary considerably depending on a number of factors, such as the
timing and manner of planned disposition (ie., sale or shut down) of the exited
businesses and the amount of proceeds realized, if any, from their sale, and the
costs associated with the shut downs, as the case may be. Long-lived assets that
are impaired consist of property and equipment, identifiable intangible assets
and related goodwill. For purposes of measuring the potential impairment charge,
fair value was determined based on a calculation of discounted cash flows.

     In connection with the above events and circumstances, management also has
re-evaluated the assigned lives used for depreciating and amortizing, as the
case may be, its long-lived assets of its ongoing businesses and has concluded
that the existing lives continue to be appropriate.


                                       8
<PAGE>
9. SUBSEQUENT EVENTS

Funding Commitments
-------------------

     On April 16, 2001, the Company entered into a definitive agreement
(Agreement) with affiliates of Charterhouse Group International, Inc.
(Charterhouse) and SOFTBANK Technology Ventures VI, L.P. and its related funds
(Softbank) under which they agreed to purchase, in the aggregate, 190 units
(Units), each Unit consisting of $100,000 principal amount of 8% Convertible
Subordinated Notes (Notes) and 27,273 warrants (Warrants) for the purchase of
shares of Common Stock for a total sales price of $19.0 million. Under the
Agreement, the Company has the right to require Charterhouse and Softbank to
purchase their respective share of the Units, or a portion thereof, through
April 17, 2002.

     The Notes are convertible at the option of the holder, at any time prior to
maturity, into Common Stock at a conversion price of $1.10 per share, subject to
adjustment, which is equal to 90,909.09 shares of Common Stock, per $100,000
principal amount of the Notes. Interest payments will be payable on the last day
of each calendar quarter by the issuance of additional Notes. The Notes mature
on June 30, 2003. The Warrants have an exercise price of $1.25 per share and
expire five years after issuance. The fair value of the Warrants, which will be
allocated to the total proceeds received, assuming the sale of all Units, will
be approximately $4.9 million. In addition, the Notes contain a beneficial
conversion feature which will amount to approximately $4.9 million, assuming the
sale of all Units. Such amounts will be charged to interest expense commencing
with the sale of the Notes.

     At the same time, the Company entered into a definitive agreement with EYT,
Inc. (EYT), an entity controlled by Charterhouse and Softbank, under which EYT
committed to repurchase from the Company its investment in EYT for a purchase
price of $1 million, which approximates the Company's cost of such investment.
This asset is classified as other assets on the Company's balance sheet as of
March 31, 2001. The closing of the EYT transaction shall take place
contemporaneously with the closing of the first sale of Units to Charterhouse
and Softbank. The above transactions are collectively referred to herein as the
"$20 Million Funding."

Recent Business Developments; Business Restructuring
----------------------------------------------------

     Based on a decision reached by management and the Board of Directors in
late March 2001, on April 2, 2001 the Company announced a restructuring plan
(the "April Plan" or "restructuring") to further streamline the business by
narrowing its services focus to a core set of offerings. The April Plan
comprises a workforce reduction and the exit of certain non-core businesses.

     The April Plan is being executed in two phases. Phase 1, which began on
April 3, 2001, consists of a workforce reduction of approximately 190 additional
positions, and will result in a charge for payment of severance and related
costs of approximately $2.1 million. This charge will be recognized in the
quarter ending June 30, 2001.

     Phase 2 of the April Plan includes exiting, via sale, certain businesses
that the Company determined to be outside of its redefined scope of service
offerings. Currently, no purchase and sale agreements have been entered into for
any business that the Company plans to sell. The businesses to be exited include
the Enterprise Resource Planning (ERP) and Customer Relationship Management
(CRM) product lines of the application hosting and ASP professional services
segments of the Company. If the divestiture efforts are not successful in the
near-term, the Company expects to close some of the businesses by the end of the
third quarter of 2001. Businesses not closed will continue to be operated with
reduced cost structures resulting, in part, from the Phase 1 workforce
reductions.


                                       9
<PAGE>
     The costs associated with exiting these businesses will likely include the
termination of additional employees and the settlement of certain contractual
obligations. While the costs of exiting the business will vary depending on the
manner of disposition, the Company believes that, in the event of a shut down of
certain businesses, the exit costs could range as follows: workforce reductions
($1.0 million to $2.0 million) and termination of facility leases and other
contractual obligations ($1.0 million to $8.0 million). The Company will not
recognize a restructuring charge for the qualifying costs associated with the
Phase 2 actions until the criteria required under EITF 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring), and SAB 100 are
met, which is likely to be in the second or third quarter of 2001.


                                       10
<PAGE>
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 in this report and in other filings by the
Company with the Securities and Exchange Commission, including, without
limitation, the Company's Annual Report on Form 10-K for the year ended December
31, 2000, important factors to consider in evaluating such forward-looking
statements include but are not limited to: the uncertainty that demand for our
services will increase and other competitive market factors; changes in our
business strategy; an inability to execute our strategy due to changes in the
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 businesses; difficulties in retaining and attracting new
employees or customers; difficulties in developing or deploying new services;
risks associated with rapidly changing technology; and various other factors
that may prevent us from competing successfully or profitably 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 leading global application service provider, or ASP, providing our
customers with a focused suite of outsourced e-business solutions. As an ASP, we
provide managed services for complex hosted applications to multiple end users
from our data centers across a wide area network. Our customers face significant
challenges in doing business on the Internet due to its technical complexity,
their lack of technical skills, the time necessary to implement solutions and
the cost of implementation and ongoing support. By providing outsourced
solutions that combine our hosting infrastructure with professional services
expertise, we can rapidly design, implement, deploy and effectively manage
cost-effective solutions for our customers.

     We offer our customers a suite of services focused on their non-core but
critical business functions enabling them to focus on their own core
competencies. The following are the principal services and products we provide
to our customers:

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

o    a focused suite of business solutions that include Collaboration, Managed
     Hosting and Security;


                                       11
<PAGE>
o    professional services for designing, implementing and deploying these and
     other Internet-based applications; and

o    operations support, systems and applications management, and customer
     services.

     Since our inception we have acquired 27 operating companies providing
application hosting, Web hosting and ASP professional services solutions, for
total consideration of approximately $211.3 million. We have built or acquired
our data centers and have integrated all or part of the acquired hosting
operations into those data centers. The acquisitions have been accounted for
using the purchase method of accounting, which has resulted in the recognition,
as of March 31, 2001, of approximately $198.3 million of intangible assets,
excluding charges associated with asset impairment losses. Recoverability of our
investment in intangible assets is dependent on our ability to successfully
operate our businesses and generate positive cash flows from operations.
Intangible amortization charges will result in increased losses or reduced net
income. The purchase consideration for the acquisitions was in the form of cash,
stock or a combination of cash, stock and issuance of debt.

     For the period from inception to March 31, 2001, we have incurred net
losses and negative cash flows from operations, and have expended significant
funds for capital expenditures (property and equipment) and the acquisition of
businesses. Our principal sources of cash to fund the aforementioned activities
were from the sale of $152.3 million in Common and Preferred Stock in public and
private sales and the sale of $164.8 million of Convertible Subordinated Notes.
As of March 31, 2000, we had $47.5 million in cash, cash equivalents and
short-term investments, of which $43.8 million is available for use in our
wholly-owned operations, and $3.7 million is available for use in our 51% owned
subsidiary, Interliant Europe B.V. Our financial forecast indicates that such
funds on hand at March 31, 2001, will not alone be sufficient to fund
operations, including expected restructuring costs, through March 31, 2002.

     We have entered into definitive agreements for the $20 Million Funding (see
Note 9 of Notes to Condensed Consolidated Financial Statements). We believe that
the funds on hand as of March 31, 2001, combined with the committed $20 Million
Funding, will be sufficient to fund our operations and meet our obligations
through December 31, 2001. Thereafter, it is highly likely that we will need to
raise additional cash to fund our operations and meet our obligations. We are
seeking additional sources of cash to fund our business plan. Accordingly, we
intend to sell certain of our businesses and assets which we no longer consider
core to our ongoing business plans (see Note 9 of Notes to Condensed
Consolidated Financial Statements). Any proceeds from these planned sales will
be used to further fund our ongoing operations. However, there can be no
assurances that we will successfully consummate a sale of any or all of the
businesses and assets or whether any such sale, if completed, will result in
additional material cash funding to further support our ongoing operations.

     As of March 31, 2001, we had an accumulated deficit of $297.3 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. While
we have taken restructuring actions that we expect will result in reductions of
our overall cost structure, we anticipate continued investments in connection
with the following:

     o    expansion of our direct sales initiatives;
     o    funding of product development;
     o    completing and equipping our data centers; and
     o    implementation of billing, accounting, operations and customer service
          systems.

     Although we have experienced revenue growth, which to date has been
primarily attributable to acquisitions, we do not believe that this growth is
necessarily indicative of future operating results. We expect to continue to
incur operating losses, including depreciation and

                                       12
<PAGE>
amortization expense, as well as negative operating cash flows for the
foreseeable future. We cannot be assured that we will ever achieve profitability
on a quarterly or annual basis, or, if achieved, that we will sustain
profitability.

Recent Business Developments; Business Restructuring

     During the latter half of the first quarter of 2001, we experienced a
substantial decline in revenues and new sales orders. There were negative
economic developments and trends that occurred during this period in our
industry sector, including reduced corporate information technology spending,
the failure of many Internet-related companies, and sharply reduced sales
forecasts. All of these factors caused us to re-evaluate our business focus and
operating plans for the remainder of 2001 and beyond. Such decisions gave rise
to the following actions:

     Based on a decision reached by our management and the Board of Directors in
late March 2001, on April 2, 2001 we announced a restructuring plan (the "April
Plan" or "restructuring") to further streamline the business by narrowing our
services focus to a core set of offerings. The April Plan comprises a workforce
reduction and the exit of certain non-core businesses. In conjunction with the
restructuring, we undertook a review of our long-lived assets pursuant to
Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and
SEC Staff Accounting Bulletin No. 100, Restructuring and Impairment Charges (SAB
100) to ascertain if these decisions and changed conditions caused an impairment
charge.

     The April Plan is being executed in two phases. Phase 1, which began on
April 3, 2001, consists of a workforce reduction of approximately 190 positions
and will result in a charge for the payment of severance and related costs of
approximately $2.1 million. This charge will be recognized in the quarter ending
June 30, 2001. We anticipate that the annualized cost savings from the workforce
reduction will range from $10.0 million to $15.0 million and that such savings
should begin to be realized in the second half of 2001. The amount of these
savings could change if we need to further adjust our personnel infrastructure
to support ongoing operations.

     Phase 2 of the April Plan includes exiting, via sale, certain businesses
that we determined to be outside of the redefined scope of our service
offerings. Currently, no purchase and sales agreements have been entered into
for any business that we plan to sell. The businesses to be exited include the
Enterprise Resource Planning (ERP) and Customer Relationship Management (CRM)
product lines of the application hosting and ASP professional services segments.
If the divestiture efforts are not successful in the near-term, we expect to
close some of these businesses by the end of 2001. Businesses not closed will
continue to be operated with reduced cost structures resulting, in part, from
the Phase 1 workforce reductions.

     In the event that we close some of the businesses, the costs associated
with such activities will likely include the termination of additional employees
and settlement of certain contractual obligations. The costs of exiting the
businesses will vary depending on the manner of disposition. While those costs
are not fully determinable at this time, we estimate that in the event of a shut
down of certain of these businesses, the exit costs could range as follows:
workforce reductions ($1.0 million to $2.0 million) and termination of facility
leases and other contractual obligations ($1.0 million to $8.0 million).

     We will not record a restructuring liability for the qualifying costs
associated with the Phase 2 events until the criteria required under EITF 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring), and
SAB 100 are met, which will likely be the second or third quarter of 2001.

     Unanticipated changes in our assumptions may cause the estimates stated
above to vary materially. Also, due to the uncertainty of the outcome and timing
of the Phase 2 activities, the full

                                       13
<PAGE>
impact of the restructuring on our ongoing results of operations and cash flows
is not currently determinable.

     As part of the restructuring activities, pursuant to SFAS 121 and SAB 100,
an impairment assessment was made with respect to the long-lived assets
associated with the businesses planned to be sold or shut down. The assessment
indicated that, on a held for use basis, there was impairment evident in such
assets. Further, based on our assessment of internal and external facts and
circumstances to which the impairment was attributable, we concluded that the
impairment indicators arose in the latter half of the first quarter of 2001.

     Consequently, we recorded an impairment charge in the first quarter of 2001
of $36.2 million. It is reasonably possible that the ultimate charge will vary
considerably depending on a number of factors, such as the timing and manner of
planned disposition (e.g., sale or shut down) of the exited businesses and the
amount of the proceeds realized, if any, from their sale, and the costs
associated with the shut downs, as the case may be. Long-lived assets that are
impaired consist of property and equipment, identifiable intangible assets and
related goodwill. For purposes of measuring the impairment charge, fair value
was determined based on a calculation of discounted cash flows.

     We are actively seeking buyers for the businesses to be exited and related
assets. However, no assurance can be given that we will be able to sell these
assets and we cannot predict with any certainty the amount of proceeds we will
realize from and the timing of any such sale.

     In connection with the above events and circumstances, we also have
re-evaluated the assigned lives used for depreciating and amortizing, as the
case may be, our long-lived assets and have concluded that our existing lives
continue to be appropriate under present accounting rules.

     If we are successful in implementing our restructuring plans and disposing
of these businesses, our future results of operations and operating cash flows
will be significantly impacted. The ERP and CRM hosting and professional
services businesses, which we plan to exit, had revenues and EBITDA losses in
2000 of approximately $54.0 million and $8.0 million, respectively. Accordingly,
as a result of exiting these businesses we expect our revenues and related
operating expenses to decline. Overall, these restructuring initiatives are
designed to improve EBITDA results and cash flows for the business. However, due
to the uncertainties of the timing and outcome of these activities, we cannot
currently predict with certainty their impact on revenues and EBITDA in 2001 and
beyond.

Results of Operations

     Our revenues are primarily derived from application hosting, Web hosting
and ASP professional services. We sell application hosting and Web hosting
services for contractual periods generally ranging from one month to three
years. Web hosting arrangements generally are cancelable by either party without
penalty. Hosting revenues are recognized ratably over the contractual period as
services are performed. Incremental fees for excess bandwidth usage and data
storage are billed and recognized as revenue in the period that customers
utilize such services. Payments received and billings made in advance of
providing services are deferred until the services are provided.

     Professional services revenues generally are recognized as the services are
rendered, provided that no significant obligations remain and collection of the
receivable is considered probable. Substantially all of our professional
services contracts call for billings on a time and materials basis. Some of our
contracts contain milestones and/or customer acceptance

                                       14
<PAGE>
provisions. For these contracts, revenue is recognized as milestones are
performed and accepted by the customer or when customer acceptance is received.

     Certain customer contracts contain multiple elements under which we sell a
combination of any of the following: application hosting and professional
services, computer equipment, software licenses and maintenance services to
customers. We have determined that objective evidence of fair value exists for
all elements and have recorded revenue for each of the elements as follows: (1)
revenue from the sale of computer equipment and software products is recorded at
the time of delivery; (2) revenue from service contracts is recognized as the
services are performed; and (3) maintenance revenue and related costs are
recognized ratably over the term of the maintenance agreement.

     Under certain arrangements, we resell computer equipment and/or software
and maintenance purchased from various computer equipment and software vendors.
We are recording the revenue from these products and services on a gross basis
pursuant to EITF 99-19, Reporting Revenue Gross as a Principal versus Net as an
Agent. Under these arrangements, we determined that we are the primary obligor.
We present the end-user with a total solution, provide the end-user with a
choice from various vendor products, set final prices and perform certain
services. Additionally, we have credit and back-end inventory risk.

     As a software reseller we apply the provisions of Statement of Position
97-2, ("SOP 97-2"), Software Revenue Recognition, as amended by Statement of
Position 98-4. Under SOP 97-2, we recognize license revenue upon shipment of a
product to the end-user if a signed contract exists, the fee is fixed and
determinable and collection of the resulting receivable is probable. For
contracts with multiple elements (e.g., software products, maintenance and other
services), we allocate revenue to each element of the contract based on vendor
specific objective evidence of the element's fair value.

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

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

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

THREE MONTHS ENDED MARCH 31, 2001 AND 2000

Revenues

     Revenues increased $12.7 million, from $26.9 million for the three months
ended March 31, 2000 to $39.6 million for the corresponding 2001 period. The
increase in revenues was due primarily to the six acquisitions consummated
during 2000, of which two acquisitions were completed during the latter part of
the first quarter of 2000, and organic growth of approximately 3%, which is
calculated based on the pro forma revenues for the respective periods. During
the latter half of the first quarter of 2001, we experienced a substantial
decline in revenues and new sales orders, as compared to the quarter ended
December 31, 2000 which we attributed to negative economic developments and
trends that occurred during this period in our industry sector, including
reduced corporate information technology spending, the failure of many
Internet-related companies, and sharply reduced sales forecasts.


                                       15
<PAGE>
     Application hosting revenues increased $5.1 million, from $6.4 million for
the three months ended March 31, 2000 to $11.5 million for the corresponding
2001 period. This increase was primarily due to acquisitions completed during
the 2000 period, of which one application hosting business acquisition was
completed during the latter part of the first quarter of 2000. Web hosting
revenues decreased $1.8 million, from $5.8 million for the three months ended
March 31, 2000 to $4.0 million for the corresponding 2001 period, resulting from
customer churn related to the integration of acquired Web hosting businesses
during late 2000 and early 2001. ASP professional services revenues increased
$8.1 million, from $13.8 million during the three months ended March 31, 2000 to
$21.9 million for the corresponding 2001 period. This increase was primarily due
to acquisitions completed during 2000 of which one professional services
business acquisition was completed during the latter part of the first quarter
of 2000.

Cost of Revenues

     Cost of revenues increased by $10.5 million, from $18.5 million for the
three months ended March 31, 2000 to $29.0 million for the corresponding 2001
period. This increase was due primarily to the six acquisitions consummated
during 2000, of which two acquisitions were completed during the latter part of
the first quarter of 2000, and increased costs, including but not limited to
additional data center facilities and personnel, to support growth. In the
future, cost of revenues may fluctuate due to capacity utilization, the timing
of investments in data centers, changes in mix of services, and fluctuations in
bandwidth costs and in levels of staffing to support demand for our services.

     Gross margin for the three months ended March 31, 2001 and 2000 was 26.7%
and 31.0%, respectively. The decline in gross margin is primarily the result of
a higher proportion of revenue from ASP professional services and products to
total revenues, which typically generate lower gross margins as compared with
our hosting services. The increase in ASP professional services was primarily
the result of the completion of acquisitions of three such businesses during
2000. Gross margin from the sale of products was 19.6% and 15.0% for the three
months ended March 31, 2001 and 2000, respectively. The increase in gross margin
was the result of an increase in the mix of higher-margin networking and
security products.

Sales and Marketing

     Sales and marketing expense increased by $5.1 million, from $8.0 million
for the three months ended March 31, 2000 to $13.1 million for the corresponding
2001 period. This increase was attributable in part to the six acquisitions
consummated during 2000, of which two acquisitions were completed during the
latter part of the first quarter of 2000, and increased costs associated with
the expansion of our direct sales force, which occurred during the latter part
of 2000. We expect sales and marketing expenses to continue to be a substantial
component of our cost structure in future periods.

General and Administrative

     General and administrative expense (including non cash compensation)
increased by $5.1 million, from $15.8 million for the three months ended March
31, 2000 to $20.9 million for the corresponding 2001 period. This increase in
general and administrative expense was attributable in part to the six
acquisitions consummated during 2000, of which two acquisitions were completed
during the latter part of the first quarter of 2000, and increased investments
in infrastructure and levels of staffing with respect to the customer service,
billing, accounting and human resources functions to support the growth of the
business, offset by a reduction of $2.1 million in non-cash compensation
charges.

     In January 2000, we issued options to purchase 1.5 million shares of Common
Stock at

                                       16
<PAGE>
an average exercise price of $18.00 per share to our CEO. Such options were not
issued pursuant to the 1998 Stock Option Plan. The average exercise price of the
options was below the fair value of the Common Stock as of the measurement date,
which required the recognition of approximately $30.0 million as compensation
expense over the four-year vesting period of the options on a graded vesting
basis. For the three months ended March 31, 2001 and 2000, we expensed $2.4
million and $3.8 million, respectively under this arrangement. In April 2001,
our CEO terminated his employment with us. In connection therewith, we will
record an adjustment in the quarter ending June 30, 2001 to reverse compensation
charges aggregating approximately $9.3 million, which were recorded during 2000
and the quarter ended March 31, 2001, to reflect the excess of the charge
recognized on a graded vesting basis over the intrinsic value of his vested
options.

Depreciation

     Depreciation expense increased by $5.7 million, from $2.5 million for the
three months ended March 31, 2000 to $8.2 million for the corresponding 2001
period. The increase in depreciation expense was attributable to the six
acquisitions consummated during 2000, of which two acquisitions were completed
during the latter part of the first quarter of 2000, our investments in network
software and equipment, furniture and office equipment, and leasehold
improvements during 2000. The fixed asset additions were driven by the expansion
of our data centers and customer care facilities and customer-driven computer
equipment and software purchases to support revenue growth.

Amortization of Intangible Assets

     Amortization expense increased by $3.3 million, from $9.3 million for the
three months ended March 31, 2000 to $12.6 million for the corresponding 2001
period. This increase in amortization expense was attributable to the increase
in intangible assets related to the six acquisitions consummated during 2000, of
which two acquisitions were completed during the latter part of the first
quarter of 2000.

Impairment Loss on Long-lived Assets

     In conjunction with the events and circumstances surrounding our April 2001
restructuring plan (see Note 9 of Notes to Condensed Consolidated Financial
Statements), we performed a review of our long-lived assets to ascertain if such
decisions resulted in an impairment in our long-lived assets pursuant to
Statement of Financial Accounting Standards No. (SFAS) 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and
SEC Staff Accounting Bulletin No. 100 (SAB 100), Restructuring and Impairment
Charges.

     An impairment assessment was made with respect to the long-lived assets
associated with businesses to be sold or shut down. The assessment indicated
that, on a held for use basis, there was impairment evident in such assets.
Further, based on our assessment of both internal and external facts and
circumstances to which the impairment was attributable, we concluded that the
impairment indicators arose in the latter half of the first quarter of 2001.
Consequently, we recorded an impairment charge in the first quarter of 2001 of
$36.2 million. It is reasonably possible that the ultimate charge will vary
considerably depending on a number of factors, such as the timing and manner of
planned disposition (e.g., sale or shut down) of the exited businesses and the
amount of proceeds realized, if any, from their sale, and the costs associated
with the shut downs, as the case may be. Long-lived assets that are impaired
consist of property and equipment, identifiable intangible assets and related
goodwill. For purposes of measuring the potential impairment charge, fair value
was determined based on a calculation of discounted cash flows.

                                       17
<PAGE>
Interest income (expense)

     Net interest expense increased $2.9 million from $0.1 million to $3.0
million in the three months ended March 31, 2001 and 2000, respectively.
Interest expense increased $2.1 million, from $1.7 million to $3.8 million in
the three months ended March 31, 2001 and 2000, respectively due primarily to
the interest on our 7% Convertible Subordinated Notes which were outstanding for
the entire first quarter of 2001 as compared to being outstanding for one-half
of the first quarter of 2000, and to increased capital lease obligations in 2001
as compared to 2000. Interest income decreased $0.8 million, from $1.6 million
to $0.8 million in the three months ended March 31, 2001 and 2000,
respectively,due to the reduced amount of cash available for short-term
investing in the first quarter of 2001.

     In the future, annual interest expense associated with the $20 Million
Funding (assuming the sale of all of the units) will range from $6.3 million to
$9.6 million depending on the timing of the sale of the notes. Such amounts
include the interest at the stated rate of 8% per annum and charges associated
with values assigned to the conversion features on the notes and warrants issued
in connection with the sale of notes.


                                       18
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

     We have financed our operations and acquisitions primarily from private
placements of debt and equity, and our initial public offering of common stock.
We had $47.5 million in cash, cash equivalents and short-term investments at
March 31, 2001, including $3.7 million held by Interliant Europe, a consolidated
subsidiary that is 51% owned by us.

     On April 16, 2001, we entered into a definitive agreement with affiliates
of Charterhouse Group International, Inc. (Charterhouse) and Softbank Technology
Ventures VI, L.P. and its related funds (Softbank) under which they agreed to
purchase, in the aggregate, 190 units (Units), each Unit consisting of $100,000
principal amount of 8% Convertible Subordinated Notes (Notes) and 27,273
warrants (Warrants) for the purchase of shares of our Common Stock for a total
sales price of $19.0 million. Under the definitive agreement we have the right
to require Charterhouse and Softbank to purchase their respective share of the
Units, or a portion thereof, through April 17, 2002. The Notes are convertible
at the option of the holder, at any time prior to maturity, into Common Stock at
a conversion price of $1.10 per share, subject to adjustment, which is equal to
90,909.09 shares of Common Stock, per $100,000 principal amount of the Notes.
Interest payments will be payable on the last day of each calendar quarter by
the issuance of additional Notes. The Notes mature on June 30, 2003. The
Warrants have an exercise price of $1.25 per share and expire five years after
issuance. At the same time, we entered into a definitive agreement with EYT,
Inc. (EYT), an entity controlled by Charterhouse and Softbank, under which EYT
committed to repurchase from us our investment in EYT for a purchase price of $1
million, which approximates our cost of such investment. This asset is
classified as other assets on our balance sheet as of March 31, 2001. The
closing of the EYT transaction shall take place contemporaneously with the
closing of the first sale of Units to Charterhouse and Softbank. The above
transactions are collectively referred to herein as the "$20 Million Funding."

     During the three months ended March 31, 2001, we used $16.0 million in
operating cash activities. The net loss of $81.2 million included non-cash
charges for depreciation, amortization, asset impairment losses and other
non-cash charges totaling $59.3 million. Operating losses were offset by cash
provided by working capital changes aggregating $5.9 million, including
decreases in accounts receivables, prepaids and other current assets, and
increases in operating liabilities.

     During the three months ended March 31, 2001, we added $14.4 million of
network software and equipment, furniture and office equipment, leasehold
improvements and capitalized software development. Such fixed asset additions
were driven by the expansion of our Vienna, Virginia data center and other
facilities, and capitalized software associated with the development of our
hosting operating systems and platforms. We currently have available lease
facilities totaling approximately $37.6 million, of which $27.3 million was
utilized as of March 31, 2001. The total lease capacity includes a $17.5 million
lease facility with Dell Financial Services (DFS), under which we are financing
all Dell equipment purchases. During the three months ended March 31, 2001, we
financed approximately $8.4 million of computer equipment and furniture. We
expect to continue such financing activities and we will attempt to secure
additional equipment financing, although no assurances can be given that
additional financing will be available when needed.

     In addition to funding ongoing operations and capital expenditures, our
principal commitments consist of non-cancelable operating leases, semi-annual
interest payments due to holders of 7% Convertible Subordinated Notes and
contingent earnout payments to certain sellers of operating companies acquired
by us. If all targets for acquisition earnouts entered into through March 31,
2001 are achieved in full, the maximum remaining cash consideration due pursuant
to these earnouts will be $4.7 million and $1.7 million in 2001 and 2002,
respectively. Certain of these agreements, however, provide for issuance of
Common Stock in lieu of cash, at our option.


                                       19
<PAGE>
     We believe that our existing cash, cash equivalents and short-term
investments, together with the $20 Million Funding, will provide sufficient
funds to enable us to fund our operating needs and meet our obligations through
December 31, 2001. Thereafter, it is highly likely that we will need to raise
additional cash to fund our operations and meet our obligations. As noted herein
we plan to sell certain businesses and assets and use any net proceeds from such
sales to fund continuing operations. The foregoing are forward-looking
statements and are based on our current business plan and the assumptions on
which it is based, including our ability to successfully implement our
restructuring plans and achieve the cost savings and cash generation benefits
they are designed to produce, as well as to successfully integrate acquisitions
and achieve the expected benefits, such as operational efficiencies and revenue
improvements from cross-selling opportunities. If our plans change or our
assumptions prove to be inaccurate, we may be required to seek additional
capital sooner than we currently anticipate. We may also seek to raise
additional capital to take advantage of favorable conditions in the capital
markets. In order to fund the repayment of our existing debt service
obligations, we will either have to increase revenues without a commensurate
increase in costs to generate sufficient cash from operations, refinance
existing debt obligations, raise additional cash through debt or equity
financings, or execute a combination thereof. We cannot be assured, however,
that if we need or seek additional capital that we will be successful in
obtaining it.


                                       20
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We have limited exposure to financial market risks, including changes in
interest rates. At March 31, 2001, we had short-term investments of
approximately $29.8 million. These short-term investments consist of highly
liquid investments in debt obligations of highly rated entities with maturities
of between 90 days and one year. 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 income by approximately $0.3 million annually for
each percentage decrease, based on the amount of short-term investments on hand
as of March 31, 2001.

     Substantially all of our indebtedness bears interest at a fixed rate to
maturity which therefore minimizes our exposure to interest rate fluctuations.


                                       21
<PAGE>

PART II. OTHER INFORMATION

                                INTERLIANT, INC.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

(c)  In the three months ended March 31, 2001, options to purchase 3,913 shares
     of Common Stock were exercised at a weighted average exercise price of
     $1.31 per share.

     During the three months ended March 31, 2001, in connection with the
attainment of certain earnout targets, Interliant issued, as partial
consideration, 649,961 shares of Common Stock to former stockholders of Triumph
Technologies, Inc. and The Jacobson Group, Inc.

     Interliant believes that the transactions described above were exempt from
registration under the Securities Act pursuant to Section 4(2) of the Securities
Act, Regulation D or Rule 144A promulgated thereunder, as transactions by an
issuer not involving public offering, or pursuant to Rule 701 promulgated under
Section 3(b) of the Securities Act, as transactions pursuant to written
compensatory benefit plans and contracts relating to compensation. The
recipients of securities in each of these transactions represented that they
were acquiring the securities for investment only and not with a view to or for
sale in connection with any distribution thereof and appropriate legends were
affixed to the securities certificates issued in such transactions. All
recipients had adequate access, through their relationships with Interliant, to
information about Interliant, or were given an adequate opportunity to review
information about Interliant.

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

(a)  Exhibits

(b)  Reports on Form 8-K:

     Form 8-K, dated April 4, 2001 whereby Interliant announced, among other
     things, the April Plan.

     Form 8-K, dated April 20, 2001, whereby Interliant announced that it had
     entered into agreements with affiliates of Charterhouse Group
     International, Inc., Softbank Technology Ventures VI, L.P. and EYT, Inc.
     for the $20 Million in funding.

     Form 8-K, dated April 27, 2001, whereby Interliant announced a change in
     management, which included the promotion of Bruce Graham to President and
     Chief Executive Officer and his appointment to the Board of Directors.


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<PAGE>
                                   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:  May 14, 2001                     /s/ Bruce Graham
                                        -------------------------------------
                                        Bruce Graham

                                        Chief Executive Officer and President

Date:  May 14, 2001                     /s/ William A. Wilson
                                        -------------------------------------
                                        William A. Wilson
                                        Chief Financial Officer


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