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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549




FORM 10-Q/A




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

FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 2001

COMMISSION FILE NUMBER: 0-17932

INTERLAND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|MINNESOTA                                                      |  | 41-1404301                          
|(STATE OR OTHER JURISDICTION
OF INCORPORATION OR ORGANIZATION) |  | (I.R.S. EMPLOYER
IDENTIFICATION NO.)

303 PEACHTREE CENTER AVENUE, SUITE 500, ATLANTA, GA 30303
(ADDRESS, INCLUDING ZIP CODE, OF PRINCIPAL EXECUTIVE OFFICES)

(404) 720-8301
(REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE)

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
REGISTERED ON THE NASDAQ NATIONAL MARKET

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

The number of outstanding shares of the registrants Common Stock on December
31, 2001 was 137,581,087.





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|                                                                   |                                                                                               |  |  |  |  |  |  | 
|------------------------------------------------------------------ | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|                                                                   | PART 1. FINANCIAL INFORMATION                                                                
|                                                                   | ITEM  1.   FINANCIAL STATEMENTS                                                              
|                                                                   | CONSOLIDATED STATEMENTS OF OPERATIONS                                                        
|                                                                   | CONSOLIDATED BALANCE SHEETS                                                                  
|                                                                   | CONSOLIDATED STATEMENTS OF CASH FLOWS                                                        
|                                                                   | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                   
|                                                                   | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|Signatures                                                        



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EXPLANATORY NOTE

We are filing this amendment to Form 10-Q
to (1) adjust the consolidated financial statements (as more
fully discussed in Note 11) to restate the Companys 2002
financial statements for an inadvertent error regarding the
calculation of deferred
revenue which resulted in adjustments to revenue and deferred
revenue, and the Companys intangible asset balance (related to
a corresponding understatement of deferred revenue assumed during one
of the Companys account acquisitions) (2) to separately present the provision for bad debt
expense as a separate line item on the Statements of Operations, and
(3) to amend in Item 2 the EBITDA disclosure to eliminate
adjustments presented in the previous filing.

All of the information in this Form 10-Q/A
is as of January 14, 2002, the date of the original
Form 10-Q, and none of the forward-looking information contained
herein has been updated beyond that date.




TABLE OF CONTENTS

|                                                                                         |                                |                                            |    |      |   | 
|---------------------------------------------------------------------------------------- | ------------------------------ | ------------------------------------------ | -- | ---- | - | 
|                                                                                         |                                |                                            |    | Page
|                                                                                         | Part I  Financial Information |                                            |    |      |  
|                                                                                        
|1. Financial Statements                                                                  |                                |                                            |    |     
|                                                                                         |                                | Consolidated Statements of Operations      |    |      | 3 | 
|                                                                                         |                                | Consolidated Balance Sheets                |    |      | 4 | 
|                                                                                         |                                | Consolidated Statements of Cash Flows      |    |      | 5 | 
|                                                                                         |                                | Notes to Consolidated Financial Statements |    |      | 6 | 
|                                                                                        
|2. Managements Discussion and Analysis of Financial Condition and
Results of Operations |                                |                                            | 13 |     
|                                                                                        
|3. Qualitative and Quantitative Disclosures about Market Risk                            |                                |                                            | 28 |     





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PART 1. FINANCIAL INFORMATION




ITEM  1.   FINANCIAL STATEMENTS




INTERLAND, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)

|                                                |                                        |                          |         |              |        |              |         |        |        | 
|----------------------------------------------- | -------------------------------------- | ------------------------ | ------- | ------------ | ------ | ------------ | ------- | ------ | ------ | 
|                                                |                                        |                          |         | NOVEMBER 30, |        | NOVEMBER 30,
|FOR THE QUARTER ENDED                           |                                        | 2001                     |         | 2000        
|                                                |                                        |                          |         |             
|                                                |                                        |                          |         | (Restated)   |        |              |         |       
|Revenues                                        |                                        | $                        | 23,921  |              |        | $            | 13,525  |       
|Cost of revenues                                |                                        |                          | 14,135  |              |        |              | 9,527   |       
|                                                |                                        |                          |         |              |        |              |         |       
|                                                | Gross margin                           |                          |         | 9,786        |        |              |         | 3,998  |       
|                                                |                                        |                          |         |              |        |              |         |       
|Operating expenses:                             |                                        |                          |         |              |        |              |         |       
|                                                | Sales, marketing and technical support |                          |         | 13,172       |        |              |         | 9,553  |       
|                                                | General and administrative             |                          |         | 13,097       |        |              |         | 9,250  |       
|                                                | Goodwill amortization                  |                          |         |             |        |              |         | 1,688  |       
|                                                | Bad debt expense                       |                          |         | 581          |        |              |         | 316    |       
|                                                | Merger and integration costs           |                          |         | 3,363        |        |              |         |       |       
|                                                | Other expense (income), net            |                          |         | (404         | )      |              |         | 112    |       
|                                                |                                        |                          |         |              |        |              |         |       
|                                                |                                        | Total operating expenses |         |              | 29,809 |              |         |        | 20,919 | 
|                                                |                                        |                          |         |              |        |              |         |       
|Operating loss                                  |                                        |                          | (20,023 | )            |        |              | (16,921 | )     
|Gain on investments, net                        |                                        |                          |        |              |        |              | 3,127   |       
|Interest income, net                            |                                        |                          | 251     |              |        |              | 1,819   |       
|                                                |                                        |                          |         |              |        |              |         |       
|Loss from continuing operations before taxes    |                                        |                          | (19,772 | )            |        |              | (11,975 | )     
|Income tax benefit                              |                                        |                          |        |              |        |              | 3,597   |       
|                                                |                                        |                          |         |              |        |              |         |       
|Loss from continuing operations                 |                                        |                          | (19,772 | )            |        |              | (8,378  | )     
|Income from discontinued operations, net of tax |                                        |                          |        |              |        |              | 9,954   |       
|                                                |                                        |                          |         |              |        |              |         |       
|Net income (loss)                               |                                        | $                        | (19,772 | )            |        | $            | 1,576   |       
|                                                |                                        |                          |         |              |        |              |         |       
|Net income (loss) per share, basic and diluted: |                                        |                          |         |              |        |              |         |       
|                                                | Continuing operations                  |                          | $       | (0.14        | )      |              | $       | (0.09  | )     
|                                                | Discontinued operations                |                          |         |             |        |              |         | 0.11   |       
|                                                |                                        |                          |         |              |        |              |         |       
|                                                |                                        | $                        | (0.14   | )            |        | $            | 0.02    |       
|                                                |                                        |                          |         |              |        |              |         |       
|Number of shares used in per share calculation: |                                        |                          |         |              |        |              |         |       
|                                                | Basic and diluted                      |                          |         | 137,725      |        |              |         | 96,673 |       

The accompanying notes are an integral part of the consolidated financial
statements.

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INTERLAND, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
(Unaudited)




|                                                                                                                                         |                                            |                   |            |                 |  |   |         |         | 
|---------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ----------------- | ---------- | --------------- |  | - | ------- | ------- | 
|AS OF                                                                                                                                    |                                            | NOVEMBER 30, 2001 |            | AUGUST 31, 2001
|                                                                                                                                         |                                            |                   |            |                
|                                                                                                                                         |                                            |                   | (Restated) |                 |  |   |        
|ASSETS                                                                                                                                   |                                            |                   |            |                 |  |   |         |        
|Cash and cash equivalents                                                                                                                |                                            | $                 | 111,598    |                 |  | $ | 142,675 |        
|Short-term investments                                                                                                                   |                                            |                   | 23,140     |                 |  |   | 31,468  |        
|Receivables, net of allowance of $1,991 and $1,810, respectively                                                                         |                                            |                   | 17,348     |                 |  |   | 11,576  |        
|Income taxes recoverable                                                                                                                 |                                            |                   | 23,801     |                 |  |   | 23,847  |        
|Other current assets                                                                                                                     |                                            |                   | 2,868      |                 |  |   | 4,223   |        
|                                                                                                                                         |                                            |                   |            |                 |  |   |         |        
|                                                                                                                                         | Total current assets                       |                   |            | 178,755         |  |   |         | 213,789 | 
|Restricted investments                                                                                                                   |                                            |                   | 28,138     |                 |  |   | 27,944  |        
|Property plant and equipment, net                                                                                                        |                                            |                   | 57,278     |                 |  |   | 59,849  |        
|Goodwill                                                                                                                                 |                                            |                   | 104,411    |                 |  |   | 104,406 |        
|Intangibles, net                                                                                                                         |                                            |                   | 23,306     |                 |  |   | 17,216  |        
|Investments held to maturity                                                                                                             |                                            |                   | 6,000      |                 |  |   | 6,000   |        
|Other assets                                                                                                                             |                                            |                   | 41         |                 |  |   | 76      |        
|                                                                                                                                         |                                            |                   |            |                 |  |   |         |        
|                                                                                                                                         | Total assets                               |                   | $          | 397,929         |  |   | $       | 429,280 | 
|                                                                                                                                         |                                            |                   |            |                 |  |   |         |        
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                     |                                            |                   |            |                 |  |   |         |        
|Accounts payable                                                                                                                         |                                            | $                 | 8,658      |                 |  | $ | 5,751   |        
|Accrued expenses                                                                                                                         |                                            |                   | 41,453     |                 |  |   | 57,676  |        
|Current portion of long-term debt                                                                                                        |                                            |                   | 15,283     |                 |  |   | 14,875  |        
|Deferred revenue                                                                                                                         |                                            |                   | 19,198     |                 |  |   | 15,859  |        
|                                                                                                                                         |                                            |                   |            |                 |  |   |         |        
|                                                                                                                                         | Total current liabilities                  |                   |            | 84,592          |  |   |         | 94,161  | 
|Long-term debt                                                                                                                           |                                            |                   | 21,955     |                 |  |   | 24,231  |        
|Deferred revenue, long-term                                                                                                              |                                            |                   | 1,910      |                 |  |   | 1,563   |        
|Other liabilities                                                                                                                        |                                            |                   | 12,944     |                 |  |   | 12,895  |        
|                                                                                                                                         |                                            |                   |            |                 |  |   |         |        
|                                                                                                                                         | Total liabilities                          |                   |            | 121,401         |  |   |         | 132,850 | 
|                                                                                                                                         |                                            |                   |            |                 |  |   |         |        
|Commitments and contingencies                                                                                                            |                                            |                   |            |                 |  |   |         |        
|Common stock, $.01 par value, authorized 200 million shares; issued
and outstanding 137.5 million and 137.8 million shares, respectively |                                            |                   | 1,378      |                 |  |   | 1,378   |        
|Additional capital                                                                                                                       |                                            |                   | 282,738    |                 |  |   | 282,738 |        
|Warrants                                                                                                                                 |                                            |                   | 1,690      |                 |  |   | 1,690   |        
|Deferred compensation                                                                                                                    |                                            |                   | (3,034     | )               |  |   | (3,310  | )      
|Treasury stock                                                                                                                           |                                            |                   | (406       | )               |  |   |        |        
|Retained earnings/(accumulated deficit)                                                                                                  |                                            |                   | (5,838     | )               |  |   | 13,934  |        
|                                                                                                                                         |                                            |                   |            |                 |  |   |         |        
|                                                                                                                                         | Total shareholders equity                 |                   |            | 276,528         |  |   |         | 296,430 | 
|                                                                                                                                         |                                            |                   |            |                 |  |   |         |        
|                                                                                                                                         | Total liabilities and shareholders equity |                   | $          | 397,929         |  |   | $       | 429,280 | 
|                                                                                                                                         |                                            |                   |            |                 |  |   |         |        




The accompanying notes are an integral part of
the consolidated financial statements.

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INTERLAND, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)




|                                                                                                                 |                                                                                                |                                                         |         |              |        |              |         |        |        |  
|---------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------- | ------------------------------------------------------- | ------- | ------------ | ------ | ------------ | ------- | ------ | ------ | -
|                                                                                                                 |                                                                                                |                                                         |         | NOVEMBER 30, |        | NOVEMBER 30,
|FOR THE QUARTER ENDED                                                                                            |                                                                                                | 2001                                                    |         | 2000        
|                                                                                                                 |                                                                                                |                                                         |         |             
|                                                                                                                 |                                                                                                | (RESTATED)                                              |         |             
|CASH FLOWS FROM OPERATING ACTIVITIES                                                                             |                                                                                                |                                                         |         |              |        |              |         |       
|Net income (loss)                                                                                                |                                                                                                | $                                                       | (19,772 | )            |        | $            | 1,576   |       
|Adjustments to reconcile net income (loss) to net cash (used in)
operating activities from continuing operations |                                                                                                |                                                         |         |              |        |              |         |       
|                                                                                                                 | Income from discontinued operations                                                            |                                                         |         |             |        |              |         | (9,954 | )     
|                                                                                                                 | Depreciation and amortization                                                                  |                                                         |         | 6,855        |        |              |         | 7,742  |       
|                                                                                                                 | Gain on investments, net                                                                       |                                                         |         |             |        |              |         | (3,127 | )     
|                                                                                                                 | Provision for doubtful accounts                                                                |                                                         |         | 581          |        |              |         | 316    |       
|                                                                                                                 | Other non-cash adjustments                                                                     |                                                         |         | (88          | )      |              |         | (791   | )     
|                                                                                                                 | Changes in operating assets and liabilities net of the effect
of the acquisition transactions: |                                                         |         |              |        |              |         |        |       
|                                                                                                                 |                                                                                                | Receivables                                             |         |              | (6,518 | )            |         |        | (1,974 | )
|                                                                                                                 |                                                                                                | Other current assets                                    |         |              | (183   | )            |         |        | 672    |  
|                                                                                                                 |                                                                                                | Deferred income taxes                                   |         |              |       |              |         |        | 56     |  
|                                                                                                                 |                                                                                                | Accounts payable, accrued expenses and deferred revenue |         |              | (3,554 | )            |         |        | (8,859 | )
|                                                                                                                 |                                                                                                | Other                                                   |         |              |       |              |         |        | 247    |  
|                                                                                                                 |                                                                                                |                                                         |         |              |        |              |         |       
|Cash used in operating activities of continuing operations                                                       |                                                                                                |                                                         | (22,679 | )            |        |              | (14,096 | )     
|                                                                                                                 |                                                                                                |                                                         |         |              |        |              |         |       
|CASH FLOWS FROM INVESTING ACTIVITIES                                                                             |                                                                                                |                                                         |         |              |        |              |         |       
|Expenditures for property, plant and equipment                                                                   |                                                                                                |                                                         | (2,172  | )            |        |              | (9,372  | )     
|Purchases of held-to-maturity investments                                                                        |                                                                                                |                                                         | (29,300 | )            |        |              | (56,658 | )     
|Proceeds
from maturities of held-to-maturity investments                                                         |                                                                                                |                                                         | 37,628  |              |        |              | 36,000  |       
|Deposits of restricted cash                                                                                      |                                                                                                |                                                         | (194    | )            |        |              |        |       
|Proceeds from sale of MCMS stock                                                                                 |                                                                                                |                                                         |        |              |        |              | 4,500   |       
|Acquisitions, net of cash acquired                                                                               |                                                                                                |                                                         | (5,818  | )            |        |              |        |       
|Other                                                                                                            |                                                                                                |                                                         |        |              |        |              | 163     |       
|                                                                                                                 |                                                                                                |                                                         |         |              |        |              |         |       
|Cash provided by (used in) investing activities of continuing operations                                         |                                                                                                |                                                         | 144     |              |        |              | (25,367 | )     
|                                                                                                                 |                                                                                                |                                                         |         |              |        |              |         |       
|CASH FLOWS FROM FINANCING ACTIVITIES                                                                             |                                                                                                |                                                         |         |              |        |              |         |       
|Repayments of debt                                                                                               |                                                                                                |                                                         | (1,868  | )            |        |              | (577    | )     
|Proceeds from issuance of debt                                                                                   |                                                                                                |                                                         |        |              |        |              | 77      |       
|Proceeds from issuance of common stock                                                                           |                                                                                                |                                                         |        |              |        |              | 890     |       
|                                                                                                                 |                                                                                                |                                                         |         |              |        |              |         |       
|Cash provided by (used in) financing activities of continuing operations                                         |                                                                                                |                                                         | (1,868  | )            |        |              | 390     |       
|                                                                                                                 |                                                                                                |                                                         |         |              |        |              |         |       
|Net cash used in continuing operations                                                                           |                                                                                                |                                                         | (24,403 | )            |        |              | (39,073 | )     
|Net cash provided by (used in) discontinued operations                                                           |                                                                                                |                                                         | (6,674  | )            |        |              | 3,657   |       
|                                                                                                                 |                                                                                                |                                                         |         |              |        |              |         |       
|Net decrease in cash and cash equivalents                                                                        |                                                                                                |                                                         | (31,077 | )            |        |              | (35,416 | )     
|Cash and cash equivalents at beginning of period                                                                 |                                                                                                |                                                         | 142,675 |              |        |              | 200,002 |       
|                                                                                                                 |                                                                                                |                                                         |         |              |        |              |         |       
|Cash and cash equivalents at end of period                                                                       |                                                                                                | $                                                       | 111,598 |              |        | $            | 164,586 |       
|                                                                                                                 |                                                                                                |                                                         |         |              |        |              |         |       




The accompanying notes are an integral part of
the consolidated financial statements.

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INTERLAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.     GENERAL

BUSINESS  Interland, Inc. (known as Micron Electronics, Inc. prior to August
6, 2001), together with its subsidiaries (collectively the Company), is a
leading Web hosting company that offers a broad range of business-to-business
Internet products and services, including managed dedicated hosting services,
co-location and connectivity services, electronic commerce services,
applications hosting and other Web hosting products.

Historically, the Company provided a variety of computer products and related
services through its PC Systems, SpecTek, and Web hosting business segments. The
Company disposed of its PC Systems and SpecTek business segments, which are
reported as discontinued operations  See Footnote 3. Discontinued Operations.
The Companys Web hosting business remains as the Companys sole continuing
operations. Prior to its disposal, the PC Systems business consisted of
developing, marketing, manufacturing, selling and supporting a wide range of
desktop and notebook systems and network servers under the micronpc.com brand
name and selling, reselling, and supporting a variety of additional peripherals,
software and services. Prior to its disposal, the SpecTek business consisted of
processing and marketing various grades of memory products in either component
or module form for specific applications.

HISTORY OF OPERATING LOSSES  The Web hosting business has incurred net losses
and losses from operations for each period from inception through the first
three months of fiscal 2002, and anticipates incurring losses for at least the
next two years. The Company does not expect to generate positive cash flow from
operations until the end of fiscal 2002. The Company expects to have adequate
cash reserves to fund operations during this period. The Companys future
success is dependent upon its ability to achieve positive cash flow prior to the
depletion of cash reserves and its ability to raise funds, if needed. Management
cannot assure that the Company will be cash flow positive in the future under
its current Web and applications hosting model or that it will be available to
raise funds. The Companys current financial forecast indicates that there are
sufficient cash reserves on hand until the Company reaches positive cash flow.

2.     SIGNIFICANT ACCOUNTING POLICIES

INTERIM UNAUDITED FINANCIAL INFORMATION  The accompanying unaudited
consolidated financial statements as of November 30, 2001 and 2000 and for the
three month periods then ended, have been prepared in accordance with generally
accepted accounting principles for interim financial information. In
managements opinion, these statements include all adjustments necessary for a
fair presentation of the results of the interim periods shown. All adjustments
are of a normal recurring nature unless otherwise disclosed. Operating results
for the three-month period ended November 30, 2001 are not necessarily
indicative of the results that may be expected for the full year.

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements. The amounts that the
Company will ultimately incur or recover could differ materially from its
current estimates. The underlying estimates and facts supporting these estimates
could change in 2002 and thereafter. Certain reclassifications, none of which
affects net income or loss, have been made to present the financial statements
on a consistent basis.

The financial statements include the accounts of Interland, Inc. and its wholly
owned subsidiaries. All significant intercompany balances and transactions have
been eliminated.

BASIS OF PRESENTATION  This report on Form 10-Q (10-Q) for the first quarter
ended November 30, 2001 should be read in conjunction with the Companys Annual
Report on Form 10-K (10-K) for the fiscal year ended August 31, 2001. The
Companys operations are reported on a fiscal basis. During fiscal year 2001,
the Company changed its year-end from a 52 or 53-week period ending on the
Thursday closest to August 31, to a fiscal year and quarter ending on the
calendar month-end. The quarter ended November 30, 2000 contained 13 weeks. All
references to periods including annual and quarterly are on a fiscal basis.

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INTERLAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
(Unaudited)

REVENUE RECOGNITION  Revenues from continuing operations are primarily
generated from shared and dedicated hosting, managed services, e-commerce
services, applications hosting and domain name registrations. Revenues are
recognized as the services are provided. Hosting contracts generally are for
service periods ranging from one to 24 months and typically require payment in
advance. These advances, including set-up fees for hosting services, are
deferred and recognized ratably over the customers expected service period.
Deferred revenues represent the liability for advance billings to customers for
services not yet provided.

BASIC AND DILUTED INCOME (LOSS) PER SHARE  Basic earnings per share is
computed using the weighted average number of common shares outstanding. Diluted
earnings per share is computed using the weighted average number of common
shares outstanding and potential common shares outstanding when their effect is
dilutive. Potential common shares result from the assumed exercise of
outstanding stock options and warrants. Basic and diluted income (loss) per
share for all periods presented have been restated to reflect results from both
continuing and discontinued operations.

In addition to net income (loss) per share, the Company has also reported per
share amounts on the separate income statement components required by Accounting
Principles Board (APB) Opinion No. 30, Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions. Because the Company
has reported a loss from continuing operations during each period reported, the
effect of dilutive securities is excluded from the calculation of per share
amounts.

RECENTLY ISSUED ACCOUNTING STANDARDS In July 2001, the FASB issued SFAS No.
142, Goodwill and Other Intangible Assets. SFAS No. 142 addresses the
financial accounting and reporting for goodwill and other intangible assets
subsequent to their acquisition. SFAS No. 142 requires that intangible assets be
amortized over their useful lives unless that life is determined to be
indefinite. Intangible assets shall be evaluated annually to determine whether
events and circumstances continue to support an indefinite useful life. An
intangible asset that is not subject to amortization shall be tested for
impairment annually or more frequently if events or changes in circumstances
indicate that the asset might be impaired. Adoption of SFAS No. 142 is required
during the Companys fiscal 2003, and early adoption is permitted. The goodwill
and intangible assets acquired as part of the Interland-Georgia purchase
business combination were required to be accounted for in accordance with the
amortization and non-amortization provisions of SFAS 142. The Company adopted
SFAS No. 142 during the first quarter of fiscal 2002, which eliminated goodwill
amortization starting in fiscal 2002. During fiscal year 2002, the Company will
perform the first of the required impairment tests of goodwill as of September
1, 2001. The Company has not yet determined what the effect, if any, of these
tests will be on its earnings and financial position. Any impairment resulting
for the initial application of this statement will be recorded as a cumulative
effect of accounting change as of September 1, 2001.

3.     DISCONTINUED OPERATIONS

The Company has discontinued the operations of its PC Systems and SpecTek
business segments. These segments are accounted for as discontinued operations
in accordance with APB No. 30. Amounts in the financial statements and related
notes for all periods shown have been reclassified to reflect the discontinued
operations.

Operating results for the discontinued operations are reported, net of tax,
under Income from discontinued operations, net of tax on the accompanying
consolidated Statements of Operations. In addition, the loss for the disposal of
the discontinued operations has also been recorded, net of tax, under Loss on
disposal of discontinued operations on the accompanying consolidated Statements
of Operations.

For financial reporting purposes, cash flows from the discontinued operations
are stated separately on the accompanying consolidated Statements of Cash Flows,
under Net cash used in discontinued operations.

PC SYSTEMS

On May 31, 2001, the Company sold its PC Systems business to GTG PC Holdings,
LLC (GTG PC), an affiliate of the Gores Technology Group. Under the terms of
the agreement, GTG PC received assets, which included $76.5 million in cash, and
assumed specified liabilities of the PC Systems business. The loss on disposal
was $212.2 million. Included in the loss on disposal are employee termination
costs of approximately $15.4 million, of which $0.0 million and $0.3 million is
included in the accompanying consolidated Balance Sheets under Accounts payable
and accrued liabilities at November 30, 2001 and August 31, 2001,

7



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##### Table of Contents



INTERLAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
(Unaudited)

respectively. The Company retained all liabilities of the PC Systems business
not assumed by GTG PC, including, for example, liabilities for taxes arising
prior to the closing of the transaction, employee termination and related
expenses, and any contingent liabilities arising prior to the closing date. In
addition, the Company has agreed for a period of three years not to compete with
the PC Systems business, and for two years, not to solicit or hire prior
employees of the PC Systems business. For a transition period after the closing
of the purchase, GTG PC agreed to provide some information technology,
financial, telecommunications and human resources services to the Company at its
cost plus 10% during the first four months after the closing, and at its cost
plus 25% for the following two months.

For a period of two years following the closing of the purchase, or for the
applicable statute of limitations with respect to taxes and government
contracts, the Company is obligated to indemnify the purchaser and affiliated
entities for any breaches of the representations and warranties contained in the
agreement. In addition, the Company is obligated for an indefinite period of
time to indemnify the purchaser and affiliated entities for any breaches in
covenants. The agreement provides that the maximum aggregate liability of the
Company for indemnification under the agreement is $10.0 million.

The agreement also provides that the Company would potentially be entitled to
receive a percentage of any proceeds in the event the PC Systems business is
sold or has an initial public offering of its securities within three years of
the closing of the purchase. The Company would receive a payment only after the
repayment of transaction costs, repayment of debt and capital contributions,
payment of a specified amount of cash to GTG PC and obligations under employee
incentive programs.

SPECTEK

The Company has discontinued the operations of its SpecTek business segment,
which is accounted for as discontinued operations in accordance with APB No. 30.
Pursuant to the Amended and Restated Component Recovery Agreement (as amended,
the Component Recovery Agreement), dated effective September 2, 1999, Micron
Technology, Inc. (MTI) exercised its rights to purchase the assets of the
SpecTek business. On March 22, 2001, the Company entered into a Purchase
Agreement (the Purchase Agreement) to sell all assets primarily used by
SpecTek and certain land, buildings and intellectual property to MTI. Pursuant
to the terms of the Purchase Agreement, the Company transferred the land,
buildings and intellectual property to MTI on March 22, 2001, and received $18
million of cash in excess of the historical cost from MTI. This amount has been
recorded, net of tax, as an increase in additional capital. The Company has
leased back a portion of the land and buildings from MTI and has also been
granted a license to use certain of the intellectual property. In addition, MTI
agreed to pay the Company for the March 1, 2001 net book value of the assets
used by SpecTek, less any outstanding intercompany payables. The proceeds from
this transaction, net of intercompany payables, were approximately $39.6
million, not including certain land, buildings and intellectual property.
Pursuant to the Purchase Agreement, the assets used by SpecTek were transferred
to MTI on April 5, 2001.

Summarized below are the operating results for the PC Systems and SpecTek
businesses, which are included in the accompanying consolidated Statements of
Operations for the quarter ended November 30, 2000 under Income from
discontinued operations, net of tax.




|                                                |  |                       |         |  
|----------------------------------------------- |  | --------------------- | ------- | -
|                                                |  | FOR THE QUARTER ENDED
|                                                |  | NOVEMBER 30,         
|                                                |  | 2000                 
|                                                |  |                      
|(In thousands)                                  |  |                       |         |  
|Net sales                                       |  | $                     | 390,510 |  
|                                                |  |                       |         |  
|Income before income taxes                      |  |                       | 14,229  |  
|Income tax provision                            |  |                       | (4,275  | )
|                                                |  |                       |         |  
|Income from discontinued operations, net of tax |  | $                     | 9,954   |  
|                                                |  |                       |         |  




8



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##### Table of Contents



INTERLAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
(Unaudited)




4.    MERGER AND INTEGRATION COSTS




During the fourth quarter of fiscal year 2001, the Company approved and
implemented a restructuring program in connection with its acquisition of
Interland-Georgia. The restructuring plan, which is expected to be completed by
August 31, 2002, provides for the consolidation of the Companys operations and
elimination of duplicative facilities. Accordingly, during fiscal year 2001,
the Company recorded a charge of approximately $110.3 million related to
employee termination benefits, facility closure costs, asset disposals and
other exit costs which the Company recorded in operating expenses.

The liability related to this restructuring program was $12.0 million and $12.5
million at November 30, 2001 and August 31, 2001, respectively. The following
schedule reflects the changes in the accrual for the quarter ended November 30,
2001:



|                             |  |              |       |            |  |             |       |       |  |          |      |   |  |   |        |  
|---------------------------- |  | ------------ | ----- | ---------- |  | ----------- | ----- | ----- |  | -------- | ---- | - |  | - | ------ | -
|                             |  |              |       |            |  |             |       |       |  | Employee |      |   |  |  
|                             |  | Lease        |       | Other exit |  | termination |       |       |  |         
|                             |  | abandonments |       | costs      |  | benefits    |       | Total
|                             |  |              |       |            |  |             |       |      
|(In thousands)               |  |              |       |            |  |             |       |       |  |          |      |   |  |   |        |  
|Balance at August 31, 2001   |  | $            | 8,721 |            |  | $           | 3,528 |       |  | $        | 229  |   |  | $ | 12,478 |  
|Cash paid                    |  |              | (215  | )          |  |             |      |       |  |          | (229 | ) |  |   | (444   | )
|                             |  |              |       |            |  |             |       |       |  |          |      |   |  |   |        |  
|Balance at November 30, 2001 |  | $            | 8,506 |            |  | $           | 3,528 |       |  | $        |     |   |  | $ | 12,034 |  
|                             |  |              |       |            |  |             |       |       |  |          |      |   |  |   |        |  







The lease abandonment charge represents future lease payments for data centers
and office facilities being exited. The other exit costs represent termination
penalties for bandwidth and data connectivity contracts. The Company also
recorded expenses of $3.4 million for financial advisory services, legal,
accounting and other non-capitalizable expenses directly related to merger and integration of the
business following the Interland-Georgia acquisition. These costs have been
recorded in Merger and integration costs.




5.     GAIN ON INVESTMENTS, NET

On September 29, 2000, the Company sold its remaining 10% interest in MCMS for a
net gain of $4.5 million. MCMS was formerly the Companys wholly-owned
subsidiary of which 90% was sold in February 1998. In addition, the Company
incurred a loss of $1.4 million on its equity investment in Bird on a Wire, Inc,
for a net gain of investments of $3.1 million for the quarter ended November 30,
2000.

6.     ACQUISITIONS

The Company has acquired a number of companies to expand its Web hosting and
Internet access capabilities. Over the past three years, the Company has
acquired four Web and applications hosting companies and one Internet access
company.

On August 6, 2001, the Company acquired 100 percent of the outstanding common
shares of Interland-Georgia by issuing 0.861 shares of the Companys common
stock in exchange for each share of Interland-Georgia common stock or 40,899,803
shares in the aggregate. In addition, the Company issued options and warrants to
purchase shares of the Companys common stock in exchange for each issued and
outstanding Interland-Georgia option and warrant using the ratio of 0.861 shares
of the Company for each share of Interland-Georgia. The results of
Interland-Georgias operations have been included in the consolidated financial
statements since the date of acquisition. Interland-Georgia is an Atlanta,
Georgia, based Web and applications hosting company serving small and
medium-sized businesses. The primary goal of the acquisition was to create a new
company with much greater scale. The Company also expects to reduce costs
through economies of scale and restructuring its business (see Footnote 4.
Restructuring, Merger, and Integration Costs). The aggregate purchase price
was $127.2 million, including equity issued with a value of $122.9 million and
cash of $4.3 million. The value of the 40,899,803 common shares issued was
determined based on the average market price of the Companys common shares over
the 2-day period before and after the terms of the acquisition were agreed to
and announced on March 23, 2001.

9



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##### Table of Contents



INTERLAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
(Unaudited)

The following table summarized the estimated fair values of the assets acquired
and liabilities assumed at the date of acquisition.

|                       |                     |   |            |         | 
|---------------------- | ------------------- | - | ---------- | ------- | 
|                       |                     |   | Fair Value
|                       |                     |  
|(In thousands)         |                     |   |            |        
|Current assets         |                     | $ | 26,781     |        
|Property and equipment |                     |   | 30,462     |        
|Intangible assets      |                     |   | 17,500     |        
|Other assets           |                     |   | 507        |        
|Goodwill               |                     |   | 104,406    |        
|Current liabilities    |                     |   | (44,547    | )      
|Long-term liabilities  |                     |   | (7,943     | )      
|                       |                     |   |            |        
|                       | Net assets acquired |   | $          | 127,166 | 
|                       |                     |   |            |        

Of the total $17.5 million of acquired intangible assets, $12 million was
assigned to purchased software (5 year useful life), $4.9 million was assigned
to registered trademarks (7 year useful life), and $600,000 was assigned to
reseller and strategic alliances (3 year useful life). The $104.4 million of
goodwill is not expected to be deductible for tax purposes.

On October 26, 2001, the Company acquired the small business-focused shared and
unmanaged dedicated retail Web hosting business of Interliant, Inc.

7.     ACQUIRED INTANGIBLES AND GOODWILL

|                               |  |                   |         |                 |  |   |         |  
|------------------------------ |  | ----------------- | ------- | --------------- |  | - | ------- | -
|(In thousands)                 |  | November 30, 2001 |         | August 31, 2001
|                               |  |                   |         |                
|Goodwill                       |  | $                 | 104,411 |                 |  | $ | 104,406 |  
|Acquired intangibles           |  |                   | 24,698  |                 |  |   | 17,500  |  
|                               |  |                   |         |                 |  |   |         |  
|                               |  |                   | 129,109 |                 |  |   | 121,906 |  
|Less: accumulated amortization |  |                   | (1,392  | )               |  |   | (284    | )
|                               |  |                   |         |                 |  |   |         |  
|                               |  | $                 | 127,717 |                 |  | $ | 121,622 |  
|                               |  |                   |         |                 |  |   |         |  




|                                         |  |                   |         |                   |  |   |       |  
|---------------------------------------- |  | ----------------- | ------- | ----------------- |  | - | ----- | -
|(In thousands)                           |  | November 30, 2001 |         | November 30, 2000
|                                         |  |                   |         |                  
|Reported net income (loss)               |  |                   | (19,772 | )                 |  |   | 1,576 |  
|Amortization expense related to goodwill |  |                   |        |                   |  |   | 1,688 |  
|                                         |  |                   |         |                   |  |   |       |  
|Adjusted net income (loss)               |  | $                 | (19,772 | )                 |  | $ | 3,264 |  
|                                         |  |                   |         |                   |  |   |       |  
|Adjusted net income (loss) per share:    |  |                   |         |                   |  |   |       |  
|Continuing operations                    |  | $                 | (0.14   | )                 |  | $ | (0.08 | )
|Discontinued operations                  |  |                   |        |                   |  |   | 0.11  |  
|                                         |  |                   |         |                   |  |   |       |  
|                                         |  | $                 | (0.14   | )                 |  | $ | 0.03  |  
|                                         |  |                   |         |                   |  |   |       |  







Amortization of goodwill and intangible assets relating to continuing operations
was $1.1 million and $2.5 million for the quarter ended November 30, 2001 and
2000, respectively, and amortization of goodwill and intangible assets
related to continuing operations was $13.0 million, $8.0 million, and $0.2
million for the fiscal years 2001, 2000, and 1999, respectively. In accordance
with FAS 142, goodwill associated with the acquisition of Interland-Georgia
is not being amortized.

10






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##### Table of Contents



INTERLAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
(Unaudited)

8.     ACCRUED EXPENSES

|                                        |  |                   |        |                 |  |   |        | 
|--------------------------------------- |  | ----------------- | ------ | --------------- |  | - | ------ | 
|(In thousands)                          |  | November 30, 2001 |        | August 31, 2001
|                                        |  |                   |        |                
|Accrued payroll and related liabilities |  | $                 | 6,151  |                 |  | $ | 7,694  | 
|Taxes payable                           |  |                   | 796    |                 |  |   | 559    | 
|Accrued restructuring liabilities       |  |                   | 12,034 |                 |  |   | 12,478 | 
|Acquisition related liabilities         |  |                   | 8,323  |                 |  |   | 8,837  | 
|Accrued lease payments                  |  |                   | 2,596  |                 |  |   | 3,398  | 
|Accrued legal liabilities               |  |                   | 2,707  |                 |  |   | 3,153  | 
|Accrued professional fees               |  |                   | 168    |                 |  |   | 2,070  | 
|Other                                   |  |                   | 8,678  |                 |  |   | 19,487 | 
|                                        |  |                   |        |                 |  |   |        | 
|                                        |  | $                 | 41,453 |                 |  | $ | 57,676 | 
|                                        |  |                   |        |                 |  |   |        | 

9.     CONTINGENCIES

On October 2, 2001, Capetronic Computer USA filed a Complaint in Dallas County,
Texas Court seeking damages of approximately $2.1 million for goods purchased by
the Companys PC Systems business. The Company removed the case to federal court
in the Northern District of Texas, Dallas Division, and counterclaimed for legal
fees Capetronic agreed to indemnify the Company for that were incurred on an
unrelated patent lawsuit. These legal fees were approximately $1.3
million. This claim is currently in the early stages of discovery, and the
Company is therefore unable to estimate total expenses, possible loss or range
of loss that may ultimately be connected with the matter.

The Company is defending a consumer class action lawsuit filed in the Federal
District Court of Minnesota based on the alleged sale of defective computers. No
class has been certified in the case. The case involves a claim that the Company
sold computer products with a defect that may cause errors when information is
written to a floppy disk. Substantially similar lawsuits have been filed against
other major computer manufacturers. The case is currently in the early stages of
discovery, and the Company is therefore unable to estimate total expenses,
possible loss or range of loss that may ultimately be connected with the matter.

On June 1, 2001, Plaintiff Kimberley Smith filed a Complaint and Demand for Jury
Trial in the U.S. District Court for Idaho alleging violations of the Fair Labor
Standards Act (FLSA), in particular alleged failures to pay non-exempt
employees overtime for hours worked in excess of 40 in a week as well as other
alleged violations of the FLSA and state wage and hour laws. On June 8, 2001, an
Amended Complaint and Demand for Jury Trial was filed by Plaintiff Smith in
which an additional individual, Plaintiff Michael Hinckley, joined. Ms. Smith
and Mr. Hinckley seek individual damages and class certification and relief as
well as injunctive relief, prejudgment interest and attorneys fees and costs.
Thus far, forty-four additional, mostly former employees have filed written
notice of consents seeking to join in the action. The Company filed an answer to
the Complaint on June 29, 2001. The Court ordered a hearing to determine whether
to conditionally certify the FLSA collective action, but no trial date has been
set. The case is currently in the early stages of discovery, and the Company is
therefore unable to estimate total expenses, possible loss or range of loss that
may ultimately be connected with the matter.

The Company is party to various other legal actions arising in the normal course
of business, none of which is expected to have a material adverse effect on its
business, financial position, results of operations and cash flows.

10.     OPERATING SEGMENT INFORMATION

The Companys business activities are represented by a single industry segment,
web site and applications hosting.



11.     RESTATEMENT OF QUARTERLY FINANCIAL STATEMENTS The Company is restating its financial statements
for the quarter ended November 30, 2001 to correct an
inadvertent error. The error resulted from an incorrect calculation
of deferred revenue on month-to-month customer accounts during the
first quarter and caused revenue for the first quarter to be
overstated by approximately $1.0 million. In this
Form 10-Q/A, references or comparisons to results in the first
quarter of 2002 are to the restated results.


The effects of the restatement are as follows:

|                              |                                               |                                        |   |          |   |  |   |         |  
|----------------------------- | --------------------------------------------- | -------------------------------------- | - | -------- | - |  | - | ------- | -
|                              |                                               | For the
quarter endedNovember 30, 2001
|                              |                                               |                                       
|Statement
of Operations Data: |                                               | As reported                            |   | Restated
|                              |                                               |                                        |   |         
|                              | Revenues                                      |                                        | $ | 24,873   |   |  | $ | 23,921  |  
|                             
|                             
|                             
|                             
|                              | Gross margin                                  |                                        |   | 10,738   |   |  |   | 9,786   |  
|                             
|                             
|                             
|                             
|                              | Gross margin - %                              |                                        |   | 43.2     | % |  |   | 40.9    | %
|                             
|                             
|                             
|                             
|                              | Loss from operations                          |                                        |   | (19,071  | ) |  |   | (20,023 | )
|                             
|                             
|                             
|                             
|                              | Loss before taxes and discontinued operations |                                        |   | (18,820  | ) |  |   | (19,772 | )
|                             
|                             
|                             
|                             
|                              | Net loss                                      |                                        |   | (18,820  | ) |  |   | (19,772 | )
|                             
|                             
|                             
|                             
|                              | Loss per share                                |                                        | $ | (0.14    | ) |  | $ | (0.14   | )
|                             
|Balance Sheet Data:           |                                               | November 30, 2001                     
|                              |                                               |                                       
|                              | Deferred revenues (current and long-term)     |                                        | $ | 20,156   |   |  | $ | 21,108  |  
|                             
|                             
|                             
|                             
|                              | Total liabilities                             |                                        |   | 120,449  |   |  |   | 121,401 |  
|                             
|                             
|                             
|                             
|                              | Total shareholders equity                    |                                        | $ | 277,480  |   |  | $ | 276,528 |  




11



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##### Table of Contents






ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Statements contained in this Form 10-Q that are not purely historical are
forward-looking statements and are being provided in reliance upon the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Words such as anticipates, expects, intends, plans, believes, seeks,
estimates, and similar expressions identify forward-looking statements. These
forward-looking statements include but are not limited to statements regarding
Interlands expectations of the Companys future liquidity needs, its
expectations regarding future business and financial results, its expectations
regarding its future operating results including its planned increase in its
revenues levels and the actions the Company expects to take in order to maintain
its existing customers and expand its operations and customer base. All
forward-looking statements are made as of the date hereof and are based on
current management expectations and information available to it as of such date.
The Company assumes no obligation to update any forward-looking statement. It is
important to note that actual results could differ materially from historical
results or those contemplated in the forward-looking statements. Forward-looking
statements involve a number of risks and uncertainties, and include trend
information. Factors that could cause actual results to differ materially
include, but are not limited to, those identified in Certain Factors below,
and in the Companys other filings with the Securities and Exchange Commission.
All quarterly references are to the Companys fiscal periods ended November 30,
2001, August 31, 2001, or November 30, 2000 unless otherwise indicated. All
annual references are also on a fiscal basis, unless otherwise indicated. All
tabular dollar amounts are stated in thousands.

OVERVIEW

Interland is a leading Web hosting company that offers a broad range of
business-class hosting products and services, including shared and dedicated
hosting services, electronic commerce and other applications hosting services,
and other Web hosting-related products and services. Historically, the Company
had provided a variety of computer products and related services through its PC
Systems, SpecTek, and Web hosting business segments. During fiscal 2001, the
Company discontinued its PC Systems business, its computer manufacturing
business, and SpecTek, its memory products business. See the note entitled
Discontinued Operations to the accompanying consolidated financial statements.
Following the disposition of these business segments, the Company has become a
Web hosting company.

The Company was originally established on April 7, 1995 as Micron Electronics,
Inc. through the merger of three businesses: Micron Computer, Inc., Micron
Custom Manufacturing Services, Inc. and ZEOS International, LTD. The Web hosting
business, the Companys continuing operation, was formed through the acquisition
and integration of five companies between 1999 and 2001. On August 2, 1999, the
Company acquired 100% of the outstanding stock of NetLimited, Inc. d.b.a.
HostPro, a Web and applications hosting provider. On September 2, 1999, the
Company acquired the property and equipment of Micron Internet Services,
formerly a division of Micron Technology, a provider of dedicated, nationwide
dial-up and broadband Internet access, virtual private network solutions and
e-commerce services. On December 14, 1999, the Company acquired LightRealm, Inc.
a Kirkland, Washington-based Web and applications hosting and Internet access
company serving small- and medium-sized businesses. On March 16, 2000, the
Company acquired Worldwide Internet Publishing Corporation, a Boca-Raton,
Florida-based Web hosting company that also served small- and medium-sized
businesses. On August 6, 2001, the Company acquired Interland, Inc.
(Interland-Georgia), an Atlanta, Georgia-based provider of a broad range of
Web hosting, applications hosting and other related Web-based business solutions
specifically designed to meet the needs of small- and medium-sized businesses.
In connection with the acquisition of Interland-Georgia, Micron Electronics,
Inc. changed its name to Interland, Inc. and its trading symbol to INLD. On
November 30, 2001, Interland-Georgia was merged into the Company. The Companys
principal executive offices are located in Atlanta, Georgia.

Interlands business is rapidly evolving and has a limited operating history. As
a result, the Company believes that period-to-period comparisons of its revenues
and operating results, including its cost of revenues and other operating
expenses as a percentage of total revenue, are not meaningful and should not be
relied upon as indicators of future performance. The Company does not believe
that its historical growth rates are an indication of future results.

Revenues are primarily generated by providing shared and dedicated hosting
services, e-commerce and other applications hosting services, and other Web
hosting-related products and services. Revenues are recognized as the services
are provided. Hosting contracts generally are for service periods ranging from
one to 24 months and typically require payment in advance. These payments,
including set-up fees for hosting services, are deferred and recognized ratably
over the customers expected service period.

12



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ITEM  2.   MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS  CONTINUED

Cost of revenues is mainly comprised of compensation and other expenses for data
center and provisioning operations, Internet connectivity and other related
telecommunications expense, and depreciation and amortization of capital and
intangibles related to data center equipment and operations.

Interlands operating expenses consist of:



| |  |  | Sales, marketing and technical support, which is mainly
comprised of compensation costs and costs associated with
technical support and marketing the Companys products and
services. Compensation costs include salaries and related
benefits, commissions and bonuses. Marketing expenses include
the costs of direct mail, advertising and other mass market
programs; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | General and administrative, which is mainly comprised of
compensation and related expenses, occupancy costs, and
depreciation and amortization of capital and intangible assets
related to the engineering, development and administrative
functions.                                                                                                                         

The Company intends to invest heavily in sales and marketing to expand its
customer base and to develop new sales channels and relationships. The Companys
strategy is to achieve increased incremental margins by more fully utilizing its
existing infrastructure to accommodate additional customers. The Companys
future success is dependent upon its ability to achieve positive cash flow prior
to depletion of cash reserves and its ability to raise funds, if needed. While
management currently believes that the Company has adequate resources to
maintain planned operations for at least one year from the balance sheet date,
they cannot assure you that the Company will be cash flow positive in the future
under its current Web and applications hosting model or that adequate funding
will be available to allow it to continue operations subsequent to the one-year
time period. The Company does not expect to generate positive cash flows from
ongoing operations until the end of fiscal 2002. The Companys current financial
forecast indicates that there are sufficient cash reserves on hand until the
Company reaches positive cash flows from ongoing operations.

DISCONTINUED OPERATIONS

PC SYSTEMS

The Company has discontinued the operations of its PC Systems business segment,
which has been accounted for as discontinued operations in accordance with
Accounting Principles Board Opinion (APB) No. 30, Reporting the Results of
Operations  Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions. On
May 31, 2001, the Company sold its PC Systems business to GTG PC Holdings, LLC,
(GTG PC) an affiliate of the Gores Technology Group. In fiscal 2001, the
Company recognized an estimated loss on disposal of the PC Systems business of
$212.2 million. Included in the loss on disposal are employee termination costs
of approximately $15.4 million, of which $0.0 million and $0.3 million is
included in the accompanying consolidated Balance Sheets under Accounts payable
and accrued liabilities at November 30, 2001 and August 31, 2001, respectively.

SPECTEK

The Company discontinued the operations of its SpecTek business segment, which
has been accounted for as discontinued operations in accordance with APB No. 30.
On March 22, 2001, the Company transferred the land, buildings and intellectual
property to MTI and received $18 million of cash in excess of the historical
cost from MTI. Net proceeds from the sale of the SpecTek assets under the
Purchase Agreement were $39.6 million.

RESULTS OF CONTINUING OPERATIONS

The Companys consolidated financial information presents the net effect of
discontinued operations separate from the results of the Companys continuing
operations. The Companys financial results only reflect the results of
Interland-Georgia from August 6, 2001, the date of acquisition. Historical
financial information has been reclassified to present consistently the
discontinued operations, and the discussion and analysis that follows generally
focuses on continuing operations. The following table sets forth, for the
periods indicated, items included in the Companys consolidated statements of
operations, stated as a percentage of revenues:

13



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##### Table of Contents



ITEM  2.   MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS  CONTINUED




|                                             |                                        |                          |       |                       |       |              |        |      |       | 
|-------------------------------------------- | -------------------------------------- | ------------------------ | ----- | --------------------- | ----- | ------------ | ------ | ---- | ----- | 
|                                             |                                        |                          |       | For the quarter ended
|                                             |                                        |                          |       |                      
|                                             |                                        |                          |       | November 30,          |       | November 30,
|                                             |                                        |                          |       | 2001                  |       | 2000        
|                                             |                                        |                          |       |                       |       |             
|Revenues                                     |                                        |                          | 100.0 | %                     |       |              | 100.0  | %   
|Cost of revenues                             |                                        |                          | 59.1  |                       |       |              | 70.4   |     
|                                             |                                        |                          |       |                       |       |              |        |     
|                                             | Gross margin                           |                          |       | 40.9                  |       |              |        | 29.6 |      
|                                             |                                        |                          |       |                       |       |              |        |     
|Operating expenses:                          |                                        |                          |       |                       |       |              |        |     
|                                             | Sales, marketing and technical support |                          |       | 55.1                  |       |              |        | 70.6 |      
|                                             | General and administrative             |                          |       | 54.7                  |       |              |        | 68.4 |      
|                                             | Goodwill amortization                  |                          |       |                      |       |              |        | 12.5 |      
|                                             | Bad
debt expense                       |                          |       | 2.4                   |       |              |        | 2.3  |      
|                                             | Other expense (income), net            |                          |       | (1.7                  | )     |              |        | 0.9  |      
|                                             | Merger and integration costs           |                          |       | 14.1                  |       |              |        |     |      
|                                             |                                        |                          |       |                       |       |              |        |     
|                                             |                                        | Total operating expenses |       |                       | 124.6 |              |        |      | 154.7 | 
|Operating loss                               |                                        |                          | (83.7 | )                     |       |              | (125.1 | )   
|Gain on investments, net                     |                                        |                          |      |                       |       |              | 23.1   |     
|Interest income, net                         |                                        |                          | 1.0   |                       |       |              | 13.5   |     
|                                             |                                        |                          |       |                       |       |              |        |     
|Loss from continuing operations before taxes |                                        |                          | (82.7 | )                     |       |              | (88.5  | )   
|Income tax benefit                           |                                        |                          |      |                       |       |              | 26.6   |     
|                                             |                                        |                          |       |                       |       |              |        |     
|Loss from continuing operations              |                                        |                          | (82.7 | )%                    |       |              | (61.9  | )%  
|                                             |                                        |                          |       |                       |       |              |        |     




REVENUES




|                |  |                       |        |              |  |   |        | 
|--------------- |  | --------------------- | ------ | ------------ |  | - | ------ | 
|                |  | For the quarter ended
|                |  |                      
|                |  | November 30,          |        | November 30,
|                |  | 2001                  |        | 2000        
|                |  |                       |        |             
|(In thousands)  |  |                       |        |              |  |   |        | 
|Hosting revenue |  | $                     | 21,533 |              |  | $ | 8,012  | 
|Other revenue   |  |                       | 2,388  |              |  |   | 5,513  | 
|                |  |                       |        |              |  |   |        | 
|Total revenues  |  | $                     | 23,921 |              |  | $ | 13,525 | 
|                |  |                       |        |              |  |   |        | 







Total revenues increased 76.9% to $23.9 million for the quarter ended November
30, 2001 when compared to the same period of the prior fiscal year. The first
quarter of fiscal 2002 reflects the acquisition of Interland-Georgia.

Hosting revenues increased 168.8% to $21.5 million for the quarter ended
November 30, 2001 when compared to the same period from the prior fiscal year.
Hosting revenues are comprised of shared and dedicated hosting services and
domain name registrations. The growth in hosting revenues has been driven by new
customer growth, acquisitions, and upgrading existing customers. The Company
maintained over 300,000 paid hosted Web sites at the end of the first quarter of

fiscal 2002, compared to approximately 120,000 at the end of the first quarter
of fiscal 2001.

Other revenues decreased 56.7% to $2.4 million for the quarter ended November
30, 2001 when compared to the same period from the prior fiscal year. Other
revenues are comprised of e-commerce and other applications hosting services,
other Web hosting-related products and services, internet connectivity fees and
equipment sales to customers. In June 2001, substantially all of the consumer
dial-up accounts were sold, and the Companys strategy moved away from the sale
of hardware. The sale of these accounts and the change in strategy is not
expected to have a substantial impact on future operating income.




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ITEM  2.   MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS  CONTINUED


COST OF REVENUES




Cost of revenues increased 48.4% to $14.1 million for the quarter ended November
30, 2001 from $9.5 million in the same period of the prior year. During the
first quarter of fiscal 2002, the increase in cost of revenues was primarily
related to depreciation and leasing costs for data centers and equipment,
telecommunications and Internet access costs, and technical personnel costs.
The Companys cost of revenues as a percentage of revenues
decreased to 59.1%
during the first quarter of 2002 from 70.4% in the same period in the prior
year. The Company anticipates that costs of revenues will continue to increase
in absolute dollars, but decline as a percentage of revenues as the Company
continues to grow, and executes its strategy to achieve a more cost-effective
scale of operations.




OPERATING EXPENSES

SALES, MARKETING AND TECHNICAL SUPPORT

Sales, marketing and technical support expenses increased 37.5% to $13.2 million
for the quarter ended November 30, 2001 from $9.6 million in the same period of
the prior year. The increase in sales, marketing and technical support expenses
during the first quarter of fiscal 2002 was primarily related to increased
outsourced telemarketing costs and sales and technical support personnel costs.

GENERAL AND ADMINISTRATIVE




General and administrative expenses increased 41.6%
to $13.1 million for the
quarter ended November 30, 2001 from $9.3 million in the same period of the
prior year. The increase in general and administrative expenses during the first
quarter of fiscal 2002 was primarily related to engineering, development,
general and administrative personnel costs, depreciation, and
consulting fees, due to increased expenses needed to support growth in
operations.




GOODWILL AMORTIZATION

Goodwill amortization in the first quarter of fiscal 2001 was as a result of the
acquisitions of the Web and applications hosting companies that occurred
starting in August 1999. SFAS No. 142 required the Company to adopt certain
provisions as part of the Interland-Georgia business combination, and as a
result, the goodwill and intangible assets acquired as part of the combination
were accounted for in accordance with the amortization and nonamortization
provisions of SFAS 142. The Company fully adopted SFAS No. 142 effective
September 1, 2001, which eliminated goodwill amortization starting in the first
quarter of fiscal 2002.




BAD DEBT EXPENSE

Bad debt expense increased 83.9% to
$0.6 million for the quarter ended November 30, 2001 from
$0.3 million in the same period of the prior year. Bad debt expense
as a percentage of revenue was 2.4% for the quarter ended November
30, 2001 compared to 2.3% in the same
period of the prior years. The increase in bad debt expense during the
first quarter of fiscal 2002 was primarily related to an increase in
total revenue and customer accounts resulting from the acquisition of
Interland-Georgia and Interliant. Following these transactions, the
Company experienced short term customer churn and breakage during
the account integration and migration process.




MERGER AND INTEGRATION COSTS

In connection with the acquisition of Interland-Georgia in August 2001, the
Company adopted a restructuring plan to close certain offices and data centers,
discontinue the use and development of certain software and eliminate other
redundant assets. As a result, the Company recorded a restructuring charge of
$110.3 million in the fourth quarter of fiscal 2001. In the first quarter of
fiscal 2002, the Company incurred $3.4 million in additional costs related to
the merger and integration plan.




EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION (EBITDA)

The Companys EBITDA (loss from continuing operations, excluding
interest income (expense), income taxes, and depreciation and
amortization), was a loss of $13.2 million for the
quarter ended November 30, 2001 compared with a loss of $6.1 million for the
same period of the prior year. The increase in the EBITDA loss was
primarily due to increased expenditures needed to support the growth in
operations, including salaries and benefits for additional employees, network
costs, rent, and other costs related to the increase in the number of hosted web
sites as well as increased general and administrative expenses.
Included in the Companys net loss from continuing operations was
$3.4 million of merger and integration costs for the three months
ended November 30, 2001. Management believes it is useful to
separately identify these merger and integration expenditures
included in the Companys results as these expenditures are
non-recurring in nature as more fully described in the Merger
and Integration Costs disclosure above. EBITDA is not an
indicator of performance under generally accepted accounting
principles and may not be comparable to information reported by other
companies. In addition, it does not replace gross profit (loss), net
income (loss), or operating income (loss) as indicators of our
operating performance.




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ITEM  2.   MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS  CONTINUED




Reconciliation of net loss from continuing operations to EBITDA is as
follows:







|                                    |  |                       |         |              |  |   |        |  
|----------------------------------- |  | --------------------- | ------- | ------------ |  | - | ------ | -
|                                    |  | For the quarter ended
|                                    |  |                      
|                                    |  | November 30,          |         | November 30,
|                                    |  | 2001                  |         | 2000        
|                                    |  |                       |         |             
|(In thousands)                      |  |                       |         |              |  |   |        |  
|Net loss from continuing operations |  | $                     | (19,772 | )            |  | $ | (8,378 | )
|Depreciation and amortization       |  |                       | 6,855   |              |  |   | 7,742  |  
|Interest income, net                |  |                       | (251    | )            |  |   | (1,819 | )
|Income tax benefit                  |  |                       |        |              |  |   | (3,597 | )
|                                    |  |                       |         |              |  |   |        |  
|EBITDA Loss                         |  | $                     | (13,168 | )            |  | $ | (6,052 | )
|                                    |  |                       |         |              |  |   |        |  




GAIN ON INVESTMENTS, NET

The gain on investments, net for the quarter ended November 30, 2000 of $3.1
million consists of a gain on the sale of the Companys remaining 10% interest
in MCMS, Inc. for a net gain of $4.5 million offset by the loss of $1.4 million
on the Companys equity investment in Bird on a Wire, Inc..

INTEREST INCOME, NET

Interest income, net decreased to $251,000 for the quarter ended November 30,
2001 from $1.8 million for the same period of the prior year. Interest income,
net consists of interest income earned on the Companys invested cash and liquid
investments, less interest expense on debt. The reduction in interest income,
net is primarily due to the lower levels of cash and liquid investments that
were available for investment and lower interest rates during the first quarter
of fiscal 2002.

INCOME TAX BENEFIT

No income tax benefit was recorded for the quarter ended November 30, 2001. For
the quarter ended November 30, 2000, the effective income tax rate on continuing
operations was approximately 30%. The rate principally reflects the federal
statutory rate, net of the effect of state taxes, tax-exempt securities and
non-deductible goodwill amortization. The change in the effective income tax
rates primarily reflects tax benefits and tax sharing arrangements that are no
longer available due to the disposal of the discontinued operations, as well as
a valuation allowance on certain tax assets.

LIQUIDITY AND CAPITAL RESOURCES

As of November 30, 2001, the Company had $168.9 million in cash and cash
equivalents, investments and restricted investments. This represents a decrease
of $39.2 million compared to August 31, 2001. Principal sources of liquidity in
the quarter ended November 30, 2001 were $8.3 million from investing activities,
offset by $3.4 million for integration, merger and severance costs, $1.9 million
for capital lease pay-downs, $6.7 million for discontinued operation liabilities
and $8.0 million for capital expenditures and account acquisitions.

On May 31, 2001, the Company sold its PC Systems business to GTG PC Holdings,
LLC, (GTG PC) an affiliate of the Gores Technology Group. Under the terms of
the agreement, GTG PC received assets, which included $76.5 million in cash, and
assumed specified liabilities of the PC Systems business. The Company retained
certain liabilities, including contingent liabilities arising prior to the sale.
Through May 31, 2003, or for the applicable statute of limitations with respect
to taxes and government contracts, the Company is obligated to indemnify GTG PC
and affiliated entities for any breaches of the representations and warranties
contained in the agreement. In addition, the Company is obligated for an
indefinite period of time to indemnify GTG PC and affiliated entities for any
breaches in covenants. The agreement provides that the maximum aggregate
liability of the Company for indemnification under

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ITEM  2.   MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS  CONTINUED

the agreement is $10.0 million. Claims related to this indemnification could
result in an additional cash payment by the Company to GTG PC and a
corresponding increase to the loss on disposal of discontinued operations.

On July 20, 2001, the Company entered into a financing arrangement with a
financial institution, under which the Company executed a $5.3 million credit
agreement. At that time, the Company entered into a financing arrangement for a
sale and leaseback of up to $14.6 million for certain equipment, primarily
computer hardware. The Company pledged $24.9 million of cash and equivalents as
security for these lines.

The Company anticipates making capital expenditures between $10 and $14 million
during the remainder of fiscal 2002, generally for data center equipment and
related software.

The Company does not expect to generate positive cash flow from ongoing
operations until near the end of fiscal 2002. The Company expects to have
adequate cash reserves to fund operations for at least one year from the balance
sheet date. The Companys future success is dependent upon its ability to
achieve positive cash flow prior to the depletion of cash reserves and to raise
funds, thereafter, if needed. Management cannot assure that the Company will be
profitable in the future under its current Web and applications hosting business
model or that adequate funding will be available to allow it to continue
operations subsequent to the one-year time period. The Companys current
financial forecast indicates that there are sufficient cash reserves on hand
until the Company reaches positive cash flows from ongoing operations.

RECENTLY ISSUED ACCOUNTING STANDARDS

In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 142 addresses the financial accounting and reporting for
goodwill and other intangible assets subsequent to their acquisition. SFAS No.
142 requires that intangible assets be amortized over their useful lives unless
that life is determined to be indefinite. Intangible assets shall be evaluated
annually to determine whether events and circumstances continue to support an
indefinite useful life. An intangible asset that is not subject to amortization
shall be tested for impairment annually or more frequently if events or changes
in circumstances indicate that the asset might be impaired. Adoption of SFAS No.
142 is required during the Companys fiscal 2003, and early adoption is
permitted. The goodwill and intangible assets acquired as part of the
Interland-Georgia purchase business combination were required to be accounted
for in accordance with the amortization and nonamortization provisions of SFAS
142. The Company adopted SFAS No. 142 during the first quarter of fiscal year
2002, which eliminated goodwill amortization in fiscal 2002. During fiscal year
2002, the Company will perform the first of the required impairment tests of
goodwill as of September 1, 2001. The Company has not yet determined what the
effect, if any, of these tests will be on its earnings and financial position.
Any impairment resulting for the initial application of this statement will be
recorded as a cumulative effect of accounting change as of September 1, 2001.

CERTAIN FACTORS

If any of the adverse events described in the following factors actually occur
or Interland does not accomplish necessary events or objectives described in the
factors, its business, financial condition and operating results could be
materially and adversely affected, the trading price of the Companys common
stock could decline and shareholders could lose all or part of their
investments. The risks and uncertainties described below are not the only risks
the Company faces.




INTERLAND HAS INCURRED LOSSES SINCE INCEPTION. The Company has incurred net
losses and losses from operations for each period from inception through the
first quarter of fiscal 2002. Interland expects to generate free cash flow
positive from ongoing operations by the end of fiscal 2002 (free cash flow
positive consists of EBITDA less cash used for capital expenditures).
Operating expenses could increase as a result of adapting network infrastructure
to accommodate additional customers, increasing sales and marketing efforts,
broadening customer support capabilities, integrating the Interland-Georgia and
HostPro businesses and expanding administrative resources in anticipation of
future growth. To the extent that increases in expenses are not offset by
increased revenues, the Companys results of operations and financial condition
would be materially affected. Even if Interland achieves profitability, it may
not be able to sustain or increase profitability on a quarterly or annual basis
in the future.




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ITEM  2.   MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS  CONTINUED

INTERLANDS HISTORICAL FINANCIAL INFORMATION WILL NOT BE REPRESENTATIVE OF ITS
FUTURE RESULTS. Since the Company has sold its non-hosting businesses, its
historical financial information, contained in previous filings with the
Securities and Exchange Commission, is not representative of its future
operating results. Including the operations of the non-hosting businesseswhich
are classified as discontinued operations in the Companys financial
statementsWeb hosting revenues represented less than 7% and 3% of the
Companys total revenues for fiscal 2001 and 2000, respectively.

INTERLAND HAS A LIMITED OPERATING HISTORY AND ITS BUSINESS MODEL IS STILL
EVOLVING, WHICH MAKES IT DIFFICULT TO EVALUATE ITS PROSPECTS. The Companys
limited operating history makes evaluating its business operations and prospects
difficult. The Companys range of service offerings has changed since its
inception and its current business model is still new and developing. Because
some of Interlands services are new, the market for them is uncertain. As a
result, the revenues and income potential of the Companys business, as well as
the potential benefits of the recent merger with Interland-Georgia, may be
difficult to evaluate.

INTERLANDS QUARTERLY OPERATING RESULTS MAY FLUCTUATE AND ITS FUTURE REVENUES
AND PROFITABILITY ARE UNCERTAIN. The Companys past operating results have been
subject to fluctuations, on a quarterly and an annual basis. Interland may also
experience significant fluctuations in future quarterly and annual operating
results due to a wide variety of factors. Because of these fluctuations,
comparisons of operating results from period to period are not necessarily
meaningful and should not be relied upon as an indicator of future performance.
Factors that may cause operating results to fluctuate include, but are not
limited to:



| |  |  | demand for and market acceptance of the Companys
services;                                                                                                                                                                                  
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | introductions of new services or enhancements by
Interland and its competitors;                                                                                                                                                              
|
| |  |  | technical difficulties or system downtime affecting
the Internet generally or the Companys hosting
operations specifically;                                                                                                                 
|
| |  |  | the mix of services delivered by Interland or its
competitors;                                                                                                                                                                               
|
| |  |  | customer retention;                                                                                                                                                                                                                          
|
| |  |  | the timing and success of the Companys advertising
and marketing efforts and introductions of new
services to customers and the timing and success of
the marketing efforts and introductions of new
services to customers of its resellers;
|
| |  |  | increased competition and consolidation within the
Web hosting and applications hosting markets;                                                                                                                                             
|
| |  |  | changes in the Companys pricing policies and the
pricing policies of its competitors;                                                                                                                                                       
|
| |  |  | gains or losses of key strategic relationships; and                                                                                                                                                                                          
|
| |  |  | other general and industry-specific economic factors.                                                                                                                                                                                        

The Company cannot provide any assurances about the extent to which it will be
successful in achieving any plans to increase the size of its customer base, the
amount of services it offers or the amount, if any, of increase in revenues it
will experience during the next fiscal year, or beyond. In addition, relatively
large portions of Interlands expenses are fixed in the short-term, and
therefore its results of operations are particularly sensitive to fluctuations
in revenues. Also, if the Company were unable to continue using third-party
products in its service offerings, its service development costs could increase
significantly.

In addition, the terrorist acts of September 11, 2001 have created an uncertain
economic environment and the Company cannot predict the impact of these events,
any subsequent terrorist acts or of any related military action, on its
customers or business. The Company believes that, in light of these events, some
businesses may curtail spending on information technology, which could also
affect its quarterly results in the future.

INTERLANDS STOCK PRICE MAY BE VOLATILE. The market price of the Companys
common stock has experienced a significant decline in the last year. The price
has been and is likely to continue to be highly volatile due to several factors,
such as:



| |  |  | the Companys failure to experience the benefits of
the merger with Interland-Georgia as quickly as
anticipated, or at all, or an increase over estimates
of the costs of or operational difficulties arising
from the merger;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the failure of the impact of the merger on the
Companys financial results to be in line with the
expectations of financial analysts;                                                                                         

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ITEM  2.   MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS  CONTINUED



| |  |  | variations in actual and anticipated operating
results;                                        
| | - |  | -----------------------------------------------------------------------------------------------
|
| |  |  | changes in earnings estimates by analysts;                                                     
|
| |  |  | variations in actual and anticipated operating
results of customers or competitors;            
|
| |  |  | material reductions in spending by customers;                                                  
|
| |  |  | announcements by Interland or its competitors
regarding new service introductions;             
|
| |  |  | the volatility inherent in stock within the sectors
within which the Company conducts business;
|
| |  |  | any subsequent terrorist acts or of any related
military action;                               
|
| |  |  | general decline in economic conditions; and                                                    
|
| |  |  | reductions in the volume of trading in the Companys
common stock.                             

INTERLAND OPERATES IN A NEW AND EVOLVING MARKET WITH UNCERTAIN PROSPECTS FOR
GROWTH AND MAY NOT BE ABLE TO SUSTAIN GROWTH IN ITS CUSTOMER BASE. The market
for Web hosting and applications hosting services for small- and medium-sized
businesses has only recently begun to develop and is evolving rapidly. The
Companys future growth, if any, will depend upon the willingness of small- and
medium-sized businesses to outsource Web and applications hosting services, the
Companys ability to increase its average revenues per customer, and its ability
to retain customers. The market for Interlands services may not develop
further, consumers may not widely adopt its services and significant numbers of
businesses or organizations may not use the Internet for commerce and
communication. If this market fails to develop further or develops more slowly
than expected, or if the Companys services do not achieve broader market
acceptance, the Company will not be able to grow its customer base. In addition,
the Company must be able to differentiate itself from its competition through
its service offerings and brand recognition. These activities may be more
expensive than the Company anticipates, and it may not be successful in
differentiating itself, achieving market acceptance of its services or selling
additional services to its existing customer base.

INTERLANDS TARGET MARKET PRESENTS SUBSTANTIAL RISKS. The Company intends to
concentrate on serving small- and medium-sized businesses (SMB). The SMB
market contains many businesses that will not be successful, and are
consequently at substantially greater risk for non-collectible accounts
receivable, and for non-renewal. Moreover, a significant portion of this target
market is highly sensitive to price, and may be lost to a low-cost competitor.
Because few businesses in this target market employ trained technologists, they
tend to generate a high number of customer service and technical support calls.
The expense of responding to these calls is considerable, and the expense is
likely to increase in direct proportion to revenue, potentially limiting the
scalability of the business. Additionally, if the customer becomes dissatisfied
with the Companys response to such calls, cancellation, non-payment, or
non-renewal becomes more likely. Interlands strategy for minimizing the
negative aspects of its target market include:



| |  |  | continued expenditure on sales and marketing to
replace failing customers;                                                      
| | - |  | --------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | capitalizing on planned efficiencies to become a
profitable provider at the lowest sustainable price;                           
|
| |  |  | automating customer care and technical support to
reduce the cost per call, and to minimize the time
spent by Company personnel;
|
| |  |  | intensive training and supervision of customer care
and technical support personnel to maximize customer
satisfaction.          

No assurance can be given, however, that any of these measures will be
successful, and the Companys failure to manage these risks could have a
material negative effect on the Companys revenues, costs, and prospects.

INTERLANDS CUSTOMER BASE INCLUDES A SIGNIFICANT NUMBER OF BUSINESSES THAT
CURRENTLY FACE INCREASING DIFFICULTY IN OBTAINING FUNDING TO SUPPORT THEIR
OPERATIONS. Many of the Companys customers are businesses, including
Internet-based businesses that have traditionally been initially funded by
venture capital firms and then through public securities offerings. Funding
alternatives for these businesses have become more limited than in the past.
Many of these customers have ceased or reduced their operations, and it has
become increasingly difficult for the Company to collect revenues from these
businesses. If the market for technology and Internet-based businesses is not
supported by the private and public investors who have funded these customers,
the Company faces the risk that these customers may cease, curtail or limit Web
site operations. If this continues to occur, the Company could experience a loss
of

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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS  CONTINUED

revenues associated with these customers and will then have to increase sales
to other businesses using the Internet in order to preserve and grow revenue. If
the Company is successful in increasing sales to other businesses, it will incur
the expenses associated with these new customers, such as sales and marketing
expenses, including commissions, and implementation costs. As a result, to
preserve and grow revenue, the Company will have to increase sales by
substantially more than the amount of lost revenue.

IF THE COMPANY DOES NOT SUCCESSFULLY INTEGRATE THE OPERATIONS AND PERSONNEL OF
INTERLAND-GEORGIA IN A TIMELY MANNER, THIS WILL DISRUPT ITS BUSINESS AND COULD
NEGATIVELY AFFECT ITS OPERATING RESULTS. The Companys merger with
Interland-Georgia involves risks related to the integration and management of
Interland-Georgias operations and personnel. The integration will be a complex,
time consuming and expensive process and may disrupt the Companys business if
not completed in a timely and efficient manner. The Company must operate as a
combined organization utilizing common information and telecommunications
systems, operating procedures, financial controls and human resources practices.

The Company may encounter substantial difficulties, costs and delays involved in
integrating the operations of both companies, including:



| |  |  | potential incompatibility of business cultures;                                                                                                                                                            
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | perceived adverse changes in business focus;                                                                                                                                                               
|
| |  |  | potential conflicts in marketing or other important
relationships;                                                                                                                                         
|
| |  |  | potential operating inefficiencies and increased
costs associated with having and integrating
different information and telecommunications systems
currently used by each of HostPro and
Interland-Georgia;
|
| |  |  | potential decline in the level of customer service
and customer satisfaction; and                                                                                                                          
|
| |  |  | the loss of key employees and diversion of the
attention of management from other ongoing business
concerns.                                                                                               

The Companys headquarters were located in Boise, Idaho, while
Interland-Georgias headquarters were located in Atlanta, Georgia. In
conjunction with the merger, the Company moved its headquarters to Atlanta,
Georgia. The integration of Interland-Georgias operations and personnel may be
difficult due to the geographic distance between the Companys previous and
current headquarters. In addition, the Company has completed a number of other
acquisitions of hosting companies and is still in the process of completing the
integration of these businesses. This could make the integration of
Interland-Georgia more difficult. If this integration effort is not successful,
the results of operations could be adversely affected, employee morale could
decline, key employees could leave and customers could cancel existing orders or
choose not to place new ones. In addition, the attention and effort devoted to
the integration of the two companies will significantly divert managements
attention from other important issues, such as expansion of the combined
customer base, which could negatively affect the Companys business and
operating results.

THE BENEFITS OF THE MERGER WITH INTERLAND-GEORGIA MAY BE LOWER THAN EXPECTED AND
THE COSTS ASSOCIATED WITH THE MERGER COULD BE HIGHER THAN EXPECTED, WHICH COULD
HARM THE COMPANYS FINANCIAL RESULTS AND CAUSE A DECLINE IN THE VALUE OF ITS
COMMON STOCK. The Company expects to realize cost reductions due to synergies
created by the merger with Interland-Georgia in areas such as integration and
expansion of nationwide technical support capabilities over a larger customer
base, integration of information and telecommunications systems, marketing the
larger combined business, elimination of excess data center capacity and
economies of scale for the combined companys telecommunications costs. Although
the Company expects that it will realize cost synergies with the merger, it
cannot guarantee that it will realize these cost synergies or state the amount
of any cost synergies with any certainty. The Company expects to incur costs
associated with the consolidation and integration of the companies services and
operations. If the total costs of the merger and related consolidation and
integration exceed estimates, or if the cost synergies of the merger are less
than expected, the Companys financial results would suffer. Any shortfall in
anticipated operating results could cause the market price of the Companys
common stock to decline. In addition, the market price of Interlands common
stock could decline significantly if it does not experience the business
benefits of the merger as quickly or in as great amounts as security analysts
expect.

THE COMPANY HAS INCURRED SIGNIFICANT ACCOUNTING CHARGES RELATING TO THE MERGER
WITH INTERLAND-GEORGIA, WHICH WILL DELAY PROJECTED ACHIEVEMENT OF PROFITABILITY
FOR THE WEB HOSTING BUSINESS. The Company has accounted for the acquisition of
Interland-Georgia using the purchase method of accounting. Under the purchase
method, the purchase price of Interland-Georgia has been allocated to the assets
acquired and liabilities assumed. As a result, based upon the purchase price of
$127.1 million, the Company has recorded $17.5 million of intangible assets and
$104.4 million of goodwill on its balance sheet, which will result in annual
amortization expense of the intangible assets of approximately $3.3 million in
fiscal 2002 under accounting standards existing at

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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS  CONTINUED

August 31, 2001. Goodwill will be evaluated annually for impairment and any
potential impairment will affect the Companys financial results in the future.

IF THE COMPANY ACQUIRES ADDITIONAL COMPANIES, CUSTOMER ACCOUNTS OR TECHNOLOGIES,
IT MAY FACE RISKS SIMILAR TO THOSE IT CURRENTLY FACES IN CONNECTION WITH THE
MERGER WITH INTERLAND-GEORGIA. As part of its strategy to grow the Web hosting
business, the Company has made a number of acquisitions and investments, and it
may continue to pursue acquisitions of businesses or assets that it believes are
complementary to its business. The Company will be required to record material
goodwill and other intangible assets in the likely event the purchase price of
the acquired businesses exceeds the fair value of the net assets acquired. In
the past, this has resulted in significant amortization charges, and these
charges may increase in future periods as the Company continues its acquisition
strategy. The acquired businesses may not achieve the revenues and earnings
anticipated to be achieved. If the Company acquires another company, it will
likely raise the same risks, uncertainties and disruptions as discussed above
with respect to its merger with Interland-Georgia. For example, the Company may
not be able to successfully assimilate the additional personnel, operations,
acquired technology and customer accounts into its business. Furthermore, the
Company may have to incur debt or issue equity securities to pay for any
additional future acquisitions or investments, the issuance of which could be
dilutive to existing shareholders. As a result, there could be a material
adverse effect on the Companys future financial condition and results of
operations. The Company cannot assure you of the timing or size of future
acquisitions, or the effect future acquisitions may have on its operating
results.

INTERLAND COULD INCUR LIABILITIES IN THE FUTURE RELATING TO ITS PC SYSTEMS
BUSINESS. The Company could incur liabilities arising from the sale of the PC
Systems business to GTG PC. According to the terms of the agreement with GTG PC,
the Company agreed to retain liabilities relating to the operation of the PC
systems business arising prior to the closing of the transaction, including
liabilities for taxes, contingent liabilities and liabilities for accounts
payable accrued prior to the closing. The contingent liabilities could include
claims for violations of intellectual property rights, remittances of sales
taxes, and employee related claims. The Company also agreed to indemnify GTG PC
and its affiliates for any breach of the Companys representations and
warranties contained in the agreement for a period of two years, or for the
applicable statute of limitations for matters related to taxes. This
indemnification obligation is capped at $10.0 million. Except for claims for
fraud or injunctive relief, this indemnity is the exclusive remedy for any
breach of the Companys representations, warranties and covenants contained in
the agreement with GTG PC. Accordingly, in the future, Interland could be
required to satisfy obligations not assumed by GTG PC, or to make payments to
GTG PC and its affiliates in accordance with the agreement in which it sold the
PC Systems business, which could adversely affect its future results of
operations.

THE MICRON TECHNOLOGY FOUNDATION IS A SIGNIFICANT SHAREHOLDER AND IS THEREFORE
ABLE TO EXERT SIGNIFICANT INFLUENCE OVER MATTERS REQUIRING SHAREHOLDER APPROVAL.
As of October 30, 2001, the Micron Technology Foundation owned approximately 43%
of Interlands outstanding common stock, although Minnesota law limits its right
to vote any shares in excess of 20% of the Companys outstanding common stock.
Under the terms of an agreement with the Company, the Micron Technology
Foundation has agreed, among other things, not to sell any of its shares for a
period of nine months following the Interland-Georgia merger, subject to limited
exceptions. So long as the Micron Technology Foundation continues to own a
substantial portion of Interlands outstanding common stock, the Micron
Technology Foundation will have the ability to exert significant influence over
matters requiring shareholder approval, including the election of directors, and
potentially could affect the Companys management and corporate policies. The
level of the Micron Technology Foundations ownership of Interlands common
stock may also limit the Companys ability to complete future equity financing.

INTERLAND MAY BE REQUIRED TO PAY SALES AND USE TAXES RELATED TO ITS DISCONTINUED
OPERATIONS. During the third quarter of 1997, the Company began to collect and
remit applicable sales or use taxes in nearly all states. The Company is a party
to agreements with nearly all states, which generally limit its liability, if
any, for non-remittance of sales and use taxes prior to such agreements
effective dates. The Company has previously accrued a liability for the
estimated settlement cost of issues related to sales and use taxes not covered
by such agreements. Management believes the resolution of any matters relating
to the non-remittance of sales or use taxes will not materially affect the
Companys business, financial position, results of operations and cash flows.
This potential liability will remain with Interland even though it sold the PC
Systems business.

INTERLAND MAY NOT EFFECTIVELY EXECUTE ITS WEB HOSTING STRATEGY AND, AS A RESULT,
OTHERS MAY SEIZE THE MARKET OPPORTUNITY THAT IT HAS IDENTIFIED. If Interland
fails to execute its Web hosting strategy in a timely or effective manner, its
competitors may be able to seize the opportunity it has identified to address
the Web hosting needs of small- and medium-sized businesses. Interlands
business strategy is complex and requires that it successfully and
simultaneously complete many tasks. The failure to complete any one of these may
jeopardize its strategy as a whole. Execution of this strategy may be more
difficult in light of the merger with Interland-Georgia because the management
team for the combined company has not worked together for any significant period
of time. In order to be successful, the Company will need to:

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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS  CONTINUED



| |  |  | market its services and build its brand name
effectively;                                              
| | - |  | -------------------------------------------------------------------------------------------------------
|
| |  |  | provide reliable and cost-effective services that can
be expanded to meet the demands of its customers;
|
| |  |  | develop new products and services;                                                                     
|
| |  |  | continue to enhance the efficiency of its
infrastructure to accommodate additional customers;          
|
| |  |  | continue to expand its customer base;                                                                  
|
| |  |  | continue to respond to competitive developments;                                                       
|
| |  |  | influence and respond to emerging industry standards
and other changes; and                            
|
| |  |  | attract, retain and motivate qualified personnel.                                                      

INTERLAND FACES INTENSE COMPETITION. The Web hosting and applications hosting
markets are highly competitive and are becoming more so. There are few
substantial barriers to entry, and the Company expects that it will face
additional competition from existing competitors and new market entrants in the
future. The Company may not have the resources, expertise or other competitive
factors to compete successfully in the future. Many of Interlands competitors
have greater name recognition and more established relationships in the
industry. As a result, these competitors may be able to:



| |  |  | develop and expand their network infrastructures and
service offerings more rapidly;                                                 
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | adapt to new or emerging technologies and changes in
customer requirements more quickly;                                             
|
| |  |  | take advantage of acquisition and other opportunities
more readily; and                                                              
|
| |  |  | devote greater resources to the marketing and sale of
their services and adopt more aggressive pricing
policies than the Company can.

In an effort to gain market share, some of Interlands competitors have offered,
and may in the future offer, Web hosting services similar to Interland at lower
prices or with incentives not matched by Interland, including free start-up and
domain name registration, periods of free service, low-priced Internet access or
free software. In addition, some of its competitors may be able to provide
customers with additional benefits, including reduced communications costs,
which could reduce the overall cost of their services relative to the Company.
Interland may not be able to reduce the pricing of its services or offer
incentives in response to the actions of its competitors without harming its
business. Because of the fierce competition in the Web hosting and applications
hosting industry, the number of competitors could lead to a surplus in service
providers, leading to further reductions in the prices of services. The Company
also believes that the market in which it competes is likely to consolidate
further in the near future, which could result in increased price and other
competition that could damage its business.

Current and potential competitors in the market include Web hosting service
providers, applications hosting providers, Internet service providers,
telecommunications companies, large information technology firms that provide a
wide array of information technology services and computer hardware suppliers.
These competitors may operate in one or more of these areas and include
companies such as XO Communications and Verio. In addition, large companies such
as AT&T, Sprint and WorldCom have entered or indicated their intent to enter
into one of more of these markets.

INTERLANDS ABILITY TO SUCCESSFULLY MARKET ITS SERVICES COULD BE SUBSTANTIALLY
IMPAIRED IF IT IS UNABLE TO DEPLOY NEW INTERNET APPLICATIONS OR IF NEW INTERNET
APPLICATIONS IT DEPLOYS PROVE TO BE UNRELIABLE, DEFECTIVE OR INCOMPATIBLE. The
Company could experience difficulties that delay or prevent the successful
development, introduction or marketing of Internet application services in the
future. If any newly introduced Internet applications suffer from reliability,
quality or compatibility problems, market acceptance of Interlands services
could be greatly hindered and its ability to attract and retain new customers
could be adversely affected. New applications Interland deploys may not be free
from reliability, quality or compatibility problems. If the Company incurs
increased costs or is unable, for technical or other reasons, to host and manage
new Internet applications or enhancements of existing applications, its ability
to successfully market its services could be substantially impaired. In
addition, the Companys new services or applications may not be accepted by its
customers.

IMPAIRMENT OF INTERLANDS INTELLECTUAL PROPERTY RIGHTS COULD NEGATIVELY AFFECT
ITS BUSINESS OR COULD ALLOW COMPETITORS TO MINIMIZE ANY ADVANTAGE THAT
INTERLANDS PROPRIETARY TECHNOLOGY MAY GIVE IT. The Company relies on a
combination of patent, copyright, trademark, service mark and trade secret laws
and contractual restrictions to establish and protect proprietary rights in its
services. At

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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS  CONTINUED

this point, Interland has no patented technology that would preclude or inhibit
competitors from entering the Web hosting market that it serves. While the
Company may file patent applications on particular aspects of its technology, it
cannot be sure that it will receive any patents. While it is the Companys
practice to require all of its employees to enter into agreements containing
non-disclosure, non-competition and non-solicitation restrictions and covenants,
and while its agreements with some of its customers and suppliers include
provisions prohibiting or restricting the disclosure of proprietary information,
the Company cannot be sure that these contractual arrangements or the other
steps it takes to protect its proprietary rights will prove sufficient to
prevent illegal use of its proprietary rights or to deter independent,
third-party development of similar proprietary assets.

Policing unauthorized use of products or methods of operation and fully
protecting the Companys proprietary rights is difficult, and the Company cannot
guarantee that the steps it has taken to protect its proprietary rights will be
adequate. In addition, effective copyright, trademark, trade secret and patent
protection may not be available in every country in which the Companys products
and services are offered. Further, the Company is currently, and may in the
future, involved in legal disputes relating to the validity or alleged
infringement of its, or of a third partys, intellectual property rights. The
Company expects that participants in the Web hosting market will be increasingly
subject to infringement claims as the number of services and competitors in its
industry segment grows. Intellectual property litigation is typically extremely
costly and can be disruptive to business operations by diverting the attention
and energies of management and key technical personnel. In addition, any adverse
decisions could subject the Company to significant liabilities, require it to
seek licenses from others, prevent it from using, licensing or selling certain
of its products and services, or cause severe disruptions to its operations or
the markets in which it competes, any one of which could dramatically impact its
business and results of operations.

Periodically, the Company is made aware that technology it used in its
discontinued operations may have infringed on intellectual property rights held
by others. The Company has evaluated all such claims and, if necessary and
appropriate, sought to obtain licenses for the use of such technology. If the
Company or its suppliers were unable to obtain licenses necessary to use
intellectual property in its discontinued operations products or processes, it
may be forced to defend legal actions taken against it relating to allegedly
protected technology. The Company evaluates all such claims and has accrued a
liability and charged operations for the estimated costs of settlement or
adjudication of claims for alleged infringement as of the respective dates of
the balance sheets included in this report. Resolution of these claims for
amounts greater than anticipated could have a material adverse effect on future
results of operations and cash flows.

INTERLAND FACES RISKS RELATING TO EXISTING LITIGATION. Interland is defending a
contract dispute lawsuit filed on October 2, 2001 in Dallas County, Texas Court
seeking damages of approximately $2.1 million for goods purchased by our PC
Systems business. The Company removed the case to federal court, and
counterclaimed for legal fees owed by the plaintiff for legal fees they had
agreed to indemnify the Company for that were incurred on an unrelated patent
lawsuit. These legal fees amounted to approximately $1.0 million. This claim is
currently in the early stages of discovery, and the Company is therefore unable
to estimate total expenses, or possible loss that may ultimately be connected
with the matter. This potential liability remains with Interland even though it
sold the PC Systems business.

The Company is defending a consumer class action lawsuit filed in the Federal
District Court of Minnesota based on the alleged sale of defective computers. No
class has been certified in the case. The case involves a claim that the Company
sold computer products with a defect that may cause errors when information is
written to a floppy disk. Substantially similar lawsuits have been filed against
other major computer manufacturers. The case is currently in the early stages of
discovery, and the Company is therefore unable to estimate total expenses,
possible loss or range of loss that may ultimately be connected with the matter.
This potential liability remains with Interland even though it sold the PC
Systems business.

The Company is defending an employee class action lawsuit claim filed in the
U.S. District Court for Idaho. The case involves alleged violations of the Fair
Labor Standards Act, particularly failures to pay non-exempt employees overtime
for hours worked in excess of 40 in a week as well as other alleged violations
of the FLSA and state wage and hour laws. No class has been certified in the
case. The case is currently in the early stages of discovery, and the Company is
therefore unable to estimate total expenses, possible loss or range of loss that
may ultimately be connected with the matter. This potential liability remains
with Interland even though it sold the PC Systems business.

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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS  CONTINUED

INTERLAND WILL RELY HEAVILY ON ITS KEY PERSONNEL. The future success of
Interland will depend, in part, on its ability to attract and retain key
management, technical and sales and marketing personnel. The Company attempts to
enhance its management and technical expertise by recruiting qualified
individuals who possess desired skills and experience in certain targeted areas.
The Company experiences strong competition for such personnel in the Web hosting
industry. The Companys inability to retain employees and attract and retain
sufficient additional employees, and information technology, engineering and
technical support resources, could have a material adverse effect on its
business, financial condition, results of operations and cash flows. The Company
cannot assure you that it will not lose key personnel or that the loss of any
key personnel will not have a material adverse effect on its business, financial
position, results of operations and cash flows.

IF THE COMPANY IS UNABLE TO OBTAIN SUFFICIENT TELECOMMUNICATIONS NETWORK
CAPACITY AT REASONABLE COSTS, IT MAY NOT BE ABLE TO PROVIDE SERVICES AT PRICES
ACCEPTABLE TO ITS CUSTOMERS, THEREBY REDUCING DEMAND FOR ITS SERVICES. The
success of Interland will depend upon the capacity, reliability and security of
its network infrastructure, including the capacity leased from its
telecommunications network suppliers. Interlands network currently delivers
service through Cable & Wireless, McLeod, Qwest, Electric Lightwave, Genuity,
WorldCom, Level 3, XO, Sprint and Touch America. Some of these suppliers are
also Interlands competitors. The Companys operating results depend, in part,
upon the pricing and availability of telecommunications network capacity from a
limited number of providers. If capacity is not available as the Companys
customers usage increases, the Companys network may not be able to achieve or
maintain sufficiently high data transmission capacity, reliability or
performance. In addition, the Companys business would suffer if its network
suppliers increased the prices for their services and Interland proves unable to
pass along any increased costs to its customers. Any failure on the part of the
Company or the part of its third-party suppliers to achieve or maintain high
data transmission capacity, reliability or performance could significantly
reduce customer demand for its services, damage its business reputation and
increase its costs.

INTERLAND DEPENDS ON ITS RESELLER SALES CHANNEL TO MARKET AND SELL MANY OF ITS
SERVICES. INTERLAND DOES NOT CONTROL ITS RESELLERS, AND IF IT FAILS TO DEVELOP
OR MAINTAIN GOOD RELATIONS WITH RESELLERS, IT MAY NOT ACHIEVE THE GROWTH IN

CUSTOMERS AND REVENUES THAT IT EXPECTS. An element of the strategy for the
Companys growth is to further develop the use of third parties that resell its
services. Many of these resellers are Web development or Web consulting
companies that also sell Interlands Web hosting services, but that generally do
not have established customer bases to which they can market these services. The
Company is not currently dependent on any one reseller to generate a significant
level of business, but it has benefited from business generated by the reseller
channel. Although Interland attempts to provide its resellers with incentives
such as price discounts on its services that the resellers seek to resell at a
profit, the failure of its services to be commercially accepted in some markets,
whether as a result of a resellers performance or otherwise, could cause its
current resellers to discontinue their relationships with us, and it may not be
successful in establishing additional reseller relationships as needed.

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

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

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INTERLANDS ABILITY TO ATTRACT CUSTOMERS IS DEPENDENT ON THE RELIABLE
PERFORMANCE AND GROWTH OF USE OF THE INTERNET. As a Web and applications hosting
company, Interlands success will depend in large part on continued growth in
the use of the Internet. The lack of continued growth in the usage of the
Internet would adversely affect its business because it would not gain
additional customers and its existing customers might not have any further use
for its services. Internet usage and growth may be inhibited for a number of
reasons, such as:



| |  |  | inadequate network infrastructure;                                            
| | - |  | ------------------------------------------------------------------------------
|
| |  |  | security concerns;                                                            
|
| |  |  | uncertainty of legal and regulatory issues concerning
the use of the Internet;
|
| |  |  | inconsistent quality of service;                                              
|
| |  |  | lack of availability of cost-effective, reliable,
high-speed service; and     
|
| |  |  | failure of Internet use to expand internationally.                            

If Internet usage grows, the Internet infrastructure may not be able to support
the demands placed on it by this growth, or its performance and reliability may
decline. For example, Web sites have experienced interruptions in service as a
result of outages and other delays occurring throughout the Internet network
infrastructure. If these outages or delays occur frequently, use of the Internet
as a commercial or business medium could in the future grow more slowly or
decline.

INTERLAND IS VULNERABLE TO SYSTEM FAILURES, WHICH COULD HARM ITS REPUTATION,
CAUSE ITS CUSTOMERS TO SEEK REIMBURSEMENT FOR SERVICES AND CAUSE ITS CUSTOMERS
TO SEEK ANOTHER PROVIDER FOR SERVICES. The Company must be able to operate the
systems that manage its network around the clock without interruption. Its
operations will depend upon its ability to protect its network infrastructure,
equipment and customer files against damage from human error, fire, earthquakes,
hurricanes, floods, power loss, telecommunications failures, sabotage,
intentional acts of vandalism and similar events. Although the Company has
attempted to build redundancy into its networks, its networks are currently
subject to various points of failure. For example, a problem with one of its
routers (devices that move information from one computer network to another) or
switches could cause an interruption in the services the Company provides to a
portion of its customers. In the past, the Company has experienced periodic
interruptions in service. In addition, failure of any of its telecommunications
providers to provide the data communications capacity that the Company requires,
as a result of human error, a natural disaster or other operational disruption,
could result in interruptions in services. Any future interruptions could:



| |  |  | cause customers or end users to seek damages for
losses incurred;             
| | - |  | ------------------------------------------------------------------------------
|
| |  |  | require the Company to replace existing equipment or
add redundant facilities;
|
| |  |  | damage the Companys reputation for reliable service;                         
|
| |  |  | cause existing customers to cancel their contracts;
or                        
|
| |  |  | make it more difficult for the Company to attract new
customers.              

Interland offers some customers a 99.9% service level warranty. Under these
policies, it guarantees that those customers Web sites will be available at
least 99.9% of the time in each calendar month for as long as the customer is
using its Web hosting services. If the Company were to experience widespread
system failure, it could incur significant costs under those warranties.

INTERLANDS DATA CENTERS AND NETWORKS MAY BE VULNERABLE TO SECURITY BREACHES. A
significant barrier to electronic commerce and communications is the need for
secure transmission of confidential information over public networks. Some of
the Companys services rely on security technology licensed from third parties
that provides the encryption and authentication necessary to effect the secure
transmission of confidential information. Despite the design and implementation
of a variety of network security measures by the Company, unauthorized access,
computer viruses, accidental or intentional actions and other disruptions could
occur. In the past, the Company has experienced, and in the future it may
experience, delays or interruptions in service as a result of the accidental or
intentional actions of Internet users, current and former employees or others.
In addition, inappropriate use of the network by third parties could also
potentially jeopardize the security of confidential information, such as credit
card and bank account numbers stored in the Companys computer systems. These
security problems could result in the Companys liability and could also cause
the loss of existing and potential customers. In addition, third parties could
interfere with the operation of customers Web sites through intentional attacks
including causing an overload of traffic to these Web sites.

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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS  CONTINUED

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

DISRUPTION OF INTERLANDS SERVICES CAUSED BY UNKNOWN SOFTWARE DEFECTS COULD HARM
ITS BUSINESS AND REPUTATION. The Companys service offerings depend on complex
software, including proprietary software tools and software licensed from third
parties. Complex software often contains defects, particularly when first
introduced or when new versions are released. The Company may not discover
software defects that affect its new or current services or enhancements until
after they are deployed. Although Interland has not experienced any material
software defects to date, it is possible that defects may occur in the software.
These defects could cause service interruptions, which could damage its
reputation or increase its service costs, cause it to lose revenue, delay market
acceptance or divert its development resources.

PROVIDING SERVICES TO CUSTOMERS WITH CRITICAL WEB SITES AND WEB-BASED
APPLICATIONS COULD POTENTIALLY EXPOSE INTERLAND TO LAWSUITS FOR CUSTOMERS LOST
PROFITS OR OTHER DAMAGES. Because the Companys Web hosting and applications
hosting services are critical to many of its customers businesses, any
significant interruption in those services could result in lost profits or other
indirect or consequential damages to its customers as well as negative publicity
and additional expenditures for it to correct the problem. Although the standard
terms and conditions of the Companys customer contracts disclaim liability for
any such damages, a customer could still bring a lawsuit against it claiming
lost profits or other consequential damages as the result of a service
interruption or other Web site or application problems that the customer may
ascribe to it. A court might not enforce any limitations on its liability, and
the outcome of any lawsuit would depend on the specific facts of the case and
legal and policy considerations even if the Company believes it would have
meritorious defenses to any such claims. In such cases, it could be liable for
substantial damage awards. Such damage awards might exceed its liability
insurance by significant amounts, which would seriously harm its business.

INTERLAND COULD FACE LIABILITY FOR INFORMATION DISTRIBUTED THROUGH ITS NETWORK.
The law relating to the liability of online services companies for information
carried on or distributed through their networks is currently unsettled. Online
services companies could be subject to claims under both United States and
foreign law for defamation, negligence, copyright or trademark infringement,
violation of securities laws or other theories based on the nature and content
of the materials distributed through their networks. Several private lawsuits
seeking to impose such liability upon other entities are currently pending
against other companies. In addition, organizations and individuals have sent
unsolicited commercial e-mails from servers hosted by service providers to
massive numbers of people, typically to advertise products or services. This
practice, known as spamming, can lead to complaints against service providers
that enable such activities, particularly where recipients view the materials
received as offensive. The Company may, in the future, receive letters from
recipients of information transmitted by its customers objecting to such
transmission. Although the Company prohibits its customers by contract from
spamming, it cannot assure you that its customers will not engage in this
practice, which could subject it to claims for damages.

In addition, the Company may become subject to proposed legislation that would
impose liability for or prohibit the transmission over the Internet of some
types of information. Other countries may also enact legislation or take action
that could impose liability on the Company or cause it not to be able to operate
in those countries. The imposition upon the Company and other online services of
potential liability for information carried on or distributed through its
systems could require it to implement measures to reduce its exposure to this
liability, which may require it to expend substantial resources, or to
discontinue service offerings. The increased attention focused upon liability
issues as a result of these lawsuits and legislative proposals also could affect
the growth of Internet use.

INTERLANDS BUSINESS MAY BE IMPACTED BY GOVERNMENT REGULATION AND LEGAL
UNCERTAINTIES. Only a small body of laws and regulations currently applies
specifically to access to, or commerce on, the Internet. Due to the increasing
popularity and use of the Internet, however, laws and regulations with respect
to the Internet may be adopted at federal, state and local levels, covering
issues such as user privacy, freedom of expression, pricing, characteristics and
quality of products and services, taxation, advertising, intellectual property
rights, information security and the convergence of traditional
telecommunications services with Internet communications. The Company cannot
fully predict the nature of future legislation and the manner in which
government authorities may interpret and enforce. As a result, Interland and its
customers could be subject to potential liability under future legislation,
which in turn could have a material adverse effect on the Companys business.
For example, if legislation were adopted in the U.S. or internationally that
makes transacting business over the Internet less favorable or otherwise
curtails the growth of the Internet, the Companys business would suffer. The
adoption of any such laws or regulations might decrease the growth of the
Internet, which in turn could decrease the demand for the Companys services or
increase the cost of doing business or in some other manner harm its business.

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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS  CONTINUED

In addition, applicability to the Internet of existing laws governing issues
such as property ownership, copyright and other intellectual property issues,
taxation, libel, obscenity and personal privacy is uncertain. These laws
generally pre-date the advent of the Internet and related technologies and, as a
result, do not consider or address the unique issues of the Internet and related
technologies. Changes to laws intended to address these issues could create
uncertainty in the marketplace that could reduce demand for the Companys
services or increase the cost of doing business as a result of costs of
litigation or increased service delivery costs, or could in some other manner
have a material adverse effect on its business.

In addition, because its services are available over the Internet virtually
worldwide, and because the Company facilitates sales by its customers to end
users located in multiple states and foreign countries, such jurisdictions may
claim that the Company is required to qualify to do business as a foreign
corporation in those states or that it have a permanent establishment in the
foreign country.

INTERLANDS INTERNATIONAL OPERATIONS ARE SUBJECT TO RISKS. The Company derived
approximately 9% of its revenues from international sales for the quarter ended
November 30, 2001. International business is subject to a number of special
risks, including:



| |  |  | different regulatory requirements;                                                
| | - |  | ----------------------------------------------------------------------------------
|
| |  |  | different privacy, censorship and liability standards
and regulations;            
|
| |  |  | less protective intellectual property laws;                                       
|
| |  |  | different technology standards;                                                   
|
| |  |  | unexpected changes in, or imposition of, regulatory
requirements;                 
|
| |  |  | tariffs and other barriers and restrictions;                                      
|
| |  |  | general geopolitical risks such as political and
economic instability;            
|
| |  |  | hostilities among countries and changes in diplomatic
and trade relationships; and
|
| |  |  | other factors beyond the control of the Company.                                  

SUBSTANTIAL FUTURE SALES OF SHARES BY SHAREHOLDERS COULD NEGATIVELY AFFECT
INTERLANDS STOCK PRICE. If Interlands shareholders sell substantial amounts of
the Companys common stock in the public market, the market price of the
Companys common stock could decline. Under a shareholder agreement, Mr. Joel
Kocher, the Companys Chairman of the Board, President, and Chief Executive
Officer, and some Interland-Georgia shareholders have agreed not to sell their
shares of Interland common stock, representing approximately 12% of the
Companys outstanding common stock for a period of nine months after the closing
of the Interland-Georgia merger, subject to limited exceptions. Additionally,
the Micron Technology Foundation, which owns approximately 43% of the Companys
outstanding common stock, agreed not to sell Interland common stock beneficially
held by it for a period of nine months after the closing of the
Interland-Georgia merger, subject to limited exceptions. As a result, after
these lockup provisions expire, approximately 55% of the Companys outstanding
common stock will be eligible for sale in the public market subject to volume
limitations under Rule 144 of the Securities Act. Furthermore, these
shareholders will have the right to require Interland to register their shares
for sale pursuant to an existing registration rights agreement.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK




Substantially all of the Companys cash equivalents, liquid investments and a
majority of its debt are at fixed rates, and therefore the fair value of these
instruments is affected by changes in market interest rates. As of November 30,
2001, approximately 16% of the Companys liquid investments mature within three
months and 63% mature within one year. As of November 30, 2001, management
believes the reported amounts of liquid investments and debt to be reasonable
approximations of their fair values and has the ability and intent to hold these
instruments to maturity. As a result, management believes that the market risk
arising from its holding of financial instruments is minimal.







PART II. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  The following are filed as part of this
report: NONE.




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Signatures

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

| |  |  |  |                
| |  |  |  | ---------------
| |  |  |  | Interland, Inc.
| |  |  |  |                
| |  |  |  | (Registrant)   
| |  |  |  |                




|                         |                      |  |  |                                                                   
|------------------------ | -------------------- |  |  | ------------------------------------------------------------------
|Dated: November 12, 2002 | /s/ Allen L. Shulman
|                         |                      |  |  |                                                                   
|                         |                      |  |  | Allen L. Shulman                                                  
|                         |                      |  |  | Senior Vice
President, General Counsel and Chief Financial Officer
|                         |                      |  |  | (Principal Financial and Accounting Officer)                      




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CERTIFICATIONS

I, Joel J. Kocher, certify that:

1.     I have reviewed this quarterly report on Form 10-Q/A of Interland, Inc.;

2.     Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report; and

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.

|      |  |             |  |        |  |                                     
|----- |  | ----------- |  | ------ |  | ------------------------------------
|Date: |  | November 12 |  | , 2002 |  | /s/ Joel J. Kocher                  
|      |  |             |  |        |  |                                     
|      |  |             |  |        |  | Joel J. Kocher                      
|      |  |             |  |        |  | Chairman of the Board, President and
|      |  |             |  |        |  | Chief Executive Officer             

I, Allen L. Shulman, certify that:

1.     I have reviewed this quarterly report on Form 10-Q/A of Interland, Inc.;

2.     Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report; and

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.

|      |  |             |  |        |  |                                    
|----- |  | ----------- |  | ------ |  | -----------------------------------
|Date: |  | November 12 |  | , 2002 |  | /s/ Allen L. Shulman               
|      |  |             |  |        |  |                                    
|      |  |             |  |        |  | Allen L. Shulman                   
|      |  |             |  |        |  | Senior Vice President, General     
|      |  |             |  |        |  | Counsel and Chief Financial Officer

EXPLANATORY NOTE REGARDING CERTIFICATIONS:Representations 4, 5 and 6 of the
Certifications as set forth in Form 10-Q have been omitted, consistent with the
Transition Provisions of SEC Exchange Act Release No. 34-46427, because this
Quarterly Report on Form 10-Q/A covers a period ending before the Effective
Date of Rules 13a-14 and 15d-14.