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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


Form 10-Q

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

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended February 28, 2003

Commission File Number: 0-17932

Interland, Inc.

(Exact name of registrant as specified in its charter)


|                                  |  |                    
|--------------------------------- |  | -------------------
|Minnesota                         |  | 41-1404301         
|(State or other jurisdiction      |  | (I.R.S. Employer   
|of incorporation or organization) |  | 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 þ No o

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes
þ No o

The number of outstanding shares of the registrants Common Stock on March 31,
2003 was 144,745,765.

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TABLE OF CONTENTS



|                                                                   |                                                                                               |                                            |  |  |  |  |  | 
|------------------------------------------------------------------ | --------------------------------------------------------------------------------------------- | ------------------------------------------ |  |  |  |  |  | 
|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
|Item 4. Controls and Procedures                                   
|PART II. OTHER INFORMATION                                        
|                                                                   | Item 1. Legal Proceedings                                                                    
|                                                                   | Item 2. Changes in Securities and Use of Proceeds                                            
|                                                                   | Item 6. Exhibits and Reports on Form 8-K                                                     
|EX-99.1 CERTIFICATION OF THE CEO                                  
|EX-99.2 CERTIFICATION OF THE CFO                                  



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|                               |                                                                                              |                                            |  |      |   | 
|------------------------------ | -------------------------------------------------------------------------------------------- | ------------------------------------------ |  | ---- | - | 
|                               |                                                                                              |                                            |  | Page
|                              
|Part I - Financial Information |                                                                                              |                                            |  |     
|                               | Item 1 Financial Statements                                                                 
|                               |                                                                                              | Consolidated Statements of Operations      |  |      | 3 | 
|                               |                                                                                              | Consolidated Balance Sheets                |  |      | 4 | 
|                               |                                                                                              | Consolidated Statements of Cash Flows      |  |      | 5 | 
|                               |                                                                                              | Notes to Consolidated Financial Statements |  |      | 6 | 
|                               | Item 2 Managements Discussion and Analysis of Financial Condition and
Results of Operations |                                            |  | 15   |  
|                               | Item 3 Qualitative and Quantitative Disclosures about Market
Risk                            |                                            |  | 34   |  
|                               | Item 4 Controls and Procedures                                                               |                                            |  | 35   |  
|Part II  Other Information    |                                                                                              |                                            |  |     
|                               | Item 1 Legal Proceedings                                                                     |                                            |  | 39   |  
|                               | Item 2
Changes in Securities and Use of Proceeds                                             |                                            |  | 40   |  
|                               | Item 6 Exhibits and Reports on Form 8-K                                                      |                                            |  | 41   |  

2



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PART I. Financial Information
Item 1. Financial Statements

Interland, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands except per share amounts)
(Unaudited)

|                                                        |  |                            |         |                          |  |              |         |              |  |   |         |   |  |   |         |  
|------------------------------------------------------- |  | -------------------------- | ------- | ------------------------ |  | ------------ | ------- | ------------ |  | - | ------- | - |  | - | ------- | -
|                                                        |  | For the three months ended |         | For the six months ended
|                                                        |  |                            |         |                         
|                                                        |  | February 28,               |         | February 28,             |  | February 28, |         | February 28,
|                                                        |  | 2003                       |         | 2002                     |  | 2003         |         | 2002        
|                                                        |  |                            |         |                          |  |              |         |             
|Revenues                                                |  | $                          | 26,114  |                          |  | $            | 25,245  |              |  | $ | 53,397  |   |  | $ | 49,165  |  
|Operating costs and expenses:                           |  |                            |         |                          |  |              |         |              |  |   |         |   |  |   |         |  
|Network operating costs                                 |  |                            | 9,830   |                          |  |              | 8,815   |              |  |   | 19,170  |   |  |   | 18,532  |  
|Sales and marketing                                     |  |                            | 5,033   |                          |  |              | 7,717   |              |  |   | 9,872   |   |  |   | 16,551  |  
|Technical support                                       |  |                            | 3,777   |                          |  |              | 4,355   |              |  |   | 7,521   |   |  |   | 7,927   |  
|General and administrative                              |  |                            | 10,452  |                          |  |              | 8,934   |              |  |   | 20,256  |   |  |   | 20,325  |  
|Bad debt expense                                        |  |                            | 1,770   |                          |  |              | 2,422   |              |  |   | 3,816   |   |  |   | 3,003   |  
|Depreciation and amortization                           |  |                            | 13,215  |                          |  |              | 8,481   |              |  |   | 25,395  |   |  |   | 15,370  |  
|Restructuring costs                                     |  |                            | 3,675   |                          |  |              | (318    | )            |  |   | 3,440   |   |  |   | (318    | )
|Merger and integration costs                            |  |                            | 433     |                          |  |              | 3,726   |              |  |   | 527     |   |  |   | 7,089   |  
|Other expense (income), net                             |  |                            | 21      |                          |  |              | 1,032   |              |  |   | 71      |   |  |   | 628     |  
|                                                        |  |                            |         |                          |  |              |         |              |  |   |         |   |  |   |         |  
|Total operating costs and expenses                      |  |                            | 48,206  |                          |  |              | 45,164  |              |  |   | 90,068  |   |  |   | 89,107  |  
|                                                        |  |                            |         |                          |  |              |         |              |  |   |         |   |  |   |         |  
|Operating loss                                          |  |                            | (22,092 | )                        |  |              | (19,919 | )            |  |   | (36,671 | ) |  |   | (39,942 | )
|Interest income (expense), net                          |  |                            | (50     | )                        |  |              | 68      |              |  |   | 151     |   |  |   | 319     |  
|                                                        |  |                            |         |                          |  |              |         |              |  |   |         |   |  |   |         |  
|Loss from continuing operations before taxes            |  |                            | (22,142 | )                        |  |              | (19,851 | )            |  |   | (36,520 | ) |  |   | (39,623 | )
|Income tax benefit                                      |  |                            |        |                          |  |              |        |              |  |   |        |   |  |   |        |  
|                                                        |  |                            |         |                          |  |              |         |              |  |   |         |   |  |   |         |  
|Net loss from continuing operations                     |  |                            | (22,142 | )                        |  |              | (19,851 | )            |  |   | (36,520 | ) |  |   | (39,623 | )
|                                                        |  |                            |         |                          |  |              |         |              |  |   |         |   |  |   |         |  
|Loss on disposal of discontinued operations, net of tax |  |                            | (281    | )                        |  |              |        |              |  |   | (315    | ) |  |   |        |  
|                                                        |  |                            |         |                          |  |              |         |              |  |   |         |   |  |   |         |  
|Net loss                                                |  | $                          | (22,423 | )                        |  | $            | (19,851 | )            |  | $ | (36,835 | ) |  | $ | (39,623 | )
|                                                        |  |                            |         |                          |  |              |         |              |  |   |         |   |  |   |         |  
|Loss per share, basic and diluted:                      |  |                            |         |                          |  |              |         |              |  |   |         |   |  |   |         |  
|Continuing operations                                   |  | $                          | (0.16   | )                        |  | $            | (0.14   | )            |  | $ | (0.26   | ) |  | $ | (0.29   | )
|Discontinued operations                                 |  |                            |        |                          |  |              |        |              |  |   |        |   |  |   |        |  
|                                                        |  |                            |         |                          |  |              |         |              |  |   |         |   |  |   |         |  
|                                                        |  | $                          | (0.16   | )                        |  | $            | (0.14   | )            |  | $ | (0.26   | ) |  | $ | (0.29   | )
|                                                        |  |                            |         |                          |  |              |         |              |  |   |         |   |  |   |         |  
|Number of shares used in per share calculation:         |  |                            |         |                          |  |              |         |              |  |   |         |   |  |   |         |  
|Basic and diluted                                       |  |                            | 141,958 |                          |  |              | 137,307 |              |  |   | 140,988 |   |  |   | 137,541 |  

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

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Interland, Inc.
CONSOLIDATED BALANCE SHEETS(In thousands)

|                                           |                           |                                                                                                                                          |         |              |         |            |         |        |         |  
|------------------------------------------ | ------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------- | ------- | ------------ | ------- | ---------- | ------- | ------ | ------- | -
|                                           |                           |                                                                                                                                          |         | As of       
|                                           |                           |                                                                                                                                          |         |             
|                                           |                           |                                                                                                                                          |         | February 28, |         | August 31,
|                                           |                           |                                                                                                                                          |         | 2003         |         | 2002      
|                                           |                           |                                                                                                                                          |         |              |         |           
|                                           |                           |                                                                                                                                          |         | (Unaudited)  |         | (Audited) 
|Assets                                     |                           |                                                                                                                                          |         |              |         |            |         |       
|                                           |                           | Cash and cash equivalents                                                                                                                |         | $            | 50,771  |            |         | $      | 62,693  |  
|                                           |                           | Short term investments                                                                                                                   |         |              | 33,608  |            |         |        | 43,388  |  
|                                           |                           | Receivables, net                                                                                                                         |         |              | 6,724   |            |         |        | 9,139   |  
|                                           |                           | Income taxes recoverable                                                                                                                 |         |              | 1,241   |            |         |        | 2,019   |  
|                                           |                           | Other current assets                                                                                                                     |         |              | 3,823   |            |         |        | 3,292   |  
|                                           |                           | Restricted investments                                                                                                                   |         |              | 299     |            |         |        | 6,894   |  
|                                           |                           |                                                                                                                                          |         |              |         |            |         |        |         |  
|Total current assets                       |                           |                                                                                                                                          | 96,466  |              |         |            | 127,425 |       
|                                           |                           |                                                                                                                                          |         |              |         |            |         |        |         |  
|                                           |                           | Restricted investments                                                                                                                   |         |              | 20,970  |            |         |        | 27,409  |  
|                                           |                           | Property plant and equipment, net                                                                                                        |         |              | 48,126  |            |         |        | 59,058  |  
|                                           |                           | Goodwill                                                                                                                                 |         |              | 137,365 |            |         |        | 120,011 |  
|                                           |                           | Intangibles, net                                                                                                                         |         |              | 43,113  |            |         |        | 53,250  |  
|                                           |                           | Investments held to maturity                                                                                                             |         |              |        |            |         |        | 7,512   |  
|                                           |                           | Other assets                                                                                                                             |         |              | 508     |            |         |        | 613     |  
|                                           |                           |                                                                                                                                          |         |              |         |            |         |        |         |  
|Total assets                               |                           | $                                                                                                                                        | 346,548 |              |         | $          | 395,278 |       
|                                           |                           |                                                                                                                                          |         |              |         |            |         |        |         |  
|Liabilities
 and shareholders equity       |                           |                                                                                                                                          |         |              |         |            |         |       
|                                           |                           | Accounts payable                                                                                                                         |         | $            | 4,968   |            |         | $      | 3,918   |  
|                                           |                           | Accrued expenses                                                                                                                         |         |              | 28,923  |            |         |        | 30,364  |  
|                                           |                           | Current
portion of long-term debt and capital lease obligations                                                                          |         |              | 11,386  |            |         |        | 19,157  |  
|                                           |                           | Deferred revenue                                                                                                                         |         |              | 14,069  |            |         |        | 19,629  |  
|                                           |                           |                                                                                                                                          |         |              |         |            |         |        |         |  
|                                           | Total current liabilities |                                                                                                                                          |         | 59,346       |         |            |         | 73,068 |        
|                                           |                           |                                                                                                                                          |         |              |         |            |         |        |         |  
|                                           |                           | Long-term debt and capital lease obligations                                                                                             |         |              | 5,932   |            |         |        | 12,009  |  
|                                           |                           | Deferred
revenue, long-term                                                                                                              |         |              | 479     |            |         |        | 1,195   |  
|                                           |                           | Other liabilities                                                                                                                        |         |              | 11,078  |            |         |        | 11,276  |  
|                                           |                           |                                                                                                                                          |         |              |         |            |         |        |         |  
|                                           | Total liabilities         |                                                                                                                                          |         | 76,835       |         |            |         | 97,548 |        
|                                           |                           |                                                                                                                                          |         |              |         |            |         |        |         |  
|Shareholders equity                       |                           |                                                                                                                                          |         |              |         |            |         |       
|                                           |                           | Common stock, $.01 par value, authorized 210 million shares,
issued and outstanding 144.7 million and 141.3 million shares, respectively |         |              | 1,448   |            |         |        | 1,413   |  
|                                           |                           | Additional capital                                                                                                                       |         |              | 301,618 |            |         |        | 296,949 |  
|                                           |                           | Warrants                                                                                                                                 |         |              | 4,990   |            |         |        | 1,690   |  
|                                           |                           | Deferred compensation                                                                                                                    |         |              | (1,414  | )          |         |        | (2,228  | )
|                                           |                           | Note receivable from shareholder                                                                                                         |         |              | (2,735  | )          |         |        | (2,735  | )
|                                           |                           | Retained earnings / (accumulated deficit)                                                                                                |         |              | (34,194 | )          |         |        | 2,641   |  
|                                           |                           |                                                                                                                                          |         |              |         |            |         |        |         |  
|Total shareholders equity                 |                           |                                                                                                                                          | 269,713 |              |         |            | 297,730 |       
|                                           |                           |                                                                                                                                          |         |              |         |            |         |        |         |  
|Total liabilities and shareholders equity |                           | $                                                                                                                                        | 346,548 |              |         | $          | 395,278 |       
|                                           |                           |                                                                                                                                          |         |              |         |            |         |        |         |  

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

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

|                                                                                                       |                                                                            |                                                         |         |                  |        |              |         |         |        |  
|------------------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------- | ------------------------------------------------------- | ------- | ---------------- | ------ | ------------ | ------- | ------- | ------ | -
|                                                                                                       |                                                                            |                                                         |         | Six Months Ended
|                                                                                                       |                                                                            |                                                         |         |                 
|                                                                                                       |                                                                            |                                                         |         | February 28,     |        | February 28,
|                                                                                                       |                                                                            |                                                         |         | 2003             |        | 2002        
|                                                                                                       |                                                                            |                                                         |         |                  |        |             
|CASH FLOWS FROM OPERATING ACTIVITIES                                                                   |                                                                            |                                                         |         |                  |        |              |         |        
|Net loss                                                                                               |                                                                            | $                                                       | (36,835 | )                |        | $            | (39,623 | )      
|Adjustments to reconcile net loss to net cash used in
operating activities from continuing operations: |                                                                            |                                                         |         |                  |        |              |         |        
|                                                                                                       | Loss from discontinued operations                                          |                                                         |         | 315              |        |              |         |        |       
|                                                                                                       | Depreciation and amortization                                              |                                                         |         | 25,395           |        |              |         | 15,370  |       
|                                                                                                       | Provision for doubtful accounts                                            |                                                         |         | 3,816            |        |              |         | 3,003   |       
|                                                                                                       | Other non-cash adjustments                                                 |                                                         |         | 1,099            |        |              |         | 1,475   |       
|                                                                                                       | Changes in operating assets and liabilities
net of effect of acquisitions: |                                                         |         |                  |        |              |         |         |       
|                                                                                                       |                                                                            | Receivables, net                                        |         |                  | (1,538 | )            |         |         | (9,201 | )
|                                                                                                       |                                                                            | Income tax recoverable                                  |         |                  | 778    |              |         |         | 18,585 |  
|                                                                                                       |                                                                            | Other current assets                                    |         |                  | (343   | )            |         |         | (131   | )
|                                                                                                       |                                                                            | Accounts payable, accrued expenses and deferred revenue |         |                  | (8,237 | )            |         |         | (5,891 | )
|                                                                                                       |                                                                            |                                                         |         |                  |        |              |         |        
|Cash used in operating activities of continuing operations                                             |                                                                            |                                                         | (15,550 | )                |        |              | (16,413 | )      
|                                                                                                       |                                                                            |                                                         |         |                  |        |              |         |        
|CASH FLOWS FROM INVESTING ACTIVITIES                                                                   |                                                                            |                                                         |         |                  |        |              |         |        
|                                                                                                       | Expenditures for property, plant, and equipment                            |                                                         |         | (6,524           | )      |              |         | (7,481  | )     
|                                                                                                       | Purchases of held-to-maturity investment securities                        |                                                         |         | (24,308          | )      |              |         | (29,300 | )     
|                                                                                                       | Proceeds from held-to-maturity investment securities                       |                                                         |         | 41,600           |        |              |         | 42,268  |       
|                                                                                                       | Net change in restricted investments                                       |                                                         |         | 13,059           |        |              |         | (19,161 | )     
|                                                                                                       | Acquisitions, net of cash acquired                                         |                                                         |         | (4,459           | )      |              |         | (9,757  | )     
|                                                                                                       | Notes issued to related party                                              |                                                         |         |                 |        |              |         | (2,735  | )     
|                                                                                                       |                                                                            |                                                         |         |                  |        |              |         |        
|Cash provided by (used in) investing activities of continuing operations                               |                                                                            |                                                         | 19,368  |                  |        |              | (26,166 | )      
|                                                                                                       |                                                                            |                                                         |         |                  |        |              |         |        
|CASH FLOWS FROM FINANCING ACTIVITIES                                                                   |                                                                            |                                                         |         |                  |        |              |         |        
|                                                                                                       | Repayments of debt and capital lease obligations                           |                                                         |         | (14,790          | )      |              |         | (9,510  | )     
|                                                                                                       | Proceeds from issuance of common stock                                     |                                                         |         | 433              |        |              |         | 119     |       
|                                                                                                       | Purchase and retirement of stock                                           |                                                         |         |                 |        |              |         | (7,278  | )     
|                                                                                                       | Other                                                                      |                                                         |         | (17              | )      |              |         |        |       
|                                                                                                       |                                                                            |                                                         |         |                  |        |              |         |        
|Cash used in financing activities of continuing operations                                             |                                                                            |                                                         | (14,374 | )                |        |              | (16,669 | )      
|                                                                                                       |                                                                            |                                                         |         |                  |        |              |         |        
|Net cash used in continuing operations                                                                 |                                                                            |                                                         | (10,556 | )                |        |              | (59,248 | )      
|Net cash used in discontinued operations                                                               |                                                                            |                                                         | (1,366  | )                |        |              | (8,846  | )      
|                                                                                                       |                                                                            |                                                         |         |                  |        |              |         |        
|Net decrease in cash and cash equivalents                                                              |                                                                            |                                                         | (11,922 | )                |        |              | (68,094 | )      
|Cash and cash equivalents at beginning of period                                                       |                                                                            |                                                         | 62,693  |                  |        |              | 142,675 |        
|                                                                                                       |                                                                            |                                                         |         |                  |        |              |         |        
|Cash and cash equivalents at end of period                                                             |                                                                            | $                                                       | 50,771  |                  |        | $            | 74,581  |        
|                                                                                                       |                                                                            |                                                         |         |                  |        |              |         |        

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

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INTERLAND, INC.
Notes to Consolidated Financial Statements

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 standardized shared and dedicated
hosting 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 during the
third quarter of fiscal 2001. The Companys Web hosting business remains as
the Companys sole continuing operation. 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 Companys Web hosting business has incurred
net losses and losses from operations for each period from inception through
the first six-months of fiscal 2003. The Companys future success is dependent
upon its ability to achieve positive cash flow prior to the depletion of cash
resources and its ability to raise funds, if needed. Nonetheless, the
Companys current financial forecast supports managements expectation that the
Company will have adequate cash resources to fund operations throughout fiscal
2003.

2. SIGNIFICANT ACCOUNTING POLICIES

Interim Unaudited Financial Information The accompanying unaudited
consolidated financial statements as of February 28, 2003 and for the three and
six-month periods ended February 28, 2003 and 2002, 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 and six-month periods ended February 28, 2003
are not necessarily indicative of the results that may be expected for the full
year.

Effective with the Companys filing of Form 10-Q for the quarterly period ended
February 28, 2003, the Company has revised the presentation of its consolidated
statements of operations for all periods presented to conform to presentations
used by others in the web-hosting industry. As the Company has migrated from a
manufacturing entity to a web-hosting company, it believes its revised
presentation reflects more appropriately its results of operation and allows
for more comparability to its peers. The revised presentation removes the
gross margin sub-total and instead classifies all operating expenses and costs
in their respective line item. Additionally, depreciation and amortization
expense, previously presented as components of network operating costs,
general and administrative costs, sales and marketing costs and technical
support costs is now presented separately. These reclassifications, none of
which affect net loss, have been made to all periods presented to present the
financial statements on a consistent basis.

Basis of Presentation This report on Form 10-Q (10-Q) for the second
quarter ended February 28, 2003 should be read in conjunction with the
Companys Annual Report on Form 10-K (10-K) for the fiscal year ended August
31, 2002. The financial statements include the accounts of Interland, Inc.
and its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.

Use of estimates The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the 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 2003 and thereafter.

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INTERLAND, INC.
Notes to Consolidated Financial Statements - Continued

Revenue recognition Revenues 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 twenty-four months and typically require up-front fees. These fees,
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 loss per share Basic loss per share is computed using the
weighted average number of common shares outstanding. Diluted loss 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. Because the Company has reported a loss from continuing operations
during the second quarter of fiscal 2003 and 2002, the effect of potential
common shares is excluded from the calculation of per share amounts for those
periods as their effect would be anti-dilutive.

In addition to net 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.

Comprehensive income The Company reports comprehensive income in accordance
with Statement of Financial Accounting Standards (SFAS) No. 130, Reporting
Comprehensive Income. This statement requires the disclosure of accumulated
other comprehensive income or loss (excluding net income or loss) as a separate
component of shareholders equity. For all periods presented, comprehensive
income is the same as net income.

Income taxes The Company accounts for income taxes under the provisions of
SFAS No. 109, Accounting for Income Taxes. SFAS 109 requires recognition of
deferred tax liabilities and assets for the expected future tax consequences of
events that have been included in the financial statements or tax returns.
Under this method, deferred tax liabilities and assets are determined based on
the difference between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect for the year in which the
difference is expected to reverse.

Recently issued accounting standards In June 2002, the FASB issued SFAS No.
146, Accounting for Costs Associated with Exit or Disposal
Activities. This
Statement addresses financial accounting and reporting for costs associated
with exit or disposal activities and nullifies Emerging Issues Task Force
(EITF) Issue No. 94-3, Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring). The principal difference between this Statement and Issue
94-3 relates to its requirement for recognition of a liability for a cost
associated with an exit or disposal activity. This Statement requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred. Under Issue 94-3, a liability for an exit cost
as defined in Issue 94-3 was recognized at the date of an entitys commitment
to an exit plan. This Statement eliminates the definition and requirements for
recognition of exit costs in Issue 94-3 and establishes that fair value is the
objective for initial measurement of the liability. The provisions of this
Statement are effective for exit or disposal activities that are initiated
after December 31, 2002, but the Company adopted this Statement beginning
September 1, 2002.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure - an Amendment of FASB Statement No.
123. This Statement amends FASB Statement No. 123, Accounting for Stock-Based
Compensation,to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of
Statement 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. This
Statement is effective for financial statements with fiscal years ending after
December 15, 2002, and is effective for financial reports containing condensed
financial statements for interim periods beginning after December 15, 2002. The
Company will adopt the disclosure provisions of this Statement effective with
its report on Form 10-Q for the third quarter ending May 31, 2003, in
accordance with this Statement.

The FASB issued FIN No. 45 for all financial statements of interim or annual
reports ending after December 15, 2002. This Interpretation elaborates on the
disclosures to be made by a guarantor in its interim and annual financial
statements about its

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INTERLAND, INC.
Notes to Consolidated Financial Statements - Continued

obligations under certain guarantees that it has issued. It also clarifies
that a guarantor is required to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. This Interpretation does not prescribe a specific approach for
subsequently measuring the guarantors recognized liability over the term of
the related guarantee. This Interpretation also incorporates, without change,
the guidance in FASB Interpretation No. 34, Disclosure of Indirect Guarantees
of Indebtedness of Others,which is being superseded. The provisions of this
interpretation have no material impact on the Company.

3. RESTRUCTURING COSTS

During the fourth quarter of 2001, the Company approved and implemented a
restructuring program in connection with its acquisition of Interland-Georgia.
This finalized restructuring plan, for which all payments are expected to be
completed by December 31, 2003, provides for the consolidation of the
Companys operations and elimination of duplicative facilities obtained as a
result of previous business acquisitions. In accordance with EITF No. 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit and Activity, the restructuring costs, excluding asset
impairments, were recognized as liabilities at the time management committed to
the plan. Management determined that these costs provided no future economic
benefit, they were incremental to other costs incurred by the Company prior to
the restructuring, or were contractual obligations that existed prior to the
date the plan was approved and were either continued after the exit plan was
completed with no economic benefit to the Company or were non-cancelable
without a penalty; and they were incurred as a direct result of the plan to
exit the identified activities. The asset impairments were accounted for in
accordance with SFAS No. 121 Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of. Accordingly, during 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 has recorded in operating expenses.

During the second quarter of 2003, the Company approved and initiated a program
to exit certain facilities and consolidate those operations into other existing
facilities. This restructuring plan is part of managements continued plan to
streamline the Companys operations and to reduce the long-term operating
costs. In accordance with SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities, costs associated with these activities have
been recognized and measured at their fair value in the period in which the
liabilities are incurred. One-time termination benefits for employees required
to render services until they are terminated in order to receive termination
benefits are being recognized ratably over the future service period. The plan
provides for the closure of three data center facilities, a reduction of those
related workforces of approximately 150 employees, and the termination of
bandwidth and data connectivity contracts in place at these facilities.
Management expects to completely exit the facilities by May 31, 2003. The
Company expects to incur $3.2 million in lease termination costs of which $1.3
million has been incurred through February 28, 2003; $1.6 million in bandwidth
termination fees of which $1.6 million has been incurred through February 28,
2003; and $0.6 million in employee termination benefits of which $0.2 million
has been incurred through February 28, 2003.

The following table shows a reconciliation of the beginning and ending
liability balances from August 31, 2002 through February 28, 2003, related to
all restructuring activities recorded by the Company under both of the
restructuring programs described in the above two paragraphs. The current
period costs recorded in accordance with SFAS 146 are classified in the
following table as Plan charges, except for the $0.9 million charge to
property, plant and equipment; this charge represents the write down of
remaining book value of fixed assets originally written down to their estimated
salvage value included in the restructuring charge recorded during the fourth
quarter of 2001. These accrued restructuring charges are reflected in the
consolidated balance sheet in Accrued expenses:

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INTERLAND, INC.
Notes to Consolidated Financial Statements - Continued

|                             |                      |   |              |        |           |   |             |      |             |   |                |       |   |   |     |      |   |   |       |        |  
|---------------------------- | -------------------- | - | ------------ | ------ | --------- | - | ----------- | ---- | ----------- | - | -------------- | ----- | - | - | --- | ---- | - | - | ----- | ------ | -
|                             |                      |   |              |        |           |   | Property    |      | Bandwidth   |   | Employee       |       |   |   |    
|                             |                      |   | Lease        |        | plant and |   | Termination |      | termination |   |                |       |  
|                             |                      |   | abandonments |        | equipment |   | Costs       |      | benefits    |   | Total         
|                             |                      |   |              |        |           |   |             |      |             |   |               
|                             |                      |   |              |        |           |   |             |      |             |   | (In thousands) |       |   |   |     |      |   |   |      
|Balance at August 31, 2002   |                      | $ | 7,634        |        |           | $ |            |      |             | $ | 1,179          |       |   | $ |    |      |   | $ | 8,813 |       
|                             | Plan Charges         |   | $            | 1,349  |           |   | $           | 871  |             |   | $              | 1,625 |   |   | $   | 271  |   |   |       | 4,116  |  
|                             | Cash paid            |   |              | (2,250 | )         |   |             |     |             |   |                | (181  | ) |   |     | (100 | ) |   |       | (2,531 | )
|                             | Other adjustments    |   |              | (216   | )         |   |             |     |             |   |                | (460  | ) |   |     |     |   |   |       | (676   | )
|                             | Non-cash write downs |   |              |        |           |   |             | (871 | )           |   |                |       |   |   |     |      |   |   |       | (871   | )
|                             |                      |   |              |        |           |   |             |      |             |   |                |       |   |   |     |      |   |   |       |       
|Balance at February 28, 2003 |                      | $ | 6,517        |        |           | $ |            |      |             | $ | 2,163          |       |   | $ | 171 |      |   | $ | 8,851 |       
|                             |                      |   |              |        |           |   |             |      |             |   |                |       |   |   |     |      |   |   |       |       

During the six-month period ended February 28, 2003, the Company settled
certain data connectivity contracts obligations for amounts less than original
estimates. In connection with the settlements, the bandwidth termination costs
accrual was reduced by $0.5 million and is reflected in the above table in
Other adjustments. In addition, one of the Companys lease abandonment
liabilities was reduced by $0.2 million in connection with the reduction of the
Companys obligation due to a sublease arrangement for the facility.

For the quarter and six-months ending February 28, 2002, the Company recorded
$(0.3) million to Restructuring costs. In connection with the sale of the
consumer dial-up accounts to SolutionPro, Inc., the Company assigned and
transferred certain data connectivity contracts to SolutionPro, which released
the Company from future termination penalties that had previously been accrued
during the restructuring program. Accordingly, the Company reversed the
accrual for these termination penalties.

4. MERGER AND INTEGRATION COSTS

During the quarter and six-month periods ended February 28, 2003, the Company
recorded $0.4 million and $0.5 million of merger and integration costs for
severance and relocation expenses.

During the quarter and six-month period ended February 28, 2002, the Company
recorded $3.7 million and $7.1 million for financial advisory services, legal,
accounting, relocation, employee stay bonuses and other non-capitalizable
expenses directly related to merger and integration of the business following
the Interland-Georgia acquisition.

5. ACQUISITIONS

Effective August 1, 2002, the Company acquired iNNERHOST, Inc. for an aggregate
purchase price of $17.7 million consisting of approximately $5.2 million in
cash and 4,171,538 shares of Interland common stock. In addition, the purchase
agreement stipulated that the purchase consideration was subject to adjustment
based on the following provisions:



| |  |  | An earn-out provision that specified that the realization of the full
purchase price by the shareholders of iNNERHOST would be contingent upon
the iNNERHOST revenues for the three-month period following the date of
acquisition being at least 95% of the historical monthly revenues.
iNNERHOST revenues for the subject three-month period were in fact in
compliance with this requirement and thus no modification to the
purchase price and related consideration was necessary.                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | A price protection provision that specified that a pro-rata payback
of shares to Interland if the average closing price for the five
business days preceding the effective date of the registration statement
covering shares issued in this acquisition is greater than $3.70 but
less than $5.00 per share by the amount of the closing price over $2.50
per share. The agreement also provides additional payment of shares to
the iNNERHOST shareholders on a pro-rata basis if the average closing
price of five business days preceding the effective date of the
registration statement covering shares issued in this acquisition is
less than $2.50 per share but greater than $1.00 per share by the amount
of the closing price below $2.50 per share. Although the registration
statement is not yet effective, based upon Interlands current value
additional shares of Interland common stock will have to be issued to the
iNNERHOST

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INTERLAND, INC.
Notes to Consolidated Financial Statements - Continued



| |  |  | shareholders, and if the average closing price for the five-day period prior
to the effective date of the registration statement is $1.00 or less, the
number of additional shares to be issued will be 5,530,285, bringing the
total number of shares issued for the acquisition to 9,701,823.
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The acquisition of iNNERHOST was accounted for in accordance with SFAS No. 141,
Business Combinations, and accordingly, the contingently issuable shares of
the Companys stock based on a future stock price will not affect the aggregate
cost of the acquisition when the contingency is resolved.

In connection with the acquisition, 0.5 million shares of stock and $0.3
million were placed into escrow for one year to satisfy unidentified claims
that occurred prior to the acquisition date. To date, there has been no notice
of claim of dispute under the escrow agreement. The results of iNNERHOSTs
operations have been included in the consolidated financial statements since
August 1, 2002, the effective date of acquisition. The aggregate purchase price
was $17.7 million, including direct acquisition costs of $0.1 million.

During the second quarter ended February 28, 2003, the iNNERHOST purchase price
allocation was completed and amounts were allocated to identifiable intangible
assets and goodwill. The following table summarizes the purchase price
allocation based on the fair values of the assets acquired and liabilities
assumed at the date of acquisition.

|                           |                     |   |                |        | 
|-------------------------- | ------------------- | - | -------------- | ------ | 
|                           |                     |   | Fair Value    
|                           |                     |   |               
|                           |                     |   | (In Thousands)
|Current assets             |                     | $ | 2,235          |       
|Property and equipment     |                     |   | 6,995          |       
|Trade names and trademarks |                     |   | 200            |       
|Customer relationships     |                     |   | 3,400          |       
|Other assets               |                     |   | 512            |       
|Goodwill                   |                     |   | 9,286          |       
|Current liabilities        |                     |   | (4,301         | )     
|Long-term liabilities      |                     |   | (676           | )     
|                           |                     |   |                |       
|                           | Net assets acquired |   | $              | 17,651 | 
|                           |                     |   |                |       

On January 3, 2003, the Company acquired Trellix Corporation, a privately held
developer of software-based Web site solutions. Founded in 1995, Trellix is a
provider of private-label Web site publishing solutions, integrated business
services, and low-cost hosting technology. The primary reason for the
acquisition is that Trellix offers a suite of site-building tools and services
that enable users to create professional Web sites. Trellixs product line
offers an expansion of the existing Interland product line. Trellix financial
results are included in Interlands financial results beginning in January
2003. Initially, the estimated aggregate purchase price was approximately
$12.2 million, however, based on Trellixs financial position on the date of
close and a contractual working capital adjustment contained in the merger
agreement, the actual aggregate purchase price was approximately $11.6 million
consisting of $3.2 million in cash, three million shares of Interland stock,
and six million warrants to purchase shares of Interland stock at a price of
$5.00 per warrant. The fair value of the warrants at the date of acquisition
was $0.55 each using the Black-Scholes pricing model. The acquisition of
Trellix accounted for the majority of the significant change in shareholders
equity by increasing the balance of additional capital by $4.9 million and
warrants by $3.3 million.

The following table summarizes the purchase price allocation based on the fair
values of the assets acquired and liabilities assumed at the date of
acquisition.

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INTERLAND, INC.
Notes to Consolidated Financial Statements - Continued

|                           |                     |   |                |        | 
|-------------------------- | ------------------- | - | -------------- | ------ | 
|                           |                     |   | Fair Value    
|                           |                     |   |               
|                           |                     |   | (In Thousands)
|Current assets             |                     | $ | 700            |       
|Property and equipment     |                     |   | 603            |       
|Trade names and trademarks |                     |   | 140            |       
|Technology                 |                     |   | 5,900          |       
|Goodwill                   |                     |   | 8,055          |       
|Current liabilities        |                     |   | (3,763         | )     
|                           |                     |   |                |       
|                           | Net assets acquired |   | $              | 11,635 | 
|                           |                     |   |                |       

On December 19, 2002, the Company entered into a merger agreement to acquire
Hostcentric, Inc. for $25.8 million in cash and stock. Formed in 2000,
Hostcentric is a privately held provider of a broad range of Web hosting
services to small business and enterprise customers. In return for all
outstanding shares of Hostcentric, Hostcentric shareholders will receive $3
million in cash and approximately 13.5 million shares of Interland stock. The
number of shares to be issued was fixed as of the agreements execution date.
The transaction, which requires the approval of a majority of Hostcentrics
shareholders, is expected to close by June 2003.

6. ACQUIRED INTANGIBLES AND GOODWILL

In June 2001, the Financial Accounting Standards Board issued SFAS No. 141
Business Combinations (SFAS 141) and SFAS No. 142 Goodwill and Other
Intangible Assets (SFAS 142). SFAS 141 requires that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001.
SFAS 141 also specifies the criteria applicable to intangible assets acquired
in a purchase method business combination to be recognized and reported apart
from goodwill. SFAS 142 requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead be tested for
impairment, at least annually. SFAS 142 also requires that intangible assets
with definite useful lives be amortized over their respective estimated useful
lives to their estimated residual values, and be reviewed for impairment.

The Company adopted SFAS 141 and 142 effective September 1, 2001. Upon adoption
of SFAS 142, the Company no longer amortizes goodwill.

In accordance with the requirements of SFAS 142, the Company tests for
impairment on an annual basis and between annual tests if an event occurs or
circumstances change that would more likely than not reduce the fair value of
goodwill below its carrying amount. The Company performed its impairment test
of goodwill as of May 31, 2002 and determined that goodwill was not impaired.
Given the significant decline in the Companys stock price during the six-month
period ended February 28, 2003, management examined the events and
circumstances during the period to determine whether there has been a
significant adverse change in the business climate making it more likely than
not that an impairment occurred. Specifically, the Company carefully reviewed
impairment triggering events as specified in SFAS 142 and concluded that it
does not believe that a triggering event has occurred such that an interim
goodwill impairment test was required at February 28, 2003. The Company will
perform its annual impairment test of goodwill as of May 31, 2003. If the
price of the Companys stock stays at its current levels, the impairment test
may result in a significant impairment loss equal to the carrying amount of
goodwill in excess of its fair value.

As disclosed in the following table, the carrying amount of goodwill from
August 31, 2002 through February 28, 2003 increased by $17.4 million, due to
the acquisition of Trellix Corporation and completion of the purchase price
allocation for iNNERHOST:

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INTERLAND, INC.
Notes to Consolidated Financial Statements - Continued

|                                           |                       |  |                   |        | 
|------------------------------------------ | --------------------- |  | ----------------- | ------ | 
|                                           |                       |  | Six months ended 
|                                           |                       |  | February 28, 2003
|                                           |                       |  |                  
|Balance at the beginning of the year       |                       |  | 120,011           |       
|                                           | Goodwill acquired     |  |                   | 17,354 | 
|                                           | Impairment write-down |  |                   |       | 
|                                           | Other adjustment      |  |                   |       | 
|                                           |                       |  |                   |       
|Balance at the end of the first six months |                       |  | 137,365           |       
|                                           |                       |  |                   |       

The following table summarizes intangible assets by asset class and related
accumulated amortization as required by SFAS 142:

|                                |                                            |  |                         |        |                       |  |          |        |              |  |   |        |  |  |   |        | 
|------------------------------- | ------------------------------------------ |  | ----------------------- | ------ | --------------------- |  | -------- | ------ | ------------ |  | - | ------ |  |  | - | ------ | 
|                                |                                            |  | As of February 28, 2003 |        | As of August 31, 2002
|                                |                                            |  |                         |        |                      
|                                |                                            |  | Gross                   |        |                       |  |          |        | Gross        |  |   |        | 
|                                |                                            |  | carrying                |        | Accumulated           |  | carrying |        | Accumulated 
|                                |                                            |  | amount                  |        | amortization          |  | amount   |        | amortization
|                                |                                            |  |                         |        |                       |  |          |        |             
|                                |                                            |  | (In thousands)         
|Amortizable intangible assets:  |                                            |  |                         |        |                       |  |          |        |              |  |   |        |  |  |   |       
|                                | Core technology                            |  | $                       | 18,380 |                       |  | $        | 4,160  |              |  | $ | 12,480 |  |  | $ | 2,683  | 
|                                | Customer account acquisitions              |  |                         | 26,715 |                       |  |          | 9,893  |              |  |   | 25,424 |  |  |   | 5,298  | 
|                                | Customer relationships                     |  |                         | 9,700  |                       |  |          | 2,562  |              |  |   | 6,300  |  |  |   | 917    | 
|                                | Trademarks                                 |  |                         | 5,740  |                       |  |          | 1,307  |              |  |   | 5,400  |  |  |   | 831    | 
|                                | Other                                      |  |                         | 1,162  |                       |  |          | 662    |              |  |   | 13,998 |  |  |   | 623    | 
|                                |                                            |  |                         |        |                       |  |          |        |              |  |   |        |  |  |   |        | 
|                                | Total                                      |  | $                       | 61,697 |                       |  | $        | 18,584 |              |  | $ | 63,602 |  |  | $ | 10,352 | 
|                                |                                            |  |                         |        |                       |  |          |        |              |  |   |        |  |  |   |        | 
|Aggregate amortization expense: |                                            |  |                         |        |                       |  |          |        |              |  |   |        |  |  |   |       
|                                | For the six months ended February 28, 2003 |  |                         |        |                       |  | $        | 8,232  |              |  |   |        |  |  |   |        | 
|Estimated amortization expense: |                                            |  |                         |        |                       |  |          |        |              |  |   |        |  |  |   |       
|                                | For the year ended August 31, 2003         |  |                         |        |                       |  | $        | 16,885 |              |  |   |        |  |  |   |        | 
|                                | For the year ended August 31, 2004         |  |                         |        |                       |  |          | 17,124 |              |  |   |        |  |  |   |        | 
|                                | For the year ended August 31, 2005         |  |                         |        |                       |  |          | 10,553 |              |  |   |        |  |  |   |        | 
|                                | For the year ended August 31, 2006         |  |                         |        |                       |  |          | 4,376  |              |  |   |        |  |  |   |        | 
|                                | For the year ended August 31, 2007         |  |                         |        |                       |  |          | 1,880  |              |  |   |        |  |  |   |        | 

At August 31, 2002, included in Other was $12.8 million related to the
acquisition of iNNERHOST. Upon completion of the purchase price allocation for
iNNERHOST, this balance was allocated to the appropriate intangible asset
categories and goodwill.

Core technology is amortized over a weighted average of five years, customer
account acquisitions and customer relationships are amortized over a weighted
average of three years and trademarks are amortized over a weighted average of
seven years and all other intangible assets are amortized on a weighted average
of three years. The weighted average amortization period for all intangible
assets as a group is four years. None of the goodwill balance is deductible
for tax purposes.

7. PURCHASE BUSINESS COMBINATION LIABILITIES

In connection with the acquisitions of Interland-Georgia in fiscal 2001,
iNNERHOST in fiscal 2002, and Trellix Corporation in January 2003, the Company
accrued certain liabilities representing estimated costs of exiting certain
facilities, termination of bandwidth contracts and involuntary termination of
employees in accordance with EITF No. 95-3, Recognition of Liabilities in
Connection with a Purchase Business Combination. These amounts are included
in Accrued expenses on the

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INTERLAND, INC.
Notes to Consolidated Financial Statements - Continued

balance sheet and are not included in the restructuring reserves discussed in
Note 3. The following table shows the changes in the accrual from August 31,
2002:

|                             |                     |   |              |        |             |   |                |      |   |   |       |        |  
|---------------------------- | ------------------- | - | ------------ | ------ | ----------- | - | -------------- | ---- | - | - | ----- | ------ | -
|                             |                     |   |              |        |             |   | Employee       |      |   |   |      
|                             |                     |   | Lease        |        | termination |   |                |      |  
|                             |                     |   | abandonments |        | benefits    |   | Total         
|                             |                     |   |              |        |             |   |               
|                             |                     |   |              |        |             |   | (In thousands) |      |   |   |      
|Balance at August 31, 2002   |                     | $ | 7,574        |        |             | $ | 252            |      |   | $ | 7,826 |       
|                             | Liabilities accrued |   |              |       |             |   |                | 675  |   |   |       | 675    |  
|                             | Cash paid           |   |              | (1,078 | )           |   |                | (441 | ) |   |       | (1,519 | )
|                             |                     |   |              |        |             |   |                |      |   |   |       |       
|Balance at February 28, 2003 |                     | $ | 6,496        |        |             | $ | 486            |      |   | $ | 6,982 |       
|                             |                     |   |              |        |             |   |                |      |   |   |       |       

In accordance with EITF 95-3, the additional $0.7 million of liabilities
accrued during the six-month period ended February 28, 2003 represent
termination benefits for Trellix employees who are being involuntarily
terminated and for former iNNERHOST founders who had contracts entitling them
to termination benefits under contractual obligations that existed prior to the
acquisition date.

8. CONTINGENCIES

Interland is defending an employee class action lawsuit filed in the U.S.
District Court for Idaho. In this case five individual plaintiffs claim they
were employees of Micron Electronics Inc. (MEI) between 1999 and April 2001.
This potential liability remains with Interland even though it sold the PC
Systems business. The plaintiffs claim that they, and other similarly situated
employees, did not receive overtime pay to which they were entitled under the
Fair Labor Standards Act. Interland disputes these claims and believes the
plaintiffs are not entitled to any material additional wages. The court
conditionally certified a class of not more than eight hundred former employees
and notices of the litigation are being sent to these persons to give them the
opportunity to opt in to the litigation. The parties are continuing to
conduct discovery. At this early stage of the litigation Interland is unable to
estimate its total expenses, possible loss or range of loss that may ultimately
be connected with the matter.

In February of 2003, the Company filed a lawsuit in Cobb County, Georgia
against Mr. Gabriel Murphy, one of the former principals of Communitech, which
was acquired by Interland in February 2002. The Companys lawsuit claims,
among other things, that Mr. Murphy breached certain covenants under his
employee agreement, and also demands payment from Mr. Murphy under his
delinquent $2.7 million promissory notes. These notes are collateralized by
2,735,275 shares of the Companys common stock and the receivable balance is
shown on the balance sheet as a reduction in equity. Interland is seeking an
injunction against further violations of Mr. Murphys obligations, compensatory
and punitive damages in an unspecified amount for the covenant violations, and
immediate foreclosure on the shares securing the note. On March 31, 2003, the
court heard oral argument on Interlands motion for a preliminary injunction.
A ruling is expected within the next [60] days.

In February 2003, Messrs. Heitman and Murphy filed a lawsuit against Interland,
its CEO, Mr. Joel Kocher, and Interlands subsidiary, Communitech.net, Inc., in
Jackson County, Missouri claiming, among other things, that Interland acted
unreasonably in failing to have the related S-3 registration statement declared
effective by the SEC on a timely basis and claiming that Interland and/or Mr.
Kocher made inaccurate disclosures in connection with Interlands acquisition
of Communitech. The complaint asks for compensatory and punitive damages in an
unspecified amount. Interland believes that these claims are without merit and
will not have a material adverse effect on Interland, and intends to vigorously
defend the claims.

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INTERLAND, INC.
Notes to Consolidated Financial Statements - Continued

On March 14, 2003 Halo Management, LLC, filed a suit against Interland in the
U.S. District Court for the Northern District of California. The suit alleges
that Interlands use of blueHALO (U.S. Patent and Trademark Office Serial No.
78/135,621) to describe its proprietary web hosting architecture infringes the
plaintiffs registered trademark Halo (U.S. Patent and Trademark Office Serial
No. 75/870,390; Registration No. 2,586,017). The suit requests an injunction
against Interlands use of its blueHALO mark and money damages. Interland
believes the claims are without merit, will not have a material adverse effect
on Interland, and plans to vigorously defend the matter.

From time to time, 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 discontinued 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. As of February
28, 2003, the Company had an aggregate amount of $0.6 million accrued for such
matters.

In accordance with SFAS No. 5 Accounting for Contingencies the Company
believes it has adequately reserved for the contingencies arising from the
above legal matters where an adverse outcome was deemed probable and the loss
amount could be reasonably estimated. As such, the Company does not believe
that the outcome of the aforementioned proceedings will have a materially
adverse impact on its results of operations, its financial condition or its
cash flows.

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INTERLAND, INC.
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 its future operating results including its
planned increase in its revenue 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 risks associated with our target markets
and risks pertaining to our ability to successfully integrate the operations
and personnel of the recent acquisitions. Factors that could cause actual
results to differ materially from expected results are identified in Risk
Factors in the Companys annual report on Form 10-K for the year ended August
31, 2002 and in the Companys other filings with the Securities and Exchange
Commission. All quarterly references are to the Companys fiscal periods ended
February 28, 2003, or February 28, 2002 unless otherwise indicated. All annual
references are also on a fiscal August 31st year-end basis, unless otherwise
indicated. All tabular dollar amounts are stated in thousands.

OVERVIEW

Interland is a leading Web hosting company focused on small- and medium-sized
businesses. Interland 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. Prior to its transformation in fiscal 2001, the Company
provided a variety of computer products and related services through its PC
Systems, computer manufacturing business, SpecTek, its memory products
business, and its Web hosting business segments. During fiscal 2001, the
Company discontinued its PC Systems and SpecTek businesses. Following the
disposition of these business segments, the Companys ongoing operations became
exclusively those of a Web hosting company that also provides Web site
development solutions to small business.

The current Web hosting business was formed through twelve company or account
acquisitions since 1999. 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., (LightRealm), 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, (Worldwide Internet), 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., (MEI), changed its name to Interland, Inc. and its trading
symbol to INLD.

In October 2001, January 2002 and May 2002, the Company acquired the small
business-focused shared and dedicated Web hosting customer accounts of
Interliant, Inc., (Interliant), AT&T Corp., (AT&T), and Burlee Networks
LLC, (Burlee).

On February 8, 2002, the Company acquired CommuniTech.Net, Inc.,
(CommuniTech.Net), a Kansas City, Missouri-based Web hosting company. On May
3, 2002, the Company acquired Dialtone, Inc., (Dialtone), a Fort Lauderdale,
Florida-based leading dedicated Web hosting company.

As of August 1, 2002, the Company
acquired iNNERHOST, Inc., (iNNERHOST), a
Miami, Florida-based Web hosting company serving small- and medium-sized
businesses.

On January 3, 2003, the Company acquired Trellix Corporation (Trellix), a
privately held developer of software-based Web site solutions. Founded in
1995, Trellix is a provider of private-label Web site publishing solutions,
integrated business

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INTERLAND, INC.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

services, and low-cost hosting technology. Trellix offers a suite of site
building tools and services that enable users to create professional Web sites.

On December 19, 2002, the Company entered into a merger agreement to acquire
Hostcentric, Inc. for $25.8 million in cash and stock. Formed in 2000,
Hostcentric is a privately held provider of a broad range of Web hosting
services to small business and enterprise customers. In return for all
outstanding shares of Hostcentric, Hostcentric shareholders will receive $3
million in cash and approximately 13.5 million shares of Interland stock. The
transaction, which requires the approval of a majority of Hostcentrics
shareholders, is expected to close by June 2003.

Interlands business is rapidly evolving as a result of the acquisitions
detailed above. The Company also has a limited operating history as a Web
hosting company. The Companys rapid annual hosting revenue growth primarily
has been the result of its acquisitions. In this regard the Company has
successfully exited redundant facilities and reduced the associated work force,
and terminated contracts related to unused bandwidth. As a result, the Company
does not believe its historical financial results are indicative of expected
future results. Going forward the Company expects to reduce the pace of its
acquisitions in favor of organic growth strategies including execution of its
mass-market initiative. Furthermore, the Company expects to realize substantial
cost efficiencies by capitalizing on several expense reduction opportunities
resulting from the continuing integration of previously acquired companies.
Management expects that these efforts will result in more than $25.0 million of
annualized operating cost savings effective with the fourth quarter of fiscal
2003.

DISCONTINUED OPERATIONS

PC Systems

In fiscal 2001, the Company discontinued the operations of its PC Systems
business segment, which was 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.
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 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.

Through May 31, 2003, 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. To date the Company has
not made any indemnification payments in regards to these matters.
Furthermore, the Company believes that it is unlikely that any material claims
will be made and therefore has not recorded any liability for this
indemnification.

For the quarter and six-months ending February 28, 2003, the Company recorded
expenses of $281,000 and $315,000 respectively for the write down of certain
receivable balances to their net realizable value and legal settlements and
related expenses in connection with the disposal of the PC systems business.

RESULTS OF CONTINUING OPERATIONS

The Company has revised the presentation of its consolidated statements of
operations for all periods presented to conform to presentations used by others
in the industry. The revised presentation removes the gross margin sub-total
and instead classifies all operating expenses and costs in their respective
line item. Additionally, depreciation and amortization have been removed as
components of network operating costs, general and administrative costs, sales
and marketing costs and technical support costs and are instead presented on a
separate line item. These reclassifications, none of which affect net loss,
have been made to all periods presented to present the financial statements on
a consistent basis.

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INTERLAND, INC.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

The Companys consolidated financial information presents the net effect of
discontinued operations separate from the results of the Companys continuing
operations. Historical financial information has been reclassified to
consistently present the discontinued operations, and the discussion and
analysis that follow generally focuses on continuing operations. The following
table sets forth, for the periods indicated, certain data derived from the
Companys consolidated statements of operations as a percentage of revenues:

|                                             |                                    |  |                       |       |                          |  |              |       |             |  |       |       |   |  |       |       |  
|-------------------------------------------- | ---------------------------------- |  | --------------------- | ----- | ------------------------ |  | ------------ | ----- | ----------- |  | ----- | ----- | - |  | ----- | ----- | -
|                                             |                                    |  | For the quarter ended |       | For the six months ended
|                                             |                                    |  |                       |       |                         
|                                             |                                    |  | February 28,          |       | February 28,             |  | February 28, |       | February 28
|                                             |                                    |  | 2003                  |       | 2002                     |  | 2003         |       | 2002       
|                                             |                                    |  |                       |       |                          |  |              |       |            
|Revenues                                     |                                    |  | 100.0                 | %     |                          |  | 100.0        | %     |             |  | 100.0 | %     |   |  | 100.0 | %    
|Operating costs and expenses:                |                                    |  |                       |       |                          |  |              |       |             |  |       |       |   |  |       |      
|                                             | Network operating costs            |  |                       | 37.6  | %                        |  |              | 34.9  | %           |  |       | 35.9  | % |  |       | 37.7  | %
|                                             | Sales and marketing                |  |                       | 19.3  | %                        |  |              | 30.6  | %           |  |       | 18.5  | % |  |       | 33.7  | %
|                                             | Technical support                  |  |                       | 14.5  | %                        |  |              | 17.3  | %           |  |       | 14.1  | % |  |       | 16.1  | %
|                                             | General and administrative         |  |                       | 40.0  | %                        |  |              | 35.4  | %           |  |       | 37.9  | % |  |       | 41.3  | %
|                                             | Bad debt expense                   |  |                       | 6.8   | %                        |  |              | 9.6   | %           |  |       | 7.1   | % |  |       | 6.1   | %
|                                             | Depreciation and amortization      |  |                       | 50.6  | %                        |  |              | 33.6  | %           |  |       | 47.6  | % |  |       | 31.3  | %
|                                             | Restructuring costs                |  |                       | 14.1  | %                        |  |              | -1.3  | %           |  |       | 6.4   | % |  |       | -0.6  | %
|                                             | Merger and integration costs       |  |                       | 1.7   | %                        |  |              | 14.8  | %           |  |       | 1.0   | % |  |       | 14.4  | %
|                                             | Other expense (income), net        |  |                       | 0.1   | %                        |  |              | 4.1   | %           |  |       | 0.1   | % |  |       | 1.3   | %
|                                             |                                    |  |                       |       |                          |  |              |       |             |  |       |       |   |  |       |      
|                                             | Total operating costs and expenses |  |                       | 184.6 | %                        |  |              | 178.9 | %           |  |       | 168.7 | % |  |       | 181.2 | %
|                                             |                                    |  |                       |       |                          |  |              |       |             |  |       |       |   |  |       |      
|Operating loss                               |                                    |  | -84.6                 | %     |                          |  | -78.9        | %     |             |  | -68.7 | %     |   |  | -81.2 | %    
|Interest income (expense), net               |                                    |  | -0.2                  | %     |                          |  | 0.3          | %     |             |  | 0.3   | %     |   |  | 0.6   | %    
|                                             |                                    |  |                       |       |                          |  |              |       |             |  |       |       |   |  |       |      
|Loss from continuing operations before taxes |                                    |  | -84.8                 | %     |                          |  | -78.6        | %     |             |  | -68.4 | %     |   |  | -80.6 | %    
|Income tax benefit                           |                                    |  | 0.0                   | %     |                          |  | 0.0          | %     |             |  | 0.0   | %     |   |  | 0.0   | %    
|                                             |                                    |  |                       |       |                          |  |              |       |             |  |       |       |   |  |       |      
|Net loss from continuing operations          |                                    |  | -84.8                 | %     |                          |  | -78.6        | %     |             |  | -68.4 | %     |   |  | -80.6 | %    
|                                             |                                    |  |                       |       |                          |  |              |       |             |  |       |       |   |  |       |      

The loss from continuing operations increased $2.3 million, or 11.5% for the
quarter ended February 28, 2003, and decreased $3.1 million, or 7.8%,
respectively, for the six-months ended February 28, 2003 when
compared to the same periods of the prior fiscal year. The loss per share,
basic and diluted, increased $0.02 per share, or 14.3% for the quarter ended
February 28, 2003, and decreased $0.03 per share, or 10.3%, respectively, for
the six-months ended February 28, 2003 when compared to the same periods of the
prior fiscal year.

COMPARISON OF THE QUARTERS ENDED FEBRUARY 28, 2003 AND 2002

Revenues

|                |  |                       |        |                          |  |              |        |              |  |   |        |  |  |   |        | 
|--------------- |  | --------------------- | ------ | ------------------------ |  | ------------ | ------ | ------------ |  | - | ------ |  |  | - | ------ | 
|                |  | For the quarter Ended |        | For the six months ended
|                |  |                       |        |                         
|                |  | February 28,          |        | February 28,             |  | February 28, |        | February 28,
|                |  | 2003                  |        | 2002                     |  | 2003         |        | 2002        
|                |  |                       |        |                          |  |              |        |             
|Hosting Revenue |  | $                     | 25,345 |                          |  | $            | 24,187 |              |  | $ | 52,169 |  |  | $ | 46,852 | 
|Other Revenue   |  |                       | 769    |                          |  |              | 1,058  |              |  |   | 1,228  |  |  |   | 2,313  | 
|                |  |                       |        |                          |  |              |        |              |  |   |        |  |  |   |        | 
|Total Revenue   |  | $                     | 26,114 |                          |  | $            | 25,245 |              |  | $ | 53,397 |  |  | $ | 49,165 | 
|                |  |                       |        |                          |  |              |        |              |  |   |        |  |  |   |        | 

Total revenues increased $0.9 million, or 3.4%, and $4.2 million, or 8.6%,
respectively, for the quarter and for the six-months ended February 28, 2003
when compared to the same periods of the prior fiscal year. Hosting revenues
increased 4.8% to $25.3 million and 11.3% to $52.2 million, respectively, for
the quarter and for the six-months ended February 28, 2003 when compared to the
same periods of the prior fiscal year. Hosting revenues are comprised of
shared and dedicated hosting services and domain name registrations. The growth
in hosting revenues attributable to acquisitions has been partially offset by a
degradation of the legacy Interland-Georgia and HostPro customer base related
to the implementation of stricter credit policies and the writing off /
deprovisioning of delinquent accounts. As noted, the Company expects to reduce
the pace of

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INTERLAND, INC.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

acquisitions, although it has acquired Trellix and has announced an agreement
to acquire Hostcentric, which the Company expects will provide additional
revenue.

The Company has begun to focus on organic growth and is realizing the emergence
of new customers as a result of new pricing strategies and the launching of its
blueHalo product line. In the fourth quarter, the Company will initiate its
mass-market strategy utilizing Trellixs web-based business solutions.

Other revenues decreased $0.3 million, or 27.3%, and $1.1 million, or 46.9%,
respectively, for the quarter and for the six-months ended February 28, 2003
when compared to the same periods of the prior fiscal year. Other revenues are
primarily comprised of consulting, co-location, and web-based business solution
services. The decrease is the result of the sale of consumer dial-up accounts
in 2002, and the Companys strategy to move away from the sale of hardware due
to the low margins and profitability of these products and services. The
change is not expected to have a substantial adverse impact on future operating
income. Trellix revenue, which consists of the provision of Web based business
solutions, is included in other revenue and contributed $0.4 million in revenue
in the quarter ending February 28, 2003.

As of February 28, 2003, the Company had approximately 181,000 paid shared
hosting customer accounts and managed approximately 7,000 dedicated servers,
many of which host multiple web sites, compared to approximately 225,000 paid
shared hosting customer accounts and approximately 4,400 dedicated servers at
February 28, 2002. The decrease in shared hosting customer accounts is
primarily due to the deactivation of non-paying accounts during the last two
quarters. The significant increase in dedicated
servers, net of dedicated account churn, is primarily attributable to the
Companys acquisitions completed during fiscal 2002.

Operating Costs and Expenses

Network Operating Costs

Network operating expenses increased 11.5% to $9.8 million and 3.4% to $19.2
million, respectively, for the quarter and for the six-months ended February
28, 2003 from $8.8 million and $18.5 million in the same periods of the prior
year. As a percentage of revenues, the Companys network operating expenses
were 37.6% and 35.9%, respectively, for the quarter and for the six-months
ended February 28, 2003 as compared to 34.9% and 37.7% in the same periods of
the prior fiscal year. The increase in network operating expense in the second
quarter was primarily related to the buyout of a connectivity bandwidth
contract for the Companys Atlanta data center. The underlying unit costs for
this contract were much greater than prevailing market rates. The conversion
to a lower cost provider will significantly lower future operating costs. As a
result of completing the companys restructuring, integration, and transition
plans with an in-year cost of approximately $18.0 million, management expects
to realize more than $25.0 million of annualized operating cost savings
effective with the fourth quarter of fiscal 2003.

Sales and Marketing

Sales and marketing expenses decreased 34.8% to $5.0 million and 40.4% to $9.9
million, respectively, for the quarter and for the six-months ended February
28, 2003 from $7.7 million and $16.6 million in the same periods of the prior
year. The Companys sales and marketing expenses as a percentage of revenues
was 19.3% and 18.5%, respectively, for the quarter and for the six-months ended
February 28, 2003 as compared to 30.6% and 33.7% in the same periods of the
prior fiscal year. The decrease in sales and marketing expenses in the second
quarter and six-month period from the same period of the prior fiscal year was
primarily attributable to a decrease of $0.5 million and $1.2 million,
respectively, in personnel costs due to integration and consolidation
initiatives related to headcount reductions, and a decrease of $1.8 million and
$2.5 million, respectively, in marketing and advertising costs resulting from a
greater emphasis on web-based versus direct mail programs.

Technical Support

Technical support expenses decreased 13.3% to $3.8 million and 5.1% to $7.5
million, respectively, for the quarter and for the six-months ended February
28, 2003 from $4.4 million and $7.9 million in the same periods of the prior
year. The Companys technical support expenses as a percentage of revenues was
14.5% and 14.1%, respectively, for the quarter and for the six-months ended
February 28, 2003 compared to 17.3% and 16.1% in the same periods of the prior
fiscal year. The

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INTERLAND, INC.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

decrease in technical support expenses in the second quarter from the same
quarter of the prior fiscal year was attributable to a $0.6 million reduction
in contract labor and service costs facilitated by the execution of workforce
management and process efficiencies.

General and Administrative

General and administrative expenses increased 17.0% to $10.5 million and
decreased 0.3% to $20.3 million, respectively, for the quarter and for the
six-months ended February 28, 2003 from $8.9 million and $20.3 million in the
same periods of the prior year. As a percentage of revenues the Companys
general and administrative expenses was 40.0% and 37.9%, respectively, for the
quarter and for the six-months ended February 28, 2003 as compared to 35.4% and
41.3% in the same periods of the prior fiscal year. The
primary factors causing the increase in general and administrative expenses in
the second quarter were a $0.8 million increase in personnel costs caused by
the addition of staff to address critical skill resource deficiencies, a $0.5
million increase in professional fees associated with infrastructure and
process reengineering, and a $0.4 million increase in legal expenses related to
recent acquisitions and SEC filings.

Bad Debt Expense

Bad debt expense decreased 26.9% to $1.8 million and increased 27.0% to $3.8
million, respectively, for the quarter and for the six-months ended February
28, 2003 from $2.4 million and $3.0 million in the same periods of the prior
year. The decrease in bad debt expense for the second quarter of fiscal 2003
versus the same quarter of fiscal 2002 is essentially due to the write off and
deactivation of non-paying accounts that occurred during the last two quarters.
The increase in bad debt expense during the six-month period of fiscal 2003 as
compared to the same period of fiscal 2002 was a direct consequence of the
acquisition of the customer accounts of Interland-Georgia, CommuniTech.Net,
Dialtone Internet, Interliant, and AT&T. Following these transactions, the
Company experienced short-term customer churn and breakage during the account
integration and migration process. The combination of higher than expected
customer churn and breakage and the integration of our billing and collection
functions resulted in unusually high bad debt expense. In response to the
higher bad debt expense, the Company increased its collection efforts to bring
the past due accounts back down to a more normal level and instituted a more
stringent credit policy, suspending service to customers with balances over 30
days due. The new credit policy and the clean up of acquired accounts are the
primary reasons for the year-to-date increase in bad debt expense.

Depreciation and Amortization

Depreciation and amortization expenses increased 55.8% to $13.2 million and
65.2% to $25.4 million, respectively, for the quarter and for the six-months
ended February 28, 2003 from $8.5 million and $15.4 million in the same periods
of the prior year. The Companys depreciation and amortization expenses as a
percentage of revenues was 50.6% and 47.6%, respectively, for the quarter and
for the six-months ended February 28, 2003 as compared to 33.6% and 31.3% in the
same periods of the prior fiscal year. The increase in depreciation and
amortization expense is due to $1.2 million of accelerated depreciation
relating to the closure of the Los Angeles data center, $3.0 million associated
with acquisitions, and $0.5 million related to fixed asset additions for
ongoing operations.

Restructuring Costs

Restructuring costs increased to $3.7 million and to $3.4 million,
respectively, for the quarter and for the six-months ended February 28, 2003
from $(0.3) million and $(0.3) million in the same periods of the prior year.
During the quarter the Companys restructuring costs were associated with the
closure and consolidation of data centers and were comprised of $1.6 million
for termination of bandwidth connectivity contracts, $1.3 million for lease
termination charges, $0.9 million for fixed asset write downs, and $0.3 million
for employee severance payments. During the second quarter of fiscal 2002 the
Company reversed $0.3 million of previously accrued restructuring charges
associated with a bandwidth connectivity contract termination for which the
contract was ultimately assigned to SolutionPro, Inc.

Merger and Integration Costs

Merger and integration costs decreased 88.4% to $0.4 million and 92.6% to $0.5
million, respectively, for the quarter and for the six-months ended February
28, 2003 from $3.7 million and $7.1 million in the same periods of the prior
year. During the

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INTERLAND, INC.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

second quarter of 2003, the Company incurred $0.4 in merger and integration
costs to settle severance obligations to former employees and to pay relocation
expenses to retained employees. Merger and integration costs are significantly
reduced from the same periods last year, which is consistent with the magnitude
of integration activities undertaken in connection with the Interland-Georgia
acquisition and other acquisitions consummated in fiscal 2002. The Company
expects to incur continued merger and integration costs during fiscal 2003
primarily related to severance and relocation costs for select personnel
associated with the Innerhost and Trellix businesses, although such costs will
be significantly lower than that experienced during fiscal 2002.

Interest Income (Expense), net

Interest income (expense), net, decreased 173.5% to $(0.1) million and 52.7% to
$0.2 million, respectively, for the quarter and for the six-months ended
February 28, 2003 from $0.1 million and $0.3 million in the same periods of the
prior year. Interest income, net consists of interest income earned on the
Companys combined cash and cash equivalents, short-term investments, and
restricted investments of $105.7 million, less interest expense on debt
(primarily capital leases) of $17.3 million. 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 second
quarter of fiscal 2003 versus the same period in fiscal 2002. Interest expense
exceeded interest income for the quarter ended February 28, 2003 due to
interest expense incurred in the early payoff of an outstanding line of credit.

Income Tax Expense

No income tax benefit was recorded for the quarter and for the six-months ended
February 28, 2003 and 2002. A valuation allowance has been established against
the potential benefit and deferred tax assets under the guidelines of SFAS 109.

Net Cash Used in Operating Activities and Earnings from Continuing Operations Before Interest, Taxes, Depreciation
and Amortization (EBITDA)

EBITDA is defined as net income less (i) provision for income taxes, (ii)
interest income or expense, and (iii) depreciation and amortization. EBITDA is
not an indicator of financial performance under generally accepted accounting
principals and may not be comparable to similarly captioned information
reported by other companies. In addition, it does not replace net income
(loss), operating income (loss), or cash flow from continuing operations as
indicators of operating performance. The effect of taxes and interest on
Interlands net loss is not significant, but depreciation and amortization,
primarily as a result of acquisitions, is significant. The Company believes
that measuring the performance of the business without regard to non-cash
depreciation and amortization can make trends in operating efficiencies more
readily apparent.

For the second quarter ending February 28, 2003,
the Companys EBITDA improved
$2.6 million or 22.4% to a loss of $8.9 million as compared to a loss of $11.4
million for the second quarter of fiscal 2002. The improvement in EBITDA is
primarily the result of reduced merger and integration expenses ($3.3 million)
and sales and marketing expenses ($2.7 million) and increased revenues ($0.9
million), partially offset by an increase in restructuring costs ($4.0 million)
in conjunction with higher non-cash expenses. For the six-months ending
February 28, 2003, the Companys EBITDA improved $13.3 million or 54.1% to a
loss of $11.3 million as compared to a loss of $24.6 million for the six-months
ended February 28, 2002. The improvement in EBITDA is attributable to reduced
sales and marketing costs ($6.7 million), reduced merger and integration costs
($6.6 million), and increased revenues ($4.2 million), partially offset by an
increase in restructuring costs ($3.8 million), in conjunction with higher
non-cash expenses.

Reconciliation of EBITDA from continuing operations to net cash used in
operating activities of continuing operations (the most directly comparable
financial measure presented in accordance with generally accepted accounting
principles) is as follows:

20



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INTERLAND, INC.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

|                                      |                                                          |   |               |        |                  |   |              |        |              |   |         |        |   |   |         |        |  
|------------------------------------- | -------------------------------------------------------- | - | ------------- | ------ | ---------------- | - | ------------ | ------ | ------------ | - | ------- | ------ | - | - | ------- | ------ | -
|                                      |                                                          |   | Quarter Ended |        | Six Months Ended
|                                      |                                                          |   |               |        |                 
|                                      |                                                          |   | February 28,  |        | February 28,     |   | February 28, |        | February 28,
|                                      |                                                          |   | 2003          |        | 2002             |   | 2003         |        | 2002        
|                                      |                                                          |   |               |        |                  |   |              |        |             
|Net loss                              |                                                          | $ | (22,423       | )      |                  | $ | (19,851      | )      |              | $ | (36,835 | )      |   | $ | (39,623 | )     
|                                      |                                                          |   |               |        |                  |   |              |        |              |   |         |        |   |   |         |       
|                                      | Depreciation and amortization                            |   |               | 13,215 |                  |   |              | 8,481  |              |   |         | 25,395 |   |   |         | 15,370 |  
|                                      | Interest expense (income)                                |   |               | 50     |                  |   |              | (68    | )            |   |         | (151   | ) |   |         | (319   | )
|                                      | Income tax benefit                                       |   |               |       |                  |   |              |       |              |   |         |       |   |   |         |       |  
|                                      | Discontinued operations                                  |   |               | 281    |                  |   |              |       |              |   |         | 315    |   |   |         |       |  
|                                      |                                                          |   |               |        |                  |   |              |        |              |   |         |        |   |   |         |       
|EBITDA
from continuing operations     |                                                          | $ | (8,877        | )      |                  | $ | (11,438      | )      |              | $ | (11,276 | )      |   | $ | (24,572 | )     
|                                      |                                                          |   |               |        |                  |   |              |        |              |   |         |        |   |   |         |       
|                                      | Interest (expense) / income                              |   |               | (50    | )                |   |              | 68     |              |   |         | 151    |   |   |         | 319    |  
|                                      | Provision for bad debts                                  |   |               | 1,770  |                  |   |              | 2,422  |              |   |         | 3,816  |   |   |         | 3,003  |  
|                                      | Other non-cash adjustments                               |   |               | 859    |                  |   |              | 1,563  |              |   |         | 1,099  |   |   |         | 1,475  |  
|                                      | Changes in assets and liabilities:                       |   |               |        |                  |   |              |        |              |   |         |        |   |   |         |        |  
|                                      | Income tax recoverable                                   |   |               | 778    |                  |   |              | 18,585 |              |   |         | 778    |   |   |         | 18,585 |  
|                                      | Receivables, net                                         |   |               | 1,152  |                  |   |              | (2,683 | )            |   |         | (1,538 | ) |   |         | (9,201 | )
|                                      | Other current assets                                     |   |               | (682   | )                |   |              | 86     |              |   |         | (343   | ) |   |         | (131   | )
|                                      | Accounts payable, accrued expenses, and deferred
revenue |   |               | (5,475 | )                |   |              | (2,337 | )            |   |         | (8,237 | ) |   |         | (5,891 | )
|                                      |                                                          |   |               |        |                  |   |              |        |              |   |         |        |   |   |         |       
|Net cash used in operating activities |                                                          | $ | (10,525       | )      |                  | $ | 6,266        |        |              | $ | (15,550 | )      |   | $ | (16,413 | )     
|                                      |                                                          |   |               |        |                  |   |              |        |              |   |         |        |   |   |         |       

Liquidity and Capital Resources

As of February 28, 2003, the Company had $50.8 million in cash and cash
equivalents as noted on the Companys consolidated balance sheet and statement
of cash flows. In addition, the Company had $33.6 million in short and
long-term investments and $21.3 million in short and long-term restricted
investments representing a total of $105.7 million of restricted and
unrestricted cash and investments. This represents a decrease of $42.2 million
compared to August 31, 2002.

On a comparative basis cash used in operating activities of continuing
operations decreased $0.9 million or 5.3% to $15.5 million for the six-months
ended February 28, 2003 versus the $16.4 million of cash used in operating
activities for the same period in the last fiscal year. The reduction in cash
utilization is attributable to the combination of higher revenues in
conjunction with improved collection on outstanding receivables thereby
improving the Companys days sales outstanding in receivables. Cash provided
by investing activities increased $45.5 million or 174.0% to $19.4 million for
the six-months ended February 28, 2003 versus the $26.2 million of cash used in
investing activities for the same period in the last fiscal year. The increase
in cash generated from investing activities is directly related to changes in
the Companys restricted cash requirements. Specifically during the first half
of fiscal 2002 the terms of the Companys merchant banking agreements
necessitated significant increases in restricted cash collateralization
requirements to compensate for the volume of credit card chargebacks and the
balance of deferred revenue. In contrast during the first half of the current
fiscal year the Company has been able to decrease its restricted cash
requirements primarily as a result of reduced credit card chargebacks, reduced
deferred revenue balances, amortization of existing capital equipment leases,
and the pay off of a line of credit. Cash used in financing activities
decreased $2.3 million or 13.8% to $14.4 million for the six-month period ended
February 28, 2003 versus the $16.7 million of cash used in financing activities
for the same period of last fiscal year. The decrease in cash used in
financing activities is due to the fact there were no re-purchases of Company
stock during the last two quarters whereas $7.3 million was used for this
purpose during the first half of fiscal 2002. Partially offsetting this
variation is $5.3 million that was used to payoff a line of credit during the
quarter ended February 28, 2003. Cash used for discontinued operations
decreased $7.5 million or 84.6% to $1.4 million for the six-months ended
February 28, 2003 versus the $8.8 million of cash used to fund discontinued
operations during the same period of the last fiscal year. The primary reason
for the decrease in cash used in discontinued operations is the winding down of
the computer products and services businesses.

On July 20, 2001, the Company entered into a financing arrangement with US Bank
under which the Company executed a $5.4 million credit agreement. This
agreement had a stated interest rate of prime less 100 basis points or 3.25%.
During the quarter ended February 28, 2003, this credit agreement was paid in
full. The payoff of this loan released $6.7 million of collateralized cash
that was pledged under this agreement. Additionally, in July 2001, the Company
entered into a financing arrangement with U.S. Bancorp Oliver-Allen Technology
Leasing for a sale and leaseback of up to $14.6 million for certain equipment,
primarily computer hardware. In January 2002, the Company repurchased certain
of the leased assets from U.S. Bancorp Oliver-Allen Technology Leasing at a
total cost of $2.9 million. In connection with the repurchase, approximately
$3.3 million of cash and equivalents became unrestricted. As of February 28,
2003, the Company has pledged $9.1 million as

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INTERLAND, INC.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

collateral for this agreement. The restrictions prevent the Company from
utilizing the related cash and cash equivalents; however, the amount of
restricted cash and cash equivalents is reduced as the facility is paid off.

Prior to the acquisition of iNNERHOST, Inc., iNNERHOST executed a $1.3 million
note to finance the construction of a data center. The note bears an interest
rate of 10.0%. In connection with the acquisition of iNNERHOST the Company
assumed this obligation, which had an outstanding balance of $0.8 million at
February 28, 2003. Also prior to acquisition, iNNERHOST executed several term
loans to finance equipment purchases. The Company has assumed these debts,
which have an interest rate of 12.0% and an outstanding balance of $0.1 million
at February 28, 2003.

The Company anticipates making capital expenditures of approximately $16.5
million during fiscal 2003, generally for server equipment and related
software, integration and restructuring activities, and other expenditures
related to new customer growth. During the first six-months of fiscal 2003 the
Company expended $6.5 million on capital equipment purchases.

The Company also expects to use
approximately $1.1 million for legal expenses
and remaining contractual obligations related to discontinued operations.

On January 3, 2003, the Company acquired Trellix Corporation, a privately held
developer of software-based Web site solutions. The Company is expected to
spend approximately $1.5 million for the full integration of Trellix and for
the related mass-market deployment during the third quarter of fiscal 2003. In
connection with the acquisition, the Company also assumed $0.2 million in
capital lease obligations as well as a $2.5 million working capital deficit.

On December 19, 2002, the Company entered into a merger agreement to acquire
Hostcentric, Inc., a privately held provider of a broad range of Web hosting
services to small business and enterprise customers. The aggregate purchase
price was approximately $25.8 million consisting of $3.0 million in cash and
13.5 million shares of Interland stock. The number of shares to be issued was
fixed as of the agreements execution date. The transaction, which requires
the approval of a majority of Hostcentrics shareholders, is expected to close
by June 2003. The Company estimates that on an annualized basis, Hostcentric
will contribute approximately $4.0 million in positive cash flows from
operations. Additionally, in connection with the acquisition, the Company
expects to assume $1.9 million in debt and capital lease obligations, most of
which will mature within one year after the acquisition.

The Company implemented an integration program outlining all integration
related expenditures expected to be incurred during fiscal 2003. These
expenditures, estimated to total approximately $19.0 million during fiscal 2003
($7.0 million for capital expenditures and $12.0 million for operating
expenses) are aimed at streamlining the Companys infrastructure, completing
the integration of acquisitions, upgrading internal systems, divesting acquired
data centers, and consolidating operations. A total of $10.9 million has been
spent for the six-months ending February 28, 2003, $7.8 million for operations
and $3.1 million in capital expenditures.

The Company believes it has adequate cash and liquid resources to fund
operations and planned capital expenditures for at least the next twelve
months. The Companys future success is dependent upon its ability to achieve
positive cash flow prior to the depletion of cash resources and to raise funds,
thereafter, if needed. Management, however, cannot provide assurance that the
Companys cash flows will be adequate to allow it to continue operations
subsequent to fiscal 2003 although, the Companys current financial forecast
does indicate that there will be sufficient cash balances on hand until the
Company reaches positive cash flows from ongoing operations.

Stock Repurchase Program

In March 2003, the Board of Directors authorized a stock repurchase program to
acquire outstanding common stock. Under the program, up to $10.0 million of
common stock could be reacquired over the next year. As of March 31, 2003,
the Company had not repurchased any stock under the program.

Recently Issued Accounting Standards

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. This Statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and

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INTERLAND, INC.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring). The
principal difference between this Statement and Issue 94-3 relates to its requirement for recognition of a
liability for a cost associated with an exit or disposal activity. This
Statement requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred. Under Issue
94-3, a liability for an exit cost as defined in Issue 94-3 was recognized at
the date of an entitys commitment to an exit plan. This Statement eliminates
the definition and requirements for recognition of exit costs in Issue 94-3 and
establishes that fair value is the objective for initial measurement of the
liability. The provisions of this Statement are effective for exit or disposal
activities that are initiated after December 31, 2002; the Company adopted this
Statement effective with the second quarter beginning December 1, 2002.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure - an Amendment of FASB Statement No.
123. This Statement amends FASB Statement No. 123, Accounting for Stock-Based
Compensation,to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of
Statement 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. This
Statement is effective for financial statements with fiscal years ending after
December 15, 2002, and is effective for financial reports containing condensed
financial statements for interim periods beginning after December 15, 2002. The
Company will adopt the disclosure provisions of this Statement effective with
its report on Form 10-Q for the third quarter ending May 31, 2003, in
accordance with this Statement.

The FASB issued FIN No. 45 for all financial statements of interim or annual
reports ending after December 15, 2002. This Interpretation elaborates on the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued.
It also clarifies that a guarantor is required to recognize, at the inception
of a guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. This Interpretation does not prescribe a specific
approach for subsequently measuring the guarantors recognized liability over
the term of the related guarantee. This Interpretation also incorporates,
without change, the guidance in FASB Interpretation No. 34, Disclosure of
Indirect Guarantees of Indebtedness of Others,which is being superseded. The
provisions of this interpretation have no material impact on the Company.

RISK FACTORS

You should carefully consider the following factors and all other information
contained in this Form 10-Q and the Companys recently filed Form 10-K for the
fiscal year ended August 31, 2002 before you make any investment decisions with
respect to the Companys securities. The risks and uncertainties described
below are not the only risks the Company faces.

Interland has incurred losses since inception, and expects to incur losses for
at least the next quarter, which could cause the price of Interland stock to
decline.

We have incurred net losses and losses from operations for all but one of each
quarterly period from our inception through the first quarter of fiscal 2003.
We do not expect to generate sustainable positive cash flow from continuing
operations until the fourth quarter of fiscal 2003. A number of factors could
increase our operating expenses, such as:



| |  |  | Adapting network infrastructure and to administrative resources
to accommodate additional customers and future growth;
| | - |  | ----------------------------------------------------------------------------------------------------------------------
|
| |  |  | Unanticipated liabilities from the sale of GTG PC; and                                                                
|
| |  |  | Integrating recently acquired businesses.                                                                             

To the extent that increases in expenses are not offset by increases in
revenues, its operating losses could increase.

Because Interlands historical financial information is not representative of
our future results, investors and analysts will have difficulty analyzing
Interlands future earnings potential.

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INTERLAND, INC.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

Since the sale of its non-hosting businesses and acquisition of other
businesses in its industry, Interlands historical financial information is not
representative of future operating results. Excluding the operations of the
non-hosting businesswhich are classified as discontinued operations in our financial statementsnon-Web
hosting revenues represented approximately 7% and 30% of total revenues for
fiscal 2001 and 2000, respectively. In addition, its financial results for
fiscal 2001 reflect the integration of Interland-Georgia for only 25 days. By
contrast, Web hosting revenues constituted 93% of the total revenues in fiscal
2002.

Interland has a limited operating history and our business model is still
evolving, which makes it difficult to evaluate its prospects.

Interlands limited operating history makes evaluating its business operations
and prospects difficult. Its range of service offerings has changed since
inception and its business model is still new and developing. Interland has
changed from being primarily a seller of personal computers and related
accessories to being primarily a Web hosting company. Because some its services
are new, the market for them is uncertain. As a result, the revenues and income
potential of its business, as well as the potential benefits of its
acquisitions, may be difficult to evaluate.

Quarterly and annual operating results
may fluctuate, which could cause Interland's
stock price to be volatile.

Past operating results have fluctuated on a quarterly and an annual basis.
Quarterly and annual operating results may continue to fluctuate, due to a wide
variety of factors. Because of these fluctuations, comparing operating results
from period to period is not necessarily meaningful, and you should not rely
upon such comparisons as an indicator of future performance. Factors that may
cause its operating results to fluctuate include, but are not limited to:



| |  |  | Demand for and market acceptance of its services;                                                                 
| | - |  | ------------------------------------------------------------------------------------------------------------------
|
| |  |  | Introduction of new services or enhancements by Interland or its competitors;                                     
|
| |  |  | Technical difficulties or system downtime affecting the
Internet generally or its hosting operations specifically;
|
| |  |  | Customer retention;                                                                                               
|
| |  |  | Increased competition and consolidation within the Web hosting and applications hosting markets;                  
|
| |  |  | Changes in its pricing policies and the pricing policies of its competitors; and                                  
|
| |  |  | Gains or losses of key strategic relationships.                                                                   

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

Interlands stock price may be volatile which could cause an investment in its
common stock to decrease significantly.

The market price of its common stock has experienced a significant decline. The
price has been and is likely to continue to be highly volatile due to several
factors, such as:



| |  |  | Its failure to benefit from the Interland-Georgia merger or its
other acquisitions as quickly as anticipated or at all or in the way
financial analysts expected;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Variations in operating results and analyst earnings estimates;                                                                                                  
|
| |  |  | Variations in operating results or spending by customers and competitors;                                                                                        

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INTERLAND, INC.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations



| |  |  | The volatility of stock within the sectors within which it conducts business;
| | - |  | -----------------------------------------------------------------------------
|
| |  |  | General decline in economic conditions; and                                  
|
| |  |  | Reductions in the volume of trading in our common stock.                     

During the 52 weeks ended April 8, 2003, the high and low closing price for
Interland common stock on NASDAQ was $3.28 and $0.66, respectively.

On March 25, 2003, Interland was notified by NASDAQ that the closing bid price
for its stock had been under $1.00 for thirty consecutive trading sessions, and

that a 180-day grace period has consequently begun. If the closing bid is not
over $1.00 for ten consecutive sessions during this grace period, Interland
stock is subject to being delisted from the NASDAQ National Market in
accordance with NASDAQ rules. When Interland performs its annual assessment of
its goodwill on May 31, 2003, the stock price will be taken into account, and
at the current market price of the stock it will be required to recognize an
impairment loss equal to the amount, if any, by which the carrying value of
goodwill exceeds its fair value.

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. Interlands future growth, if any, will depend upon the willingness
of small- and medium-sized businesses to outsource Web and applications hosting
services, Interlands ability to increase its average revenues per customer,
and its ability to retain customers. For the three months ended February 28,
2003, Interlands average monthly revenue per customer account was $27.87 for
shared hosting services and $413.79 for dedicated hosting services, and its
average monthly customer turnover was
3.75% for shared hosting services and 3.94% for dedicated hosting services.
The corresponding average monthly revenue per customer for the three months
ended February 28, 2002 was $27.47 for shared hosting services and $630.42 for
dedicated hosting services, and the associated average monthly customer
turnover rates were 3.50% for shared hosting services and 5.53% for dedicated
hosting services. 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 Interlands services do not achieve broader market
acceptance, Interland will not be able to grow its customer base. In addition,
Interland must be able to differentiate its company from its competition
through its service offerings and brand recognition. These activities may be
more expensive than Interland anticipates, and Interland may not succeed in
differentiating itself from its competitors, achieving market acceptance of its
services or selling additional services to its existing customer base.

Because Interlands target markets are volatile, the Company may face a loss of
customers or a high level of non-collectible accounts.

The Company intends to concentrate on serving small- and medium-sized
businesses (SMB). The SMB market contains many businesses that may not be
successful, and consequently present a 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 competitor with a lower pricing structure. 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;

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INTERLAND, INC.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations



| |  |  | Automating customer care and technical support to reduce the cost per
call, and to minimize the time spent by Company personnel; and,
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Intensive training and supervision of customer care and technical
support personnel to maximize customer satisfaction.               

The Company can give no assurance, however, that any of these measures will be
successful, and the Companys failure to manage these risks could decrease
revenues and profitability.

If the Company does not successfully integrate the operations and personnel of
its recent acquisitions in a timely manner, business will be disrupted and
operating results will be negatively affected.

The Companys acquisitions involve risks related to the integration and
management of these companies operations and personnel. Integration is 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 in order to realize the planned efficiencies and economies
of scale. The Company may encounter substantial difficulties, costs and delays
involved in integrating the operations of all affiliated companies, including:



| |  |  | Potential incompatibility of business cultures;                                                                                                    
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Potential conflicts in marketing or other important relationships;                                                                                 
|
| |  |  | Potential operating inefficiencies and increased costs
associated with having and integrating different information and
telecommunications systems;
|
| |  |  | Potential decline in the level of customer service and customer satisfaction; and                                                                  
|
| |  |  | The loss of key personnel in the acquired business.                                                                                                

The benefits of the acquisitions of Interland-Georgia, CommuniTech.Net,
Dialtone, iNNERHOST, Trellix, and Hostcentric may be less than expected and the
costs associated with these acquisitions 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 efficiencies
created by recent acquisitions by enabling us to: Integrate and expand
our nationwide technical support capabilities over a large customer
base;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Integrate our information and telecommunications systems;                                                                                                                                                          
|
| |  |  | Market a larger, combined business;                                                                                                                                                                                
|
| |  |  | Eliminate excess data center capacity; and                                                                                                                                                                         
|
| |  |  | Achieve overall economies of scale for the combined companys telecommunications costs.                                                                                                                            

Through February 28, 2003, as part of the Companys continuing integration efforts, the Company has:



| |  |  | Reduced 568 positions from our total headcount;                      
| | - |  | ---------------------------------------------------------------------
|
| |  |  | Reduced the number of our facilities by four; and                    
|
| |  |  | Incurred approximately $10.0 million in merger and integration costs.

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INTERLAND, INC.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

Although the Company expects that it will realize cost synergies, it cannot
guarantee that it will realize these cost synergies or firmly state the amount
of any specific cost synergies. The Company expects to incur costs associated
with the consolidation and integration of the companies services and
operations. If the total costs of consolidation and integration activities
exceed estimates, or if the cost synergies are less than expected, the
Companys revenues and profitability would suffer. Any shortfall in anticipated
operating results will cause the market price of the Companys common stock to
decline.

The Company has incurred significant charges relating to the intangible assets
obtained as a result of its recent acquisitions of Interland-Georgia,
CommuniTech.Net, Dialtone, iNNERHOST, and Trellix, which will delay projected
achievement of profitability for the Web hosting business.

The Company has accounted for all company acquisitions using the purchase
method of accounting. The purchase price is allocated to assets acquired and
liabilities assumed. The following acquisitions have been recorded:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Interland-Georgia Based upon the purchase price of $127.2 million, the
Company recorded $17.5 million of intangible assets and $103.0 million of
goodwill on its balance sheet, which resulted in amortization expense of
the intangible assets of $0.8 million recorded in the second quarter
fiscal 2003.                                                                                                                                                                                                                                                                                                                      
|
| | CommuniTech.Net Based on a purchase price of $11.0 million, the
Company recorded $3.7 million of intangible assets and $6.9 million of
goodwill on its balance sheet, which resulted in amortization expense of
intangible assets of $0.3 million recorded in the second quarter of fiscal
2003.                                                                                                                                                                                                                                                                                                                                 
|
| | Dialtone Based on a purchase price of $15.8 million, the Company has
recorded $4.2 million of intangible assets and $10.1 million of goodwill
on its balance sheet, which resulted in amortization expense of intangible
assets of $0.4 million recorded in the second quarter of fiscal 2003.                                                                                                                                                                                                                                                                                                                                   
|
| | Innerhost Based on the purchase price of $17.7 million, the Company
has recorded $3.6 million of intangible assets other than goodwill and
$9.3 million in goodwill on the balance sheet. The Innerhost purchase
price allocation was completed during the quarter ended February 28, 2003
and the previously recorded estimates of amortization expense were
adjusted so that life-to-date amortization expense agreed to the final
intangible asset amortization schedules. The adjustment resulted in the
reversal of $0.2 million of amortization expense of intangible assets
recorded in the second quarter of fiscal 2003.
|
| | Trellix Based on a purchase price of approximately $11.6 million, the
Company has recorded $6.0 million of intangible assets other than goodwill
and $8.1 million in goodwill on the balance sheet, which resulted in
amortization expense of intangible assets of $0.2 million recorded in the
second quarter of fiscal 2003.                                                                                                                                                                                                                                                                                                   

The Company has recorded an aggregate of $137.7 million in goodwill on the
balance sheet. In accordance with the requirements of SFAS 142, the Company
tests for goodwill impairment on an annual basis and between annual tests if an
event occurs or circumstances change that would more likely than not reduce the
fair value of goodwill below its carrying amount. Any potential impairment
will affect the financial results in the future. Interland does its annual
assessment on May 31. The market price of the Companys stock has experienced
significant volatility during the last fiscal year. If the price of the
Companys stock stays at its current levels such that the market capitalization
is less than the recorded book value, the annual goodwill impairment test will
result in a significant impairment loss equal to the carrying amount of
goodwill in excess of its fair value.

Interland could incur liabilities in the future relating to its PC Systems
business, which could cause additional operating losses.

Interland could incur liabilities from the sale of the PC Systems business to
GTG PC. According to the terms of its agreement with GTG PC, it retained
liabilities relating to the operation of the PC systems business prior to the
closing of the transaction, including liabilities for taxes, contingent
liabilities and liabilities for accounts payable accrued prior to the closing.
It also agreed to indemnify GTG PC and its affiliates for any breach of our
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. Its indemnification obligation is capped at $10.0 million. Except for
claims for fraud or injunctive relief, this indemnity is the exclusive remedy
for any

27



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INTERLAND, INC.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

breach of our representations, warranties and covenants contained in
the agreement with GTG PC. Accordingly, it could be required in the future to
make payments to GTG PC and its affiliates in accordance with the agreement,
which could adversely affect its future results of operations and cash flows.
To date it has not had to satisfy any such claims.

Interland could incur additional losses related to its restructuring.

The Company may incur additional losses if the Company underestimated the costs
associated with its restructuring. In connection with the acquisition of
Interland-Georgia in August 2001, the Company adopted a restructuring plan to
close several offices and data centers, discontinue the use and development of
software and eliminate other redundant assets. As a result, the Company
recorded a restructuring charge of $110.3 million. The restructuring charge
included $9.4 million related to the closure of offices and data centers, the
write-off of $69.7 million of goodwill and intangible assets relating to prior
acquisitions, $26.9 million for asset write-downs, $0.7 million related to
personnel termination costs and $3.6 million related to other costs. During
the second quarter of 2003, the Company approved and initiated a program to
exit certain facilities and consolidate those operations into other existing
facilities. The plan provides for the closure of three data center facilities,
a reduction of those related workforces of approximately 150 employees, and the
termination of bandwidth and data connectivity contracts in place at these
facilities. Management expects to completely exit the facilities by May 31,
2003. The Company expects to incur $3.2 million in lease termination costs of
which $1.3 million has been incurred through February 28, 2003; $1.6 million in
bandwidth termination fees of which $1.6 million has been incurred through
February 28, 2003; $0.6 million in employee termination benefits of which $0.2
million has been incurred through February 28, 2003. The balance of the
restructuring reserve at February 28, 2003 after payments and write-downs was
$8.9 million. The Company accrued liabilities, which it believes are adequate
to cover all of the costs associated with the restructuring; however, if the
estimates are inadequate, the Company will have to record additional
restructuring charges.

Because Interland faces intense competition, it may not be able to operate
profitably in its markets.

The Web hosting and applications hosting markets are highly competitive and are
becoming more so, which could hinder our ability to successfully market our
products and services. The Company may not have the resources, expertise or
other competitive factors to compete successfully in the future. Because 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. Many of Interlands competitors have greater name recognition
and more established relationships in the industry and greater resources. 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.

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 Verio, and Affinity.

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 currently has no patented technology that would preclude or inhibit
competitors from entering the Web hosting market that it serves. While it is
the Companys practice to enter into agreements with all employees and with
some of its customers and suppliers to prohibit or restrict 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.

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INTERLAND, INC.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

Effective copyright, trademark, trade secret and patent protection may not be
available in every country in which its products and services are offered. It
currently is, and in the future may be, involved in legal disputes relating to
the validity or alleged infringement of its intellectual property rights or
those of a third party. 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 it 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 operations
or the markets in which it competes which could decrease profitability.

Periodically, it is made aware of claims, or potential claims, that technology
it used in its discontinued operations may have infringed on intellectual
property rights held by others. It has accrued a liability and charged
operations for the estimated costs of settlement or adjudication of several
asserted and unasserted claims for alleged infringement relating to its
discontinued operations prior to the balance sheet date. Resolution of these
claims could be costly and decrease profitability.

Unfavorable results of existing litigation may cause Interland to have
additional expenses or operating losses.

Interland is defending an employee class action lawsuit filed in the U.S.
District Court for Idaho. In this case five individual plaintiffs claim they
were employees of Micron Electronics Inc. (MEI) between 1999 and April 2001.
The plaintiffs claim that they, and other similarly situated employees, did not
receive overtime pay to which they were entitled under the Fair Labor Standards
Act. Interland disputes these claims and believes the plaintiffs are not
entitled to any material additional wages. The court conditionally certified a
class of not more than eight hundred former employees and notices of the
litigation are being sent to these persons to give them the opportunity to opt
in to the litigation. The parties are continuing to conduct discovery. At this
early stage of the litigation Interland is unable to estimate its 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.

In February of 2003, the Company filed a lawsuit in Cobb County, Georgia
against Mr. Gabriel Murphy, one of the former principals of Communitech, which
was acquired by Interland in February 2002. The Companys lawsuit claims,
among other things, that Mr. Murphy breached certain covenants under his
employee agreement, and also demands payment from Mr. Murphy under his
delinquent $2.7 million promissory note. These notes are
collateralized by 2,735,275 shares of the Companys common stock
and the receivable balance is shown on the balance sheet as a
reduction in equity. Interland is seeking an injunction against further
violations of Mr. Murphys obligations, compensatory and punitive damages in an
unspecified amount for the covenant violations, and immediate foreclosure on
the shares securing the note. On March 31, 2003, the court heard oral
argument on Interlands motion for a preliminary injunction. A ruling is
expected shortly.

In February 2003, Messrs. Heitman and Murphy filed a lawsuit against Interland,
its CEO, Mr. Joel Kocher, and Interlands subsidiary, Communitech.net, Inc., in
Jackson County, Missouri claiming, among other things, that Interland acted
unreasonably in failing to have the related S-3 registration statement declared
effective by the SEC on a timely basis and claiming that Interland and/or Mr.
Kocher made inaccurate disclosures in connection with Interlands acquisition
of Communitech. The complaint asks for compensatory and punitive damages in an
unspecified amount. Interland believes that these claims are without merit and
will not have a material adverse effect on Interland, and intends to vigorously
defend the claims.

On March 14, 2003 Halo Management, LLC, filed a suit against Interland in the
U.S. District Court for the Northern District of California. The suit alleges
that Interlands use of blueHALO (U.S. Patent and Trademark Office Serial No.
78/135,621) to describe its proprietary web hosting architecture infringes the
plaintiffs registered trademark Halo (U.S. Patent and Trademark Office Serial
No. 75/870,390; Registration No. 2,586,017). The suit requests an injunction
against Interlands use of its blueHALO mark and money damages. Interland
believes the claims are without merit, will not have a material adverse effect
on Interland, and plans to vigorously defend the matter.

From time to time, 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

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##### Table of Contents



INTERLAND, INC.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

actions taken against it relating to allegedly protected technology. The Company evaluates all such claims and has accrued a
liability and charged discontinued 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.

If Interland is unable to attract and retain key personnel, it may not be able
to compete effectively in its market.

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 adversely affect its ability to remain competitive in
its markets. The Company may face the loss of key personnel, which could limit
the ability of the Company to develop and market its products and services.

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 the
Company.

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 the past, the
Company has also 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, 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.              

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INTERLAND, INC.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

Interlands vulnerability
of Interlands data centers and networks to security breaches
could cause disruptions in its service, liability to third parties, or loss of
customers.

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 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 customers and potential customers.

Although the Company continues 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 or hardware
defects could harm its business and reputation.

The Companys service offerings depend on complex software and hardware,
including proprietary software tools and software licensed from third parties.
Complex software and hardware may contain defects, particularly when first
introduced or when new versions are released. The Company may not discover
software or hardware defects that affect its new or current services or
enhancements until after they are deployed. Although Interland has not
experienced any material software or hardware defects to date, it is possible
that defects may exist or occur in the future. 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 unknown but
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

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INTERLAND, INC.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

recipients of information transmitted by its customers objecting to such
transmission. Although the Company prohibits its customers by contract from
spamming, it cannot provide assurances 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 operates in an uncertain legal environment, where future
government regulation and lawsuits could restrict Interlands business or cause
unexpected losses.

Due to the increasing popularity and use of the Internet, 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. 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.

Resolving Weaknesses in Disclosure and Internal Controls Could Require More
Time than Anticipated, Distract Managements Attention from Interlands Day to
Day Operations, or Allow Ongoing Cost Inefficiencies.

Interland disclosed in its Form 10-K for the fiscal year ending August 31,
2002 that it had some material weaknesses in its internal and disclosure
controls and procedures. In Interlands Form 10-Q for the quarter ending
November 30, 2002 it reported some areas in which it has made progress. In
addition management believes that its use of alternative mitigating disclosure
and reporting processes have been sufficient to provide it with a good faith
belief that there are no material inaccuracies or omissions from its recent
Form 10-K or Form 10-Q. However, management recognizes that further
improvements in its disclosure controls and procedures and internal controls
and procedures are appropriate. The implementation of these remaining
improvements will be time consuming and expensive. In this regard management
is unable to estimate the financial impact of:



| |  | A delay in the implementation of remaining necessary internal and disclosure control improvements;                             
|- |  | -------------------------------------------------------------------------------------------------------------------------------
| 
| |  | The effects of managements distraction caused by the implementation of the procedural improvements; and,                      
| 
| |  | The ongoing cost inefficiencies caused by the weaknesses in internal controls pending completion of the requisite
improvements.

Furthermore, uncertainty over these factors and the delay in
implementation may cause additional volatility in Interlands stock price.

Substantial future sales of shares by shareholders could negatively affect its
stock price.

If its shareholders sell substantial amounts of our common stock in the public
market, the market price of its common stock could decline. Micron Technology
Foundation beneficially owned approximately 43% of its outstanding common stock
at the time of the Interland-Georgia transaction. On February 8, 2002, Micron
Technology Foundation sold approximately 52.8

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INTERLAND, INC.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

million shares. The parties who
purchased the shares held by the Foundation have the right to require us to
register their shares for sale pursuant to an existing registration rights
agreement, and most are among the selling shareholders in a separate Form S-3
Registration (File No. 333-96647). As of February 6, 2003, the shares
purchased from the Foundation are now also eligible for resale on the public
markets without registration, subject to volume limitations and holding period
requirements imposed by Rule 144 of the Securities Act. In addition, the
iNNERHOST shareholders have the right to require us to register their shares
for sale, and these shares are subject to a pending S-3 registration statement
(File No. 333-100060). These shares are available for sale after May 6, 2003.

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INTERLAND, INC.
Item 3. Quantitative and Qualitative Disclosures About Market Risk

Substantially all of the Companys liquid investments and a majority of its
debt are at fixed interest rates, and therefore the fair value of these
instruments is affected by changes in market interest rates. As of February 28,
2003, approximately 85.0% of the Companys liquid investments mature within
three months and 15% mature within one year. As of February 28, 2003,
management believes the reported amounts of liquid investments and debt to be
reasonable approximations of their fair values. Generally, the fair market
value of fixed interest rate investment securities will increase as interest
rates fall and decrease as interest rates rise. The Company does not use
derivative financial instruments in its investment portfolio. The portfolio has
been primarily comprised of commercial paper rated A1/P1, bank certificates
rated AA or better, and corporate medium-term notes rated AA or better. At
February 28, 2003, the Companys investment portfolio included fixed rate
securities with an estimated fair value of $91.7 million. The interest rate
changes affect the fair market values but do not impact earnings or cash flows.
The fair market value of long term fixed interest rate debt is also subject to
interest rate risk. Generally, the fair market of fixed interest rate debt will
increase as interest rates fall and decrease as interest rates rise. The
estimated fair value of the Companys long-term debt at February 28, 2003 was
$5.8 million.

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##### Table of Contents






INTERLAND, INC.
Item 4. Controls and Procedures

The Companys chief executive officer, chief financial officer, and chief
accounting officer evaluated the effectiveness of the Companys disclosure
controls and procedures (as defined in the Securities Exchange Act of 1934
Rules 13(a)  14(c), and 15(d), which became effective August 29, 2002) within
the 90 days preceding the filing of this quarterly report, in connection with
the preparation of its quarterly report on Form 10-Q for the three months
ending February 28, 2003. Based on this review, the chief executive officer,
chief financial officer, and chief accounting officer concluded that our
disclosure controls and procedures require further improvement.

Internal Controls

The Companys internal and disclosure controls and procedures are necessarily
interdependent. During the course of the fiscal 2002 year-end close and
subsequent audit, the Companys management and its auditors identified several
matters related to internal controls that needed to be addressed. Several of
these matters were classified by the auditors as material weaknesses or
reportable conditions in accordance with the standards of the American
Institute of Certified Public Accountants. The Companys chief executive
officer, chief financial officer, chief accounting officer, and Audit Committee
are aware of these conditions and of the Companys responses.

The following factors contributed to the control conditions:



| |  |  | Rapid growth of the Company;                                     
| | - |  | -----------------------------------------------------------------
|
| |  |  | Twelve recent company and account acquisitions;                  
|
| |  |  | Significant rate of turnover of key personnel; and,              
|
| |  |  | Legacy systems developed internally for much smaller enterprises.

Since September 1, 2002, the Company has reevaluated its staffing levels,
reorganized the finance and accounting organization and hired 10 additional
experienced accounting personnel, including a Chief Financial Officer, AVP and
Corporate Controller, and a Director of Revenue and Receivables Assurance.

Discussed below are the material weaknesses and reportable conditions
identified by management and our independent auditors, and the Companys
corrective actions through April 14, 2003.

Material Weaknesses

Accounts were not being appropriately analyzed and adjusted in a timely manner.
The auditors recommended that management institute a thorough close out
process, including a detailed review of the financial statements, comparing
budget to actual and current period to prior period to determine any unusual
items. They also recommended that the Company prepare an accounting policy and
procedures manual for all significant transactions to include procedures for
revenue recognition, business and account acquisitions, accounts receivable
allowance, and accruals.

In response, in November 2002, the Company revised and improved its month end
close process and created a checklist containing detailed close procedures.
The Company now performs monthly account reconciliations on all balance sheet
accounts across all subsidiaries. Also, beginning in November 2002, on a
monthly basis the functional manager or director one level above the preparer
reviews all balance sheet account reconciliations. The accounting team is
preparing an accounting policy and procedures manual to include procedures for
all significant policies, business practices, routine and non-routine
procedures performed by each functional area, which it will finalize by June,
2003. Finally, under procedures adopted in November 2002, the Companys
financial accounting and reporting department prepares a monthly reporting
package that includes managements discussion and analysis of results of
operations, financial statements, cash and investments reporting,
month-to-month variances and departmental results of operations.

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INTERLAND, INC.
Item 4. Controls and Procedures

The Company was not appropriately calculating deferred revenue on its hosting
contracts.Interland-Georgia, the company acquired in August 2001, had a policy
since inception of taking all revenue in the month of billing for
month-to-month bills (monthly customers) and utilized a half-month convention
in the first month for customers with a contract two months or longer (term customers). The calculation of
deferred revenue was very manual and was calculated on large amortization
spreadsheets.

The acquiring company used different methods, depending on location, to
calculate deferred revenue, but in all cases, attempted to match the revenue
recognition over the contract period. This was done either through the
utilization of half-month convention or verification that the billings
predominately occurred on the first of the month, therefore allowing a full
month of revenue since contracts are billed in advance.

During fiscal 2002, as the Company transitioned its billing to the
Interland-Georgia facility, the Interland-Georgia approach of no deferrals on
month-to-month service contracts were adopted. Also, during the third quarter,
the Company mechanized its deferred revenue calculation. This new process took
the active customer file and calculated the deferred revenue balance based on
the customer contract terms. The logic underlying the calculation, however,
calculated deferred revenue based on the next whole month, in effect removing
the half-month convention for term customers and recognizing this as revenue.

As a result of this error, the Company restated its quarterly reports for the
first three quarters of fiscal year 2002 and now correctly calculates deferred
revenue for all hosting contracts on a consistent basis.

The Company did not have an efficient system for monitoring accounts
receivable. The Companys internally developed billing systems (MAARS/OASIS)
require significant manual intervention. In the third quarter of fiscal 2002,
management learned that the accounts receivable aging report generated from
MAARS was improperly excluding certain customer credits, therefore overstating
accounts receivable.

The aforementioned excluded credits have since been recorded and the faulty
accounts receivable aging program has been replaced.

Balances that were not collected in the over 90 days categories were written
off. Accounts receivable balances are now written off at 61 days. The Company
generally no longer recognizes revenue from customers with invoices more than
30 days past due until the invoice is paid. The Company also maintains a
balance in the allowance for doubtful accounts to cover specific percentages of
the accounts receivable aging categories: 7.4% of the 0-60 day balance, and
100% of all balances more than 60 days old. In February 2003, the Company
instituted a new credit policy generally denying service to customers with
balances greater than 30 days past due.

The Company has continued to redesign the billing system to provide additional
functionality and reporting capabilities through a transaction log and, while
it may not be the most robust system, the enhancements to the system and
modifications to business process have mitigated the weaknesses previously
identified.

The Company invested significant time and money working with an IBMs Business
Process Consulting Group to evaluate all of its customer account management
practices. Included in this process was the selection of a new billing system
that will have a General Ledger interface. Portions of the new billing system
should be functional by August 2003, with full implementation, testing and
conversion scheduled to be completed by December 2003. Until the new system is
fully implemented, the accounting department will continue to perform extensive
monthly analytical reviews of billings as an additional control procedure to
mitigate the weaknesses in the current system.

Reportable Conditions

Restructuring and purchase accounting accruals (bandwidth and lease
terminations) had not been reviewed for adequacy prior to year-end. As a
result, several large adjustments were recorded after the close of the general
ledger.The Companys auditors recommended that these accruals be reviewed and
adjusted quarterly based on the best information available to management at
that time with changes in the estimates appropriately supported.

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INTERLAND, INC.
Item 4. Controls and Procedures

In connection with the modifications made within the accounting department and
significant improvements to the monthly close process mentioned above,
beginning in November 2002, all restructuring and business combination related
accounting accruals are being monitored, reconciled and adjusted on a monthly
basis. Additionally, the
monthly account reconciliations for accrued restructuring and business
combination accruals include details of all activity and ending balances are
reviewed and adjusted at each review date.

The Company did not have effective controls in place to ascertain that the
Companys stock option plan administrator properly recorded stock option
grants.The auditors recommended timely review by Human Resources to ensure
that data supplied to the administrator is appropriately recorded.

Interland converted to a new stock plan administrator effective November 2002.
The Human Resources department has audited the underlying data to ensure
conversion of accurate information. Identified discrepancies were corrected.
Human Resources has implemented a review process using edit/change reports from
its administrator.

Management also identified the
following additional weakness which did not constitute a material
weakness or reportable condition under AICPA standards:

The Companys accounting
procedures as pertaining to opening balance sheet amounts and
liabilities of acquired entities need strengthening and could result
in the subsequent recognition of additional liabilities not
previously disclosed by the seller. Prior to closing the Trellix
acquisition, the Company sent qualified accounting personnel to do a
much more thorough review of the sellers books and records.

Disclosure Controls

In January 2003, the Company instituted monthly meetings to review each
significant departments activities. Each department was assigned an analyst
to assist line management in analyzing financial performance and forecasting.
Additionally, the department tracks non-financial metrics such as headcount and
bandwidth costs. Monthly reports are presented to the Chief Financial Officer,
the Corporate Controller, and the Chief Financial Analyst at a monthly
Financial Review meeting, and a similar report is presented to the Chief
Financial Officer and the Chief Executive Officer at an Operations Review
meeting. The department heads each meet at least monthly with the Chief
Executive Officer. Management believes that this process helps to inform
senior management of material developments that affect the business, and aids
in providing adequate disclosure.

Management has moved expeditiously, committing considerable resources to
address the internal control deficiencies it has identified to date. However,
not all of the salutary procedures and actions deemed desirable by management
have been able to be fully executed to date. It will take some additional time
to realize all of the benefits of the Companys initiatives.

Interland is committed to ongoing periodic reviews of its controls and their
effectiveness. Controls are improving and management has no reason to believe
that the financial statements included in this report are not fairly stated in
all material respects. However, new problems could be identified in the
future. Management expects to continue to improve controls with each passing
quarter. Management expects to have the internal and disclosure controls
discussed herein in effect by August 31, 2003, except for the new billing
system, which will be implemented by December 31, 2003.

Management believes that its practices and procedures, albeit not as mature or
as formal as management intends them to be in the future, are adequate under
the circumstances, and that there are no material inaccuracies or omissions in
this Form 10-Q.

In addition to the responses outlined above, the following actions have been or
are being taken to strengthen disclosure and internal controls:



| |  |  | Maintenance of specific documentation files to support financial
statement and footnote disclosures are now in effect;                                                                                                                                                                                           
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Conduct and document quarterly reviews as to the effectiveness of our
internal and disclosure controls. Now in effect;                                                                                                                                                                                           
|
| |  |  | Circulating for review the Companys public filings to key members of the
senior management team representing each functional area. These
individuals have been charged with ensuring that the filings include all
required disclosures. These procedures were in effect for the quarter
ended February 28, 2003.

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INTERLAND, INC.
Item 4. Controls and Procedures



| |  |  | Create an internal questionnaire and disclosure certification document to
be completed by each senior vice president and designed to ensure that all
material and required disclosures are disclosed in our public filings.
Scheduled effective date May 2003.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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INTERLAND, INC.
PART II. OTHER INFORMATION




Item 1. Legal Proceedings

Interland is defending an employee class action lawsuit filed in the U.S.
District Court for Idaho. In this case five individual plaintiffs claim they
were employees of Micron Electronics Inc. (MEI) between 1999 and April 2001.
The plaintiffs claim that they, and other similarly situated employees, did not
receive overtime pay to which they were entitled under the Fair Labor Standards
Act. Interland disputes these claims and believes the plaintiffs are not
entitled to any material additional wages. The court conditionally certified a
class of not more than eight hundred former employees and notices of the
litigation are being sent to these persons to give them the opportunity to opt
in to the litigation. The parties are continuing to conduct discovery. At this
early stage of the litigation Interland is unable to estimate its 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.

In February of 2003, the Company filed a lawsuit in Cobb County, Georgia
against Mr. Gabriel Murphy, one of the former principals of Communitech, which
was acquired by Interland in February 2002. The Companys lawsuit claims,
among other things, that Mr. Murphy breached certain covenants under his
employee agreement, and also demands payment from Mr. Murphy under his
delinquent $2.7 million promissory note. These notes are
collateralized by 2,735,257 shares of the Companys common stock
and the receivable balance is shown on the balance sheet as a
reduction in equity. Interland is seeking an injunction against further
violations of Mr. Murphys obligations, compensatory and punitive damages in an
unspecified amount for the covenant violations, and immediate foreclosure on
the shares securing the note. Interlands motion for a preliminary injunction
is set for a hearing on March 31, 2003.

Messrs. Heitman and Murphy filed a lawsuit against Interland, its CEO, Mr. Joel
Kocher, and Interlands subsidiary. Communitech.net, Inc., in Jackson County,
Missouri claiming, among other things, that Interland acted unreasonably in
failing to have the S-3 registration statement declared effective by the SEC on
a timely basis and claiming that Interland and/or Mr. Kocher made inaccurate
disclosures in connection with Interlands acquisition of Communitech. The
complaint asks for compensatory and punitive damages in an unspecified amount.
Interland believes that these claims are without merit and will not have a
material adverse effect on Interland, and intends to vigorously defend the
claims.

On March 14, 2003 Halo Management, LLC, filed a suit against Interland in the
U.S. District Court for the Northern District of California. The suit alleges
that Interlands use of blueHALO (U.S. Patent and Trademark Office Serial No.
78/135,621) to describe its proprietary web hosting architecture infringes the
plaintiffs registered trademark Halo (U.S. Patent and Trademark Office Serial
No. 75/870,390; Registration No. 2,586,017). The suit requests an injunction
against Interlands use of its blueHALO mark and money damages. Interland is
investigating the matter but believes it will have meritorious defenses and
plans to vigorously defend the matter.

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 discontinued 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. As of February
28, 2003, the Company had an aggregate amount of $0.6 million accrued for such
matters.

In accordance with SFAS No. 5 Accounting for Contingencies the Company has
adequately reserved for the contingencies arising from the above legal matters
where an outcome was deemed to be probable and the loss amount could be
reasonably estimated. As such, the Company does not believe that the
anticipated outcome of the aforementioned proceedings will have a materially
adverse impact on its results of operations, its financial condition or its
cash flows.

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Item 2. Changes in Securities and
Use of Proceeds

On January 2,
2003, Interland acquired Trellix Corporation. As part of the
consideration, Interland issued (i) 3.0 million shares of
its common stock valued by Interland at approximately
$4.9 million and (ii) warrants to acquire up to an
additional 6.0 million shares at $5.00 per share, valued at
approximately $3.3 million. The Company relied on
Section 4(2) of the Securities Act of 1933 and Regulation D
promulgated thereunder on the basis that the transaction did not
involve any public offering. There were a limited number of
purchasers, all of whom were accredited investors who owned shares of
Trellix, and acquired the shares for investment. None of the
investors were solicited by means of a general solicitation, and all
were considered sophisticated.

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INTERLAND, INC.
PART II. OTHER INFORMATION




Item 6. Exhibits and Reports on Form 8-K



|(A) |  | Exhibits:
|--- |  | ---------

|         |  |                                                                                                                                                                                                                                                                                                                                     
|-------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit  |  | Description                                                                                                                                                                                                                                                                                                                         
|         |  |                                                                                                                                                                                                                                                                                                                                     
|2.1(1)   |  | Agreement and Plan of Merger dated as of December 19, 2002 by and
among Interland, Inc., Bobcat Acquisition Corporation, Hostcentric,
Inc., and William Bunting, Steve Harter, and Dominique Bellanger as
Stockholders Representatives (incorporated by reference to the
Registrants Current Report on Form 8-K filed on 12/20/02).
|         |  |                                                                                                                                                                                                                                                                                                                                     
|2.10 (1) |  | Merger Agreement and Plan of Reorganization, dated as of December
11, 2002, among Trellix Corporation, Interland, Inc. and Cheetah
Acquisition Corporation (incorporated by reference to the Registrants
registration Statement on Form S-3 filed on 1/22/03).                                                                     
|         |  |                                                                                                                                                                                                                                                                                                                                     
|3.01     |  | Unofficial Restated Articles of Incorporation of Registrant (as
amended through April 24, 2002) (incorporated by reference to the
Registrants Quarterly Report on Form 10-Q for the quarter ended
5/31/02).                                                                                                                        
|         |  |                                                                                                                                                                                                                                                                                                                                     
|3.02     |  | Unofficial Restated Bylaws of the Registrant (as amended through
April 24, 2002) (incorporated by reference to the Registrants Quarterly
Report on Form 10-Q for the quarter ended 5/31/02).                                                                                                                                       
|         |  |                                                                                                                                                                                                                                                                                                                                     
|99.1     |  | Certification of Chief Executive Officer under Section 906 of the
Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                       
|         |  |                                                                                                                                                                                                                                                                                                                                     
|99.2     |  | Certification of Chief Financial Officer under Section 906 of the
Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                       

(1)     Schedules and exhibits have been omitted from this exhibit. A list of
omitted schedules and exhibits is set forth at the end of the exhibit. Copies
will be provided to the Commission upon request.



|(B) |  | Reports on Form 8-K.
|--- |  | --------------------

On December 20, 2002, the Company filed a Form 8-K to report the signing
of a merger agreement with HostCentric, Inc.

On January 13 2003, the Company filed a Form 8-K with a press release
regarding its financial targets for the fourth quarter of the fiscal year ended
August 31, 2003.

On March 24, 2003, the Company filed a Form 8-K/A to amend its Form 8-K of
January 13, 2003 to disclose certain non-GAAP information pursuant to Item 9 of
Form 8-K, instead of Item 5 of Form 8-K as disclosed in Interlands Form 8-K
filed January 13, 2003

On March 27, 2003, the Company filed a Form 8-K regarding its financial
results for the second quarter.

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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: April 14, 2003 |  | /s / Allen L. Shulman

Allen L. Shulman
Senior Vice President, Chief Financial Officer,
and General Counsel
(Principal Financial Officer)

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CERTIFICATIONS

I, Joel J. Kocher, certify that:

1.     I have reviewed this quarterly report on Form 10-Q 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;

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;

4.     The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



| |                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a)      designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
|
| | b)      evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and                                                                                                  
|
| | c)      presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

5.     The registrants other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrants auditors and the audit committee of
registrants board of directors (or persons performing the equivalent
function):



| |                                                                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a)      all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and
|
| | b)      any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                        

6.     The registrants other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: April 14, 2003

| |                                                                                                
| | -----------------------------------------------------------------------------------------------
| | /s/ Joel J. Kocher

Joel J. Kocher
Chairman of the Board, President and
Chief Executive Officer

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I, Allen L. Shulman, certify that:

1.     I have reviewed this quarterly report on Form 10-Q 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;

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;

4.     The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



| |                                                                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a)     designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
|
| | b)      evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and                                                                                                 
|
| | c)     presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

5.     The registrants other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrants auditors and the audit committee of
registrants board of directors (or persons performing the equivalent
function):



| |                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a)     all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and
|
| | b)     any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                        

6.     The registrants other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: April 14, 2003

| |                                                                                                           
| | ----------------------------------------------------------------------------------------------------------
| | /s/ Allen L. Shulman

Allen L. Shulman
Senior Vice President, Chief Financial Officer,
and General Counsel

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