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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 November 30, 2002

Commission File Number: 0-17932

Interland, Inc.

(Exact name of registrant as specified in its charter)

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

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

(404) 720-8301

(Registrants telephone number, including area code)

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $.01 per share
Registered on The Nasdaq National Market

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [  ]

The number of outstanding shares of the registrants Common Stock on December
31, 2002 was 141,443,470.



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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 Operations
|                               | ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                        
|                               | ITEM 4. CONTROLS AND PROCEDURES                                                            
|                               | ITEM 1 Legal Proceedings                                                                   
|                               | ITEM 6 Exhibits and Reports on Form 8-K                                                    



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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 |                                            |  |  |  |  |  | 13   |  
|                               | Item 3 Qualitative and Quantitative Disclosures about Market Risk                            |                                            |  |  |  |  |  | 32   |  
|                               | Item 4 Controls and Procedures                                                               |                                            |  |  |  |  |  | 33   |  
|Part II  Other Information    |                                                                                              |                                            |  |  |  |  |  |     
|                               | Item 1 Legal Proceedings                                                                     |                                            |  |  |  |  |  | 35   |  
|                               | Item 6 Exhibits and Reports on Form 8-K                                                      |                                            |  |  |  |  |  | 35   |  

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PART 1.  FINANCIAL INFORMATION




Item 1.  Financial Statements




Interland, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS


(In thousands except per share amounts)


(Unaudited)


|                                                        |                                        |   |                       |         |              |   |         |         |  
|------------------------------------------------------- | -------------------------------------- | - | --------------------- | ------- | ------------ | - | ------- | ------- | -
|                                                        |                                        |   | For the quarter ended
|                                                        |                                        |   |                      
|                                                        |                                        |   | November 30,          |         | November 30,
|                                                        |                                        |   | 2002                  |         | 2001        
|                                                        |                                        |   |                       |         |             
|Revenues                                                |                                        | $ | 27,283                |         |              | $ | 23,921  |        
|Cost of revenues                                        |                                        |   | 15,528                |         |              |   | 14,135  |        
|                                                        |                                        |   |                       |         |              |   |         |        
|                                                        | Gross margin                           |   |                       | 11,755  |              |   |         | 9,786   |  
|                                                        |                                        |   |                       |         |              |   |         |        
|Operating expenses:                                     |                                        |   |                       |         |              |   |         |        
|                                                        | Sales, marketing and technical support |   |                       | 11,931  |              |   |         | 13,172  |  
|                                                        | General and administrative             |   |                       | 12,449  |              |   |         | 13,097  |  
|                                                        | Bad debt expense                       |   |                       | 2,046   |              |   |         | 581     |  
|                                                        | Restructuring costs                    |   |                       | (235    | )            |   |         |        |  
|                                                        | Merger and integration costs           |   |                       | 94      |              |   |         | 3,363   |  
|                                                        | Other expense (income), net            |   |                       | 51      |              |   |         | (404    | )
|                                                        |                                        |   |                       |         |              |   |         |        
|                                                        | Total operating expenses               |   |                       | 26,336  |              |   |         | 29,809  |  
|                                                        |                                        |   |                       |         |              |   |         |        
|Operating loss                                          |                                        |   | (14,581               | )       |              |   | (20,023 | )      
|Interest income, net                                    |                                        |   | 201                   |         |              |   | 251     |        
|                                                        |                                        |   |                       |         |              |   |         |        
|Loss from continuing operations before taxes            |                                        |   | (14,380               | )       |              |   | (19,772 | )      
|Income tax benefit                                      |                                        |   |                      |         |              |   |        |        
|                                                        |                                        |   |                       |         |              |   |         |        
|Net loss from continuing operations                     |                                        |   | (14,380               | )       |              |   | (19,772 | )      
|Discontinued operations, net of tax                     |                                        |   |                       |         |              |   |         |        
|Loss on disposal of discontinued operations, net of tax |                                        |   | (34                   | )       |              |   |        |        
|                                                        |                                        |   |                       |         |              |   |         |        
|Net loss                                                |                                        | $ | (14,414               | )       |              | $ | (19,772 | )      
|                                                        |                                        |   |                       |         |              |   |         |        
|Loss per share, basic and diluted:                      |                                        |   |                       |         |              |   |         |        
|                                                        | Continuing operations                  |   | $                     | (0.10   | )            |   | $       | (0.14   | )
|                                                        | Discontinued operations                |   |                       |        |              |   |         |        |  
|                                                        |                                        |   |                       |         |              |   |         |        
|                                                        |                                        | $ | (0.10                 | )       |              | $ | (0.14   | )      
|                                                        |                                        |   |                       |         |              |   |         |        
|Number of shares used in per share calculation:         |                                        |   |                       |         |              |   |         |        
|                                                        | Basic and diluted                      |   |                       | 140,028 |              |   |         | 137,725 |  

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

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Interland, Inc.

CONSOLIDATED BALANCE SHEETS


(In thousands)


(Unaudited)


|                                           |                                                                                                                                          |   |         |              |   |            |         |         |   | 
|------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------- | - | ------- | ------------ | - | ---------- | ------- | ------- | - | 
|                                           |                                                                                                                                          |   |         | As of       
|                                           |                                                                                                                                          |   |         |             
|                                           |                                                                                                                                          |   |         | November 30, |   | August 31,
|                                           |                                                                                                                                          |   |         | 2002         |   | 2002      
|                                           |                                                                                                                                          |   |         |              |   |           
|Assets                                     |                                                                                                                                          |   |         |              |   |            |         |        
|                                           | Cash and cash equivalents                                                                                                                |   | $       | 69,236       |   |            | $       | 62,693  |  
|                                           | Short term investments                                                                                                                   |   |         | 28,300       |   |            |         | 43,388  |  
|                                           | Receivables, net of allowance of $2,164 and $3,843, respectively                                                                         |   |         | 9,346        |   |            |         | 9,139   |  
|                                           | Income taxes recoverable                                                                                                                 |   |         | 2,019        |   |            |         | 2,019   |  
|                                           | Other current assets                                                                                                                     |   |         | 2,980        |   |            |         | 3,292   |  
|                                           | Restricted investments                                                                                                                   |   |         | 7,499        |   |            |         | 6,894   |  
|                                           |                                                                                                                                          |   |         |              |   |            |         |        
|Total current assets                       |                                                                                                                                          |   | 119,380 |              |   |            | 127,425 |        
|                                           | Restricted investments                                                                                                                   |   |         | 21,992       |   |            |         | 27,409  |  
|                                           | Property plant and equipment, net                                                                                                        |   |         | 53,237       |   |            |         | 59,058  |  
|                                           | Goodwill                                                                                                                                 |   |         | 120,011      |   |            |         | 120,011 |  
|                                           | Intangibles, net                                                                                                                         |   |         | 50,281       |   |            |         | 53,250  |  
|                                           | Investments held to maturity                                                                                                             |   |         | 7,508        |   |            |         | 7,512   |  
|                                           | Other assets                                                                                                                             |   |         | 561          |   |            |         | 613     |  
|                                           |                                                                                                                                          |   |         |              |   |            |         |        
|Total assets                               |                                                                                                                                          | $ | 372,970 |              |   | $          | 395,278 |        
|                                           |                                                                                                                                          |   |         |              |   |            |         |        
|Liabilities and Shareholders Equity       |                                                                                                                                          |   |         |              |   |            |         |        
|                                           | Accounts payable                                                                                                                         |   | $       | 6,233        |   |            | $       | 3,918   |  
|                                           | Accrued expenses                                                                                                                         |   |         | 29,343       |   |            |         | 30,364  |  
|                                           | Current portion of long term debt and capital lease obligations                                                                          |   |         | 17,739       |   |            |         | 19,157  |  
|                                           | Deferred revenue                                                                                                                         |   |         | 15,518       |   |            |         | 19,629  |  
|                                           |                                                                                                                                          |   |         |              |   |            |         |        
|Total current liabilities                  |                                                                                                                                          |   | 68,833  |              |   |            | 73,068  |        
|                                           | Long-term debt and capital lease obligations                                                                                             |   |         | 8,557        |   |            |         | 12,009  |  
|                                           | Deferred revenue, long-term                                                                                                              |   |         | 744          |   |            |         | 1,195   |  
|                                           | Other liabilities                                                                                                                        |   |         | 11,289       |   |            |         | 11,276  |  
|                                           |                                                                                                                                          |   |         |              |   |            |         |        
|Total liabilities                          |                                                                                                                                          |   | 89,423  |              |   |            | 97,548  |        
|                                           |                                                                                                                                          |   |         |              |   |            |         |        
|Shareholders equity                       |                                                                                                                                          |   |         |              |   |            |         |        
|                                           | Common stock, $.01 par value, authorized 210 million shares,
issued and outstanding 141.4 million and 141.3 million shares, respectively |   |         | 1,413        |   |            |         | 1,413   |  
|                                           | Additional capital                                                                                                                       |   |         | 296,939      |   |            |         | 296,949 |  
|                                           | Warrants                                                                                                                                 |   |         | 1,690        |   |            |         | 1,690   |  
|                                           | Deferred compensation                                                                                                                    |   |         | (1,987       | ) |            |         | (2,228  | )
|                                           | Note receivable from shareholder                                                                                                         |   |         | (2,735       | ) |            |         | (2,735  | )
|                                           | Retained earnings / (accumulated deficit)                                                                                                |   |         | (11,773      | ) |            |         | 2,641   |  
|                                           |                                                                                                                                          |   |         |              |   |            |         |        
|Total shareholders equity                 |                                                                                                                                          |   | 283,547 |              |   |            | 297,730 |        
|                                           |                                                                                                                                          |   |         |              |   |            |         |        
|Total Liabilities and Shareholders equity |                                                                                                                                          | $ | 372,970 |              |   | $          | 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)


|                                                                                                       |                                                                            |                                                         |         |               |        |              |         |         |        |  
|------------------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------- | ------------------------------------------------------- | ------- | ------------- | ------ | ------------ | ------- | ------- | ------ | -
|                                                                                                       |                                                                            |                                                         |         | Quarter Ended
|                                                                                                       |                                                                            |                                                         |         |              
|                                                                                                       |                                                                            |                                                         |         | November 30,  |        | November 30,
|                                                                                                       |                                                                            |                                                         |         | 2002          |        | 2001        
|                                                                                                       |                                                                            |                                                         |         |               |        |             
|CASH FLOWS FROM OPERATING ACTIVITIES                                                                   |                                                                            |                                                         |         |               |        |              |         |        
|Net loss                                                                                               |                                                                            | $                                                       | (14,414 | )             |        | $            | (19,772 | )      
|Adjustments to reconcile net loss to net cash used in
operating activities from continuing operations: |                                                                            |                                                         |         |               |        |              |         |        
|                                                                                                       | Loss from discontinued operations                                          |                                                         |         | 34            |        |              |         |        |       
|                                                                                                       | Depreciation and amortization                                              |                                                         |         | 12,180        |        |              |         | 6,855   |       
|                                                                                                       | Provision for doubtful accounts                                            |                                                         |         | 2,046         |        |              |         | 581     |       
|                                                                                                       | Other non-cash adjustments                                                 |                                                         |         | 240           |        |              |         | (88     | )     
|                                                                                                       | Changes in operating assets and liabilities
net of effect of acquisitions: |                                                         |         |               |        |              |         |         |       
|                                                                                                       |                                                                            | Receivables, net                                        |         |               | (2,690 | )            |         |         | (6,518 | )
|                                                                                                       |                                                                            | Other current assets                                    |         |               | 339    |              |         |         | (183   | )
|                                                                                                       |                                                                            | Accounts payable, accrued expenses and deferred revenue |         |               | (2,762 | )            |         |         | (3,554 | )
|                                                                                                       |                                                                            |                                                         |         |               |        |              |         |        
|Cash used in operating activities of continuing operations                                             |                                                                            |                                                         | (5,027  | )             |        |              | (22,679 | )      
|                                                                                                       |                                                                            |                                                         |         |               |        |              |         |        
|CASH FLOWS FROM INVESTING ACTIVITIES                                                                   |                                                                            |                                                         |         |               |        |              |         |        
|                                                                                                       | Expenditures for property, plant, and equipment                            |                                                         |         | (1,943        | )      |              |         | (2,172  | )     
|                                                                                                       | Purchases of held-to-maturity investment securities                        |                                                         |         | (12,308       | )      |              |         | (29,300 | )     
|                                                                                                       | Proceeds from held-to-maturity investment securities                       |                                                         |         | 27,400        |        |              |         | 37,628  |       
|                                                                                                       | Net change in restricted investments                                       |                                                         |         | 4,837         |        |              |         | (194    | )     
|                                                                                                       | Acquisitions, net of cash acquired                                         |                                                         |         | (605          | )      |              |         | (5,818  | )     
|                                                                                                       |                                                                            |                                                         |         |               |        |              |         |        
|Cash provided by investing activities of continuing operations                                         |                                                                            |                                                         | 17,381  |               |        |              | 144     |        
|                                                                                                       |                                                                            |                                                         |         |               |        |              |         |        
|CASH FLOWS FROM FINANCING ACTIVITIES                                                                   |                                                                            |                                                         |         |               |        |              |         |        
|                                                                                                       | Repayments of debt and capital lease obligations                           |                                                         |         | (4,870        | )      |              |         | (1,868  | )     
|                                                                                                       | Proceeds from issuance of common stock                                     |                                                         |         | 8             |        |              |         |        |       
|                                                                                                       | Other                                                                      |                                                         |         | (17           | )      |              |         |        |       
|                                                                                                       |                                                                            |                                                         |         |               |        |              |         |        
|Cash used in financing activities of continuing operations                                             |                                                                            |                                                         | (4,879  | )             |        |              | (1,868  | )      
|                                                                                                       |                                                                            |                                                         |         |               |        |              |         |        
|Net cash provided by (used in) continuing operations                                                   |                                                                            |                                                         | 7,475   |               |        |              | (24,403 | )      
|Net cash used in discontinued operations                                                               |                                                                            |                                                         | (932    | )             |        |              | (6,674  | )      
|                                                                                                       |                                                                            |                                                         |         |               |        |              |         |        
|Net increase (decrease) in cash and cash equivalents                                                   |                                                                            |                                                         | 6,543   |               |        |              | (31,077 | )      
|Cash and cash equivalents at beginning of period                                                       |                                                                            |                                                         | 62,693  |               |        |              | 142,675 |        
|                                                                                                       |                                                                            |                                                         |         |               |        |              |         |        
|Cash and cash equivalents at end of period                                                             |                                                                            | $                                                       | 69,236  |               |        | $            | 111,598 |        
|                                                                                                       |                                                                            |                                                         |         |               |        |              |         |        

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 three 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 November 30, 2002 and for the three
month periods ended November 30, 2002 and 2001, have been prepared in
accordance with generally accepted accounting principles for interim financial
information. In managements opinion, these statements include all adjustments
necessary for a fair presentation of the results of the interim periods shown.
All adjustments are of a normal recurring nature unless otherwise disclosed.
Operating results for the three-month period ended November 30, 2002 are not
necessarily indicative of the results that may be expected for the full year.

Certain reclassifications, none of which affect net loss, have been made to
present the financial statements on a consistent basis.

Basis of Presentation This report on Form 10-Q (10-Q) for the first quarter
ended November 30, 2002 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.

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. The Company provides a thirty-day money back guarantee on
hosting packages and records and monitors the adequacy of the reserve against
revenue on hosting packages.

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
6Table of ContentsINTERLAND, INC.Notes to Consolidated Financial
Statements  Continued

during the first 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 2001, the FASB issued SFAS No.
143, Accounting for Asset Retirement Obligations. This statement provides
accounting and reporting standards for recognizing obligations related to asset
retirement costs associated with the retirement of tangible long-lived assets.
Under this statement, legal obligations associated with the retirement of
long-lived assets are to be recognized at their fair value in the period in
which they are incurred if a reasonable estimate of fair value can be made.
The fair value of the asset retirement costs is capitalized as part of the
carrying amount of the long-lived asset and subsequently allocated to expense
using a systematic and rational method over the assets useful life. Any
subsequent changes to the fair value of the liability due to passage of time or
changes in the amount or timing of estimated cash flows is recognized as an
accretion expense. The Company adopted this statement on September 1, 2002,
and it did not have a material impact on its consolidated financial position,
results of operations, or cash flows.In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets, which is effective for fiscal years
beginning after December 15, 2001. Although this statement supercedes FASB
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, it retains the fundamental provisions of
SFAS No. 121 for the recognition and measurement of the impairment of
long-lived assets to be held and used and the measurement of long-lived assets
to be disposed of by sale. Impairment of goodwill is not included in the scope
of SFAS No. 144 and will be treated in accordance with the accounting standards
established in SFAS No. 142. Under SFAS No. 144, long-lived assets are to be
measured at the lower of carrying amount or fair value less cost to sell,
whether reported in continuing or discontinued operations. The statement
applies to all long-lived assets, including discontinued operations, and
replaces the provisions of APB Opinion No. 30. The Company adopted this
statement beginning September 1, 2002.In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections,
which is effective for transactions occurring after May 15, 2002. The Statement
rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt,
which required all gains and losses from extinguishments of debt to be
aggregated and classified as an extraordinary item (net of related income tax
effect), if material. The criteria in APB Opinion No. 30 will now be used to
classify those gains and losses. Also SFAS No. 64 effectively rescinded SFAS
No. 4. This Statement also amends SFAS No. 13, Accounting for Leases, to
eliminate an inconsistency between the accounting for sale-leaseback
transactions and certain lease modifications that have economic effects that
are similar to sale-leaseback transactions. The amendment requires that a lease
modification result in recognition of a gain or loss in the financial
statements and be subject to SFAS No. 66 Accounting for Sales of Real Estate
if the leased asset is real estate (including integral equipment), and is
subject to the sale-leaseback rules of SFAS No. 98 Accounting for Leases:
Sale-Leaseback Transactions Involving Real Estate, Sales-Type Leases of Real
Estate,
Definition of the Lease Term, and Initial Direct Costs of Direct Financing
Leases. The Company adopted this Statement beginning September 1, 2002.7Table of ContentsINTERLAND, INC.Notes to Consolidated Financial Statements  Continued

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, 2002.3.  RESTRUCTURING COSTSDuring 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 August 31, 2004, 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-Live 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.The changes in the restructuring accruals from August 31, 2002 through November
30, 2002 are as follows:

|                             |                   |   |                |      |           |   |            |   |             |   |              |      |          |   |   |   |  |   |   |   |  |   |       |      |  
|---------------------------- | ----------------- | - | -------------- | ---- | --------- | - | ---------- | - | ----------- | - | ------------ | ---- | -------- | - | - | - |  | - | - | - |  | - | ----- | ---- | -
|                             |                   |   |                |      |           |   | Property   |   |             |   |              |      | Employee |   |   |   |  |   |   |   | 
|                             |                   |   | Lease          |      | plant and |   | Other exit |   | termination |   | Goodwill and |      |          |   |  
|                             |                   |   | abandonments   |      | equipment |   | costs      |   | benefits    |   | intangibles  |      | Total   
|                             |                   |   |                |      |           |   |            |   |             |   |              |      |         
|                             |                   |   | (In thousands)
|Balance at August 31, 2002   |                   | $ | 7,634          |      |           | $ |           |   |             | $ | 1,179        |      |          | $ |  |   |  | $ |  |   |  | $ | 8,813 |     
|                             | Cash paid         |   |                | (395 | )         |   |            |  |             |   |              | (63  | )        |   |   |  |  |   |   |  |  |   |       | (458 | )
|                             | Other adjustments |   |                |     |           |   |            |  |             |   |              | (235 | )        |   |   |  |  |   |   |  |  |   |       | (235 | )
|                             |                   |   |                |      |           |   |            |   |             |   |              |      |          |   |   |   |  |   |   |   |  |   |       |     
|Balance at November 30, 2002 |                   | $ | 7,239          |      |           | $ |           |   |             | $ | 881          |      |          | $ |  |   |  | $ |  |   |  | $ | 8,120 |     
|                             |                   |   |                |      |           |   |            |   |             |   |              |      |          |   |   |   |  |   |   |   |  |   |       |     

The lease abandonment charge represents future lease payments for data centers
and office facilities being exited. The other exit costs represent termination
penalties for bandwidth and data connectivity contracts. These accrued
restructuring charges are reflected in the consolidated balance sheet in
Accrued expenses.

During the first quarter of fiscal 2003, the Company settled certain data
connectivity contract obligations for amounts less than original estimates. In
connection with the settlements, the other exit costs accrual was reduced by
$0.2 million and is reflected in the above table in Other adjustments.

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INTERLAND, INC.

Notes to Consolidated Financial
Statements  Continued


4. MERGER AND INTEGRATION COSTS

During the first quarter of fiscal 2003, $0.1 million of merger and integration
costs were incurred to pay severance and relocation expenses.

During the first quarter of fiscal 2002, the Company recorded expenses of $3.4
million for financial advisory services, legal, accounting and other
non-capitalizable expenses directly related to merger and integration of the
business following the Interland-Georgia acquisition.

5.  ACQUISITIONS

Effective August 1, 2002, the Company acquired iNNERHOST, Inc. for an aggregate
purchase price of $17.6 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 could be 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 shareholders.

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 $17.6 million, including direct acquisition costs of $.09 million.

The following table summarizes the purchase price allocation based on the
estimated fair values of the assets acquired and liabilities assumed at the
date of acquisition. The purchase price allocation is still being finalized
and is subject to adjustment.

|                       |                     |   |                |        | 
|---------------------- | ------------------- | - | -------------- | ------ | 
|                       |                     |   | Fair Value    
|                       |                     |   |               
|                       |                     |   | (In Thousands)
|Current assets         |                     | $ | 2,236          |       
|Property and equipment |                     |   | 6,995          |       
|Intangible assets      |                     |   | 12,836         |       
|Other assets           |                     |   | 512            |       
|Current liabilities    |                     |   | (4,301         | )     
|Long-term liabilities  |                     |   | (676           | )     
|                       |                     |   |                |       
|                       | Net assets acquired |   | $              | 17,602 | 
|                       |                     |   |                |       

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INTERLAND, INC.

Notes to Consolidated Financial Statements  Continued


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 has determined that goodwill is not
impaired. There were no changes in the carrying amount of goodwill from August
31, 2002.

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

|                                |                                         |  |                         |        |                       |  |          |        |              |  |   |        |  |  |   |        | 
|------------------------------- | --------------------------------------- |  | ----------------------- | ------ | --------------------- |  | -------- | ------ | ------------ |  | - | ------ |  |  | - | ------ | 
|                                |                                         |  | As of November 30, 2002 |        | As of August 31, 2002
|                                |                                         |  |                         |        |                      
|                                |                                         |  | Gross                   |        |                       |  |          |        | Gross        |  |   |        | 
|                                |                                         |  | carrying                |        | Accumulated           |  | carrying |        | Accumulated 
|                                |                                         |  | amount                  |        | amortization          |  | amount   |        | amortization
|                                |                                         |  |                         |        |                       |  |          |        |             
|                                |                                         |  | (In thousands)         
|Amortizable intangible assets:  |                                         |  |                         |        |                       |  |          |        |              |  |   |        |  |  |   |       
|                                | Core technology                         |  | $                       | 12,480 |                       |  | $        | 3,323  |              |  | $ | 12,480 |  |  | $ | 2,683  | 
|                                | Customer account acquisitions           |  |                         | 26,872 |                       |  |          | 7,613  |              |  |   | 25,424 |  |  |   | 5,298  | 
|                                | Customer relationships                  |  |                         | 6,300  |                       |  |          | 1,442  |              |  |   | 6,300  |  |  |   | 917    | 
|                                | Trademarks                              |  |                         | 5,400  |                       |  |          | 1,048  |              |  |   | 5,400  |  |  |   | 831    | 
|                                | Other                                   |  |                         | 13,998 |                       |  |          | 1,343  |              |  |   | 13,998 |  |  |   | 623    | 
|                                |                                         |  |                         |        |                       |  |          |        |              |  |   |        |  |  |   |       
|                                | Total                                   |  | $                       | 65,050 |                       |  | $        | 14,769 |              |  | $ | 63,602 |  |  | $ | 10,352 | 
|                                |                                         |  |                         |        |                       |  |          |        |              |  |   |        |  |  |   |       
|Aggregate amortization expense: |                                         |  |                         |        |                       |  |          |        |              |  |   |        |  |  |   |       
|                                | For the quarter ended November 30, 2002 |  |                         |        |                       |  | $        | 4,417  |              |  |   |        |  |  |   |        | 
|                                |                                         |  |                         |        |                       |  |          |        |              |  |   |        |  |  |   |       
|Estimated amortization expense: |                                         |  |                         |        |                       |  |          |        |              |  |   |        |  |  |   |       
|                                | For the year ended August 31, 2003      |  |                         |        |                       |  | $        | 15,172 |              |  |   |        |  |  |   |        | 
|                                | For the year ended August 31, 2004      |  |                         |        |                       |  |          | 14,893 |              |  |   |        |  |  |   |        | 
|                                | For the year ended August 31, 2005      |  |                         |        |                       |  |          | 8,276  |              |  |   |        |  |  |   |        | 
|                                | For the year ended August 31, 2006      |  |                         |        |                       |  |          | 2,910  |              |  |   |        |  |  |   |        | 
|                                | For the year ended August 31, 2007      |  |                         |        |                       |  |          | 700    |              |  |   |        |  |  |   |        | 

Included in Other is $12.8 million related to the acquisition of iNNERHOST.
Upon completion of the purchase price allocation for iNNERHOST, this balance
will be allocated to the appropriate intangible asset categories and goodwill.
Amortization expense for this balance has been estimated and recorded during
fiscal 2002, however, the five year forecast excludes estimated iNNERHOST
amortization expense.

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INTERLAND, INC.

Notes to Consolidated Financial Statements  Continued


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 acquisition of Interland-Georgia in fiscal 2001, the
Company accrued certain liabilities representing estimated costs of exiting
certain facilities, termination of bandwidth contracts and involuntary
termination of employees of Interland-Georgia 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 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   |      | Bandwidth |   | benefits |   | Total      
|                             |                   |   |                |      |           |   |          |   |            
|                             |                   |   | (In thousands)
|Balance at August 31, 2002   |                   | $ | 7,574          |      |           | $ |         |   |             | $ | 252      |      |   | $ | 7,826 |     
|                             | Cash paid         |   |                | (658 | )         |   |          |  |             |   |          | (104 | ) |   |       | (762 | )
|                             | Other adjustments |   |                |     |           |   |          |  |             |   |          |     |   |   |       |     |  
|                             |                   |   |                |      |           |   |          |   |             |   |          |      |   |   |       |     
|Balance at November 30, 2002 |                   | $ | 6,916          |      |           | $ |         |   |             | $ | 148      |      |   | $ | 7,064 |     
|                             |                   |   |                |      |           |   |          |   |             |   |          |      |   |   |       |     

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.
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.

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.

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 to 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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INTERLAND, INC.

Notes to Consolidated Financial Statements  Continued


9. SUBSEQUENT EVENTS

On December 11, 2002, the Company entered into an agreement to acquire 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.
Trellix offers a suite of site building tools and services that enable users to
create professional Web sites. The aggregate purchase price was approximately
$12.2 million consisting of $4.75 million in cash, three million shares of
Interland stock (valued at the closing price on January 2, 2002), 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
preliminarily estimated at $0.55 each using the Black-Scholes pricing model.
The transaction closed on January 3, 2003.

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 April 2003.

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ITEM 2.  Managements Discussion and Analysis of Financial Condition and Results 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 revenues levels and the actions the Company expects to
take in order to maintain its existing customers and expand its operations and
customer base. All forward-looking statements are made as of the date hereof
and are based on current management expectations and information available to
it as of such date. The Company assumes no obligation to update any
forward-looking statement. It is important to note that actual results could
differ materially from historical results or those contemplated in the
forward-looking statements. Forward-looking statements involve a number of
risks and uncertainties, and include risks associated with our target markets
and risks pertaining to our ability to successfully integrate the operations
and personnel of the recent acquisitions, competition and other trend
information. Factors that could cause actual results to differ materially
include, but are not limited to risk pertaining to our target markets and risks
associated with our ability to successfully integrate the operations and
personnel of recent acquisitions, those identified in Risk Factors and in the
Companys other filings with the Securities and Exchange Commission. All
quarterly references are to the Companys fiscal periods ended November 30,
2002, August 31, 2002, or November 30, 2001 unless otherwise indicated. All
annual references are also on a fiscal basis, unless otherwise indicated. All
tabular dollar amounts are stated in thousands.

OVERVIEW

Interland is a leading Web hosting company focused on small and medium
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
had provided a variety of computer products and related services through its PC
Systems, computer manufacturing business, its 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.

The current Web hosting business was formed through the acquisition and
integration of nine companies 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 businesses.

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ITEM 2.  Managements Discussion and Analysis of Financial Condition and Results Operations

On December 11, 2002, the Company entered into an agreement to acquire 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.
Trellix offers a suite of site building tools and services that enable users to
create professional Web sites. The aggregate purchase price is approximately
$12.2 million consisting of $4.75 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 estimated using the Black-Scholes pricing model. The
transaction closed on January 3, 2003.

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 April 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 has been the
result of its acquisitions. The continued significant progress realized to date
in the reduction of operating expenses as percentage of revenues is directly
related to the continuing integration of those acquired companies. In this
regard the Company has successfully exited redundant facilities 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. 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.

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.

During the first quarter of fiscal 2003 the Company recorded a $34,000 expense
related to employee retention payments in connection with the disposal of the
PC systems business. In fiscal 2002 the Company recognized an estimated
additional loss on the disposal of the PC Systems of $6.0 million. Included in
that loss was a $3.8 million charge in connection with
the resolution of disputed obligations owed to the Company by GTG PC Holdings,
LLC an affiliate of the Gores Technology Group. In fiscal 2001, the Company
recognized an initial estimated loss on disposal of the PC Systems business of
$212.2 million.

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ITEM 2.  Managements Discussion and Analysis of Financial Condition and Results Operations

SpecTek

In fiscal 2001, the Company discontinued the operations of its SpecTek business
segment, which was accounted for as discontinued operations in accordance with
APB No. 30. Pursuant to the Amended and Restated Component Recovery Agreement
(as amended, the Component Recovery Agreement), dated effective September 2,
1999, Micron Technology, Inc. (MTI), exercised its rights to purchase the
assets of the SpecTek business. On March 22, 2001, the Company entered into a
Purchase Agreement (the Purchase Agreement) to sell all assets primarily used
by SpecTek and certain land, buildings and intellectual property assets to MTI.
Pursuant to the terms of the Purchase Agreement, the Company transferred the
land, buildings and intellectual property to MTI on March 22, 2001 and received
$18 million of cash in excess of the historical cost from MTI. This amount was
recorded, net of tax, as an increase in additional paid in capital. The Company
leased back a portion of the land and buildings from MTI and was also granted a
license to use certain of the intellectual property. In addition, MTI agreed to
pay the Company for the March 1, 2001 net book value of the assets used by
SpecTek, less any outstanding intercompany payables. Net proceeds from the sale
of the SpecTek assets under the Purchase Agreement were $39.6 million and was
recorded as additional paid in capital.

RESULTS OF CONTINUING OPERATIONS

The Companys consolidated financial information presents the net effect of
discontinued operations separate from the results of the Companys continuing
operations. 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:
15Table of ContentsITEM 2.  Managements Discussion and Analysis of Financial Condition and Results Operations

|                                             |                                        |  |                       |       |              |  |       |       |  
|-------------------------------------------- | -------------------------------------- |  | --------------------- | ----- | ------------ |  | ----- | ----- | -
|                                             |                                        |  | For the quarter ended
|                                             |                                        |  |                      
|                                             |                                        |  | November 30,          |       | November 30,
|                                             |                                        |  | 2002                  |       | 2001        
|                                             |                                        |  |                       |       |             
|Revenues                                     |                                        |  | 100.0                 | %     |              |  | 100.0 | %    
|Cost of revenues                             |                                        |  | 56.9                  | %     |              |  | 59.1  | %    
|                                             |                                        |  |                       |       |              |  |       |      
|                                             | Gross margin                           |  |                       | 43.1  | %            |  |       | 40.9  | %
|                                             |                                        |  |                       |       |              |  |       |      
|Operating expenses:                          |                                        |  |                       |       |              |  |       |      
|                                             | Sales, marketing and technical support |  |                       | 43.7  | %            |  |       | 55.1  | %
|                                             | General and administrative             |  |                       | 45.6  | %            |  |       | 54.7  | %
|                                             | Goodwill amortization                  |  |                       | 0.0   | %            |  |       | 0.0   | %
|                                             | Bad debt expense                       |  |                       | 7.5   | %            |  |       | 2.4   | %
|                                             | Restructuring costs                    |  |                       | -0.9  | %            |  |       | 0.0   | %
|                                             | Merger and integration costs           |  |                       | 0.3   | %            |  |       | 14.1  | %
|                                             | Other expense (income), net            |  |                       | 0.2   | %            |  |       | -1.7  | %
|                                             |                                        |  |                       |       |              |  |       |      
|                                             | Total operating expenses               |  |                       | 96.5  | %            |  |       | 124.6 | %
|                                             |                                        |  |                       |       |              |  |       |      
|                                             | Operating loss                         |  |                       | -53.4 | %            |  |       | -83.7 | %
|                                             |                                        |  |                       |       |              |  |       |      
|(Loss) on investments, net                   |                                        |  | 0.0                   | %     |              |  | 0.0   | %    
|Interest income (expense), net               |                                        |  | 0.7                   | %     |              |  | 1.0   | %    
|                                             |                                        |  |                       |       |              |  |       |      
|Loss from continuing operations before taxes |                                        |  | -52.7                 | %     |              |  | -82.7 | %    
|                                             |                                        |  |                       |       |              |  |       |      
|Income tax benefit                           |                                        |  | 0.0                   | %     |              |  | 0.0   | %    
|                                             |                                        |  |                       |       |              |  |       |      
|Net income (loss) from continuing operations |                                        |  | -52.7                 | %     |              |  | -82.7 | %    
|                                             |                                        |  |                       |       |              |  |       |      

The loss from continuing operations for the first quarter of fiscal year 2003
was $14.4 million, or $(0.10) per share basic and diluted, on revenues of $27.3
million, compared to a loss in the first quarter of fiscal year 2002 of $19.8
million, or $(0.14) per share basic and diluted, on revenues of $23.9 million.

COMPARISON OF THE QUARTERS ENDED NOVEMBER 30, 2002 AND 2001.

Revenues

Total revenues increased 14.1% to $27.3 million during the first quarter of
fiscal 2003 from $23.9 million in the first quarter of fiscal 2002. Hosting
revenues increased 22.8% to $26.4 million during the first quarter of fiscal
2003 from $21.5 million during the first quarter of fiscal 2002. Hosting
revenues are comprised of shared and dedicated hosting services and domain name
registrations. The growth in hosting revenues for the first quarter of fiscal
2003 has been primarily driven by acquisitions. As noted, the Company expects
to reduce the pace of acquisitions, although it has acquired Trellix and has
announced an agreement to acquire Hostcentric, which the Company expects will
add approximately $15.0 million in annual revenues.

Other revenues decreased 64.6% to $0.9 million during the first quarter of
fiscal 2003 from $2.4 million in the first quarter of fiscal 2002. Other
revenues are comprised of e-commerce and other applications hosting services,
other Web hosting-related products and services, Internet connectivity fees and
equipment sales to customers. The decrease is the result of the sale of
consumer dial-up accounts in 2001 and 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.

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ITEM 2.  Managements Discussion and Analysis of Financial Condition and Results Operations

As of November 30, 2002, the Company had approximately 210,000 paid shared
hosting customer accounts and managed more than 7,600 dedicated servers, many
of which have multiple web sites, compared to approximately 187,000 paid shared
hosting customer accounts and 2,500 dedicated servers at November 30, 2001.
The significant increase in both shared hosting customer accounts and dedicated
servers is primarily attributable to the Companys acquisitions completed during
fiscal 2002.

Cost of Revenues

Cost of revenues increased 9.9% to $15.5 million in the first quarter of fiscal
2003 from $14.1 million in the first quarter of fiscal 2002. During fiscal
2003, the increasing cost of revenues was primarily related to expenses
associated with acquired facilities such as depreciation of data centers and
telecommunications equipment, and Internet access costs. The Companys cost of
revenues as a percentage of revenues, though, decreased to 56.9% during the
first quarter of fiscal 2003 from 59.1% in the first quarter of fiscal 2002.

Gross Margin

Gross Margin increased 20.1% to $11.8 million in the first quarter of fiscal
2003 from $9.8 million in the first quarter of fiscal 2002. The Companys
gross margin rate increased to 43.1% during the first quarter of fiscal 2003
from 40.9% in the first quarter of fiscal 2002. The Company anticipates that
gross margins will increase as the Company continues the execution of its
previously disclosed plans to complete the integration of acquisitions, the
migration of customers to more standardized products that require much lower
infrastructure support costs, the upgrading of internal systems, the
divesting acquired data centers, and the consolidation of network operations.

Operating Expenses

Sales, Marketing and Technical Support

Sales, marketing and technical support expenses decreased 9.4% to $11.9 million
during the first quarter of fiscal 2003 from $13.2 million in the first quarter
of fiscal 2002. The decrease in sales and marketing expenses in the first
quarter of 2003 from 2002 is primarily caused by reductions in personnel costs
from $5.8 million to $5.0 million, advertising expenses from $3.1 million to
$2.4 million, and servicing fees related to acquired accounts which decreased
from $2.6 million to $0.2 million.

General and Administrative

General and administrative expenses decreased 4.9% to $12.4 million during the
first quarter of fiscal 2003 from $13.1 million in the first quarter of fiscal
2002. Furthermore, general and administrative expenses as a percentage of
revenues improved 9.2% to 45.6% during the first quarter of fiscal 2003 from
54.8% during the first quarter of fiscal 2002. The decrease in general and
administrative expenses in the first quarter of fiscal 2003 as compared to fiscal 2002 from $6.4
million to $5.0 million was primarily due to lower salary and related benefits
costs associated with personnel reductions. Additionally, reductions in
communications, maintenance, and rent expenses combined amounted to $0.7
million during the first quarter of fiscal 2003, down from $1.7 million during
the first quarter of fiscal 2002. Both the reduction in expense and the
reduction in
expense as a percentage of revenue are facilitated by the Companys continued
focus on the rapid scaling of its network infrastructure, and the continued
emphasis on integrating recent acquisitions and the realization of related cost
efficiencies.

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ITEM 2.  Managements Discussion and Analysis of Financial Condition and Results Operations

Bad Debt Expense

Bad debt expenses increased 252.2% to $2.0 million during the first quarter of
fiscal 2003 as compared to the $0.6 million in the first quarter of fiscal
2002. The increase in bad debt expense during the three months ended November
30, 2002 versus the same period a year earlier was primarily 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.
Furthermore, the Company expects that its initiative to convert term contracts
to monthly payment terms will lead to a reduction in bad debt expense going
forward as monthly payment terms billed in advance inherently have less credit
risks than extended payment terms.

Restructuring Costs

During the first quarter of fiscal 2003, the Company settled certain data
connectivity contract obligations for amounts less than original estimates. In
connection with the settlements, certain restructuring related accruals were
reduced by $0.2 million, which resulted in a reversal of previously expensed
restructuring charges.

Merger and Integration Costs

Merger and integration costs decreased 97.2% to $0.1 million for the first
quarter of fiscal 2003 from $3.4 million for the same period in the prior year.
During the first quarter of fiscal 2003, the Company incurred $0.1 million in
merger and integration costs to pay remaining severance and relocation
expenses. During the first quarter of 2002, the Company recorded expenses of
$3.4 million for financial advisory services, legal, accounting, and other
non-capitalizable expenses directly related to merger and integration of the
business following the Interland-Georgia acquisition. Merger and integration
costs are significantly reduced from the same period last year, which is
consistent with the magnitude of integration activities undertaken in
connection with the large number of 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, Trellix, and Hostcentric businesses,
although such costs will be significantly lower than that experienced during
fiscal 2002.

Other Expense (Income), net

Other expense (income), net decreased 112.6% to $0.1 million (expense) for the
first quarter of fiscal 2003, from $(0.4) million (income) for the same period
in the prior year. The net expense recorded during the first quarter of fiscal
2003 relates to costs associated with the operations of a foreign office.
During the first quarter of fiscal 2002, the Company realized a gain on the
sale of Internet access accounts.

Interest Income (Expense), net

Interest Income, net, decreased 19.9% to $ 0.2 million during the first quarter
of fiscal 2003 from $0.3 million in the first quarter of fiscal 2002. Interest
income, net consists of interest income earned on the Companys invested cash
and liquid investments of $1.3 million, less interest expense on debt
(primarily capital leases) of $1.1 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 first
quarter of fiscal 2003 versus the same period in fiscal 2002.

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ITEM 2.  Managements Discussion and Analysis of Financial Condition and Results Operations

Income Tax Expense

No income tax benefit was recorded for the quarters ended November 30, 2002 and
2001. A valuation allowance has been established against the potential benefit
and deferred tax assets under the guidelines of SFAS 109.

Earnings Before Depreciation and Amortization (EBDA)

The Companys EBDA (loss from continuing operations, excluding depreciation and
amortization) was a loss of $2.2 million for the first quarter of fiscal year
2003 as compared with a loss of $12.9 million for the same period of the prior
year. The decrease in the EBDA loss was primarily due to the successful
execution of the Companys merger, integration and restructuring plans
pertaining to the Companys acquisitions of Interland-Georgia, CommuniTech.Net,
Dialtone and iNNERHOST. Included in the Companys fiscal 2003 first quarter net
loss from continuing operations are $0.1 million of merger and integration
charges compared to $3.4 million in the first quarter of fiscal 2002. EBDA is
not an indicator of performance under generally accepted accounting principles
and may not be comparable to similarly captioned information reported by other
companies. In addition, it does not replace gross profit (loss), net income
(loss), or operating income (loss) as indicators of our operating performance.

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

|                                    |                               |   |                       |        |              |   |         |       | 
|----------------------------------- | ----------------------------- | - | --------------------- | ------ | ------------ | - | ------- | ----- | 
|                                    |                               |   | For the quarter ended
|                                    |                               |   |                      
|                                    |                               |   | November 30,          |        | November 30,
|                                    |                               |   | 2002                  |        | 2001        
|                                    |                               |   |                       |        |             
|                                    |                               |   | (In thousands)       
|Net loss from continuing operations |                               | $ | (14,380               | )      |              | $ | (19,772 | )    
|                                    | Depreciation and amortization |   |                       | 12,180 |              |   |         | 6,855 | 
|                                    |                               |   |                       |        |              |   |         |      
|EBDA loss                           |                               | $ | (2,200                | )      |              | $ | (12,917 | )    
|                                    |                               |   |                       |        |              |   |         |      

Liquidity and Capital Resources

As of November 30, 2002, the Company had $69.2 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 $35.8 million in short and
long-term investments and $29.5 million in short- and long-term restricted
investments representing a total liquidity position of $134.5 million. This
represents a decrease of $13.4 million compared to August 31, 2002. Cash used
during the first quarter of fiscal 2003 includes $5.0 million for operations,
$1.9 million for capital expenditures, $4.9 million for repayments capital
lease obligations, $0.6 million for business acquisitions, and $0.9 million for
discontinued operations liabilities.

On July 20, 2001, the Company entered into a financing arrangement with US Bank
National Association, a financial institution, under which the Company executed
a $5.4 million credit agreement. At November 30, 2002 the outstanding balance
on the facility was $5.4 million bearing an interest rate of prime less 100
basis points or 3.25%. The Company has pledged $6.7 million as collateral for
this agreement. The credit agreement requires the Company to maintain a
minimum liquidity of cash, cash equivalents, and investments of $75 million.
As of November 30, 2002 the Company was in compliance with this requirement.
Additionally, in July 2001, the Company entered into a financing arrangement
with U.S. Bankcorp 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 assets from U.S. Bankcorp
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 November 30, 2002, the Company has pledged $10.0 million
as 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.

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ITEM 2.  Managements Discussion and Analysis of Financial Condition and Results Operations

During the third quarter ended May 31, 2002, the Companys merchant bank
reduced by $12.5 million the amount of restricted cash collateralizing the
Companys merchant banking activity with First Data Merchant Services to bring
the total restricted collateral amount required under the merchant agreement
down to $10.0 million. The collateral is in the form of a certificate of
deposit with the merchant bank.

Prior to the acquisition of Dialtone Inc., (Dialtone), Dialtone had entered
into a $2 million line of credit with a financial institution, which bears
interest at a rate of prime plus 150 basis points. In connection with the
acquisition of Dialtone, Interland acquired the line of credit and as of
November 30, 2002, the balance was $0.0 bearing a weighted average
interest rate of approximately 5.75%.

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%. In connection with the acquisition of iNNERHOST the Company
assumed this obligation, which had an outstanding balance of $0.9 million at
November 30, 2002. 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% and an outstanding balance of $0.2 million
at November 30, 2002.

The Company anticipates making capital expenditures of approximately $10.0
million during fiscal 2003, generally for server equipment and related software
and other expenditures related to new customer growth. During the first quarter
of fiscal 2003 the Company expended $1.9 million on capital equipment
purchases. Included in the expected $10.0 million of fiscal 2003 capital
expenditures is the Companys plan to invest approximately $4.0 million in
operational and administrative software systems and $6.0 million in data center
equipment and improvements. The Company also expects to use approximately
$2.4 million for legal expenses and remaining contractual obligations related
to discontinued operations.

On December 11, 2002, the Company entered into an agreement to acquire Trellix
Corporation, a privately held developer of software-based Web site solutions.
The aggregate purchase price was approximately $12.2 million consisting of
$4.75 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 transaction closed on January 3, 2003. The Company is expected to spend
approximately $2.0 million of cash on the full integration of Trellix into
Interlands operations during the second and third quarters of fiscal 2003. In
connection with the acquisition, the Company also expects to assume $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 April 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 $2.3 million in debt and capital lease obligations, most of
which will mature within one year after the acquisition. Assuming an April
2003 close, the Hostcentric acquisition is expected to contribute sufficient
cash flows to compensate for the cash used to fully integrate the Trellix
acquisition.

The Company implemented an integration program outlining all integration
related expenditures expected to be incurred during fiscal 2003. These
expenditures are estimated to total between $8 to $9 million during fiscal 2003
and are divided roughly equally between capital expenditures and operating
expenses, are aimed at the companys infrastructure, completing the integration
of acquisitions, and the migration of consolidated customers to the
blueHALO(TM) shared architecture,
upgrading internal systems, divesting acquired data centers, and consolidating
operations. The company also estimates incurring an additional $3 million in
restructuring charges related to real estate leases and bandwidth contract
terminations.

The Company believes it has adequate cash resources to fund operations and
planned capital expenditures through the first quarter of fiscal 2004. 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

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ITEM 2.  Managements Discussion and Analysis of Financial Condition and Results Operations

current financial forecast does indicate
that there will be sufficient cash balances on hand until the Company reaches
positive cash flows from ongoing operations.

Recently Issued Accounting Standards

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. The statement provides accounting and reporting standards for
recognizing obligations related to asset retirement costs associated with the
retirement of tangible long-lived assets. Under this statement, legal
obligations associated with the retirement of long-lived assets are to be
recognized at their fair value in the period in which they are incurred if a
reasonable estimate of fair value can be made. The fair value of the asset
retirement costs is capitalized as part of the carrying amount of the
long-lived asset and subsequently allocated to expense using a systematic and
rational method over the assets useful life. Any subsequent changes to the
fair value of the liability due to passage of time or changes in the amount or
timing of estimated cash flows is recognized as an accretion expense. The
Company adopted the requirements of this statement starting on September 1,
2002 and it did not have a material impact on its consolidated financial
position, results of operations, or cash flows.

In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets, which is effective for fiscal years
beginning after Dec 15, 2001. This statement supercedes FASB Statement No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of. However, it retains the fundamental provisions of SFAS No.
121 for the recognition and measurement of the impairment of long-lived assets
to be held and used and the measurement of long-lived assets to be disposed of
by sale. Impairment of Goodwill is not included in the scope of SFAS No. 144
and will be treated in accordance with the accounting standards established in
SFAS No. 142, Goodwill and Other Intangible Assets. Under SFAS No. 144,
long-lived assets are to be measured at the lower of carrying amount or fair
value less cost to sell, whether reported in continuing or discontinued
operations. The statement applies to all long-lived assets, including
discontinued operations, and replaces the provisions of 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, for the disposal of segments of a business. The
Company adopted this statement beginning September 1, 2002.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No.
4, 44, and 64, Amendments of FASB Statement No. 13 and Technical Corrections,
which is effective for transactions occurring after May 15, 2002. The Statement
rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt,
which required all gains and losses from extinguishments of debt to be
aggregated and classified as an extraordinary item (net of related income tax
effect), if material. The criteria in APB Opinion No. 30 will now be used to
classify those gains and losses. Also SFAS No. 64 amended SFAS No. 4 and is no
longer necessary because of this rescission. The Statements amends SFAS No. 13,
Accounting for Leases, to eliminate an inconsistency between the accounting
for sale-leaseback transactions and certain lease modifications that have
economic effects that are similar to sale-leaseback transactions. The amendment
requires that a lease modification results in recognition of a gain or loss in
the financial statements, is subject to SFAS No. 66 Accounting for Sales of
Real Estate if the leased asset is real estate (including integral equipment),
and is subject to the sale-leaseback rules of SFAS No. 98 Accounting for
Leases: Sale-Leaseback Transactions Involving Real Estate, Sales-Type Leases of
Real Estate, Definition of the Lease Term, and Initial Direct Costs of Direct
Financing Leases. The Company adopted this Statement beginning September 1,
2002.

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.

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ITEM 2.  Managements Discussion and Analysis of Financial Condition and Results Operations

CERTAIN 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 operating losses since inception, and it expects to
incur losses for at least the next two quarters.The Company has incurred net
losses and losses from operations for all but one of each quarterly period from
inception through the first quarter of fiscal 2003. Interland does not expect
to generate sustainable positive cash flow from continuing operations until the fourth
quarter of fiscal 2003. In some cases operating expenses will increase as a
result of network infrastructure optimization efforts, scaling initiatives to
accommodate additional customers, increasing sales and marketing efforts, and
integrating recently acquired businesses. To the extent that increases in
expenses are not offset by increases in revenues, the Companys operating
losses will increase.

Because Interlands historical financial information is not representative of
its future results, investors and analysts will have difficulty analyzing
Interlands future earnings potential.Since the Company has sold its
non-hosting businesses, its historical financial information, contained in
previous filings with the Securities and Exchange Commission, will not be
representative of its future operating results. Furthermore, the Companys
financial results for fiscal 2002 reflect the impacts of three company
acquisitions from the effective acquisition date forward.

Interland has a limited operating history and its business model is still
evolving, which makes it difficult to evaluate its prospects.The Companys
limited operating history makes evaluating its business operations and
prospects difficult. The Companys range of service offerings has changed since
its inception and its business model is still new and developing. Specifically,
the Company business has changed from being primarily a seller of personal
computers and related accessories to being exclusively a web hosting company.
As a result, the revenues and income potential of the Companys business, as
well as the potential benefits of acquisitions and integrations will be
difficult to evaluate from a historical perspective.

Interlands quarterly operating results will fluctuate and its future revenues
and profitability are not certain.The Companys past operating results have
been subject to fluctuations, on a quarterly and an annual basis. Interland may
continue to experience significant fluctuations in quarterly and annual operating
results due to a wide variety of factors. Because of these fluctuations,
comparisons of operating results from period to period are not meaningful and
should not be relied upon as an indicator of future performance. Factors that
cause operating results to fluctuate include, but are not limited to:



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

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ITEM 2.  Managements Discussion and Analysis of Financial Condition and Results Operations

The Company cannot provide assurances as to the extent to which it will be
successful in achieving plans to increase the size of its customer base, the
amount of services it offers or the amount of the increase in revenues it will
experience during the next fiscal year, or beyond. In addition, relatively
large portions of Interlands expenses are fixed in the short-term, and
therefore its results of operations are particularly sensitive to fluctuations
in revenues. Also, if the Company were unable to continue using third-party
products in its service offerings, its service development costs would increase
significantly. The Company cannot predict the extent and nature of the impact
of unanticipated global events, including terrorist acts or military actions,
will have on its customers or business.

Interlands stock price will be volatile which could cause your investment in
the Companys common stock to decrease significantly.The market price of the
Companys common stock has experienced a significant volatility during the last
fiscal year. The price has been and is likely to continue to be highly volatile
due to several factors, such as:



| |  |  | Companys failure to experience the benefits of merger and acquisitions
as quickly as anticipated, or at all in the way the financial analysts
expected;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Variations in actual and anticipated operating results;                                                                                                 
|
| |  |  | Variations in actual and anticipated operating results of customers or
competitors;                                                                     
|
| |  |  | The volatility of stock within the sectors within which the Company
conducts business;                                                                  
|
| |  |  | General decline in economic conditions; and,                                                                                                            
|
| |  |  | Reductions in the volume of trading in the Companys common stock.                                                                                      

During the 52 weeks ended January 7, 2003, the high and low closing price for
Interland common stock on NASDAQ was $3.28 and $1.30, respectively.

Interland operates in a new and evolving market with uncertain prospects for
growth and may not be able to sustain growth in it 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 November 30, 2002,
Interlands average monthly revenue per customer account was $26.23 for shared
hosting services and $396.51 for dedicated hosting services, and its average
monthly customer turnover was 2.64% for shared hosting services and 4.42% for
dedicated hosting services. The corresponding average monthly revenue per
customer for the three months ended November 30, 2001 was $29.43 for shared
hosting services and $762.33 for dedicated hosting services, and the associated
average monthly customer turnover rates were 3.40% for shared hosting services
and 4.50% 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

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ITEM 2.  Managements Discussion and Analysis of Financial Condition and Results Operations

expense of responding to these calls is
considerable, and the expense is likely to increase in direct proportion to
revenue, potentially limiting the scalability of the business. Additionally, if
the customer becomes dissatisfied with the Companys response to such calls,
cancellation, non-payment, or non-renewal becomes more likely. Interlands
strategy for minimizing the negative aspects of its target market include:



| |  |  | Continued expenditure on sales and marketing to replace failing
customers;                                                           
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Capitalizing on planned efficiencies to become a profitable provider at
the lowest sustainable price;                                
|
| |  |  | Automating customer care and technical support to reduce the cost per
call, and to minimize the time spent by Company personnel; 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 businesses.                                                                                              

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 synergies
created by recent acquisitions in areas such as integration and expansion of
nationwide technical support capabilities over a larger customer base,
integration of information and telecommunications systems, marketing the larger
combined business, elimination of excess data center capacity and economies of
scale for the combined companys telecommunications costs.

Through December 31, 2002, as part of the integration with Interland-Georgia, the Company has:



| |  |  | Reduced 492 positions from its
total personnel;
| | - |  | -----------------------------------------------

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ITEM 2.  Managements Discussion and Analysis of Financial Condition and Results Operations



| |  |  | Reduced the number of facilities by four; and,                      
| | - |  | --------------------------------------------------------------------
|
| |  |  | Incurred approximately $10.0 million of merger and integration costs

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, and iNNERHOST 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 first 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 first 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 $0.3 million recorded in the first quarter of fiscal 2003.                                                                                                                                                                                                                   
|
| |  | Innerhost Based on the purchase price of $17.6 million, the Company
has recorded $12.8 million of intangible assets, which resulted in
amortization expense of intangible assets of $0.6 million recorded in the
first quarter of fiscal 2003. The purchase price allocation for iNNERHOST
is preliminary pending the completion of the related valuation analysis
that will be completed in the second quarter of fiscal 2003. As such,
there has not yet been an allocation of the purchase price to goodwill.
|

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. The Company performed its impairment test
of goodwill as of May 31, 2002 and has determined that goodwill is not
impaired.

If the Company acquires additional companies, customer accounts or
technologies, it may record additional goodwill and intangible assets, and may
face difficulties in integrating those acquisitions.As part of its strategy to
grow the Web hosting business, the Company has made a number of acquisitions
and investments, and it may continue to pursue acquisitions of businesses or
assets that it believes are complementary to its business, although management
expects the pace of such acquisitions to be less than that experienced to date.
The Company will be required to record material goodwill and other intangible
assets in the likely event the purchase price of the acquired businesses
exceeds the fair value of the net assets acquired. In the past, this has
resulted in significant amortization charges, and these charges may increase in
future periods if the Company makes additional purchases. The acquired
businesses may not achieve anticipated revenues and earnings. If the Company
acquires another company, it will likely raise the same risks, uncertainties
and disruptions as discussed above with respect to its recent acquisitions. For
example, the Company may not be able to successfully assimilate the additional
personnel, operations, acquired technology and customer accounts into its
business. Furthermore, the Company may have to

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ITEM 2.  Managements Discussion and Analysis of Financial Condition and Results Operations

incur debt or issue equity
securities to pay for any additional future acquisitions or investments, the
issuance of which could be dilutive to existing shareholders. As a result,
there could be a material adverse effect on the Companys future financial
condition and results of operations.

Interland could incur liabilities in the future relating to its PC Systems
business, which could cause additional operating losses.The Company could
incur liabilities arising from the sale of the PC Systems business to GTG PC.
According to the terms of the agreement with GTG PC, the Company agreed to
retain liabilities relating to the operation of the PC systems business arising
prior to the closing of the transaction, including liabilities for taxes,
contingent liabilities and liabilities for accounts payable accrued prior to
the closing. The Company also agreed to indemnify GTG PC and its affiliates for
any breach of the Companys representations and warranties contained in the
agreement for a period of two years, or for the applicable statute of
limitations for matters related to taxes. This indemnification obligation is
capped at $10.0 million. Except for claims for fraud or injunctive relief, this
indemnity is the exclusive remedy for any breach of the Companys
representations, warranties and covenants contained in the agreement with GTG
PC. Although the Company has not yet been presented with any such claims, in
the future it could be required to make payments to GTG PC and its affiliates
in accordance with the agreement in which it sold the PC Systems business, and
such payments could adversely affect its future results of operations.

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. The
balance of the restructuring reserve at November 30, 2002 after payments and
write downs was $8.1 million which reflects $458 thousand of payments against
leasehold obligations and a $235 thousand adjustment pertaining to the
settlement of a telecommunication bandwidth contract for less than has been
previously anticipated. 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

Interland may be required to pay sales and use taxes related to its
discontinued operations.During the third quarter of 1997, the Company began
to collect and remit applicable sales or use taxes in nearly all states,
although its mail order subsidiary briefly ceased collecting such taxes in
several states, during portions of 1999 and 2000. The Company is a party to
agreements with nearly all states, which generally limit its liability, if any,
for non-remittance of sales and use taxes prior to such agreements effective
dates. The Company has previously accrued a liability for the estimated
settlement cost of issues related to sales and use taxes not covered by such
agreements. Management believes the resolution of any matters relating to the
non-remittance of sales or use taxes will not materially affect the Companys
business, financial position and results of operations. This potential
liability will remain with Interland even though it sold the PC Systems
business.

Interland may not effectively execute its Web hosting strategy and, as a
result, others may seize the market opportunity that it has identified.If
Interland fails to execute its Web hosting strategy in a timely or effective
manner, its competitors will be able to seize the opportunity the Company had
identified to address the Web hosting needs of small- and medium-sized
businesses. Interlands business strategy is complex and requires that it
successfully and simultaneously complete many tasks, and the failure to
complete any one of these following tasks may jeopardize its strategy as a
whole.



| |  |  | Market its services and build its brand name effectively;                                    
| | - |  | ---------------------------------------------------------------------------------------------
|
| |  |  | Develop new products and services;                                                           
|
| |  |  | Continue to enhance the efficiency of its infrastructure to accommodate additional customers;
|
| |  |  | Continue to expand its customer base;                                                        

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ITEM 2.  Managements Discussion and Analysis of Financial Condition and Results Operations



| |  |  | Continue to respond to competitive developments;                           
| | - |  | ---------------------------------------------------------------------------
|
| |  |  | Influence and respond to emerging industry standards and other changes; and
|
| |  |  | Attract, retain and motivate qualified personnel.                          

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 XO Communications, Verio, and Affinity.

Interlands ability to successfully market its services could be substantially
impaired if it is unable to deploy new Internet applications or if new Internet
applications it deploys prove to be unreliable, defective or incompatible.The
Company cannot provide assurances that it will not experience difficulties that
could delay or prevent the successful development, introduction or marketing of
new Internet application services in the future. If any newly introduced
Internet applications suffer from reliability, quality or compatibility
problems, market acceptance of Interlands services will be hindered and its
ability to attract new customers will be adversely affected. The Company cannot
assure that new
applications it deploys will be free from any reliability, quality or
compatibility problems. If the Company incurs increased costs or is unable, for
technical or other reasons, to host and manage new Internet applications or
enhancements of existing applications, its ability to successfully market its
services will be impaired. In addition, the Company cannot provide assurances
that its customers will accept new services or applications.

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 the Company has filed, and may
file patent applications on particular aspects of its technology, it cannot be
sure that it will receive any patents. While it is the Companys practice to
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. The Company is
currently, and may be in the future, involved in legal disputes relating to the
validity or alleged infringement of its intellectual property rights.
Intellectual property litigation is typically extremely costly and can be
disruptive to business

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ITEM 2.  Managements Discussion and Analysis of Financial Condition and Results Operations

operations by diverting the attention and energies of
management and key technical personnel. In addition, adverse decisions will
subject the Company to liabilities, require it to seek licenses from others,
prevent it from using, licensing or selling certain of its products and
services, or cause disruptions to its operations or the markets in which it
competes, which could in turn decrease profitability. Periodically, the Company
is made aware of claims, or potential claims, that technology it uses may
infringe on intellectual property rights held by others. The Company has
accrued a liability and charged operations for the estimated costs of
settlement or adjudication of certain 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.

Interland could face unanticipated losses from litigation.Interland is
defending an employee class action lawsuit filed in the U.S. District Court for
Idaho. In this case five individual plaintiffs claim that when they were
employees of Micron Electronics between 1999 and April 2001 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.

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.

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.

If the Company is unable to obtain sufficient telecommunications network
capacity at reasonable costs, it will not be able to provide services at prices
acceptable to its customers, thereby reducing demand for its services.The
success of Interland will depend in part upon the capacity, reliability and
security of its network infrastructure, including the capacity leased from its
telecommunications network suppliers. Interlands network currently delivers
service through AT&T, WorldCom, McLeod, Qwest, Genuity, Level 3, and Sprint.
Some of these suppliers are also competitors. The Companys operating results
depend, in part, upon the pricing and availability of telecommunications
network capacity from a limited number of providers. If capacity is not
available as the Companys customers usage increases, the Companys network
will not be able to achieve or maintain sufficiently high data transmission
capacity, reliability or performance. In addition, the Companys business would
suffer if its network suppliers increased the prices for their services and it
were unable to pass along any increased costs to its customers. Any failure on
the part of the Company or the part of its third-party suppliers to achieve or
maintain high data transmission capacity, reliability or performance will
significantly reduce the Companys ability to handle the expected increase of
customer demand for its services, damage its business reputation and increase
its costs.

Interland depends on its reseller sales channel to market and sell many of its
services. Interland does not control its resellers, and if it fails to develop
or maintain good relations with resellers, it may not achieve the growth in
customers and revenues that it expects.An element of the strategy for the
Companys growth is to further develop the use of third parties that resell its
services. Many of these resellers are Web development or Web consulting
companies that also sell

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ITEM 2.  Managements Discussion and Analysis of Financial Condition and Results Operations

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.

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

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

Interland is vulnerable to system failures, which could harm its reputation,
cause its customers to seek reimbursement for services and cause its customers
to seek another provider for services.The Company must be able to operate the
systems that manage its network around the clock without interruption. Its
operations will depend upon its ability to protect its network infrastructure,
equipment and customer files against damage from human error, fire,
earthquakes, hurricanes, floods, power loss, telecommunications failures,
sabotage, intentional acts of vandalism and similar events. Although the
Company has attempted to build redundancy into its networks, its networks are
currently subject to various points of failure. For example, a problem with one
of its routers (devices that move information from one computer network to
another) or switches could cause an interruption in the services the Company
provides to a portion of its customers. In the past, the Company has
experienced periodic interruptions in service. In addition, failure of any of
its telecommunications providers to provide the data communications capacity
that the Company requires, as a result of human error, a natural disaster or
other operational disruption, could result in interruptions in services. Any
future interruptions could:



| |  |  | Cause customers or end users to seek damages for losses incurred;             
| | - |  | ------------------------------------------------------------------------------
|
| |  |  | Require the Company to replace existing equipment or add redundant facilities;
|
| |  |  | Damage the Companys reputation for reliable service;                         
|
| |  |  | Cause existing customers to cancel their contracts; or                        

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ITEM 2.  Managements Discussion and Analysis of Financial Condition and Results Operations



| |  |  | Make it more difficult for the Company to attract new customers.
| | - |  | ----------------------------------------------------------------

Interlands data centers and networks may be vulnerable to security breaches.A
significant barrier to electronic commerce and communications is the need for
secure transmission of confidential information over public networks. Some of
the Companys services rely on security technology licensed from third parties
that provides the encryption and authentication necessary to effect the secure
transmission of confidential information. Despite the design and implementation
of a variety of network security measures by the Company, unauthorized access,
computer viruses, accidental or intentional actions and other disruptions could
occur. In the past, the Company has experienced, and in the future it may
experience, delays or interruptions in service as a result of the accidental or
intentional actions of Internet users, current and former employees or others.
In addition, inappropriate use of the network by third parties could also
potentially jeopardize the security of confidential information, such as credit
card and bank account numbers stored in the Companys computer systems. These
security problems could result in the Companys liability and could also cause
the loss of existing customers and potential customers. In addition, third
parties could interfere with the operation of customers Web sites through
intentional attacks including causing an overload of traffic to these Web
sites. 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 defects could
harm its business and reputation.The Companys service offerings depend on
complex software, including proprietary software tools and software licensed
from third parties. Complex software often contains defects, particularly when
first introduced or when new versions are released. The Company may not
discover software defects that affect its new or current services or
enhancements until after they are deployed. Although Interland has not
experienced any material software defects to date, it is possible that defects
may occur in the software. These defects could cause service interruptions,
which could damage its reputation or increase its service costs, cause it to
lose revenue, delay market acceptance or divert its development resources.

Providing services to customers with critical Web sites and Web-based
applications could potentially expose Interland to lawsuits for customers lost
profits or other damages.Because the Companys Web hosting and applications
hosting services are critical to many of its customers businesses, any
significant interruption in those services could result in lost profits or
other indirect or consequential damages to its customers as well as negative
publicity and additional expenditures for it to correct the problem. Although
the standard terms and conditions of the Companys customer contracts disclaim
liability for any such damages, a customer could still bring a lawsuit against
it claiming lost profits or other consequential damages as the result of a
service interruption or other Web site or application problems that the
customer may ascribe to it. A court might not enforce any limitations on its
liability, and the outcome of any lawsuit would depend on the specific facts of
the case and legal and policy considerations even if the Company believes it
would have meritorious defenses to any such claims. In such cases, it could be
liable for substantial damage awards. Such damage awards might exceed its
liability insurance by 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
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
30Table of Contents

ITEM 2.  Managements Discussion and Analysis of Financial Condition and Results Operations

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.

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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 November 30,
2002, approximately 78% of the Companys liquid investments mature within three
months and 22 % mature within one year. As of November 30, 2002, 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 November 30,
2002, the Companys investment portfolio included fixed rate securities with an
estimated fair value of $79.5 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 November 30, 2002 was $7.7 million.

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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 November 30, 2002. 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.

In addition, the Companys chief executive officer, chief financial officer,
chief accounting officer, and Audit Committee are aware of conditions that are
considered to be material weaknesses in internal controls for the three
months ended November 30, 2002 under standards established by the American
Institute of Certified Public Accountants.

The aforementioned weaknesses in both the Companys disclosure controls and
procedures and internal controls pertain to the following areas:



| |  |  | Revenue cycle process, including the calculation of deferred
revenue and monitoring of past due accounts;                                                  
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Recognition of liabilities arising from recently acquired
operations that have not been disclosed to the Company by the seller
of the acquired entity; and,
|
| |  |  | Processes surrounding financial reporting and period closes,
including timely and accurate reconciliation of account balances.                             

The Company has implemented certain mitigating procedures and corrective
actions that address the cited weaknesses, but which do not eliminate them.
These corrective actions included:



| |  |  | The hiring of three experienced and skilled financial managers
in the areas of revenue/receivables assurance, financial reporting,
and financial systems, and the authorization of the hiring of five
additional accounting and two financial personnel;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Adopted systematic processes to calculate deferred revenue on a
daily basis;                                                                                                                                                                            
|
| |  |  | Ceased continued revenue recognition for customers who have
past due receivable balances greater than ninety days old;                                                                                                                                  
|
| |  |  | Implementing aggressive account clean up, collection, and write
off procedures for receivable balances greater than one hundred
twenty days old;                                                                                                        
|
| |  |  | Establishing a formal period end close schedule with assignment of specific accountabilities; and,                                                                                                                                                      
|
| |  |  | Instituting formal quarterly search for unrecorded liabilities procedures at all subsidiaries.                                                                                                                                                        

Nonetheless, not all of the salutary procedures and actions deemed desirable by
management have been able to be fully executed to date, and, thusly, the
Company has instituted plans to continue improvement over the next
three quarters. For example, the Company has purchased, but has not yet implemented,
commercial billing software to replace the self-developed and acquired software
and systems it currently employs, all of which require substantial manual
intervention, and which have not been subject to the rigorous quality control
and de-bugging associated with commercial programs. The Company expects to
have the new billing system fully implemented and operational for all
subsidiaries by the first quarter of fiscal 2004. Management has reporting
procedures and processes designed to manage its business, and believes that
these procedures and processes, together with its informal information
gathering, have been sufficient to make available material information
regarding the Company, which is known to its employees. Management has not
fully instituted specific formal procedures to ensure that all facts that may
require disclosure have been brought to its attention, and the weaknesses of
systems may result in material information not being known to, i.e. not being
brought to the actual conscious knowledge of,

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ITEM 4.  CONTROLS AND PROCEDURES

the Companys employees. Nonetheless, management believes that its current
practices and procedures, albeit not as mature or as formal as management
intends them to be in the future, are appropriate under the circumstances.
Consequently, management has a good faith belief that there are no material
inaccuracies or omissions in this Form 10-Q and any disclosures therein.

The following factors contributed to the disclosure and internal control
conditions described above:



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

The Company is taking the following additional actions to improve its
disclosure and internal controls and procedures for future reporting
procedures:



| |  |  | Implementing a new billing, accounts receivable, and collections system;                                                                                 
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Hiring additional skilled, experienced, and qualified key financial personnel;                                                                           
|
| |  |  | Implementing comprehensive monthly balance sheet account reconciliation procedures; and,                                                                 
|
| |  |  | Instituting formal processes designed to ensure that relevant
facts are brought to managements attention so as to adhere to all
disclosure requirements.

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##### Table of Contents



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.

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.

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 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.




ITEM 6  Exhibits and Reports on Form 8-K



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

|        |  |                                                                                                                                                                                                             
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  | Description                                                                                                                                                                                                 
|        |  |                                                                                                                                                                                                             
|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).               



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

On September 24, 2002, the Company filed a Form 8-K to provide the pro
forma and historical financial information required in connection with the
merger with Interland-Georgia.

On September 24, 2002, the Company filed a Form 8-K/A to amend its Form
8-K of August 6, 2001, to correct Item 7(b) to reflect that the pro forma
financial information will be incorporated by reference.

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PART II  OTHER INFORMATION

On October 16, 2002, the Company filed a Form 8-K regarding its financial
results for the fourth quarter and the appointment of a new Chief Financial
Officer.

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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:  January 13, 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:  January 13, 2003 |  | /s/ Joel J. Kocher                                                         
|                        |  |                                                                            
|                        |  | Joel J. Kocher
Chairman of the Board, President and
Chief Executive Officer

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##### Table of Contents



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:  January 13, 2003 |  | /s/ Allen L. Shulman                                                                
|                        |  |                                                                                     
|                        |  | Allen L. Shulman
Senior Vice President, Chief Financial Officer,
and General Counsel

39