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



FORM 10-Q/A





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

FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 2002

COMMISSION FILE NUMBER: 0-17932

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

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

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

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

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

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

The number of outstanding shares of the registrants Common Stock on April 10,
2002 was 137,369,981.



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EXPLANATORY NOTE


We are filing this amendment to Form 10-Q to
(1) adjust the consolidated financial
statements (as more fully discussed in Note 13) to restate the
Companys 2002 financial statements for an inadvertent error
regarding the calculation of deferred revenue which resulted in
adjustments to revenue, deferred revenue, and the Companys
intangible asset balance (related to a corresponding understatement of deferred
revenue assumed during one of the Companys account acquisitions), (2) to separately present the
provision for bad debt expense and restructuring costs as separate
line items on the Statements of Operations, and (3) to amend in
Item 2 the EBITDA disclosure to eliminate adjustments presented
in the previous filing.

All of the information in this Form 10-Q/A is as of
April 15, 2002, the date of the original Form 10-Q, and
none of the forward-looking information contained herein has been
updated beyond that date.








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TABLE OF CONTENTS



|                                                                                              |                                                                    |            |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------- | ------------------------------------------------------------------ | ---------- |  |  |  |  |  | 
|PART 1. FINANCIAL INFORMATION                                                                
|ITEM 1. FINANCIAL STATEMENTS                                                                 
|                                                                                              | CONSOLIDATED STATEMENTS OF OPERATIONS                             
|                                                                                              | CONSOLIDATED BALANCE SHEETS                                       
|                                                                                              | CONSOLIDATED STATEMENTS OF CASH FLOWS                             
|                                                                                              | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                        
|ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                                                                              | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|PART II. OTHER INFORMATION                                                                   
|ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS                                            
|ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|                                                                                              |                                                                    | Signatures



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TABLE OF CONTENTS

|                                                                                           |                                            |  |      |   | 
|------------------------------------------------------------------------------------------ | ------------------------------------------ |  | ---- | - | 
|                                                                                           |                                            |  | Page
|Part I  Financial Information                                                             |                                            |  |      |  
|1.   Financial Statements                                                                  |                                            |  |      |  
|                                                                                           | Consolidated Statements of Operations      |  |      | 3 | 
|                                                                                           | Consolidated Balance Sheets                |  |      | 4 | 
|                                                                                           | Consolidated Statements of Cash Flows      |  |      | 5 | 
|                                                                                           | Notes to Consolidated Financial Statements |  |      | 6 | 
|2.   Managements Discussion and Analysis of Financial Condition and
Results of Operations |                                            |  | 14   |  
|3.   Qualitative and Quantitative Disclosures about Market Risk                            |                                            |  | 32   |  
|PART II  Other Information                                                                |                                            |  |      |  
|2.   Changes in Securities and Use of Proceeds                                             |                                            |  | 33   |  
|6.   Exhibits and Reports on Form 8-K                                                      |                                            |  | 34   |  





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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 |        | FOR THE SIX MONTHS ENDED
|                                                 |                                        |                          |         |                       |        |                         
|                                                 |                                        |                          |         | FEBRUARY 28,          |        | March 1,                 |          | FEBRUARY 28, |        | March 1,
|                                                 |                                        |                          |         | 2002                  |        | 2001                     |          | 2002         |        | 2001    
|                                                 |                                        |                          |         |                       |        |                          |          |              |        |         
|                                                 |                                        |                          |         | (Restated)            |        |                          |          | (Restated)   |        |         
|Revenues                                         |                                        | $                        | 25,245  |                       |        | $                        | 14,466   |              |        | $        | 49,165  |         |        | $ | 27,992   |       
|Cost of revenues                                 |                                        |                          | 13,789  |                       |        |                          | 9,196    |              |        |          | 27,923  |         |        |   | 18,724   |       
|                                                 |                                        |                          |         |                       |        |                          |          |              |        |          |         |         |        |   |          |       
|                                                 | Gross margin                           |                          |         | 11,456                |        |                          |          | 5,270        |        |          |         | 21,242  |        |   |          | 9,268  |       
|                                                 |                                        |                          |         |                       |        |                          |          |              |        |          |         |         |        |   |          |       
|Operating expenses:                              |                                        |                          |         |                       |        |                          |          |              |        |          |         |         |        |   |          |       
|                                                 | Sales, marketing and technical support |                          |         | 13,757                |        |                          |          | 8,698        |        |          |         | 26,929  |        |   |          | 18,251 |       
|                                                 | General and administrative             |                          |         | 10,756                |        |                          |          | 10,522       |        |          |         | 23,853  |        |   |          | 21,461 |       
|                                                 | Bad
debt expense                       |                          |         | 2,422                 |        |                          |          | 881          |        |          |         | 3,003   |        |   |          | 1,197  |       
|                                                 | Restructuring
costs                    |                          |         | (318)                 |        |                          |          |             |        |          |         | (318)   |        |   |          |       |       
|                                                 | Merger and integration costs           |                          |         | 3,726                 |        |                          |          |             |        |          |         | 7,089   |        |   |          |       |       
|                                                 | Other expense (income), net            |                          |         | 1,032                 |        |                          |          | 424          |        |          |         | 628     |        |   |          | (3,964 | )     
|                                                 |                                        |                          |         |                       |        |                          |          |              |        |          |         |         |        |   |          |       
|                                                 |                                        | Total operating expenses |         |                       | 31,375 |                          |          |              | 20,525 |          |         |         | 61,184 |   |          |        | 36,945 | 
|                                                 |                                        |                          |         |                       |        |                          |          |              |        |          |         |         |        |   |          |       
|Operating loss                                   |                                        |                          | (19,919 | )                     |        |                          | (15,255  | )            |        |          | (39,942 | )       |        |   | (27,677  | )     
|Loss on investments, net                         |                                        |                          |        |                       |        |                          | (1,509   | )            |        |          |        |         |        |   | (2,882   | )     
|Interest income, net                             |                                        |                          | 68      |                       |        |                          | 2,588    |              |        |          | 319     |         |        |   | 4,407    |       
|                                                 |                                        |                          |         |                       |        |                          |          |              |        |          |         |         |        |   |          |       
|Loss from continuing operations before taxes     |                                        |                          | (19,851 | )                     |        |                          | (39,623  | )            |        |          | (39,623 | )       |        |   | (26,152  | )     
|Income tax benefit                               |                                        |                          |        |                       |        |                          | 4,472    |              |        |          |        |         |        |   | 8,070    |       
|                                                 |                                        |                          |         |                       |        |                          |          |              |        |          |         |         |        |   |          |       
|Loss from continuing operations                  |                                        |                          | (19,851 | )                     |        |                          | (9,704   | )            |        |          | (39,623 | )       |        |   | (18,082  | )     
|                                                 |                                        |                          |         |                       |        |                          |          |              |        |          |         |         |        |   |          |       
|Loss from discontinued operations, net of tax    |                                        |                          |        |                       |        |                          | (11,738  | )            |        |          |        |         |        |   | (1,784   | )     
|Loss on disposal of discontinued operations      |                                        |                          |        |                       |        |                          | (147,500 | )            |        |          |        |         |        |   | (147,500 | )     
|                                                 |                                        |                          |         |                       |        |                          |          |              |        |          |         |         |        |   |          |       
|Total loss from discontinued operations          |                                        |                          |        |                       |        |                          | (159,238 | )            |        |          |        |         |        |   | (149,284 | )     
|                                                 |                                        |                          |         |                       |        |                          |          |              |        |          |         |         |        |   |          |       
|Net loss                                         |                                        | $                        | (19,851 | )                     |        | $                        | (168,942 | )            |        | $        | (39,623 | )       |        | $ | (167,366 | )     
|                                                 |                                        |                          |         |                       |        |                          |          |              |        |          |         |         |        |   |          |       
|Net loss per share, basic and diluted:           |                                        |                          |         |                       |        |                          |          |              |        |          |         |         |        |   |          |       
|                                                 | Continuing operations                  |                          | $       | (0.14                 | )      |                          | $        | (0.10        | )      |          | $       | (0.29   | )      |   | $        | (0.19  | )     
|                                                 | Discontinued operations                |                          |         |                      |        |                          |          | (1.65        | )      |          |         |        |        |   |          | (1.54  | )     
|                                                 |                                        |                          |         |                       |        |                          |          |              |        |          |         |         |        |   |          |       
|                                                 |                                        | $                        | (0.14   | )                     |        | $                        | (1.75    | )            |        | $        | (0.29   | )       |        | $ | (1.73    | )     
|                                                 |                                        |                          |         |                       |        |                          |          |              |        |          |         |         |        |   |          |       
|Number of shares used in per share calculations: |                                        |                          |         |                       |        |                          |          |              |        |          |         |         |        |   |          |       
|                                                 | Basic and diluted                      |                          |         | 137,307               |        |                          |          | 96,796       |        |          |         | 137,541 |        |   |          | 96,734 |       




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

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INTERLAND, INC.




CONSOLIDATED BALANCE SHEETS


(In thousands)





(Unaudited)


|                                                                                                                                         |                                            |                   |            |                 |  |   |         |         | 
|---------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ----------------- | ---------- | --------------- |  | - | ------- | ------- | 
|AS OF                                                                                                                                    |                                            | FEBRUARY 28, 2002 |            | AUGUST 31, 2001
|                                                                                                                                         |                                            |                   |            |                
|                                                                                                                                         |                                            |                   | (Restated) |                 |  |   |        
|ASSETS                                                                                                                                   |                                            |                   |            |                 |  |   |         |        
|Cash and cash equivalents                                                                                                                |                                            | $                 | 74,581     |                 |  | $ | 142,675 |        
|Short-term investments                                                                                                                   |                                            |                   | 18,500     |                 |  |   | 31,468  |        
|Receivables, net of allowance of $2,157 and $1,810, respectively                                                                         |                                            |                   | 17,692     |                 |  |   | 11,576  |        
|Income taxes recoverable                                                                                                                 |                                            |                   | 5,262      |                 |  |   | 23,847  |        
|Other current assets                                                                                                                     |                                            |                   | 2,818      |                 |  |   | 4,223   |        
|                                                                                                                                         |                                            |                   |            |                 |  |   |         |        
|                                                                                                                                         | Total current assets                       |                   |            | 118,853         |  |   |         | 213,789 | 
|Restricted investments                                                                                                                   |                                            |                   | 47,251     |                 |  |   | 27,944  |        
|Property plant and equipment, net                                                                                                        |                                            |                   | 59,467     |                 |  |   | 59,849  |        
|Goodwill                                                                                                                                 |                                            |                   | 104,752    |                 |  |   | 104,406 |        
|Intangibles, net                                                                                                                         |                                            |                   | 41,871     |                 |  |   | 17,216  |        
|Investments held to maturity                                                                                                             |                                            |                   | 6,000      |                 |  |   | 6,000   |        
|Other assets                                                                                                                             |                                            |                   | 59         |                 |  |   | 76      |        
|                                                                                                                                         |                                            |                   |            |                 |  |   |         |        
|                                                                                                                                         | Total assets                               |                   | $          | 378,253         |  |   | $       | 429,280 | 
|                                                                                                                                         |                                            |                   |            |                 |  |   |         |        
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                     |                                            |                   |            |                 |  |   |         |        
|Accounts payable                                                                                                                         |                                            | $                 | 12,910     |                 |  | $ | 5,751   |        
|Accrued expenses                                                                                                                         |                                            |                   | 37,913     |                 |  |   | 57,676  |        
|Current portion of long-term debt                                                                                                        |                                            |                   | 13,461     |                 |  |   | 14,875  |        
|Deferred revenue                                                                                                                         |                                            |                   | 22,650     |                 |  |   | 15,859  |        
|                                                                                                                                         |                                            |                   |            |                 |  |   |         |        
|                                                                                                                                         | Total current liabilities                  |                   |            | 86,933          |  |   |         | 94,161  | 
|Long-term debt                                                                                                                           |                                            |                   | 18,814     |                 |  |   | 24,231  |        
|Deferred revenue, long-term                                                                                                              |                                            |                   | 2,084      |                 |  |   | 1,563   |        
|Other liabilities                                                                                                                        |                                            |                   | 12,300     |                 |  |   | 12,895  |        
|                                                                                                                                         |                                            |                   |            |                 |  |   |         |        
|                                                                                                                                         | Total liabilities                          |                   |            | 120,132         |  |   |         | 132,850 | 
|                                                                                                                                         |                                            |                   |            |                 |  |   |         |        
|Commitments and contingencies                                                                                                            |                                            |                   |            |                 |  |   |         |        
|Common stock, $.01 par value, authorized 200 million shares; issued
and outstanding 137.2 million and 137.8 million shares, respectively |                                            |                   | 1,372      |                 |  |   | 1,378   |        
|Additional capital                                                                                                                       |                                            |                   | 286,240    |                 |  |   | 282,738 |        
|Warrants                                                                                                                                 |                                            |                   | 1,690      |                 |  |   | 1,690   |        
|Deferred compensation                                                                                                                    |                                            |                   | (2,757     | )               |  |   | (3,310  | )      
|Note receivable from shareholder                                                                                                         |                                            |                   | (2,735     | )               |  |   |        |        
|Retained earnings (accumulated deficit)                                                                                                  |                                            |                   | (25,689    | )               |  |   | 13,934  |        
|                                                                                                                                         |                                            |                   |            |                 |  |   |         |        
|                                                                                                                                         | Total shareholders equity                 |                   |            | 258,121         |  |   |         | 296,430 | 
|                                                                                                                                         |                                            |                   |            |                 |  |   |         |        
|                                                                                                                                         | Total liabilities and shareholders equity |                   | $          | 378,253         |  |   | $       | 429,280 | 
|                                                                                                                                         |                                            |                   |            |                 |  |   |         |        




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

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INTERLAND, INC.




CONSOLIDATED STATEMENTS OF CASH FLOWS


(In thousands)
(Unaudited)





|                                                                                                      |                                                                                                |                                                         |           |          |        |   |          |         |        |  
|----------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------- | ------------------------------------------------------- | --------- | -------- | ------ | - | -------- | ------- | ------ | -
|FOR THE SIX MONTHS ENDED                                                                              |                                                                                                | FEBRUARY 28,                                            |           | MARCH 1,
|                                                                                                      |                                                                                                | 2002                                                    |           | 2001    
|                                                                                                      |                                                                                                |                                                         |           |          |        |  
|                                                                                                      |                                                                                                |                                                         | (Restated | )        |        |   |          |        
|CASH FLOWS FROM OPERATING ACTIVITIES                                                                  |                                                                                                |                                                         |           |          |        |   |          |        
|Net loss                                                                                              |                                                                                                | $                                                       | (39,623   | )        |        | $ | (167,366 | )      
|Adjustments to reconcile net loss to net cash used in
operating activities from continuing operations |                                                                                                |                                                         |           |          |        |   |          |        
|                                                                                                      | Loss from discontinued operations                                                              |                                                         |           |         |        |   |          | 149,284 |       
|                                                                                                      | Depreciation and amortization                                                                  |                                                         |           | 15,370   |        |   |          | 11,263  |       
|                                                                                                      | Gain on sale of MCMS common stock                                                              |                                                         |           |         |        |   |          | (4,500  | )     
|                                                                                                      | Provision for doubtful accounts                                                                |                                                         |           | 3,003    |        |   |          | 1,197   |       
|                                                                                                      | Other non-cash adjustments                                                                     |                                                         |           | 1,475    |        |   |          |        |       
|                                                                                                      | Changes in operating assets and liabilities net of the effect
of the acquisition transactions: |                                                         |           |          |        |   |          |         |       
|                                                                                                      |                                                                                                | Receivables                                             |           |          | (9,201 | ) |          |         | (5,264 | )
|                                                                                                      |                                                                                                | Income tax recoverable                                  |           |          | 18,585 |   |          |         | (9,205 | )
|                                                                                                      |                                                                                                | Other current assets                                    |           |          | (131   | ) |          |         | 1,247  |  
|                                                                                                      |                                                                                                | Accounts
payable, accrued expenses and deferred revenue |           |          | (5,891 | ) |          |         | (7,040 | )
|                                                                                                      |                                                                                                | Other                                                   |           |          |       |   |          |         | 3,371  |  
|                                                                                                      |                                                                                                |                                                         |           |          |        |   |          |        
|Cash used in operating activities of continuing operations                                            |                                                                                                |                                                         | (16,413   | )        |        |   | (27,013  | )      
|                                                                                                      |                                                                                                |                                                         |           |          |        |   |          |        
|CASH FLOWS FROM INVESTING ACTIVITIES                                                                  |                                                                                                |                                                         |           |          |        |   |          |        
|Expenditures for property, plant and equipment                                                        |                                                                                                |                                                         | (7,481    | )        |        |   | (13,762  | )      
|Purchases of held-to-maturity investment securities                                                   |                                                                                                |                                                         | (29,300   | )        |        |   | (18,468  | )      
|Proceeds
from maturities of held-to-maturity investments                                              |                                                                                                |                                                         | 42,268    |          |        |   | 80,274   |        
|Deposits of restricted cash                                                                           |                                                                                                |                                                         | (19,161   | )        |        |   |         |        
|Proceeds from sale of MCMS stock                                                                      |                                                                                                |                                                         |          |          |        |   | 4,500    |        
|Acquisitions, net of cash acquired                                                                    |                                                                                                |                                                         | (9,757    | )        |        |   |         |        
|Notes issued to related party                                                                         |                                                                                                |                                                         | (2,735    | )        |        |   |         |        
|Other                                                                                                 |                                                                                                |                                                         |          |          |        |   | (7,199   | )      
|                                                                                                      |                                                                                                |                                                         |           |          |        |   |          |        
|Cash provided by (used in) investing activities of continuing operations                              |                                                                                                |                                                         | (26,166   | )        |        |   | 45,345   |        
|                                                                                                      |                                                                                                |                                                         |           |          |        |   |          |        
|CASH FLOWS FROM FINANCING ACTIVITIES                                                                  |                                                                                                |                                                         |           |          |        |   |          |        
|Repayments of debt                                                                                    |                                                                                                |                                                         | (9,510    | )        |        |   | (1,119   | )      
|Proceeds from issuance of common stock                                                                |                                                                                                |                                                         | 119       |          |        |   | 1,512    |        
|Purchase and retirement of stock                                                                      |                                                                                                |                                                         | (7,278    | )        |        |   |         |        
|                                                                                                      |                                                                                                |                                                         |           |          |        |   |          |        
|Cash provided by (used in) financing activities of continuing operations                              |                                                                                                |                                                         | (16,669   | )        |        |   | 393      |        
|                                                                                                      |                                                                                                |                                                         |           |          |        |   |          |        
|Net cash provided by (used in) continuing operations                                                  |                                                                                                |                                                         | (59,248   | )        |        |   | 18,725   |        
|Net cash used in discontinued operations                                                              |                                                                                                |                                                         | (8,846    | )        |        |   | (85,669  | )      
|                                                                                                      |                                                                                                |                                                         |           |          |        |   |          |        
|Net decrease in cash and cash equivalents                                                             |                                                                                                |                                                         | (68,094   | )        |        |   | (66,944  | )      
|                                                                                                      |                                                                                                |                                                         |           |          |        |   |          |        
|Cash and cash equivalents at beginning of period                                                      |                                                                                                |                                                         | 142,675   |          |        |   | 200,003  |        
|                                                                                                      |                                                                                                |                                                         |           |          |        |   |          |        
|Cash and cash equivalents at end of period                                                            |                                                                                                | $                                                       | 74,581    |          |        | $ | 133,059  |        
|                                                                                                      |                                                                                                |                                                         |           |          |        |   |          |        




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

5



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INTERLAND, INC.




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


1.     GENERAL

BUSINESS  Interland, Inc. (known as Micron Electronics, Inc. prior to August
6, 2001), together with its subsidiaries (collectively the Company), is a
leading Web hosting company that offers a broad range of business-to-business
Internet products and services, including 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, which are
reported as discontinued operations  See Footnote 3. Discontinued Operations.
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 Web hosting business has incurred net losses
and losses from operations for each period from inception through the first six
months of fiscal 2002, and anticipates incurring losses for at least the next
two years. The Company does not expect to generate positive cash flow from
operations until the end of fiscal 2002. The Company expects to have adequate
cash resources to fund operations during this period. The Companys future
success is dependent upon its ability to achieve positive cash flow prior to the
depletion of cash resources and its ability to raise funds, if needed.
Management cannot assure that the Company will be cash flow positive in the
future under its current Web and applications hosting model or that it will be
able to raise funds. The Companys current financial forecast indicates that
there are sufficient cash resources on hand until the Company reaches positive
cash flow.

2.     SIGNIFICANT ACCOUNTING POLICIES

INTERIM UNAUDITED FINANCIAL INFORMATION  The accompanying unaudited
consolidated financial statements as of February 28, 2002 and March 1, 2001 and
for the three and six month periods then ended, have been prepared in accordance
with generally accepted accounting principles for interim financial information.
In managements opinion, these statements include all adjustments necessary for
a fair presentation of the results of the interim periods shown. All adjustments
are of a normal recurring nature unless otherwise disclosed. Operating results
for the three and six month periods ended February 28, 2002 are not necessarily
indicative of the results that may be expected for the full year.

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

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

BASIS OF PRESENTATION  This report on Form 10-Q (10-Q) for the second quarter
ended February 28, 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, 2001. The
Companys operations are reported on a fiscal basis. During fiscal year 2001,
the Company changed its year-end from a 52 or 53-week period ending on the
Thursday closest to August 31, to a fiscal year and quarter ending on the
calendar month-end. All references to periods including annual and quarterly are
on a fiscal basis.

6



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##### Table of Contents



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

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

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

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. Because the Company
has reported a loss from continuing operations during each period reported, the
effect of dilutive securities is excluded from the calculation of per share
amounts.

RECENTLY ISSUED ACCOUNTING STANDARDS  In July 2001, the FASB issued SFAS No.
142, Goodwill and Other Intangible Assets. SFAS No. 142 addresses the
financial accounting and reporting for goodwill and other intangible assets
subsequent to their acquisition. SFAS No. 142 requires that intangible assets be
amortized over their useful lives unless that life is determined to be
indefinite. Intangible assets shall be evaluated annually to determine whether
events and circumstances continue to support an indefinite useful life. An
intangible asset that is not subject to amortization shall be tested for
impairment annually or more frequently if events or changes in circumstances
indicate that the asset might be impaired. The Company adopted SFAS No. 142
during the first quarter of fiscal 2002, which eliminated goodwill amortization
starting in fiscal 2002. The Company has performed the first of the required
impairment tests of goodwill existing as of September 1, 2001 and has
determined that goodwill is not impaired.

3.     DISCONTINUED OPERATIONS

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

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

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

PC SYSTEMS

On May 31, 2001, the Company sold its PC Systems business to GTG PC Holdings,
LLC (GTG PC), an affiliate of the Gores Technology Group. Under the terms of
the agreement, GTG PC received assets, which included $76.5 million in cash, and
assumed specified liabilities of the PC Systems business. The loss on disposal
was $212.2 million. Included in the loss on disposal are employee termination
costs of approximately $15.4 million, of which $0.0 million and $0.3 million is
included in the accompanying consolidated Balance Sheets under Accrued
liabilities at February 28, 2002 and August 31, 2001, respectively. The Company
retained all liabilities of the PC Systems business not assumed by GTG PC,
including, for example, liabilities for taxes arising prior to the closing of
the transaction, employee termination and related expenses, and any contingent
liabilities arising prior to the closing date. In addition, the Company has
agreed for a period of three years not to compete with the PC Systems business,
and for two years, not to solicit or hire prior employees of the PC Systems
business. For a transition period after the closing of the purchase, GTG PC
7Table of Contents

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

agreed to provide some information technology, financial, telecommunications and
human resources services to the Company at its cost plus 10% during the first
four months after the closing, and at its cost plus 25% for the following two
months.

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

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

SPECTEK

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

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

|                                                       |  |                       |          |                          |  |   |          |  
|------------------------------------------------------ |  | --------------------- | -------- | ------------------------ |  | - | -------- | -
|                                                       |  | FOR THE QUARTER ENDED |          | FOR THE SIX MONTHS ENDED
|                                                       |  | MARCH 1, 2001         |          | MARCH 1, 2001           
|                                                       |  |                       |          |                         
|(In thousands)                                         |  |                       |          |                          |  |   |          |  
|Net sales                                              |  |                       | 298,052  |                          |  | $ | 688,562  |  
|                                                       |  |                       |          |                          |  |   |          |  
|Loss before income taxes                               |  |                       | (16,468  | )                        |  |   | (2,239   | )
|Income tax benefit                                     |  |                       | 4,730    |                          |  |   | 455      |  
|                                                       |  |                       |          |                          |  |   |          |  
|Loss from discontinued operations, net of tax          |  |                       | (11,738  | )                        |  |   | (1,784   | )
|Loss on disposal of discontinued operations net of tax |  |                       | (147,500 | )                        |  |   | (147,500 | )
|                                                       |  |                       |          |                          |  |   |          |  
|Loss from discontinued operations, net of tax          |  | $                     | (159,238 | )                        |  | $ | (149,284 | )
|                                                       |  |                       |          |                          |  |   |          |  

8



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##### Table of Contents



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

4.     RESTRUCTURING, MERGER AND INTEGRATION COSTS

During the fourth quarter of fiscal year 2001, the Company approved and
implemented a restructuring program in connection with its acquisition of
Interland-Georgia. The restructuring plan provides for the consolidation of the
Companys operations and elimination of duplicative facilities. The Company
expects to complete merger and integration activities by August 31, 2002.
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 liability related to this by restructuring program was $10.8 million and
$12.5 million at February 28, 2002 and August 31, 2001, respectively. The
Company expects to pay these liabilities by August 31, 2004. The following
schedule reflects the changes in the accrual for the six months ended
February 28, 2002:

|                             |                   |              |       |                  |   |          |       |       |             |   |          |      |   |   |        |        |  
|---------------------------- | ----------------- | ------------ | ----- | ---------------- | - | -------- | ----- | ----- | ----------- | - | -------- | ---- | - | - | ------ | ------ | -
|                             |                   |              |       |                  |   |          |       |       |             |   | Employee |      |   |   |       
|                             |                   |              | Lease |                  |   |          |       |       | termination |   |          |      |  
|(In thousands)               |                   | abandonments |       | Other exit costs |   | benefits |       | Total
|                             |                   |              |       |                  |   |          |       |      
|Balance at August 31, 2001   |                   | $            | 8,721 |                  |   | $        | 3,528 |       |             | $ | 229      |      |   | $ | 12,478 |       
|                             | Cash paid         |              |       | (746             | ) |          |       | (409  | )           |   |          | (229 | ) |   |        | (1,384 | )
|                             | Other adjustments |              |       |                 |   |          |       | (318  | )           |   |          |     |   |   |        | (318   | )
|                             |                   |              |       |                  |   |          |       |       |             |   |          |      |   |   |        |       
|Balance at February 28, 2002 |                   | $            | 7,975 |                  |   | $        | 2,801 |       |             | $ |         |      |   | $ | 10,776 |       
|                             |                   |              |       |                  |   |          |       |       |             |   |          |      |   |   |        |       

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. In connection with the
sale of the consumer dial-up accounts to SolutionPro, Inc., the Company assigned
and transferred certain data connectivity contracts to SolutionPro, which
released the Company from future termination penalties that had previously been
accrued during the restructuring program. As such, the Company reversed the
accrual for these termination penalties for which it is no longer obligated to
pay. The amount of the adjustment is included in the above table as Other
adjustments.




The Company has additional costs included in Merger and
integration costs totaling $3.7 million and $7.1 million for the quarter and
for the six month period ended February 28, 2002 for financial advisory
services, legal, accounting, relocation, employee stay bonuses and
other non-capitalizable
expenses directly related to the merger and integration with Interland-Georgia. Included in the second quarter charge was approximately
$1.1 million of employee severance, termination benefits and non-cash stock
compensation expense for a reduction of the workforce of approximately 38
employees, of which approximately $0.4 million is included in the accompanying
consolidated Balance Sheets under Accrued liabilities at February 28, 2002.




5.     ACQUISITIONS




In October 2001 and January 2002, the Company acquired the small-focused shared
and dedicated Web hosting businesses of Interliant, Inc. and AT&T, respectively,
resulting in the recognition of approximately $17.0 million of acquired
intangible assets. These intangible assets will be amortized over a three year
useful life.




On February 8, 2002, the Company acquired 100 percent of the outstanding common
shares of CommuniTech.Net, Inc. by issuing 5,375,000 shares of the Companys
common stock in exchange for all shares of CommuniTech.Net common stock. The
value of the common shares issued was determined based on the average market
price of the Companys common shares over the 2-day period before and after the
terms of the acquisition were agreed to and announced on February 8, 2002. The
results of CommuniTech.Nets operations have been included in the consolidated
financial statements since the date of acquisition. CommuniTech.Net is a Kansas
City, Missouri-based Web and applications hosting company serving small and
medium-sized businesses. The aggregate purchase price was $11.2 million,
including equity issued with a value of $10.8 million and estimated direct
acquisition costs of $0.4 million.

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##### Table of Contents



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

In connection with the acquisition of CommuniTech.Net, the Company holds two
notes receivable with balances totaling $2.7 million at February 28, 2002 from a
seller of CommuniTech.Net. These notes, which bear interest at the rate of 5%
per annum, mature on February 8, 2004 with interest only payments due quarterly.
The loans are collateralized by 2,735,275 shares of the Companys common stock.
The receivable is shown on the balance sheet as a reduction in equity.

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

|                       |                     |   |            |        | 
|---------------------- | ------------------- | - | ---------- | ------ | 
|                       |                     |   | Fair Value
|                       |                     |   |           
|(In thousands)         |                     |   |            |       
|Current assets         |                     | $ | 502        |       
|Property and equipment |                     |   | 3,487      |       
|Intangible assets      |                     |   | 10,804     |       
|Liabilities            |                     |   | (3,617     | )     
|                       |                     |   |            |       
|                       | Net assets acquired |   | $          | 11,176 | 
|                       |                     |   |            |       

The Company is in the process of finalizing the purchase price allocation in
accordance with SFAS No. 141, Business Combinations. The Company expects to
finalize the purchase price allocation in the third quarter.

6.     ACQUIRED INTANGIBLES AND GOODWILL




|                                |                                            |   |                         |        |              |   |       |       | 
|------------------------------- | ------------------------------------------ | - | ----------------------- | ------ | ------------ | - | ----- | ----- | 
|                                |                                            |   | As of February 28, 2002
|                                |                                            |   |                        
|                                |                                            |   | Gross Carrying          |        | Accumulated 
|                                |                                            |   | Amount                  |        | Amortization
|                                |                                            |   |                         |        |             
|(In Thousands)                  |                                            |   |                         |        |              |   |       |      
|Amortizable intangible assets:  |                                            |   |                         |        |              |   |       |      
|                                | Core technology                            |   | $                       | 12,000 |              |   | $     | 1,400 | 
|                                | Customer account acquisitions              |   |                         | 17,000 |              |   |       | 1,400 | 
|                                | Trademarks                                 |   |                         | 4,900  |              |   |       | 400   | 
|                                | Other intangible assets                    |   |                         | 11,400 |              |   |       | 200   | 
|                                |                                            |   |                         |        |              |   |       |      
|Total                           |                                            | $ | 45,300                  |        |              | $ | 3,400 |      
|Aggregate amortization expense: |                                            |   |                         |        |              |   |       |      
|                                | For the six months ended February 28, 2002 |   | $                       | 3,200  |              |   |       |       | 
|Estimated amortization expense: |                                            |   |                         |        |              |   |       |      
|                                | For the year ended August 31, 2002         |   |                         | 8,039  |              |   |       |       | 
|                                | For the year ended August 31, 2003         |   |                         | 9,700  |              |   |       |       | 
|                                | For the year ended August 31, 2004         |   |                         | 9,500  |              |   |       |       | 
|                                | For the year ended August 31, 2005         |   |                         | 4,838  |              |   |       |       | 
|                                | For the year ended August 31, 2006         |   |                         | 2,900  |              |   |       |       | 




Other intangible assets include approximately $10.8 million related to the
acquisition of CommuniTech.Net. No amortization expense related to the $10.8
million is included in the above estimated amortization expense. Upon completion
of the purchase price allocation, amounts will be allocated to the appropriate
intangible assets and the remaining balance will be recorded to goodwill. The
Company anticipates finalizing the purchase price allocation during the third
quarter.

10



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##### Table of Contents



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

All intangible assets are amortized on a straight line basis over a weighted
average of 4 years. Core technology is amortized over a weighted average of 5
years, Trademarks are amortized over a weighted average of 7 years and all other
intangible assets are amortized on a weighted average of 3 years.

In connection with the adoption of SFAS No. 142, Goodwill and Other Intangible
Assets, the following table discloses the Companys loss and loss per share
adjusted to exclude amortization of goodwill for all periods presented prior to
the adoption of SFAS 142:

|                                                                     |  |                       |        |                          |  |   |         |  
|-------------------------------------------------------------------- |  | --------------------- | ------ | ------------------------ |  | - | ------- | -
|                                                                     |  | For the quarter ended |        | For the six months ended
|                                                                     |  | March 1,              |        | March 1,                
|                                                                     |  | 2001                  |        | 2001                    
|                                                                     |  |                       |        |                         
|(In thousands)                                                       |  |                       |        |                          |  |   |         |  
|Loss from continuing operations                                      |  | $                     | (9,704 | )                        |  | $ | (18,082 | )
|Add back goodwill amortization                                       |  |                       | 1,707  |                          |  |   | 3,395   |  
|                                                                     |  |                       |        |                          |  |   |         |  
|Adjusted loss from continuing operations:                            |  | $                     | (7,997 | )                        |  | $ | (14,687 | )
|                                                                     |  |                       |        |                          |  |   |         |  
|Basic and diluted loss per share                                     |  |                       |        |                          |  |   |         |  
|Continuing operations                                                |  |                       | (0.10  | )                        |  |   | (0.19   | )
|Goodwill amortization                                                |  |                       | .02    |                          |  |   | .04     |  
|                                                                     |  |                       |        |                          |  |   |         |  
|Adjusted basic and diluted loss per share from
Continuing operations |  | $                     | (.08   | )                        |  | $ | (0.15   | )

7.     ACCRUED EXPENSES

|                                        |  |                   |        |                 |  |   |        | 
|--------------------------------------- |  | ----------------- | ------ | --------------- |  | - | ------ | 
|                                        |  | February 28, 2002 |        | August 31, 2001
|                                        |  |                   |        |                
|(In thousands)                          |  |                   |        |                 |  |   |        | 
|Accrued payroll and related liabilities |  | $                 | 5,013  |                 |  | $ | 7,694  | 
|Taxes payable                           |  |                   | 592    |                 |  |   | 559    | 
|Accrued restructuring liabilities       |  |                   | 10,776 |                 |  |   | 12,478 | 
|Acquisition related liabilities         |  |                   | 14,291 |                 |  |   | 8,837  | 
|Accrued lease payments                  |  |                   | 1,868  |                 |  |   | 3,398  | 
|Accrued legal liabilities               |  |                   | 1,003  |                 |  |   | 3,153  | 
|Accrued professional fees               |  |                   | 144    |                 |  |   | 2,070  | 
|Other                                   |  |                   | 4,226  |                 |  |   | 19,487 | 
|                                        |  |                   |        |                 |  |   |        | 
|                                        |  | $                 | 37,913 |                 |  | $ | 57,676 | 
|                                        |  |                   |        |                 |  |   |        | 

8.     LOSS ON SALE OF CONNECTIVITY ACCOUNTS

On January 31, 2002, the Company entered into an agreement to sell substantially
all of its Boise-based consumer dial-up accounts and certain data center assets
to SolutionPro, Inc. The sale resulted in a net loss of $1.0 million, which is
reported in the Statement of Operations under Other expense (income), net. The
sale of these accounts is not expected to have a substantial impact on operating
income and cash flows.

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

9.     CONTINGENCIES



On October 2, 2001, Capetronic Computer USA filed a Complaint in Dallas County,
Texas Court seeking damages of approximately $2.1 million for goods purchased by
the Companys PC Systems business. The Company removed the case to federal court
in the Northern District of Texas, Dallas Division, and counterclaimed for legal
fees Capetronic agreed to indemnify the Company for costs that were incurred on an
unrelated patent lawsuit. These legal fees amount to approximately $1.3
million. This claim is currently in the early stages of discovery, and the
Company is therefore unable to estimate total expenses, possible loss or range
of loss that may ultimately be connected with the matter. A Tolling and Dispute
Resolution Agreement was entered between the parties on January 21, 2002, in
Dallas County, Texas, and the lawsuit was dismissed on February 22, 2002. In
connection with the Tolling and Dispute Resolution Agreement the Company paid
$700,000 to Capetronic Computer USA. The parties are working to negotiate final
resolution, subject to an arbitration requirement if a negotiated settlement
cannot be reached.





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

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

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

10.     COMMON STOCK AND RELATED MATTERS

During the quarter ended February 28, 2002, the Micron Technology Foundation,
which beneficially owned approximately 43% of the Companys common stock, sold
all its approximately 58.6 million shares of the Companys common stock to
institutional investors, together with the Company and four of its directors.
The Company repurchased approximately 5.8 million shares of common stock from
the Foundation at an aggregate cost of $7.3 million. These shares have been
retired.

11.     OPERATING SEGMENT INFORMATION

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

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

12.     SUBSEQUENT EVENTS

On March 9, 2002, the US Government passed an economic stimulus package entitled
the Job Creation and Worker Assistance Act of 2002. This law contains a
business provision that temporarily extends the general tax NOL carryback period
to five years. The five-year carryback period is available for tax losses
occurring in 2001 and 2002. The Company estimates the carryback of these losses
will result in a tax refund of approximately $60 million. The effects of this
tax law change will be recorded during the third quarter of the Companys fiscal
year and the Company anticipates receiving this refund before the end of fiscal
year 2002.



13.     RESTATEMENT OF QUARTERLY FINANCIAL STATEMENTS The Company is restating its financial statements
for the period ended February 28, 2002 to correct an inadvertent
error. The error resulted from an incorrect calculation of deferred
revenue on month-to-month customer accounts and caused revenue for
the quarter and the six months ended February 28, 2002 to be
overstated by approximately $0.3 million and $1.3 million,
respectively. Approximately $0.3 million of the error was an
understatement of deferred revenue assumed during one of the
Companys account acquisitions, which resulted in a
corresponding increase to the related customer account acquisition
intangible asset. In this Form 10-Q/A, references or comparisons
to results in the second quarter and six months of 2002 are to be
restated results. The effects of the restatement are as follows:







|                              |                                               |                       |   |                          |   |             |   |          |   |  |   |         |   |  |   |         |  
|----------------------------- | --------------------------------------------- | --------------------- | - | ------------------------ | - | ----------- | - | -------- | - |  | - | ------- | - |  | - | ------- | -
|                              |                                               |                       |   |                         
|                              |                                               | For the quarter ended |   | For the six months ended
|                              |                                               |                       |   |                         
|                              |                                               |                       |   |                         
|                              |                                               | February 28, 2002     |   | February 28, 2002       
|                              |                                               |                       |   |                         
|Statement
of Operations Data: |                                               | As reported           |   | Restated                 |   | As reported |   | Restated
|                              |                                               |                       |   |                          |   |             |   |         
|                              | Revenues                                      |                       | $ | 25,542                   |   |             | $ | 25,245   |   |  | $ | 50,415  |   |  | $ | 49,165  |  
|                             
|                             
|                             
|                             
|                              | Gross margin                                  |                       |   | 11,753                   |   |             |   | 11,456   |   |  |   | 22,492  |   |  |   | 21,242  |  
|                             
|                             
|                             
|                             
|                              | Gross margin - %                              |                       |   | 46.0                     | % |             |   | 45.4     | % |  |   | 44.6    | % |  |   | 43.2    | %
|                             
|                             
|                             
|                             
|                              | Loss from operations                          |                       |   | (19,622                  | ) |             |   | (19,919  | ) |  |   | (38,692 | ) |  |   | (30,942 | )
|                             
|                             
|                             
|                             
|                              | Loss before taxes and discontinued operations |                       |   | (19,554                  | ) |             |   | (19,851  | ) |  |   | (38,373 | ) |  |   | (39,623 | )
|                             
|                             
|                             
|                             
|                              | Net loss                                      |                       |   | (19,554                  | ) |             |   | (19,851  | ) |  |   | (38,373 | ) |  |   | (39,623 | )
|                             
|                             
|                             
|                             
|                              | Loss per share                                |                       | $ | (0.14                    | ) |             | $ | (0.14    | ) |  | $ | (0.28   | ) |  | $ | (0.29   | )
|                             
|Balance Sheet Data:           |                                               | February 28, 2002     |   |                          |   |             |   |          |   | 
|                              |                                               |                       |   |                          |   |             |   |          |   | 
|                              | Intangibles, net                              |                       | $ | 41,594                   |   |             | $ | 41,871   |   |  |   |         |   |  |   |         |  
|                             
|                             
|                             
|                             
|                              | Total assets                                  |                       |   | 377,976                  |   |             |   | 378,253  |   |  |   |         |   |  |   |         |  
|                             
|                             
|                             
|                             
|                              | Deferred revenues (current and long-term)     |                       |   | 23,208                   |   |             |   | 24,734   |   |  |   |         |   |  |   |         |  
|                             
|                             
|                             
|                             
|                              | Total liabilities                             |                       |   | 118,606                  |   |             |   | 120,132  |   |  |   |         |   |  |   |         |  
|                             
|                             
|                             
|                             
|                              | Total shareholders equity                    |                       | $ | 259,370                  |   |             | $ | 258,121  |   |  |   |         |   |  |   |         |  




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

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

All quarterly references are to the Companys fiscal periods ended February 28,
2002, August 31, 2001, or March 1, 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 offering a broad range of
business-class hosting products and services, including shared and dedicated
hosting services, electronic commerce and other applications hosting services,
and other Web hosting-related products and services. Historically, the Company
had provided a variety of computer products and related services through its PC
Systems, SpecTek, and Web hosting business segments. During fiscal 2001, the
Company discontinued its PC Systems business, its computer manufacturing
business, and SpecTek, its memory products business. See the note entitled
Discontinued Operations to the accompanying consolidated financial statements.
Following the disposition of these business segments, the Company has become a
Web hosting company.

The Company was originally established on April 7, 1995 as Micron Electronics,
Inc. through the merger of three businesses: Micron Computer, Inc., Micron
Custom Manufacturing Services, Inc. and ZEOS International, LTD. The Web hosting
business, the Companys continuing operation, was developed through the
acquisition and integration of six companies between 1999 and 2002. On August 2,
1999, the Company acquired 100% of the outstanding stock of NetLimited, Inc.
d.b.a. HostPro, a Web and applications hosting provider. On September 2, 1999,
the Company acquired the property and equipment of Micron Internet Services,
formerly a division of Micron Technology, a provider of dedicated, nationwide
dial-up and broadband Internet access, virtual private network solutions and
e-commerce services. On December 14, 1999, the Company acquired LightRealm, Inc.
a Kirkland, Washington-based Web and applications hosting and Internet access
company serving small- and medium-sized businesses. On March 16, 2000, the
Company acquired Worldwide Internet Publishing Corporation, a Boca-Raton,
Florida-based Web hosting company that also served small- and medium-sized
businesses. On August 6, 2001, the Company acquired Interland, Inc.
(Interland-Georgia), an Atlanta, Georgia-based provider of a broad range of
Web hosting, applications hosting and other related Web-based business solutions
specifically designed to meet the needs of small- and medium-sized businesses.
In connection with the acquisition of Interland-Georgia, Micron Electronics,
Inc. changed its name to Interland, Inc. and its trading symbol to INLD. On
November 30, 2001, Interland-Georgia was merged into the Company. On October 29,
2001, the Company announced the acquisition of the small business-focused shared
and unmanaged dedicated retail Web hosting business of Interliant, Inc. On
January 25, 2002, the Company announced the acquisition of the small business-
focused shared and dedicated Web hosting assets of AT&T relating to AT&T
small-business hosting service and business ready dedicated hosting services. On
February 8, 2002, the Company acquired CommuniTech.Net, Inc., a Kansas City,
Missouri-based Web hosting company. The Companys principal executive offices
are located in Atlanta, Georgia.

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

Interlands business is rapidly evolving and has a limited operating history. As
a result, the Company believes that period-to-period comparisons of its revenues
and operating results, including its cost of revenues and other operating
expenses as a percentage of total

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

revenue, are not meaningful and should not be relied upon as indicators of
future performance. The Company does not believe that its historical growth
rates are an indication of future results.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management based this discussion and analysis of our financial condition and
results of operations upon our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our critical accounting policies
and estimates, including those related to revenue recognition, valuation of
accounts receivable, property, plant and equipment, long-lived assets,
intangible assets, and contingencies. We base our estimates on historical
experience and on various other assumptions that we believe to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.

We believe the following critical accounting policies affect the more
significant judgments and estimates used in the preparation of our consolidated
financial statements. These judgments and estimates affect the reported amounts
of assets and liabilities and the reported amounts of revenues and expenses
during the reporting periods. Changes to these judgments and estimates could
adversely affect the Companys future results of operations and cash flows.



| |  |  | Revenue Recognition. Revenues from continuing operations are
primarily generated from shared and dedicated hosting
services, e-commerce services, applications hosting, domain
name registration services, and other Web hosting-related
products and services. Revenues are recognized as the services
are provided. Hosting contracts generally are for service
periods ranging from one to 24 months and typically require
payments in advance. These payments, including set-up fees for
hosting services, are deferred and recognized ratably over our
estimate of the customers expected service period. Deferred
revenues represent the liability for advance billings to
customers for services not yet provided.                                                                                                                                                                                                                                                                       
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Valuation of Accounts Receivable. A considerable amount of
judgment is required when we assess the ultimate realization
of receivables, including assessing the probability of
collection and the current credit-worthiness of our customers.
Significant portions of customer payments are made by credit
cards. Each month management reviews historical charge-back
and cancellation patterns and records an allowance based on
historical results as well as management judgment.
Additionally, each month management reviews the aged
receivables balance and records an allowance for uncollectible
accounts based on the age of the outstanding receivable
balances, trends in outstanding balances and management
judgment. As a result of these analyses, we believe the
current allowance is adequate to cover any bad debts as of the
date of the balance sheet. Actual results differing from this
estimate could have a material impact on our results of
operations and cash flows.
|
| |  |  | Property, Plant and Equipment. We utilize significant amounts
of property, plant and equipment in providing service to our
customers. We utilize straight-line depreciation for property
and equipment over our estimate of their useful lives. Changes
in technology or changes in the intended use of property,
plant and equipment may cause the estimated period of use or
the value of these assets to change. We perform an annual
analysis to confirm the appropriateness of estimated economic
useful lives for each category of current property, plant, and
equipment. Additionally, long-lived assets are reviewed for
impairment whenever events or changes in circumstances
indicate that their carrying amounts may not be recoverable.
Estimates and assumptions used in both setting depreciable
lives and testing for recoverability require both judgment and
estimates.                                                                                                       
|
| |  |  | Goodwill and Intangible Assets. We periodically evaluate
goodwill and intangible assets for potential impairment
indicators. If impairment indicators exist we measure the
impairment through the use of discounted cash flows. Our
judgments regarding the existence of impairment indicators are
based on legal factors, market conditions, and operational
considerations. Future events could cause us to conclude that
impairment indicators exist and that goodwill and other
intangible assets associated with our acquired businesses are
impaired. Goodwill is no longer amortized, but instead is
subject to impairment tests at least annually. Other
intangible assets are amortized over our estimate of their
period of benefit.                                                                                                                                                                                                                                                   

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



| |  |  | Contingencies. We are subject to proceedings, lawsuits and
other claims related to class action lawsuits and other legal
and regulatory proceedings that arise in the ordinary course
of business. We are required to assess the likelihood of any
adverse judgments or outcomes to these matters as well as
potential ranges of probable losses. A determination of the
amount of loss accrual required, if any, for these
contingencies are made after careful analysis of each
individual issue. We consult with legal counsel and other
experts where necessary to assess any contingencies. The
required accrual may change in the future due to new
developments in each matter or changes in approach such as a
change in settlement strategy in dealing with these matters.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Discontinued Operations. In connection with the 2001 sale and
discontinuance of our operations related to our PC Systems and
Spectek businesses, we recorded an estimate of all retained
liabilities. Such amount is subject to final determination
with the purchaser, which could result in a revision in the
estimated loss on disposal of discontinued operations. Actual
results differing from our estimates related to our
discontinued operations could have a material impact on our
financial position and liquidity and require additional losses
from discontinued operations.                                                                                                                                                                                         
|
| |  |  | Restructuring and Acquisition Related Liabilities. We have
remaining reserves related to our restructuring program
approved and implemented in the fourth quarter of fiscal year
2001 in connection with our acquisition of Interland-Georgia.
These remaining liabilities represent our estimate of future
lease payments for data centers and office facilities being
exited that cannot be recovered through subleases and
termination penalties for bandwidth and data connectivity
contracts we are no longer utilizing.                                                                                                                                                                                                                                                      

RESULTS OF CONTINUING OPERATIONS

The Companys consolidated financial information presents the net effect of
discontinued operations separate from the results of the Companys continuing
operations. The Companys financial results only reflect the results of
Interland-Georgia and CommuniTech.Net from the dates of acquisition forward.
Historical financial information has been reclassified to present consistently

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

the discontinued operations, and the discussion and analysis that follows
generally focuses on continuing operations. The following table sets forth, for
the periods indicated, items included in the Companys consolidated statements
of operations, stated as a percentage of revenues:




|                                             |                                        |                          |       |                       |       |                          |        |              |       |          |       |      |       |  |       |       |       | 
|-------------------------------------------- | -------------------------------------- | ------------------------ | ----- | --------------------- | ----- | ------------------------ | ------ | ------------ | ----- | -------- | ----- | ---- | ----- |  | ----- | ----- | ----- | 
|                                             |                                        |                          |       | For the quarter ended |       | For the six months ended
|                                             |                                        |                          |       |                       |       |                         
|                                             |                                        |                          |       | FEBRUARY 28,          |       | March 1,                 |        | FEBRUARY 28, |       | March 1,
|                                             |                                        |                          |       | 2002                  |       | 2001                     |        | 2002         |       | 2001    
|                                             |                                        |                          |       |                       |       |                          |        |              |       |         
|Revenues                                     |                                        |                          | 100.0 | %                     |       |                          | 100.0  | %            |       |          | 100.0 | %    |       |  | 100.0 | %    
|Cost of revenues                             |                                        |                          | 54.6  |                       |       |                          | 63.6   |              |       |          | 56.8  |      |       |  | 66.9  |      
|                                             |                                        |                          |       |                       |       |                          |        |              |       |          |       |      |       |  |       |      
|                                             | Gross margin                           |                          |       | 45.4                  |       |                          |        | 36.4         |       |          |       | 43.2 |       |  |       | 33.1  |      
|                                             |                                        |                          |       |                       |       |                          |        |              |       |          |       |      |       |  |       |      
|Operating expenses:                          |                                        |                          |       |                       |       |                          |        |              |       |          |       |      |       |  |       |      
|                                             | Sales, marketing and technical support |                          |       | 54.5                  |       |                          |        | 60.1         |       |          |       | 54.8 |       |  |       | 65.2  |      
|                                             | General and administrative             |                          |       | 42.6                  |       |                          |        | 72.7         |       |          |       | 48.5 |       |  |       | 76.7  |      
|                                             | Bad debt expense                       |                          |       | 9.6                   |       |                          |        | 6.1          |       |          |       | 6.1  |       |  |       | 4.3   |      
|                                             | Restructuring costs                    |                          |       | (1.3                  | )     |                          |        |             |       |          |       | (0.6 | )     |  |       |      |      
|                                             | Merger and integration costs           |                          |       | 14.8                  |       |                          |        |             |       |          |       | 14.4 |       |  |       |      |      
|                                             | Other expense (income), net            |                          |       | 4.1                   |       |                          |        | 2.9          |       |          |       | 1.3  |       |  |       | (14.2 | )    
|                                             |                                        |                          |       |                       |       |                          |        |              |       |          |       |      |       |  |       |      
|                                             |                                        | Total operating expenses |       |                       | 124.3 |                          |        |              | 141.9 |          |       |      | 124.5 |  |       |       | 132.0 | 
|Operating loss                               |                                        |                          | (78.9 | )                     |       |                          | (105.5 | )            |       |          | (81.3 | )    |       |  | (98.9 | )    
|Loss on investments, net                     |                                        |                          |      |                       |       |                          | (10.4  | )            |       |          |      |      |       |  | (10.3 | )    
|Interest income, net                         |                                        |                          | 0.3   |                       |       |                          | 17.9   |              |       |          | 0.6   |      |       |  | 15.7  |      
|                                             |                                        |                          |       |                       |       |                          |        |              |       |          |       |      |       |  |       |      
|Loss from continuing operations before taxes |                                        |                          | (78.6 | )                     |       |                          | (98.0  | )            |       |          | (80.7 | )    |       |  | (93.4 | )    
|Income tax benefit                           |                                        |                          |      |                       |       |                          | 30.9   |              |       |          |      |      |       |  | 28.8  |      
|                                             |                                        |                          |       |                       |       |                          |        |              |       |          |       |      |       |  |       |      
|Loss from continuing operations              |                                        |                          | (78.6 | )%                    |       |                          | (67.1  | )%           |       |          | (80.7 | )%   |       |  | (64.6 | )%   
|                                             |                                        |                          |       |                       |       |                          |        |              |       |          |       |      |       |  |       |      




REVENUES




|                |  |                       |        |                          |  |              |        |          |  |   |        |  |  |   |        | 
|--------------- |  | --------------------- | ------ | ------------------------ |  | ------------ | ------ | -------- |  | - | ------ |  |  | - | ------ | 
|                |  | For the quarter ended |        | For the six months ended
|                |  |                       |        |                         
|                |  | FEBRUARY 28,          |        | March 1,                 |  | FEBRUARY 28, |        | March 1,
|                |  | 2002                  |        | 2001                     |  | 2002         |        | 2001    
|                |  |                       |        |                          |  |              |        |         
|Hosting revenue |  | $                     | 23,581 |                          |  | $            | 9,977  |          |  | $ | 45,113 |  |  | $ | 18,610 | 
|Other revenue   |  |                       | 1,664  |                          |  |              | 4,489  |          |  |   | 4,052  |  |  |   | 9,382  | 
|                |  |                       |        |                          |  |              |        |          |  |   |        |  |  |   |        | 
|Total Revenues  |  | $                     | 25,245 |                          |  | $            | 14,466 |          |  | $ | 49,165 |  |  | $ | 27,992 | 
|                |  |                       |        |                          |  |              |        |          |  |   |        |  |  |   |        | 







Total revenues increased $10.8 million, or
74.5%, and $21.2 million, or 75.6%,
respectively, for the quarter and for the six months ended February 28, 2002
when compared to the same periods of the prior fiscal year. Revenues for the
first two quarters of 2002 reflect the acquisition of Interland-Georgia.

Hosting revenues increased 136.3% to
$23.6 million and 142.4% to $45.1 million,
respectively, for the quarter and for the six months ended February 28, 2002
when compared to the same periods from the prior fiscal year. Hosting revenues
are comprised of shared and dedicated hosting services and domain name
registrations. The growth in hosting revenues has been driven by new customer
growth, acquisitions, and upgrading existing customers. The Company maintained
nearly 400,000 paid hosted Web sites at the end of the second quarter of fiscal
2002, compared to approximately 138,000 at the end of the second quarter of
fiscal 2001.




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




Other revenues decreased 62.9% to $1.7 million
and 56.8% to $4.1 million,
respectively, for the quarter and for the six months ended February 28, 2002
when compared to the same period from the prior fiscal year. Other revenues are
comprised of e-commerce and other applications hosting services, other Web
hosting-related products and services, internet connectivity fees and equipment
sales to customers. The decrease in other revenue is due to the sale of
substantially all of the consumer dial-up accounts as the Companys strategy
moved away from connectivity services and the sale of hardware. The sale of
these accounts and the change in strategy is not expected to have a substantial
impact on future operating income.




COST OF REVENUES




Cost of revenues increased 49.9% and 49.1% to $13.8 million and $27.9 million,
respectively, for the quarter and for the six months ended February 28, 2002
from $9.2 million and $18.7 million in the same periods of the prior year. The
increase in cost of revenues was primarily related to depreciation and leasing
costs for data centers and equipment, telecommunications and Internet access
costs, and technical personnel costs. The Companys cost of revenues as a
percentage of revenues decreased to 54.6% and 56.8% for the quarter and six
month periods ended February 28, 2002 from 63.6% and 66.9% for the same periods
of the prior year. The Company anticipates that costs of revenues will continue
to increase in absolute dollars, but decline as a percentage of revenues as the
Company continues to grow and executes its strategy to achieve a more
cost-effective scale of operations.




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

OPERATING EXPENSES

SALES, MARKETING AND TECHNICAL SUPPORT

Sales, marketing and technical support expenses increased 58.2% and 47.5% to
$13.8 million and $26.9 million, respectively, for the quarter and for the six
months ended February 28, 2002 from $8.7 and $18.3 million in the same periods
of the prior year. The increase in sales, marketing and technical support
expenses was primarily related to increased sales and technical support
personnel costs related to the acquisition of Interland-Georgia, increased
marketing costs including direct mail campaigns and aggressive advertising
campaigns, outsourced telemarketing costs, and amortization of account
acquisition costs.

Sales, marketing and technical support is mainly comprised of compensation costs
and costs associated with technical support and marketing the Companys products
and services, and amortization of tangible and intangible assets related to
sales systems and customer acquisitions. Compensation costs include salaries and
related benefits, commissions and bonuses. Marketing expenses include the costs
of direct mail, advertising and other mass-market programs.

GENERAL AND ADMINISTRATIVE




General and administrative expenses increased 2.2%
and 11.1% to $10.8 million
and $23.9 million, respectively, for the quarter and for the six months ended
February 28, 2002 from $10.5 million and $21.5 million in the same period of the
prior year. The increase in general and administrative expenses was primarily
related to increased billing, accounting, information technology and other
general and administrative personnel costs related to the acquisition of
Interland-Georgia, amortization of intangible assets acquired during the
Interland-Georgia acquisition, consulting fees and outsourced
billing and collection transition service costs on acquired accounts.




General and administrative is mainly comprised of compensation and related
expenses, occupancy costs, and depreciation and amortization of capital and
intangible assets related to the engineering, development and administrative
functions.

BAD DEBT EXPENSE




Bad debt expense increased 174.9% and 150.9% to $2.4
million and $3.0 million, respectively, for the quarter and for the
six months ended February 28, 2002 from $0.9 million and $1.2
million in the same periods of the prior year. The increase in bad
debt expense during the three and six months ended February 28,
2002 was primarily related to the acquisition of customer accounts of
Interland-Georgia, CommuniTech.Net, Interliant, and AT&T.
Following these transactions, the Company experienced short term
customer churn and "breakage" during the account integration and
migration process.

RESTRUCTURING COSTS




In connection with the acquisition of Interland-Georgia in August 2001, the
Company adopted a restructuring plan to close certain offices and data centers,
discontinue the use and development of certain software and eliminate other
redundant assets. As a result, the Company recorded a restructuring charge of
$110.3 million in the fourth quarter of fiscal 2001. The liability related to
this restructuring program was $10.8 million and $12.5 million at February 28,
2002 and August 31, 2001, respectively. The Company expects to pay these
liabilities by August 31, 2004.

In connection with the sale of the consumer dial-up
accounts to SolutionPro, Inc., the Company assigned and transferred
certain data connectivity contracts to SolutionPro, which released
the Company from future termination penalties that had previously
been accrued during the restructuring program. As such, the Company
reversed certain accruals in the amount $0.3 million for these
termination penalties for which it is no longer obligated to pay.

MERGER AND INTEGRATION COSTS




For the quarter and six months ended February
28, 2002, the Company incurred $3.7 million and $7.1 million, respectively, in
additional costs related to the continuation of its merger and integration plan.
Included in the second quarter charge was approximately $1.1 million of employee
severance, termination benefits and non-cash stock compensation expense for a
reduction of the workforce of approximately 38 employees, of which approximately
$0.4 million is included in the accompanying consolidated Balance Sheets under
Accrued liabilities at February 28, 2002.




INTEREST INCOME, NET

Interest income, net decreased to $.07 million and $.32 million for the quarter
and for the six months ended February 28, 2002 from $2.6 million and $4.4
million for the same periods of the prior year. Interest income, net consists of
interest income earned on the Companys invested cash and liquid investments,
less interest expense on debt. The reduction in interest income, net is
primarily due

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

to the lower levels of cash and liquid investments that were available for
investment due to the sale of the PC Systems business and lower interest rates
during the first six months of fiscal 2002.

INCOME TAX BENEFIT

No income tax benefit was recorded for the quarter and for the six months ended
February 28, 2002. The effective income tax rate was approximately 32% and 31%
for the quarter and six months ended March 1, 2001. The rate principally
reflects the federal statutory rate, net of the effect of state taxes,
tax-exempt securities and non-deductible goodwill amortization. The change in
the effective income tax rates primarily reflects tax benefits and tax sharing
arrangements that are no longer available due to the disposal of the
discontinued operations, as well as a valuation allowance on certain tax assets.

DISCONTINUED OPERATIONS

PC SYSTEMS

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. In fiscal 2001, the Company recognized
an estimated loss on disposal of the PC Systems business of $212.2 million.
Included in the loss on disposal are employee termination costs of approximately
$15.4 million, of which $0.0 million and $0.3 million is included in the
accompanying consolidated Balance Sheets under Accrued liabilities at February
28, 2002 and August 31, 2001, respectively.

SPECTEK

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






The Companys  EBITDA (loss from continuing operations, excluding
interest income (expense), income taxes, and depreciation and
amortization), was a loss of $11.4 million and $24.6 million for the
quarter and six months ended February 28, 2002 compared with a loss of $13.2 and
$19.3 million for the same periods of the prior year. The decrease in EBITDA loss was primarily due to increased revenues and gross margins
for the periods offset by additional sales, technical support, general and
administrative personnel costs resulting from the acquisitions of
Interland-Georgia and CommuniTech.Net. Included in the Companys
net loss from continuing operations were $3.7 million and
$7.1 million of merger and integration charges and $1.0 and
$0.7 million of loss on the sale of connectivity accounts, and a
reduction in the amount of ($0.3) million and ($0.3) million for
the three and six months ended February 28, 2002. Management believes
it is useful to separately identify these items included in
the Companys results as these expenditures are non-recurring in
nature. EBITDA is not an indicator of
performance under generally accepted accounting principles and may
not be comparable to information reported by other companies. In
addition, it does not replace gross profit (loss), net income (loss),
or operating income (loss) as indicators of our operating performance.




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














|                                |  |                       |         |                          |  |              |         |          |  |   |         |   |  |   |         |  
|------------------------------- |  | --------------------- | ------- | ------------------------ |  | ------------ | ------- | -------- |  | - | ------- | - |  | - | ------- | -
|                                |  | For the quarter ended |         | For the six months ended
|                                |  |                       |         |                         
|                                |  | FEBRUARY 28,          |         | March 1,                 |  | FEBRUARY 28, |         | March 1,
|                                |  | 2002                  |         | 2001                     |  | 2002         |         | 2001    
|                                |  |                       |         |                          |  |              |         |         
|Loss from continuing operations |  | $                     | (19,851 | )                        |  | $            | (9,704  | )        |  | $ | (39,623 | ) |  | $ | (18,082 | )
|Depreciation and amortization   |  |                       | 8,481   |                          |  |              | 3,521   |          |  |   | 15,370  |   |  |   | 11,263  |  
|Interest income, net            |  |                       | (68     | )                        |  |              | (2,588  | )        |  |   | (319    | ) |  |   | (4,407  | )
|Income tax benefit              |  |                       |        |                          |  |              | (4,472  | )        |  |   |        |   |  |   | (8,070  | )
|                                |  |                       |         |                          |  |              |         |          |  |   |         |   |  |   |         |  
|EBITDA                          |  | $                     | (11,438 | )                        |  | $            | (13,243 | )        |  | $ | (24,572 | ) |  | $ | (19,296 | )
|                                |  |                       |         |                          |  |              |         |          |  |   |         |   |  |   |         |  




LIQUIDITY AND CAPITAL RESOURCES

On January 22, 2002, the Securities and Exchange Commission issued FR-61,
Commission Statement about Managements Discussion and Analysis of Financial
Condition and Results of Operations. The release sets forth certain views of the
Commission regarding disclosure that should be considered by registrants.
Disclosure matters addressed by the release are liquidity and capital resources
including off-balance sheet arrangements, certain trading activities that
include non-exchange traded contracts accounted for at fair value, and effects
of transactions with related and certain other parties. The following table sets
forth the information in a format described in the release with regard to
disclosures about contractual obligations and commercial commitments.

The following table discloses aggregate information about our contractual
obligations including lease payments and bandwidth obligations of continuing,
discontinued and exited facilities, as well as other equipment lease payments
and the periods in which payments are due as of August 31, 2001:

|                                   |  |       |       |        |  |           |      |           |  |         |      |  |  |   |      |       |  |   |      | 
|---------------------------------- |  | ----- | ----- | ------ |  | --------- | ---- | --------- |  | ------- | ---- |  |  | - | ---- | ----- |  | - | ---- | 
|                                   |  |       |       |        |  | LESS THAN |      |           |  |         |      |  |  |   |      | AFTER
|Contractual Obligations            |  | TOTAL |       | 1 YEAR |  | 1-3 YEARS |      | 4-5 YEARS |  | 5 YEARS
|                                   |  |       |       |        |  |           |      |           |  |        
|Long-term debt                     |  | $     | 5.3   |        |  | $         |     |           |  | $       | 5.3  |  |  | $ |     |       |  | $ |     | 
|Operating leases                   |  |       | 75.2  |        |  |           | 18.4 |           |  |         | 19.8 |  |  |   | 15.2 |       |  |   | 21.8 | 
|Capital leases                     |  |       | 39.1  |        |  |           | 18.1 |           |  |         | 20.7 |  |  |   | 0.3  |       |  |   |     | 
|                                   |  |       |       |        |  |           |      |           |  |         |      |  |  |   |      |       |  |   |      | 
|Total contractual cash obligations |  | $     | 119.6 |        |  | $         | 36.5 |           |  | $       | 45.8 |  |  | $ | 15.5 |       |  | $ | 21.8 | 
|                                   |  |       |       |        |  |           |      |           |  |         |      |  |  |   |      |       |  |   |      | 

As of February 28, 2002, the Company had $146.3 million in cash and cash
equivalents, investments and restricted investments. This represents a decrease
of $61.8 million compared to August 31, 2001. Cash used during the six month
period includes approximately $35.0 million for operations, net of an $18.5
million income tax refund, as well as $19.2 million for deposits of temporarily
restricted cash, $9.5 million for repayments of debt, $7.3 million for the
re-purchase of the Companys common stock, $8.8 million for

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

discontinued operation liabilities, $17.2 million for capital expenditures and
account acquisitions, $2.7 million for notes issued to related party, offset by
approximately $13.0 million provided by matured investment securities.

On May 31, 2001, the Company sold its PC Systems business to GTG PC Holdings,
LLC, (GTG PC) an affiliate of the Gores Technology Group. Under the terms of
the agreement, GTG PC received assets, which included $76.5 million in cash, and
assumed specified liabilities of the PC Systems business. The Company retained
certain liabilities, including contingent liabilities arising prior to the sale.
Through May 31, 2003, or for the applicable statute of limitations with respect
to taxes and government contracts, the Company is obligated to indemnify GTG PC
and affiliated entities for any breaches of the representations and warranties
contained in the agreement. In addition, the Company is obligated for an
indefinite period of time to indemnify GTG PC and affiliated entities for any
breaches in covenants. The agreement provides that the maximum aggregate
liability of the Company for indemnification under the agreement is $10.0
million. Claims related to this indemnification could result in an additional
cash payment by the Company to GTG PC and a corresponding increase to the loss
on disposal of discontinued operations.

On July 20, 2001, the Company entered into a financing arrangement with a
financial institution, under which the Company executed a $5.3 million credit
agreement. At that time, the Company entered into a financing arrangement for a
sale and leaseback of up to $14.6 million for certain equipment, primarily
computer hardware. In January 2002, the Company repurchased certain assets from
the financial institution at a total cost of $2.9 million. In connection with
the repurchase, approximately $3.3 million of cash and equivalents became
unrestricted lowering the total pledged amount of cash and equivalents securing
the lease line to $21.6 million.

The Company anticipates making capital expenditures between $4 and $6 million
during the remainder of fiscal 2002, generally for data center equipment and
related software.

On March 9, 2002, the US Government passed an economic stimulus package entitled
the Job Creation and Worker Assistance Act of 2002. This law contains a
business provision that temporarily extends the general tax NOL carryback period
to five years. The five-year carryback period is available for tax losses
occurring in 2001 and 2002. The Company estimates the carryback of these losses
will result in a tax refund of approximately $60 million. The effects of this
tax law change will be recorded during the third quarter of the Companys fiscal
year and the Company anticipates receiving this refund before the end of fiscal
year 2002.

The Companys strategy includes acquisitions of businesses and customers and
these acquisitions may be accomplished through the issuance of shares, payment
of cash or debt.

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

RECENTLY ISSUED ACCOUNTING STANDARDS

In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 142 addresses the financial accounting and reporting for
goodwill and other intangible assets subsequent to their acquisition. SFAS No.
142 requires that intangible assets be amortized over their useful lives unless
that life is determined to be indefinite. Intangible assets shall be evaluated
annually to determine whether events and circumstances continue to support an
indefinite useful life. An intangible asset that is not subject to amortization
shall be tested for impairment annually or more frequently if events or changes
in circumstances indicate that the asset might be impaired. The Company adopted
SFAS No. 142 during the first quarter of fiscal 2002, which eliminated goodwill
amortization starting in fiscal 2002. The Company has performed the first of the
required impairment tests of goodwill existing as of September 1, 2001 and has
determined that goodwill is not impaired.

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

CERTAIN FACTORS

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




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

INTERLANDS HISTORICAL FINANCIAL INFORMATION WILL NOT BE REPRESENTATIVE OF ITS
FUTURE RESULTS. Since the Company has sold its non-hosting businesses, its
historical financial information, contained in previous filings with the
Securities and Exchange Commission, is not representative of its future
operating results. Including the operations of the non-hosting businesseswhich
are classified as discontinued operations in the Companys financial
statementsWeb hosting revenues represented less than 7% and 3% of the
Companys total revenues for fiscal 2001 and 2000, respectively. By contrast,
Web hosting revenues constituted 91.8% of our total revenue in the first six
months of 2002.




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

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



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

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

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

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

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



| |  |  | the Companys failure to experience the benefits of the merger
with Interland-Georgia as quickly as anticipated, or at all,
or an increase over estimates of the costs of or operational
difficulties arising from the merger;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the failure of the impact of the Interland-Georgia merger on
the Companys financial results to be in line with the
expectations of financial analysts;                                                                       
|
| |  |  | variations in actual and anticipated operating results;                                                                                                                                                                       
|
| |  |  | changes in earnings estimates by analysts;                                                                                                                                                                                    
|
| |  |  | variations in actual and anticipated operating results of
customers or competitors;                                                                                                                                           
|
| |  |  | material reductions in spending by customers;                                                                                                                                                                                 
|
| |  |  | announcements by Interland or its competitors regarding new
service introductions;                                                                                                                                            
|
| |  |  | the volatility inherent in stock within the sectors within
which the Company conducts business;                                                                                                                               
|
| |  |  | any subsequent terrorist acts or of any related military
action;                                                                                                                                                              
|
| |  |  | general decline in economic conditions; and                                                                                                                                                                                   
|
| |  |  | reductions in the volume of trading in the Companys common
stock.                                                                                                                                                            

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

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

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

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

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

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

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



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

In addition, the Company has completed a number of other acquisitions of
customer accounts and hosting companies and is still in the process of
completing the integration of these businesses. This could make the integration
of Interland-Georgia more difficult. If this integration effort is not
successful, the results of operations could be adversely affected, employee
morale could decline, key employees could leave and customers could cancel
existing orders or choose not to place new ones. In addition, the attention and
effort devoted to the integration of the two companies will significantly divert
managements attention from other important issues, such as expansion of the
combined customer base, which could negatively affect the Companys business and
operating results.

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

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

THE COMPANY INCURRED SIGNIFICANT ACCOUNTING CHARGES RELATING TO THE MERGER WITH
INTERLAND-GEORGIA. The Company has accounted for the acquisition of
Interland-Georgia using the purchase method of accounting. Under the purchase
method, the purchase price of Interland-Georgia has been allocated to the assets
acquired and liabilities assumed. As a result, based upon the purchase price of
$127.2 million, the Company has recorded $17.5 million of intangible assets and
$104.7 million of goodwill on its balance sheet. Goodwill will be evaluated
annually for impairment and any potential impairment will affect the Companys
financial results in the future.

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

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

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

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



| |  |  | market its services and build its brand name effectively;                                              
| | - |  | -------------------------------------------------------------------------------------------------------
|
| |  |  | provide reliable and cost-effective services that can be
expanded to meet the demands of its customers;
|
| |  |  | develop new products and services;                                                                     
|
| |  |  | continue to enhance the efficiency of its infrastructure to
accommodate additional customers;          

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



| |  |  | continue to expand its customer base;                                      
| | - |  | ---------------------------------------------------------------------------
|
| |  |  | continue to respond to competitive developments;                           
|
| |  |  | influence and respond to emerging industry standards and other
changes; and
|
| |  |  | attract, retain and motivate qualified personnel.                          

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



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

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

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

INTERLANDS ABILITY TO SUCCESSFULLY MARKET ITS SERVICES COULD BE SUBSTANTIALLY
IMPAIRED IF IT IS UNABLE TO DEPLOY NEW INTERNET APPLICATIONS OR IF NEW INTERNET
APPLICATIONS IT DEPLOYS PROVE TO BE UNRELIABLE, DEFECTIVE OR INCOMPATIBLE. The
Company could experience difficulties that delay or prevent the successful
development, introduction or marketing of Internet application services in the
future. If any newly introduced Internet applications suffer from reliability,
quality or compatibility problems, market acceptance of Interlands services
could be greatly hindered and its ability to attract and retain new customers
could be adversely affected. New applications Interland deploys may not be free
from reliability, quality or compatibility problems. If the Company incurs
increased costs or is unable, for technical or other reasons, to host and manage
new Internet applications or enhancements of existing applications, its ability
to successfully market its services could be substantially impaired. In
addition, its customers may not accept the Companys 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 relies on a
combination of patent, copyright, trademark, service mark and trade secret laws
and contractual restrictions to establish and protect proprietary rights in its
services. At this point, Interland has no patented technology that would
preclude or inhibit competitors from entering the Web hosting market that it
serves. While the Company may file patent applications on particular aspects of
its technology, it cannot be sure that it will receive any patents. While it is
the Companys practice to require all of its employees to enter into agreements
containing non-disclosure, non-competition and non-solicitation restrictions and
covenants, and while its agreements with some of its customers and suppliers
include provisions prohibiting or restricting the disclosure of proprietary
information, the Company cannot be sure that these

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

contractual arrangements or the other steps it takes to protect its proprietary
rights will prove sufficient to prevent illegal use of its proprietary rights or
to deter independent, third-party development of similar proprietary assets.

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

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

INTERLAND FACES RISKS RELATING TO EXISTING LITIGATION Interland is defending a
contract dispute lawsuit filed on October 2, 2001 in Dallas County, Texas Court
seeking damages of approximately $2.1 million for goods purchased by our PC
Systems business. The Company removed the case to federal court, and
counterclaimed for legal fees owed by the plaintiff for legal fees they had
agreed to indemnify the Company for that were incurred on an unrelated patent
lawsuit. These legal fees amounted to approximately $1.3 million. This claim is
currently in the early stages of discovery, and the Company is therefore unable
to estimate total expenses, or possible loss that may ultimately be connected
with the matter. A Tolling and Dispute Resolution Agreement was entered between
the parties on January 21, 2002, in Dallas County, Texas, and the lawsuit was
dismissed on February 22, 2002. In connection with the Tolling and Dispute
Resolution Agreement the Company paid $700,000 to Capetronic Computer USA. The
parties are working to negotiate final resolution, subject to an arbitration
requirement if a negotiated settlement cannot be reached.

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

The Company is defending an employee class action lawsuit claim filed in the
U.S. District Court for Idaho. The case involves alleged violations of the Fair
Labor Standards Act, particularly failures to pay non-exempt employees overtime
for hours worked in excess of 40 in a week as well as other alleged violations
of the FLSA and state wage and hour laws. No class has been certified in the
case. The case is currently in the early stages of discovery, and the Company is
therefore unable to estimate total expenses, possible loss or range of loss that
may ultimately be connected with the matter. The parties are presently
developing a plan to mediate the dispute subject to

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

a standstill agreement with respect to the litigation.

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

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

INTERLAND DEPENDS ON ITS RESELLER SALES CHANNEL TO MARKET AND SELL MANY OF ITS
SERVICES. INTERLAND DOES NOT CONTROL ITS RESELLERS, AND IF IT FAILS TO DEVELOP
OR MAINTAIN GOOD RELATIONS WITH RESELLERS, IT MAY NOT ACHIEVE THE GROWTH IN
CUSTOMERS AND REVENUES THAT IT EXPECTS. An element of the strategy for the
Companys growth is to further develop the use of third parties that resell its
services. Many of these resellers are Web development or Web consulting
companies that also sell Interlands Web hosting services, but that generally do
not have established customer bases to which they can market these services. The
Company is not currently dependent on any one reseller to generate a significant
level of business, but it has benefited from business generated by the reseller
channel. Although Interland attempts to provide its resellers with incentives
such as price discounts on its services that the resellers seek to resell at a
profit, the failure of its services to be commercially accepted in some markets,
whether as a result of a resellers performance or otherwise, could cause its
current resellers to discontinue their relationships with us, and it may not be
successful in establishing additional reseller relationships as needed.

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

Interland believes that its ability to compete successfully also depends upon
the continued compatibility of its services with products offered by various
vendors. Enhanced or newly developed third-party products may not be compatible
with the Companys infrastructure, and such products may not adequately address
the needs of its customers. Although Interland currently intends to support
emerging standards, industry standards may not be established, and, even if they
are established, the Company may not be able

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

to conform to these new standards in a timely fashion in order to maintain a
competitive position in the market. The Companys failure to conform to the
prevailing standard, or the failure of a common standard to emerge, could cause
it to lose customers or fail to attract new customers. In addition, products,
services or technologies developed by others could render the Companys services
noncompetitive or obsolete.

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



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

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

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



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

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

INTERLANDS DATA CENTERS AND NETWORKS MAY BE VULNERABLE TO SECURITY BREACHES. A
significant barrier to electronic commerce and communications is the need for
secure transmission of confidential information over public networks. Some of
the Companys services rely on security technology licensed from third parties
that provides the encryption and authentication necessary to effect the secure
transmission of confidential information. Despite the design and implementation
of a variety of network security measures by the Company, unauthorized access,
computer viruses, accidental or intentional actions and other disruptions could
occur. In the past, the Company has experienced, and in the future it may
experience, delays or interruptions in service as a result of the accidental or
intentional actions of Internet users, current and former employees or others.
In addition, inappropriate use of the network by third

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

parties could also potentially jeopardize the security of confidential
information, such as credit card and bank account numbers stored in the
Companys computer systems. These security problems could result in the
Companys liability and could also cause the loss of existing and potential
customers. In addition, third parties could interfere with the operation of
customers Web sites through intentional attacks including causing an overload
of traffic to these Web sites.

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

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

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

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

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

INTERLANDS BUSINESS MAY BE IMPACTED BY GOVERNMENT REGULATION AND LEGAL
UNCERTAINTIES. Only a small body of laws and regulations currently applies
specifically to access to, or commerce on, the Internet. Due to the increasing
popularity and use of the Internet, however, laws and regulations with respect
to the Internet may be adopted at federal, state and local levels, covering
issues such as user privacy, freedom of expression, pricing, characteristics and
quality of products and services, taxation, advertising, intellectual property
30Table of Contents

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

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, or could in some other manner
have a material adverse effect on its business.

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

INTERLANDS INTERNATIONAL OPERATIONS ARE SUBJECT TO RISKS. The Company derived
approximately 8.6% and 8.6% of its sales from customers residing outside of the
United States for the quarter and for the six months ended February 28, 2002.
International business is subject to a number of special risks, including:



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

SUBSTANTIAL FUTURE SALES OF SHARES BY SHAREHOLDERS COULD NEGATIVELY AFFECT
INTERLANDS STOCK PRICE. If Interlands shareholders sell substantial amounts of
the Companys common stock in the public market, the market price of the
Companys common stock could decline. Under a shareholder agreement, Mr. Joel
Kocher, the Companys Chairman of the Board, President, and Chief Executive
Officer, and some Interland-Georgia shareholders have agreed not to sell their
shares of Interland common stock, representing approximately 12% of the
Companys outstanding common stock through May 6, 2002, subject to limited
exceptions. Additionally, Micron Technology Foundation, which beneficially owned
approximately 43% of our outstanding common stock at the time of the
Interland-Georgia transaction, also agreed not to sell our shares for nine
months, subject to limited exceptions. The parties who purchased the shares held
by that Foundation agreed to observe the same restrictions. These shareholders
have the right to require the Company to register their shares for sale pursuant
to an existing registration rights agreement. After February 6, 2003, the shares
purchased from the Foundation will also be eligible for resale on the public
markets without registration, subject to volume limitations and holding period
requirements imposed by Rule 144 of the Securities Act.

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ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Substantially all of the Companys cash equivalents, liquid investments and a
majority of its debt are at fixed rates, and therefore the fair value of these
instruments is affected by changes in market interest rates. As of February 28,
2002, approximately 76% of the Companys liquid investments mature within three
months and 76% mature within one year. As of February 28, 2002, management
believes the reported amounts of liquid investments and debt to be reasonable
approximations of their fair values and has the ability and intent to hold these
instruments to maturity. As a result, management believes that the market risk
arising from its holding of financial instruments is minimal.

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PART II.   OTHER INFORMATION




ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS

On February 8, 2002, in connection with the merger of Interland and
CommuniTech.Net, the Company issued 5.375 million shares of its common stock to
Mr. Gabriel Murphy and Mr. Bryan Heitman, the sole stockholders of
CommuniTech.Net, in consideration of all the assets and business of
CommuniTech.Net, valued by the Company at an amount equal to $11.2 million.
Exemption from the registration provisions of the Securities Act for the
transaction was claimed under Section 4(2) of the Securities Act and the rules
and regulations promulgated thereunder on the basis that the merger did not
involve any public offering. There were a limited number of purchasers, none of
whom was solicited by means of any public advertising, and the Company believes
that the purchasers were sophisticated.

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PART II.   OTHER INFORMATION




ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

(a)  The following are filed as a part of this report:



|             |  |                                                                                                                                                                                        
|------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit      |  | Description                                                                                                                                                                            
|10.109(1)    |  | February 8, 2002 Investor Rights Agreement by and among
Interland, Inc., PAR Investment Partners, L.P., Hartford
Capital Appreciation Fund, and certain other stockholders.            
|             |  |                                                                                                                                                                                        
|10.110(1)(2) |  | Agreement and Plan of Merger dated as of February 8, 2002, by
and between CommuniTech.Net, Inc., Montana Acquisition
Company, Inc., Interland, Inc., Gabriel Murphy, and Bryan
Heitman.








|(1) |  | Previously filed.                                                                                                                                                                                                                            
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Schedules and exhibits have been omitted from this exhibit, 10.110. A list
of omitted schedules and exhibits is set forth immediately following the table
of contents of the exhibit. Copies will be provided to the Commission upon
request.
|   
|(3) |  | Filed herewith.                                                                                                                                                                                                                              




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Signatures

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

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






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##### Table of Contents






CERTIFICATIONS

I, Joel J. Kocher, certify that:

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

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

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

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

I, Allen L. Shulman, certify that:

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

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

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

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

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

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