Internap 10Q 2002 Q1 Quarterly report

QuickLinks -- Click here to rapidly navigate through this document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

(Mark One)

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2002

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 000-27265

INTERNAP NETWORK SERVICES CORPORATION
(Exact name of registrant as specified in its charter)

DELAWARE		91-2145721
(State or Other Jurisdiction of Incorporation or Organization)		(IRS Employer Identification No.)

601 Union Street, Suite 1000
Seattle, Washington 98101
(Address of Principal Executive Offices and Zip Code)

(206) 441-8800
(Registrant's Telephone Number, Including Area Code)

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

Indicate the number of shares outstanding of each of the registrant's classes of common stock as of the latest practicable date: 153,315,337 shares of common stock, $0.001 par value, outstanding as of May 7, 2002.

INTERNAP NETWORK SERVICES CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2002

TABLE OF CONTENTS

			Page
PART I.	FINANCIAL INFORMATION		3
	Item 1.	Financial Statements (unaudited)	3
		Condensed Consolidated Balance Sheets March 31, 2002 and December 31, 2001	3
		Condensed Consolidated Statements of Operations Three-month periods ended March 31, 2002 and 2001	4
		Condensed Consolidated Statements of Cash Flows Three-month periods ended March 31, 2002 and 2001	5
		Condensed Consolidated Statement of Stockholders' Equity and Comprehensive Loss Three-month period ended March 31, 2002	6
		Notes to Condensed Consolidated Financial Statements	7
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	13
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21
PART II.	OTHER INFORMATION		32
	Item 4.	Submission of Matters to a Vote of Security Holders	32
	Item 6.	Exhibits and Reports on Form 8-K	32
	Signatures		33

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INTERNAP NETWORK SERVICES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)

			March 31, 2002			December 31, 2001
ASSETS
Current assets:
	Cash and cash equivalents		$	60,509		$	63,551
	Short-term investments			4,210			18,755
	Accounts receivable, net of allowance of $1,782 and $1,183, respectively			12,855			14,749
	Prepaid expenses and other assets			2,298			2,981

		Total current assets		79,872			100,036
Property and equipment, net of accumulated depreciation of $82,204 and $70,507 respectively				127,101			139,589
Restricted cash				2,256			2,432
Investments				3,792			2,794
Goodwill and other intangible assets, net of accumulated amortization of $33,543 and $32,116, respectively				34,791			36,218
Deposits and other assets				3,741			3,908

		Total assets	$	251,553		$	284,977

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable		$	15,235		$	13,058
	Accrued liabilities			14,997			16,727
	Deferred revenues			6,984			2,747
	Notes payable, current portion			2,010			2,038
	Line of credit			10,000			10,000
	Capital lease obligations, current portion			21,206			22,450
	Restructuring liability, current portion			13,347			16,498

		Total current liabilities		83,779			83,518
Deferred revenues				5,695			9,755
Notes payable, less current portion				581			954
Capital lease obligations, less current portion				13,860			15,494
Restructuring liability, less current portion				14,306			22,773

		Total liabilities		118,221			132,494

Commitments and contingencies
Series A convertible preferred stock, $0.001 par value, 3,500 shares designated; 3,171 issued and outstanding, with a liquidation preference of $101,487				86,314			86,314

Stockholders' equity:
	Common stock, $0.001 par value, 600,000 shares authorized, respectively; 153,353 and 151,294 shares issued and outstanding, respectively			153			151
	Additional paid in capital			794,428			794,459
	Deferred stock compensation			(3,143	)		(4,371	)
	Accumulated deficit			(744,415	)		(724,077	)
	Accumulated items of other comprehensive income			(5	)		7

		Total stockholders' equity		47,018			66,169

		Total liabilities and stockholders' equity	$	251,553		$	284,977

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

INTERNAP NETWORK SERVICES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share amounts)

			Three-month periods ended March 31,
			2002			2001
Revenues			$	32,614		$	28,440

Costs and expenses:
	Direct cost of network			24,105			23,208
	Customer support			3,826			6,723
	Product development			1,957			3,785
	Sales and marketing			6,057			14,253
	General and administrative			6,492			15,154
	Depreciation and amortization			12,812			10,473
	Amortization of intangible assets			1,427			19,828
	Amortization of deferred stock compensation			352			2,209
	Restructuring costs			(4,954	)		4,342
	Impairment of goodwill and other intangible assets			—			195,986

		Total operating costs and expenses		52,074			295,961

Loss from operations				(19,460	)		(267,521	)

Other income (expense):
Interest income (expense), net				(231	)		702
Loss on equity method investment				(349	)		—
Loss on sales and retirements of property and equipment				(298	)		—

Total other income (expense)				(878	)		702

Net loss			$	(20,338	)	$	(266,819	)

Basic and diluted net loss per share			$	(0.13	)	$	(1.79	)

Weighted average shares used in computing basic and diluted net loss per share				152,002			149,115

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

INTERNAP NETWORK SERVICES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)

				Three-month periods ended March 31,
				2002			2001
CASH FLOWS FROM OPERATING ACTIVITIES
	Net loss			$	(20,338	)	$	(266,819	)
	Adjustments to reconcile net loss to net cash used in operating activities:
		Depreciation and amortization			14,239			30,301
		Impairment of goodwill and other intangible assets			—			195,986
		Non-cash restructuring costs/(adjustments)			(4,954	)		—
		Provision for doubtful accounts			1,111			1,368
		Non-cash compensation and warrant expense			463			2,209
		Loss on disposal of property and equipment			298			114
		Loss on equity method investment			349			—
		Changes in operating assets and liabilities:
			Accounts receivable		783			1,055
			Prepaid expenses, deposits and other assets		850			791
			Accounts payable		2,115			3,948
			Accrued restructuring charge		(5,552	)		—
			Deferred revenues		177			(903	)
			Accrued liabilities		(1,730	)		(2,076	)

		Net cash used in operating activities			(12,189	)		(34,026	)

CASH FLOWS FROM INVESTING ACTIVITIES
	Purchases of property and equipment				(1,069	)		(19,083	)
	Proceeds from disposal of property and equipment				185			195
	Restriction of cash				176			—
	Purchase of investments				(1,347	)		(6,022	)
	Redemption of investments				14,533			30,100

		Net cash provided by investing activities			12,478			5,190

CASH FLOWS FROM FINANCING ACTIVITIES
	Principal payments on notes payable				(401	)		(563	)
	Payments on capital lease obligations				(3,666	)		(4,169	)
	Proceeds from exercise of stock options and warrants				167			236
	Proceeds from issuance of common stock				569			1,338

		Net cash used in financing activities			(3,331	)		(3,158	)

	Net increase (decrease) in cash and cash equivalents				(3,042	)		(31,994	)
	Cash and cash equivalents at beginning of period				63,551			102,160

	Cash and cash equivalents at end of period			$	60,509		$	70,166

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
	Cash paid for interest, net of amounts capitalized			$	1,081		$	778

	Purchase of property and equipment financed with capital leases			$	788		$	(521	)

	Change in accounts payable attributable to purchases of property and equipment			$	(62	)	$	(5,856	)

	Loss on sale or retirement of fixed assets charged to accrued restructuring charge			$	1,112		$	—

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

INTERNAP NETWORK SERVICES CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE LOSS
THREE-MONTH PERIOD ENDED MARCH 31, 2002
(Unaudited, in thousands)

													Accumulated Items of Other Comprehensive Income (Loss)
	Common Stock
	Common Stock			Additional Paid-In Capital			Deferred Stock Compensation			Accumulated Deficit						Total Stockholders' Equity			Comprehensive Loss
	Shares	Par Value		Additional Paid-In Capital			Deferred Stock Compensation			Accumulated Deficit						Total Stockholders' Equity			Comprehensive Loss
Balances, December 31, 2001	151,294	$	151	$	794,459		$	(4,371	)	$	(724,077	)	$	7		$	66,169			—
Amortization of deferred stock compensation	—		—		(573	)		925			—			—			352
Reversal of deferred stock compensation for terminated employees	—		—		(303	)		303			—			—			—			—
Exercise of options and warrants to purchase common stock	1,078		1		166			—			—			—			167			—
Issuance and exercise of warrants to purchase 35,000 shares of common stock to a non-employee	111		0.1		111			—			—			—			111			—
Issuance of employee stock purchase plan shares	870		0.9		568			—			—			—			569			—
Net loss	—		—		—			—			(20,338	)		—			(20,338	)	$	(20,338	)
Unrealized loss on investments	—		—		—			—			—			(12	)		(12	)		(12	)

Comprehensive loss																			$	(20,350	)

Balances, March 31, 2002	153,353	$	153	$	794,428		$	(3,143	)	$	(744,415	)	$	(5	)	$	47,018

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

INTERNAP NETWORK SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation:

The unaudited condensed consolidated financial statements of Internap Network Services Corporation have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and include all the accounts of Internap Network Services Corporation and its wholly owned subsidiaries. Certain information and footnote disclosures, normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States, have been condensed or omitted pursuant to such rules and regulations. The unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of our financial position as of March 31, 2002, our operating results, cash flows and changes in stockholders' equity for the three-month periods ended March 31, 2002 and 2001. The balance sheet at December 31, 2001 has been derived from our audited financial statements as of that date. These financial statements and the related notes should be read in conjunction with our financial statements and notes thereto contained in our annual report on Form 10-K filed with the Securities and Exchange Commission.

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities and revenues and expenses in the financial statements. Examples of estimates subject to possible revision based upon the outcome of future events include, among others, recoverability of long-lived assets, depreciation of property and equipment, restructuring allowances, amortization of deferred stock compensation and the allowance for doubtful accounts. Actual results could differ from those estimates.

Certain prior year balances have been reclassified to conform to current year presentation. These reclassifications have not impacted our financial position, results of operations or net cash flows.

The results of operations for the three-month period ended March 31, 2002 are not necessarily indicative of the results that may be expected for the future periods.

2. Restructuring Charges

On February 28, 2001, and September 24, 2001, we announced restructurings of our business. Under the restructuring programs, management decided to exit certain non-strategic real estate lease and license arrangements, consolidate and exit redundant network connections and streamline the operating cost structure. The total charges include restructuring costs of $71.6 million. During 2001, we incurred cash restructuring expenditures totaling $19.9 million, non-cash restructuring expenditures of $4.7 million and reduced the original restructuring cost estimate by $7.7 million primarily as a result of favorable lease obligation settlements, leaving a balance of $39.3 million as of December 31, 2001. During the first quarter of 2002, we further reduced our restructuring liability by $5.0 million. This reduction was also primarily due to favorable settlements to terminate and restructure certain collocation lease obligations on terms favorable to our original restructuring estimates.

The following table displays the activity and balances for restructuring activity during 2002 (in millions):

			December 31, 2001 Reserve		Cash Reductions			Non-cash Write-downs			Non-cash Plan Adjustments			March 31, 2002 Reserve
Restructuring costs
	Real estate obligations		$	34.6	$	(5.0	)	$	(1.1	)	$	(5.0	)	$	23.5
	Network infrastructure obligations			2.7		(0.6	)		—			—			2.1
	Other			2.0		—			—			—			2.0

		Total restructuring costs	$	39.3	$	(5.6	)	$	(1.1	)	$	(5.0	)	$	27.6

Real Estate Obligations

The restructuring plans require us to abandon certain real estate leases and properties not in use and, based on the restructuring plan, that will not be utilized by us in the future. Also included in real estate obligations is the abandonment of certain collocation license obligations. Accordingly, we recorded restructuring costs of $48.0 million, net of non-cash plan adjustments, which are estimates of losses in excess of estimated sublease revenues or termination fees to be incurred on these real estate obligations over the remaining lease terms, expiring through 2015. This cost was determined based upon our estimate of anticipated sublease rates and time to sublease the facility. Should rental rates decrease in these markets or if it takes longer than expected to sublease these properties, actual loss could exceed this estimate.

Network Infrastructure Obligations

The changes to our network infrastructure require that we decommission certain network ports we do not currently use and will not use in the future pursuant to the restructuring plan. These costs have been accrued as components of the restructuring charge because they represent amounts to be incurred under contractual obligations in existence at the time the restructuring plan was initiated that will continue in the future with no economic benefit, or penalties to be incurred to cancel the related contractual obligations.

3. Net Loss Per Share

Basic and diluted net loss per share has been computed using the weighted average number of shares of common stock outstanding during the period, less the weighted average number of unvested shares of common stock issued that are subject to repurchase. We have excluded all convertible preferred stock, warrants, outstanding options to purchase common stock and shares subject to repurchase from the calculation of diluted net loss per share, as such securities are antidilutive for all

periods presented. Basic and diluted net loss per share for the three-month periods ended March 31, 2002 and 2001 are calculated as follows (in thousands, except per share amounts):

		Three-month periods ended March 31,
		2002			2001
		(unaudited)			(unaudited)
Net loss		$	(20,338	)	$	(266,819	)

Basic and diluted:
Weighted-average shares of common stock outstanding used in computing basic and diluted net loss per share			152,002			149,115

Basic and diluted net loss per share		$	(0.13	)	$	(1.79	)

Antidilutive securities not included in diluted net loss per share calculation:
	Convertible preferred stock		68,455			—
	Options to purchase common stock		25,173			23,496
	Warrants to purchase common		17,326			1,626
	Common stock subject to repurchase		—			75

			110,954			25,197

4. Accounting for Goodwill and Intangible Assets Pursuant to Statement of Financial Accounting Standard No. 142

Effective January 1, 2002, we adopted Statement of Financial Accounting Standard (SFAS) No. 142, "Goodwill and Other Intangible Assets," which establishes new accounting and reporting requirements for goodwill and other intangible assets. Under SFAS No. 142, all goodwill amortization ceased effective January 1, 2002 and recorded goodwill was tested for impairment by comparing the fair value of Internap Network Services Corporation, as determined by its implied market capitalization, to its consolidated carrying value including recorded goodwill. An impairment test is required to be performed at adoption of SFAS No. 142 and at least annually thereafter. On an ongoing basis (absent any impairment indicators), we expect to perform our impairment testing during our third quarter.

Based on our initial impairment test, we determined that none of the recorded goodwill was impaired. Impairment adjustments recognized after adoption, if any, are generally required to be recognized as operating expenses.

In connection with adopting SFAS 142, we also reassessed the useful lives and the classification of our identifiable intangible assets and determined that they continue to be appropriate. The components of our amortized intangible assets are as follows (in thousands):

	December 31, 2001					March 31, 2002
	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Contract based	$	14,535	$	(6,853	)	$	14,535	$	(8,063	)
Technology based	$	2,600	$	(1,228	)	$	2,600	$	(1,445	)

Amortization expense for identifiable intangible assets during the first quarter of 2002 was $1.4 million. Estimated amortization expense for the remainder of 2002 and 2003 is as follows (in thousands):

	Estimated Amortization Expense
2002 (remainder)	$	4,196
2003		3,070
Thereafter		361

Actual results of operations for the three-month periods ended March 31, 2002 and 2001 and pro forma results of operations for the three-month periods ended March 31, 2002 and 2001, had we applied the non-amortization provisions of SFAS No. 142 in those periods, is as follows (in thousands, except per share amounts):

	Three-month periods ended March 31,
	2002			2001
Reported net loss	$	(20,338	)	$	(266,819	)
Add amortization of goodwill		—			19,835

Pro forma net loss	$	(20,338	)	$	(246,984	)

Reported net loss per share	$	(0.13	)	$	(1.79	)
Pro forma net loss per share	$	(0.13	)	$	(1.66	)

5. Investments

On April 10, 2001, we announced the formation of a joint venture with NTT-ME Corporation of Japan. During 2001 and 2002 we made an aggregate cash investment of $4.2 million in two installments to acquire 51% of the common stock of the joint venture, Internap Japan Co., Ltd. We are unable to assert control over the joint venture's operational and financial policies and practices, due to certain minority interest protections afforded to our joint venture partner, NTT-ME Corporation, required to account for the joint venture as a subsidiary whose assets, liabilities, revenues and expenses would be consolidated. We are, however, able to assert significant influence over the joint venture and, therefore, account for our joint venture investment using the equity-method of accounting pursuant to Accounting Principles Board Opinion No. 18 "The Equity Method of Accounting for Investments in Common Stock" and consistent with EITF 96-16 "Investor's accounting for an investee when the investor has a majority of the voting interest but the minority shareholder or shareholders have certain approval or veto rights." During the three-month period ended March 31, 2002, we recognized our proportionate share of Internap Japan's net losses totaling $0.4 million. Since inception of the joint venture, we have recognized our proportional share of Internap Japan's aggregate losses totaling $1.6 million, resulting in a net investment balance of $2.6 million. Our investment in Internap Japan is reflected as a component of long-term investments and losses are reflected as a component of loss on investments.

Investments at March 31, 2002 consisted of the following (in thousands):

	Cost Basis		Unrealized Gain		Unrealized Loss			Recorded Value
U.S. Government and Government Agency Debt Securities	$	4,215	$		$	(5	)	$	4,210
Equity Method Investment		2,616		—		—			2,616
Cost Basis Investments		1,176		—		—			1,176

		8,007	$	—	$	(5	)	$	8,002

Investments at December 31, 2001 consisted of the following (in thousands):

	Cost Basis		Unrealized Gain		Unrealized Loss		Recorded Value
U.S. Government and Government Agency Debt Securities	$	6,210	$	3	$	—	$	6,213
Corporate Debt Securities		12,538		4		—		12,542
Equity Method Investment		1,618		—		—		1,618
Cost Basis Investments		1,176		—		—		1,176

	$	21,542	$	7	$	—	$	21,549

6. Stock-Based Compensation Plans

During the three-month period ended March 31, 2002, we terminated employment of individuals for whom we had recognized deferred stock compensation and had recognized related expenses on unvested options using an accelerated amortization method. Accordingly, during the three-month period ended March 31, 2002, we reduced our deferred stock compensation that would have been amortized to future expense by $0.3 million, and we reduced our amortization to expense of deferred stock compensation by $0.6 million to reverse previously recognized expense on unvested options.

7. Deferred Revenue

During the three-month period ended March 31, 2002, we completed negotiations with one of our customers that significantly reduced the term of the customer's service contract. As a result of the reduction in the contractual service period and other factors, we changed our estimated life of the customer relationship over which to recognize deferred revenues from 120 months to 46 months, with 23 months remaining at March 31, 2002. The current balance of deferred revenues attributable to the customer on the date of completing the new service contract was increased to reflect the amortization of the remaining balance over the remaining customer relationship period. The reallocation resulted in $3.9 million of deferred revenues being reclassified from the non-current to current classification.

8. Recent Accounting Pronouncements

Effective January 1, 2002, we adopted Statement of Financial Accounting Standard No. 143 "Accounting for Asset Retirement Obligations" (SFAS No. 143), which is effective for fiscal years beginning after June 15, 2001. SFAS No. 143 requires that obligations associated with the retirement of a tangible long-lived asset be recorded as a liability when those obligations are incurred, with the amount of the liability initially measured at fair value. Upon initially recognizing a liability for an asset retirement obligation, an entity must capitalize the cost by recognizing an increase in the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss

upon settlement, results of operations and cash flows. Our adoption of SFAS No. 143 did not materially impact our financial position, results of operations or cash flows.

Effective January 1, 2002, we adopted Statement of Financial Accounting Standard No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS No. 144), which is effective for fiscal years beginning after December 15, 2001. SFAS No. 144 develops one accounting model, based on the model in SFAS No. 121, for long-lived assets that are to be disposed of by sale, as well as addresses the principal implementation issues. SFAS No. 144 requires that long-lived assets that are to be disposed of by sale be measured at the lower of book value or fair value less cost to sell. That requirement eliminates APB 30's requirement that discontinued operations be measured at net realizable value or that entities include under "discontinued operations" in the financial statements amounts for operating losses that have not yet occurred. Additionally, SFAS No. 144 expands the scope of discontinued operations to include all components of an entity with operations that (1) can be distinguished from the rest of the entity and (2) will be eliminated from the ongoing operations of the entity in a disposal transaction. Our adoption of SFAS No. 144 did not materially impact our financial position, results of operations or cash flows.

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

Certain statements in this Quarterly Report on Form 10-Q, including, without limitation, statements containing the words "believes," "anticipates," "estimates," "expects" and words of similar import, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. You should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us described below and elsewhere in this Form 10-Q, and in other documents we file with the Securities and Exchange Commission.

The forward-looking information set forth in this Quarterly Report on Form 10-Q is as of April 30, 2002, and Internap undertakes no duty to update this information. Should events occur subsequent to April 30, 2002, that make it necessary to update the forward-looking information contained in this Form 10-Q, the updated forward-looking information will be filed with the SEC in a subsequent Quarterly Report on Form 10-Q or as a press release included as an exhibit to a Form 8-K, each of which will be available at the SEC's website at www.sec.gov. More information about potential factors that could affect our business and financial results is included in the section entitled "Risk Factors" beginning on page 22 of this Form 10-Q.

Overview

Internap is a leading provider of high performance Internet connectivity services targeted at businesses seeking to maximize the performance of mission-critical Internet-based applications. Customers connected to one of our 35 service points, located within the 18 metropolitan markets we serve, have their data intelligently routed to and from destinations on the Internet using our overlay network, which analyzes the traffic situation on the many networks that comprise the Internet and delivers mission critical information and communications faster and more reliably with lower instances of data loss and greater quality of service than services offered by conventional Internet connectivity providers. Our customers are primarily businesses that desire high performance Internet connectivity services in order to run mission-critical Internet-based applications. Due to our high quality of service, we generally price our services at a premium to providers of conventional Internet connectivity services. We expect to remain a premium provider of high quality Internet connectivity services and anticipate continuing our pricing policy in the future. We believe customers will continue to demand the highest quality of service as their Internet connectivity needs grow and become even more complex and, as such, will continue to pay a premium for high quality service.

The following discussion should be read in conjunction with the consolidated financial statements provided under Part I, Item 1 of this Quarterly Report on Form 10-Q. Certain statements contained herein may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, as discussed more fully herein.

Impairment and Restructuring Costs

First quarter, 2001 impairment and restructuring charges:

On June 20, 2000, we completed the acquisition of CO Space, which was accounted for under the purchase method of accounting. The purchase price was allocated to net tangible assets and identifiable intangible assets and goodwill. During the first quarter of 2001, our stock price declined to a historical low and we began experiencing larger than expected customer attrition. As a result of these events, we revised our financial projections including reductions in budgeted costs relating to the completion of a series of executed but undeveloped leases acquired from CO Space. Subsequently, on February 28, 2001, management and the board of directors approved a restructuring plan that included ceasing

development of the executed but undeveloped leases and the termination of core collocation development personnel.

Consequently, on February 28, 2001, pursuant to the guidance provided by Financial Accounting Standards Board No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), management completed a cash flow analysis of the collocation assets, including the assets acquired from CO Space. The cash flow analysis showed that the estimated cash flows were less than the carrying value of the collocation assets. Accordingly, pursuant to SFAS 121, management estimated the fair value of the collocation assets to be $79.5 million based upon a discounted future cash flow analysis. Because estimated fair value of the collocation assets was less than recorded amounts, we recorded an impairment charge of approximately $196.0 million as follows (in millions).

Asset Impaired		Book Value		Accumulated Amortization		Net Book Value Impaired
Goodwill		$	229.2	$	53.1	$	176.1
Assembled workforce			2.0		0.5		1.5
Trade name and trademarks			2.8		0.6		2.2
Completed real estate leases			19.3		4.5		14.8
Customer relationships			1.8		0.4		1.4

	Total	$	255.1	$	59.1	$	196.0

In addition to the impairment cost, pursuant to the guidance provided by Emerging Issues Task Force Issue No. 94-3 "Liability Recognition for Certain Employee Termination and Other Costs to Exit an Activity (Including Certain Costs Incurred in Restructurings)," we recorded related restructuring costs totaling $4.3 million primarily attributable to estimated costs for severance for the termination of 65 employees and contractors, anticipated losses related to subleasing the undeveloped leases, and other associated costs. All of these costs were paid, and the related restructuring liability reduced during 2001.

Third quarter, 2001 restructuring charges:

On September 24, 2001, we announced a restructuring of our business. Under the restructuring program, management decided to exit certain non-strategic real estate lease and license arrangements, consolidate and exit redundant network connections and streamline the operating cost structure. The total charges include restructuring costs of $67.3 million. During 2001, we incurred cash restructuring expenditures totaling $15.6 million, non-cash restructuring expenditures of $4.7 million and reduced the original restructuring cost estimate by $7.7 million primarily as a result of favorable lease obligation settlements, leaving a balance of $39.3 million as of December 31, 2001. During the first quarter of 2002, we further reduced our restructuring liability by $5.0 million. This reduction was also primarily due to favorable settlements to terminate and restructure certain collocation lease obligations on terms favorable to our original restructuring estimates.

The following table displays the activity and balances for restructuring activity during 2002 (in millions):

			December 31, 2001 Reserve		Cash Reductions			Non-cash Write-downs			Non-cash Plan Adjustments			March 31, 2002 Reserve
Restructuring costs
	Real estate obligations		$	34.6	$	(5.0	)	$	(1.1	)	$	(5.0	)	$	23.5
	Network infrastructure obligations			2.7		(0.6	)		—			—			2.1
	Other			2.0		—			—			—			2.0

		Total restructuring costs	$	39.3	$	(5.6	)	$	(1.1	)	$	(5.0	)	$	27.6

Real Estate Obligations

The restructuring plans require us to abandon certain real estate leases and properties not in use and, based on the restructuring plan, will not be utilized by us in the future. Also included in real estate obligations is the abandonment of certain collocation license obligations. Accordingly, we recorded restructuring costs of $48.0 million, net of non-cash plan adjustments, which are estimates of losses in excess of estimated sublease revenues or termination fees to be incurred on these real estate obligations over the remaining lease terms, expiring through 2015. This cost was determined based upon our estimate of anticipated sublease rates and time to sublease the facility. Should rental rates decrease in these markets or if it takes longer than expected to sublease these properties, the actual loss could exceed this estimate.

Network Infrastructure Obligations

Results Of Operations

The following table sets forth, as a percentage of total revenues, selected statement of operations data for the periods indicated:

			Three-month periods ended March 31,
			2002		2001
Revenues			100	%	100	%
Costs and expenses:
	Direct cost of network		74	%	82	%
	Customer support		12	%	24	%
	Product development		6	%	13	%
	Sales and marketing		19	%	50	%
	General and administrative		20	%	53	%
	Depreciation and amortization		39	%	37	%
	Amortization of intangible assets		4	%	70	%
	Amortization of deferred stock compensation		1	%	8	%
	Restructuring costs		(15	%)	15	%
	Impairment of goodwill and other intangible assets		0	%	689	%

		Total operating costs and expenses	160	%	1,041	%

Loss from operations			(60	%)	(941	%)

Other income (expense):
	Interest income (expense), net		(1	%)	2	%
	Loss on equity-method investment		(1	%)	—
	Loss on sales and retirements of property and equipment		(1	%)	—

		Total other income (expense)	(3	%)	2	%

		Net loss	(63	%)	(939	%)

Three-month Periods Ended March 31, 2002 and 2001

Net Loss. Net loss for the three-month period ended March 31, 2002 was $20.3 million, or a net loss of $0.13 per share, as compared to a net loss of $266.8 million, or a net loss of $1.79 per share, for the same period during the preceding year. The $246.5 million decrease in net loss was primarily due to restructuring and impairment costs incurred during 2001 totaling $200.3 million and decreased amortization of intangible assets of $18.4 million, representing 81% and 7.5% of the decrease, respectively. We anticipate continuing decreases in net losses for the remainder of 2002.

Revenues. Revenues increased 15% from $28.4 million for the three-month period ended March 31, 2001 to $32.6 million for the three-month period ended March 31, 2002. The increase of $4.2 million was attributable to increased sales at our existing service points resulting in an increased customer base and sales of complimentary services such as content distribution. We expect sequential increases to revenues for the remainder of 2002.

Direct cost of network. Direct cost of network increased 4% from $23.2 million for the three-month period ended March 31, 2001 to $24.1 million for the three-month period ended March 31, 2002. This increase of $0.9 million was primarily due to increased costs related to collocation facilities, content distribution, and customer local access costs that increased $1.9 million, $0.8 million and $0.7 million, respectively, offset by decreased costs related to connections to Internet backbone and

local exchange providers at each service point, which decreased $2.5 million. We anticipate direct cost of network to remain consistent with the cost noted during the current period.

Customer support. Customer support expenses decreased 43% from $6.7 million for the three-month period ended March 31, 2001 to $3.8 million for the three-month period ended March 31, 2002. This decrease of $2.9 million was primarily due to decreased compensation and benefits costs and facility costs that decreased $2.0 million and $0.6 million, respectively. Customer support costs are expected to remain consistent with those noted during the current quarter.

Product Development. Product development costs decreased 47% from $3.8 million for the three-month period ended March 31, 2001 to $2.0 million for the three-month period ended March 31, 2002. This decrease of $1.8 million was due primarily to decreased compensation and contract labor, representing $1.0 million and $0.6 million of the decrease, respectively. Product development costs are expected to remain consistent with those noted during the current quarter.

Sales and Marketing. Sales and marketing costs decreased 57% from $14.3 million for the three-month period ended March 31, 2001 to $6.1 million for the three-month period ended March 31, 2002. This decrease of $8.2 million was primarily due to advertising costs, compensation costs, and travel and entertainment costs, representing $4.8 million, $2.6 million and $0.4 million, respectively. Sales and marketing expenses are expected to remain consistent with those of the current quarter for the foreseeable future.

General and Administrative. General and administrative costs decreased 57% from $15.2 million for the three-month period ended March 31, 2001 to $6.5 million for the three-month period ended March 31, 2002. This decrease of $8.7 million was primarily due to decreased facility, compensation and recruiting, and tax costs, representing $3.1 million, $2.6 million and $1.3 million, respectively. General and administrative costs are expected to remain consistent with those of the current quarter for the foreseeable future.

Amortization of Intangible Assets. Amortization of intangible assets declined 93% from $19.8 million for the three-month period ended March 31, 2001 to $1.4 million for the three-month period ended March 31, 2002. This decrease of $18.4 million is due to the impairment write-off of the goodwill associated with the acquisition of CO Space, resulting in a $14.0 million decrease, and the cessation of amortization of goodwill associated with the VPNX.com acquisition due to our adoption of Statement of Financial Accounting Standard No. 142 "Goodwill and Other Intangible Assets," resulting in a $4.4 million decrease.

Depreciation and amortization. Depreciation and amortization increased 22% from $10.5 million for the three-month period ended March 31, 2001 to $12.8 million for the three-month period ended March 31, 2002. This $2.3 million increase was primarily due to depreciation of property and equipment acquired and placed in service within our network infrastructure.

Other Income (Expense). Other income (expense), net, decreased from other income of $0.7 million for the three-month period ended March 31, 2001 to $(0.9) million of other expense for the three-month period ended March 31, 2002. This decrease was primarily due to net interest income during 2001 becoming net interest expense during 2002 as interest rates and cash and investment balances declined and interest expense, primarily from capital leases, increased. Furthermore, we incurred losses on investments and sales and retirements of property and equipment during 2002 that did not occur during 2001.

Liquidity and Capital Resources

Cash Flow for the Three-month periods ended March 31, 2002 and 2001

Net Cash Used in Operating Activities

Net cash used in operating activities was $12.2 million for the three-month period ended March 31, 2002 and was primarily due to the loss from continuing operations (adjusted for non-cash items) of $8.8 million, a decrease in accrued restructuring charge of $5.5 million and a decrease in accrued liabilities of $1.7 million. These uses of cash were partially offset by increases in accounts payable of $2.1 million, decreases in receivables of $0.8 million, decreases in prepaid expenses, deposits and other assets of $0.8 million and an increase in deferred revenues of $0.1 million. The decrease in the accrued restructuring charge reflects the restructuring payments made during the period, primarily relating to real estate obligations. The fluctuations noted within the other balance sheet accounts reflect the reduction of our days sales outstanding from 45 days at December 31, 2001 to 39 days at March 31, 2002 and fluctuations in the ordinary course of business.

Net cash used in operating activities was $34.0 million for the three-month ended March 31, 2001 and was primarily due to the loss from continuing operations (adjusted for non-cash items) of $36.8 million, decreased accrued liabilities of $2.1 million and decreased deferred revenues of $0.9 million. These uses of cash were partially offset by an increase in accounts payable of $3.9 million, a decrease in accounts receivable of $1.1 million and a decrease in prepaid expenses, deposits and other assets of $0.8 million. The increase in accounts payable reflects the growth of operations during the period. The decrease in accrued liabilities reflects the decrease of capital asset acquisitions that were previously accrued.

Net Cash Provided by Investing Activities

Net cash provided by investing activities was $12.5 million for the three-month ended March 31, 2002 and was primarily from proceeds of $14.5 million received from the maturity of investments, offset by $1.1 million in purchases of property and equipment and $1.3 million invested in our Japan joint venture Internap Japan. The purchases of property and equipment primarily represent capitalized labor for the development of internal use software and equipment to be used within our network infrastructure.

On April 10, 2001, we announced the formation of a joint venture with NTT-ME Corporation of Japan. The formation of the joint venture involved our cash investment of $2.8 million to acquire 51% of the common stock of the newly formed entity, Internap Japan. The investment in the joint venture is being accounted for as an equity-method investment under Accounting Principles Board Opinion No. 18 "The Equity Method of Accounting for Investments in Common Stock." During the three-month period ended March 31, 2002, the joint venture authorized a second capital call, and we invested an additional $1.3 million into the partnership in proportion to our ownership interest. We expect this additional capital contribution to fund the partnership through the remainder of 2002.

Net cash provided by investing activities was $5.2 million for the three-month period ended March 31, 2001 and was primarily related to the redemption or maturity of investment securities, net of new investments, of $24.1 million used to purchase investments, offset by purchases of property and equipment of $19.1 million. The purchases of property are primarily comprised of expenditures relating to leasehold improvements on undeveloped collocation facilities and corporate offices and equipment to be deployed within our network infrastructure. Subsequent to February 28, 2001, the point at which we restructured our collocation activities, purchases of property and equipment for leasehold improvements began to decline.

Net Cash Used In Financing Activities:

Since our inception, we have financed our operations primarily through the issuance of our equity securities, capital leases and bank loans. As of March 31, 2002, we have raised an aggregate of approximately $499.6 million, net of offering expenses, through the sale of our equity securities.

Net cash used in financing activities for the three-month period ended March 31, 2002 was $3.3 million, and related primarily to the payments on notes payable and capital leases, totaling $4.0 million offset by the proceeds of the employee stock purchase plan stock purchase and the exercise of options and warrants, totaling $0.7 million.

Net cash used in financing activities for the three-month period ended March 31, 2001 was $3.2 million, and related primarily to the payments on notes payable and capital leases, totaling $4.7 million offset by the proceeds of the employee stock purchase plan stock purchase and the exercise of options and warrants, totaling $1.5 million.

Liquidity

We have experienced significant net operating losses since inception. During the three-month period ended March 31, 2002, we incurred net losses of $20.3 million and used $12.2 million of cash in our operating activities. Management expects operating losses and negative cash flows will continue through December 31, 2002. We have decreased the size of our workforce by 70 employees in addition to the 313 employees reduction of the prior fiscal year, and terminated certain real estate leases and commitments in order to control costs. Our plans indicate our existing cash and investments are adequate to fund our operations through December 31, 2002. However, our capital requirements depend on several factors, including the rate of market acceptance of our services, the ability to expand and retain our customer base and other factors. If we fail to realize our planned revenues or costs, management believes it has the ability to curtail capital spending and reduce expenses to ensure cash and investments will be sufficient to meet our cash requirements through December 31, 2002. If, however, our cash requirements vary materially from those currently planned, or if we fail to generate sufficient cash flow from the sales of our services, we may require additional financing sooner than anticipated. We cannot assure you such financing will be available on acceptable terms, if at all.

Our cash requirements through the end of 2002 are primarily to fund operations, restructuring outlays, and payments to service capital leases and capital expenses.

With the slowdown in the macroeconomic environment during 2001, we focused on significantly reducing the cost structure of the business while maintaining a continued focus on growing revenues. On February 28, 2001 and September 24, 2001, we announced two restructurings of the business. Under the restructuring programs, management made decisions to exit certain non-strategic real estate lease and license arrangements, consolidate and exit redundant network connections and to streamline the operating cost structure. The total charges include restructuring costs of $71.6 million and a charge for asset impairment of $196.0 million. We expect to complete the majority of our restructuring activities during 2002, although certain remaining restructured real estate and network obligations represent long-term contractual obligations related to real estate obligations that extend through 2015.

Based on savings from our restructuring program and other forecasted cash savings, we believe our cash and short term investments will be sufficient to meet our cash requirements through December 31, 2002. If we fail to realize our planned revenues or costs, management believes it has the ability to curtail capital spending and reduce expenses to ensure cash and investments will be sufficient to meet our cash requirements through December 31, 2002.

However, because market demand continues to be uncertain and because we are currently implementing initiatives to reduce costs, it is difficult to estimate our ongoing cash requirements. Also, our cost reduction initiatives may have unanticipated adverse effects on our business. Our ability to meet our cash requirements during 2002 also depends on our ability to decrease cash losses from continuing operations throughout the year. A portion of our planned operating cash improvement is expected to come from an increase in revenues and cash collections from customers.

Commitments and Other Obligations

We have commitments and other obligations that are contractual in nature and will represent a use of cash in the future unless there are modifications to the terms of those agreements. The amounts in the table below captioned "Network commitments" primarily represent purchase commitments made to our largest bandwidth vendors and, to a lesser extent, contractual payments to license collocation space used for resale to customers. Our ability to improve cash used in operations in the future would be negatively impacted if we did not grow our business at a rate that would allow us to offset the service commitments with corresponding revenue growth.

The following table summarizes our credit obligations and future contractual commitments (in thousands) as of March 31, 2002:

				Payment due by period
		Total		Current Year		2003 through 2005		2006 through 2007		Beyond 2007
Line of credit		$	15,000	$	15,000	$	—	$	—	$	—
Notes Payable			2,992		2,038		954		—		—
Capital Lease Obligations			37,944		22,450		10,424		299		4,771
Operating leases commitments			133,615		14,730		29,996		13,482		75,407
Network commitments			129,470		51,582		74,615		2,222		1,051

	Total	$	319,021	$	105,800	$	115,989	$	16,003	$	81,229

Note that the table above summarizes our most significant contractual commitments but does not represent all uses of cash that will occur in the normal course of business. For example, the summary above does not include cash used for working capital purposes, restructuring expenses or future capital purchases that would be in addition to the amounts above. Also note that the line of credit and notes payable agreements contain covenants that could accelerate the payment schedule in the event of a default.

Credit Facilities

At March 31, 2002, we had a revolving line of credit of $15.0 million and had drawn $10.0 million under the facility. Our ability to maintain the drawn amount under the line of credit at current levels and have access to the additional $5.0 million depends on a number of factors, including the level of eligible receivable balances and liquidity. The facility allows advances equal to the greater of 80% of eligible accounts receivable or 25% of cash and short-term investments, whichever is greater. The facility also contains financial covenants that require us to grow revenues, limit the cash losses, and require minimum levels of liquidity and tangible net worth as defined in the agreement. The lender also has the ability to demand repayment in the event, in its view, there has been a material adverse change in our business. At March 31, 2002, we were in compliance with the financial covenants. Payments are interest only with the full principal due at maturity unless the facility is renewed.

Preferred Stock

3,171,000 shares of Series A preferred stock were issued and outstanding at March 31, 2002. Among other things, the preferred stock purchase agreement under which the shares were purchased establishes restrictions on the amount of new debt that we can incur without specific preferred

stockholder approval. Should we in the future decide to obtain additional debt to improve our liquidity, there can be no assurance that preferred stockholder approval can be obtained.

Lease facilities

Since our inception, we have financed the purchase of network routing equipment using capital leases. The present value of future capital lease payments is $35.1 million at March 31, 2002. We have fully utilized available funds under our lease facilities. We are currently in negotiations to make additional proceeds available under a master lease agreement with an equipment vendor. While we expect the credit facility to increase to accommodate expected network equipment purchases, there can be no assurance that this will occur. See "Liquidity—Commitments and Other Obligations" for a summary of lease obligations.

Recent Accounting Pronouncements

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We maintain investment portfolio holdings of various issuers, types, and maturities, the majority of which are commercial paper and government securities. These securities are generally classified as available for sale and, consequently, are recorded on the balance sheet at fair value with unrealized gains or losses reported as a separate component of accumulated other comprehensive income. We also have a $1.2 million equity investment in Aventail, an early stage, privately held company. This strategic investment is inherently risky, in part because the market for the products or services being offered or developed by Aventail has not been proven and may never materialize. Because of risk associated with this investment, we could lose our entire initial investment in Aventail. Furthermore we have invested $4.2 million in a Japan based joint venture with NTT-ME Corporation, Internap Japan. This investment is accounted for using the equity method and is subject to foreign currency exchange rate risk. In

addition, the market for services being offered by Internap Japan has not been proven and may never materialize.

The remaining portion of our investment portfolio, with a fair value of $4.2 million as of March 31, 2002, is invested in commercial paper, government securities and corporate indebtedness that could experience an adverse decline in fair value should an increase in interest rates occur. In addition, declines in interest rates could have an adverse impact on interest earnings for our investment portfolio. We do not currently hedge against these interest rate exposures.

As of March 31, 2002, our cash equivalents mature within three months and our short-term investments generally mature in less than one year. Therefore, as of March 31, 2002, we believe the reported amounts of cash and cash equivalents, investments and lease obligations to be reasonable approximations of fair value and the market risk arising from our holdings to be minimal.

Substantially all of our revenues are currently in United States dollars and from customers primarily in the United States. Therefore, we do not believe we currently have any significant direct foreign currency exchange rate risk.

RISK FACTORS

Risks Related to Our Business

We Have a History of Losses, Expect Future Losses and May Not Achieve or Sustain Annual Profitability. We have incurred net losses in each quarterly and annual period since we began operations. We incurred net losses of $49.9 million, $185.5 million and $479.2 million for the years ended December 31, 1999, 2000 and 2001, respectively. Our net loss for the three-month period ended March 31, 2002 was $20.3 million and at March 31, 2002 our accumulated deficit was $744.4 million. We expect to incur net losses and negative cash flows from operations on a quarterly and annual basis for up to the next 24 months, and we may never become profitable.

Our Limited Operating History Makes It Difficult to Evaluate Our Prospects. The revenue and income potential of our business and market is unproven, and our limited operating history makes it difficult to evaluate our prospects. We have only been in existence since 1996, and our services are only offered in limited regions. Investors should consider and evaluate our prospects in light of the risks and difficulties frequently encountered by relatively new companies, particularly companies in the rapidly evolving Internet infrastructure, connectivity and collocation markets.

Our Actual Quarterly Operating Results May Disappoint Analysts' Expectations, Which Could Have a Negative Impact on Our Stock Price. Our stock price could suffer in the future, as it has in the past, as a result of any failure to meet the expectations of public market analysts and investors about our results of operations from quarter to quarter. Any significant unanticipated shortfall of revenues or increase in expenses could negatively impact our expected quarterly results of operations should we be unable to make timely adjustments to compensate for them. Furthermore, a failure on our part to estimate accurately the timing or magnitude of particular anticipated revenues or expenses could also negatively impact our quarterly results of operations. Because our quarterly results of operations have fluctuated in the past and will continue to fluctuate in the future, investors should not rely on the results of any past quarter or quarters as an indication of future performance in our business operations or stock price. For example, increases in our quarterly revenues for the quarters ended March 31, 2001 through March 31, 2002, have varied between (0.4)% and 6.9%, and total operating costs and expenses, as a percentage of revenues, have fluctuated between 159.7% and 1,040.7%. Fluctuations in our quarterly operating results depend on a number of factors. Some of these factors are industry and economic risks over which we have no control, including the introduction of new services by our competitors, fluctuations in the demand and sales cycle for our services, fluctuations in the market for qualified sales and other personnel, changes in the prices for Internet connectivity we

pay backbone providers, our ability to obtain local loop connections to our service points at favorable prices, integration of people, operations, products and technologies of acquired businesses and general economic conditions. Other factors that may cause fluctuations in our quarterly operating results arise from strategic decisions we have made or may make with respect to the timing and magnitude of capital expenditures such as those associated with the deployment of additional service points and the terms of our Internet connectivity purchases. For example, our practice is to purchase Internet connectivity from backbone providers at new service points and license collocation space from providers before customers are secured. We also have agreed to purchase Internet connectivity from some providers without regard to the amount we resell to our customers.

Pricing Pressure Could Decrease Our Market Share and Threaten the Profitability of Our Business Model. We face competition from competitors along several fronts (more fully described below), including price competition. Increased price competition and other related competitive pressures could erode our market share, and significant price deflation could threaten the profitability of our business model. We currently charge, and expect to continue to charge, more for our Internet connectivity services than our competitors. By bundling their services and reducing the overall cost of their solutions, telecommunications companies that compete with us may be able to provide customers with reduced communications costs in connection with their Internet connectivity services or private network services, thereby significantly increasing the pressure on us to decrease our prices. Because we rely on Internet backbone providers in delivering our services and have agreed with some of these providers to purchase their services without regard to the amount we resell to our customers, we may not be able to offset the effects of competitive price reductions even with an increase in the number of our customers, higher revenues from enhanced services, cost reductions or otherwise. In addition, we believe the Internet connectivity industry is likely to encounter further consolidation in the future. Consolidation could result in increased pressure on us to decrease our prices. Furthermore, the recent downturn in the U.S. economy has resulted in many companies who require Internet connectivity to reevaluate the cost of such services. We believe that a prolonged economic downturn could result in existing and potential customers being unwilling to pay for premium Internet connectivity services, which would harm our business.

We May Require Additional Cash in the Future and May Not Be Able to Secure Adequate Funds on a Timely Basis or on Terms Acceptable to Us. The continued operation of our business requires cash for ongoing capital and operations expenditures. We expect to meet our cash requirements through December 31, 2002 with existing cash, cash equivalents, short-term investments and cash flows from sales of our services. If, however, our cash requirements vary materially from those currently planned, or if we fail to generate sufficient cash flow from the sales of our services, management believes it has the ability to curtail capital spending and reduce expenses to ensure our cash and investments will be sufficient to meet our cash requirements through December 31, 2002. We may, however, require additional financing sooner than anticipated. In that event, we might not be able to obtain equity or debt financing on acceptable terms, if at all. Also, future borrowing instruments, such as credit facilities and lease agreements, will likely contain covenants restricting our ability to incur further indebtedness and will likely require us to pledge assets as security for borrowings there under.

Given our recent efforts to reduce our capital and operations expenditures, we do not currently contemplate any expansion of our business in the immediate future. Any such expansion would require significant new capital, and we may be unable to obtain additional financing.

We may be unable to maintain our listing on the Nasdaq National Market, Which Could Have a Negative Impact on the Price and Liquidity of Our Common Stock. Our common stock currently is quoted on the Nasdaq National Market, which has certain compliance requirements for continued listing of common stock, including a requirement that our common stock have a minimum bid price of $1.00 per share. On April 24, 2002, we received an initial warning letter from Nasdaq stating that the

price of our common stock had closed below the minimum $1.00 per share listing requirement for 30 consecutive trading days and that the 90-calendar day grace period had begun. At the end of the 90-calendar day grace period, assuming we have not cured the violation, Nasdaq will send an official delisting notice at which time we may file an appeal. Failure to maintain our listing on the Nasdaq National Market could, among other things, have a negative impact on the price and liquidity of our common stock.

If We Are Unable to Continue to Receive Services from Our Backbone Providers, or Receive Their Services on a Cost-Effective Basis, We May Not Be Able to Provide Our Internet Connectivity Services on Profitable Terms. In delivering our services, we rely on Internet backbones, which are built and operated by others. In order to be able to provide high performance routing to our customers through our service points, we must purchase connections from several Internet backbone providers. There can be no assurance that these Internet backbone providers will continue to provide service to us on a cost-effective basis or on otherwise favorable terms, if at all, or that these providers will provide us with additional capacity to adequately meet customer demand. Furthermore, it is very unlikely that we could replace our Internet backbone providers on comparable terms. Currently, in each of our domestic service points, we have connections to some combination of the following nine backbone providers: AT&T, Cable & Wireless USA, Genuity, Global Crossing Telecommunications, Intermedia Communications, Qwest Communications International, Sprint Internet Services, UUNET Technologies (a Worldcom company) and Verio (an NTT Communications Corporation). We may be unable to maintain relationships with, or obtain necessary additional capacity from, these backbone providers. Furthermore, we may be unable to establish and maintain relationships with other backbone providers that may emerge or that are significant in geographic areas, such as Asia and Europe, in which we locate our service points.

Competition from More Established Competitors Who Have Greater Revenues Could Decrease Our Market Share. The Internet connectivity services market is extremely competitive, and there are few substantial barriers to entry. We expect competition from existing competitors to intensify in the future, and we may not have the financial resources, technical expertise, sales and marketing abilities or support capabilities to compete successfully in our market. Many of our existing competitors have greater market presence, engineering and marketing capabilities, and financial, technological and personnel resources than we do. As a result, our competitors may have several advantages over us as we seek to develop a greater market presence. Our competitors currently include backbone providers that provide connectivity services to us, regional Bell operating companies which offer Internet access, and global, national and regional Internet service providers and other Internet infrastructure providers and manufacturers. In addition, Internet backbone providers may make technological developments, such as improved router technology or the introduction of improved routing protocols, that will enhance the quality of their services. We also expect to encounter additional competition from international Internet service providers as well as international telecommunications companies in the countries where we provide services.

Competition from New Competitors Could Decrease Our Market Share. We also believe new competitors will enter our market. These new competitors could include computer hardware, software, media and other technology and telecommunications companies. A number of telecommunications companies and online service providers have been offering or expanding their network services. Further, the ability of some of these potential competitors to bundle other services and products with their network services could place us at a competitive disadvantage. Various companies are also exploring the possibility of providing, or are currently providing, high-speed, intelligent data services that use connections to more than one backbone and other technologies or use alternative delivery methods including the cable television infrastructure, direct broadcast satellites, wireless cable and wireless local loop.

Some of Our Customers Are Emerging Internet-Based Businesses That May Not Pay Us for Our Services on a Timely Basis and May Not Succeed Over the Long Term. A portion of our revenues is derived from customers that are emerging Internet-based businesses. The unproven business models of some of these customers and an uncertain economic climate make their continued financial viability uncertain. Some of these customers have encountered financial difficulties and, as a result, have delayed or defaulted on their payments to us. In the future others may also do so. If these payment difficulties are substantial, our business and financial results could be seriously harmed.

A Failure in Our Network Operations Center, Service Points or Computer Systems Would Cause a Significant Disruption in Our Internet Connectivity Services. Although we have taken precautions against systems failure, interruptions could result from natural or human caused disasters, power loss, telecommunications failure and similar events. Our business depends on the efficient and uninterrupted operation of our network operations center, our service points and our computer and communications hardware systems and infrastructure. If we experience a problem at our network operations center, we may be unable to provide Internet connectivity services to our customers, provide customer service and support or monitor our network infrastructure or service points, any of which would seriously harm our business.

Because We Have Limited Experience Operating Internationally, Our International Operations May Not Be Successful. Although we currently have service points in London and Amsterdam and a joint venture with NTT-ME Corporation operating a service point in Tokyo, we have limited experience operating internationally. We may not be able to adapt our services to international markets or market and sell these services to customers abroad. In addition to general risks associated with international business operations, we face the following specific risks in our international business operations:

•: difficulties in establishing and maintaining relationships with foreign customers as well as foreign backbone providers and local vendors, including collocation and local loop providers;
•: difficulties in locating, building and deploying network operations centers and service points in foreign countries, and managing service points and network operations centers across disparate geographic areas; and
•: exposure to fluctuations in foreign currency exchange rates.

We may be unsuccessful in our efforts to address the risks associated with our international operations, and our international sales growth may therefore be limited.

We Would Incur Additional Expense Associated with the Deployment of Any New Service Points and May Be Unable to Effectively Integrate New Service Points into Our Existing Network, Which Could Disrupt Our Service. New service points, if any, would result in substantial new operating expenses, including expenses associated with hiring, training, retaining and managing new employees, provisioning capacity from backbone providers, purchasing new equipment, implementing new systems, leasing additional real estate and incurring additional depreciation expense. In addition, if we do not institute adequate financial and managerial controls, reporting systems, and procedures with which to operate multiple service points in geographically dispersed locations, our operations will be significantly harmed. Furthermore, in any effort to deploy new service points, we would face various risks associated with significant construction projects, including identifying and locating service point sites, construction delays, cost estimation errors or overruns, delays in connecting with local exchanges, equipment and material delays or shortages, the inability to obtain necessary permits on a timely basis, if at all, and other factors, many of which are beyond our control and all of which could delay the deployment of a new service point.

Our Brand Is Relatively New, and Failure to Develop Brand Recognition Could Hurt Our Ability to Compete Effectively. To successfully execute our strategy, we must strengthen our brand awareness. If we do not build our brand awareness, our ability to realize our strategic and financial objectives could be hurt. Many of our competitors have well-established brands associated with the provision of Internet connectivity services. To date, we have attracted our existing customers primarily through a relatively small sales force, word of mouth and a limited, print-focused advertising campaign. In order to build our brand awareness, we must continue to provide high quality services.

We Are Dependent Upon Our Key Employees and May Be Unable to Attract or Retain Sufficient Numbers of Qualified Personnel. Our future performance depends to a significant degree upon the continued contributions of our executive management team and key technical personnel. The loss of members of our executive management team or key technical employees could significantly harm us. Any of our officers or employees can terminate his or her relationship with us at any time. To the extent we are able to expand our operations and deploy additional service points, our workforce will be required to grow. Accordingly, our future success depends on our ability to attract, hire, train and retain a substantial number of highly skilled management, technical, sales, marketing and customer support personnel. Competition for qualified employees is intense. Consequently, we may not be successful in attracting, hiring, training and retaining the people we need, which would seriously impede our ability to implement our business strategy.

If We Are Not Able to Support Our Growth Effectively, Our Expansion Plans May Be Frustrated or May Fail. Our inability to manage growth effectively would seriously harm our plans to expand our Internet connectivity services into new markets. Since the introduction of our Internet connectivity services, we have experienced a period of rapid growth and expansion, which has placed, and continues to place, a significant strain on all of our resources. For example, as of December 31, 1996, we had one operational service point, serving one metropolitan market and nine employees compared to 35 operational service points serving 18 metropolitan markets and 467 full-time employees as of March 31, 2001. In addition, we had $28.4 million in revenues for the three-month period ended March 31, 2001, compared to $32.6 million in revenues for the three-month period ended March 31, 2002. Furthermore, we currently offer our services in Europe and Japan, through our joint venture, Internap Japan. We also resell certain products and services of Akamai Technologies, Inc., Cisco Systems, Inc. and others. We expect our recent growth to continue to strain our management, operational and financial resources. For example, we may not be able to install adequate financial control systems in an efficient and timely manner, and our current or planned information systems, procedures and controls may be

inadequate to support our future operations. The difficulties associated with installing and implementing new systems, procedures and controls may place a significant burden on our management and our internal resources.

If We Fail to Adequately Protect Our Intellectual Property, We May Lose Rights to Some of Our Most Valuable Assets. We rely on a combination of patent, copyright, trademark, trade secret and other intellectual property law, nondisclosure agreements and other protective measures to protect our proprietary technology. Internap and P-NAP are trademarks of Internap that are registered in the United States. In addition, we have three patents that have been issued by the United States Patent and Trademark Office, or USPTO. The dates of issuance for these patents range from September 1999 through December 1999, and each of these patents is enforceable for a period of 20 years after the date of its filing. We cannot assure you that these patents or any future issued patents will provide significant proprietary protection or commercial advantage to us or that the USPTO will allow any additional or future claims. We have nine additional applications pending, two of which are continuation in patent filings. We may file additional applications in the future. Our patents and patent applications relate to our service point technologies and other technical aspects of our services. In addition, we have filed corresponding international patent applications under the Patent Cooperation Treaty. It is possible that any patents that have been or may be issued to us could still be successfully challenged by third parties, which could result in our loss of the right to prevent others from exploiting the inventions claimed in those patents. Further, current and future competitors may independently develop similar technologies, duplicate our services and products or design around any patents that may be issued to us. In addition, effective patent protection may not be available in every country in which we intend to do business. In addition to patent protection, we believe the protection of our copyrightable materials, trademarks and trade secrets is important to our future success. We rely on a combination of laws, such as copyright, trademark and trade secret laws and contractual restrictions, such as confidentiality agreements and licenses, to establish and protect our proprietary rights. In particular, we generally enter into confidentiality agreements with our employees and nondisclosure agreements with our customers and corporations with whom we have strategic relationships. In addition, we generally register our important trademarks with the USPTO to preserve their value and establish proof of our ownership and use of these trademarks. Any trademarks that may be issued to us may not provide significant proprietary protection or commercial advantage to us. Despite any precautions that we have taken, intellectual property laws and contractual restrictions may not be sufficient to prevent misappropriation of our technology or deter others from developing similar technology.

We May Face Litigation and Liability Due to Claims of Infringement of Third Party Intellectual Property Rights. The telecommunications industry is characterized by the existence of a large number of patents and frequent litigation based on allegations of patent infringement. From time to time, third parties may assert patent, copyright, trademark, trade secret and other intellectual property rights to technologies that are important to our business. Any claims that our services infringe or may infringe proprietary rights of third parties, with or without merit, could be time-consuming, result in costly litigation, divert the efforts of our technical and management personnel or require us to enter into royalty or licensing agreements, any of which could significantly harm our operating results. In addition, in our customer agreements, we agree to indemnify our customers for any expenses or liabilities resulting from claimed infringement of patents, trademarks or copyrights of third parties. If a claim against us was to be successful, and we were not able to obtain a license to the relevant or a substitute technology on acceptable terms or redesign our products to avoid infringement, our ability to compete successfully in our competitive market would be impaired.

Because We Depend on Third Party Suppliers for Key Components of Our Network Infrastructure, Failures of These Suppliers to Deliver Their Components as Agreed Could Hinder Our Ability to Provide Our Services on a Competitive and Timely Basis. Any failure to obtain required products or services from

third party suppliers on a timely basis and at an acceptable cost would affect our ability to provide our Internet connectivity services on a competitive and timely basis. We are dependent on other companies to supply various key components of our infrastructure, including the local loops between our service points and our Internet backbone providers and between our service points and our customers' networks. In addition, the routers and switches used in our network infrastructure are currently supplied by a limited number of vendors. Additional sources of these services and products may not be available in the future on satisfactory terms, if at all. We purchase these services and products pursuant to purchase orders placed from time to time. Furthermore, we do not carry significant inventories of the products we purchase, and we have no guaranteed supply arrangements with our vendors. We have in the past experienced delays in installation of services and receiving shipments of equipment purchased. To date, these delays have neither been material nor have adversely affected us, but these delays could affect our ability to deploy service points in the future on a timely basis. If our limited source of suppliers fails to provide products or services that comply with evolving Internet and telecommunications standards or that interoperate with other products or services we use in our network infrastructure, we may be unable to meet our customer service commitments.

We Have Acquired and May Acquire Other Businesses, and these Acquisitions Involve Numerous Risks. During 2000, we acquired CO Space and VPNX, respectively, in purchase transactions. We may engage in additional acquisitions in the future in order to, among other things, enhance our existing services and enlarge our customer base. Acquisitions involve a number of risks that could potentially, but not exclusively, include the following:

•: difficulties in integrating the operations, personnel, technologies, products and services of the acquired companies in a timely and efficient manner;
•: diversion of management's attention from normal daily operations;
•: insufficient revenues to offset significant unforeseen costs and increased expenses associated with the acquisitions;
•: difficulties in completing projects associated with in-process research and development being conducted by the acquired businesses;
•: risks associated with our entrance into markets in which we have little or no prior experience and where competitors have a stronger market presence;
•: deferral of purchasing decisions by current and potential customers as they evaluate the likelihood of success of the acquisitions;
•: difficulties in pursuing relationships with potential strategic partners who may view the combined company as a more direct competitor than our predecessor entities taken independently;
•: issuance by us of equity securities that would dilute ownership of existing stockholders;
•: incurrence of significant debt, contingent liabilities and amortization expenses; and
•: loss of key employees of the acquired companies.

Acquiring high technology businesses as a means of achieving growth is inherently risky. To meet these risks, we must maintain our ability to manage effectively any growth that results from using these means. Failure to manage effectively our growth through mergers and acquisitions could harm our business and operating results and could result in impairment of related long-term assets.

Risks Related to Our Industry

Because the Demand for Our Services Depends on Continued Growth in Use of the Internet, a Slowing of this Growth Could Harm the Development of the Demand for Our Services. Critical issues concerning

the commercial use of the Internet remain unresolved and may hinder the growth of Internet use, especially in the business market we target. Despite growing interest in the varied commercial uses of the Internet, many businesses have been deterred from purchasing Internet connectivity services for a number of reasons, including inconsistent or unreliable quality of service, lack of availability of cost-effective, high-speed options, a limited number of local access points for corporate users, inability to integrate business applications on the Internet, the need to deal with multiple and frequently incompatible vendors and a lack of tools to simplify Internet access and use. Capacity constraints caused by growth in the use of the Internet may, if left unresolved, impede further development of the Internet to the extent that users experience delays, transmission errors and other difficulties. Further, the adoption of the Internet for commerce and communications, particularly by those individuals and enterprises that have historically relied upon alternative means of commerce and communication, generally requires an understanding and acceptance of a new way of conducting business and exchanging information. In particular, enterprises that have already invested substantial resources in other means of conducting commerce and exchanging information may be particularly reluctant or slow to adopt a new strategy that may make their existing personnel and infrastructure obsolete. Additionally, even individuals and enterprises that have invested significant resources in the use of the Internet may, for cost reduction purposes during difficult economic times, decrease future investment in the use of the Internet. The failure of the market for business related Internet solutions to further develop could cause our revenues to grow more slowly than anticipated and reduce the demand for our services.

Because the Internet Connectivity Market Is New and Its Viability Is Uncertain, There Is a Risk Our Services May Not Be Accepted. We face the risk that the market for high performance Internet connectivity services might fail to develop, or develop more slowly than expected, or that our services may not achieve widespread market acceptance. This market has only recently begun to develop, is evolving rapidly and likely will be characterized by an increasing number of entrants. There is significant uncertainty as to whether this market ultimately will prove to be viable or, if it becomes viable, that it will grow. Furthermore, we may be unable to market and sell our services successfully and cost-effectively to a sufficiently large number of customers. We typically charge more for our services than do our competitors, which may affect market acceptance of our services. We believe the danger of nonacceptance is particularly acute during economic slowdowns and when there is significant pricing pressure across the Internet connectivity industry. Finally, if the Internet becomes subject to a form of central management, or if the Internet backbone providers establish an economic settlement arrangement regarding the exchange of traffic between backbones, the problems of congestion, latency and data loss addressed by our Internet connectivity services could be largely resolved, and our core business rendered obsolete.

If We Are Unable to Respond Effectively and on a Timely Basis to Rapid Technological Change, We May Lose or Fail to Establish a Competitive Advantage in Our Market. The Internet connectivity industry is characterized by rapidly changing technology, industry standards, customer needs and competition, as well as by frequent new product and service introductions. We may be unable to successfully use or develop new technologies, adapt our network infrastructure to changing customer requirements and industry standards, introduce new services, such as virtual private networking and video conferencing, or enhance our existing services on a timely basis. Furthermore, new technologies or enhancements we use or develop may not gain market acceptance. Our pursuit of necessary technological advances may require substantial time and expense, and we may be unable to successfully adapt our network and services to alternate access devices and technologies. If our services do not continue to be compatible and interoperable with products and architectures offered by other industry members, our ability to compete could be impaired. Our ability to compete successfully is dependent, in part, upon the continued compatibility and interoperability of our services with products and architectures offered by various other industry participants. Although we intend to support emerging standards in the market

for Internet connectivity, there can be no assurance that we will be able to conform to new standards in a timely fashion, if at all, or maintain a competitive position in the market.

New Technologies Could Displace Our Services or Render Them Obsolete. New technologies and industry standards have the potential to replace or provide lower cost alternatives to our services. The adoption of such new technologies or industry standards could render our existing services obsolete and unmarketable. For example, our services rely on the continued widespread commercial use of the set of protocols, services and applications for linking computers known as Transmission Control Protocol/Internetwork Protocol, or TCP/IP. Alternative sets of protocols, services and applications for linking computers could emerge and become widely adopted. A resulting reduction in the use of TCP/IP could render our services obsolete and unmarketable. Our failure to anticipate the prevailing standard or the failure of a common standard to emerge could hurt our business. Further, we anticipate the introduction of other new technologies, such as telephone and facsimile capabilities, private networks, multimedia document distribution and transmission of audio and video feeds, requiring broadband access to the Internet, but there can be no assurance that such technologies will create opportunities for us.

Service Interruptions Caused by System Failures Could Harm Customer Relations, Expose Us to Liability and Increase Our Capital Costs. Interruptions in service to our customers could harm our customer relations, expose us to potential lawsuits and require us to spend more money adding redundant facilities. Our operations depend upon our ability to protect our customers' data and equipment, our equipment and our network infrastructure, including our connections to our backbone providers, against damage from human error or attack or "acts of God." Even if we take precautions, the occurrence of a natural disaster, attack or other unanticipated problem could result in interruptions in the services we provide to our customers.

Capacity Constraints Could Cause Service Interruptions and Harm Customer Relations. Failure of the backbone providers and other Internet infrastructure companies to continue to grow in an orderly manner could result in capacity constraints leading to service interruptions to our customers. Although the national telecommunications networks and Internet infrastructures have historically developed in an orderly manner, there is no guarantee that this orderly growth will continue as more services, users and equipment connect to the networks. Failure by our telecommunications and Internet service providers to provide us with the data communications capacity we require could cause service interruptions.

Our Network and Software Are Vulnerable to Security Breaches and Similar Threats Which Could Result in Our Liability for Damages and Harm Our Reputation. Despite the implementation of network security measures, the core of our network infrastructure is vulnerable to computer viruses, break-ins, attacks and similar disruptive problems. This could result in our liability for damages, and our reputation could suffer, thereby deterring potential customers from working with us. Security problems or other attack caused by third parties could lead to interruptions and delays or to the cessation of service to our customers. Furthermore, inappropriate use of the network by third parties could also jeopardize the security of confidential information stored in our computer systems and in those of our customers. Although we intend to continue to implement industry-standard security measures, in the past some of these industry-standard measures have occasionally been circumvented by third parties, although not in our system. Therefore, there can be no assurance that the measures we implement will not be circumvented. The costs and resources required to eliminate computer viruses and alleviate other security problems may result in interruptions, delays or cessation of service to our customers, which could hurt our business.

Should the Government Modify or Increase Regulation of the Internet, the Provision of Our Services Could Become More Costly. There is currently only a small body of laws and regulations directly applicable to access to or commerce on the Internet. However, due to the increasing popularity and use of the Internet, international, federal, state and local governments may adopt laws and regulations that

affect the Internet. The nature of any new laws and regulations and the manner in which existing and new laws and regulations may be interpreted and enforced cannot be fully determined. The adoption of any future laws or regulations might decrease the growth of the Internet, decrease demand for our services, impose taxes or other costly technical requirements or otherwise increase the cost of doing business on the Internet or in some other manner have a significantly harmful effect on us or our customers. The government may also seek to regulate some segments of our activities as it has with basic telecommunications services. Moreover, the applicability to the Internet of existing laws governing intellectual property ownership and infringement, copyright, trademark, trade secret, obscenity, libel, employment, personal privacy and other issues is uncertain and developing. We cannot predict the impact, if any, that future regulation or regulatory changes may have on our business.

PART II. OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

In a special meeting of holders of our Series A preferred stock held on February 21, 2002, such holders approved an amendment to our certificate of incorporation and a related amendment to our bylaws pursuant to which such holders would be permitted to take action by written consent. Of the 3,171,499 shares of Series A entitled to vote for the proposal, 2,935,389 voted in favor of the proposal, none voted against and none abstained.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a): Exhibits:

Exhibit Number		Description
*3.1		Certificate of Incorporation of the Registrant.
*3.2		Bylaws of the Registrant.
10.1		Form of Indemnity Agreement between Registrant and each of its directors and certain of its officers.
10.2		Employment Agreement, dated March 28, 2002, between the Registrant and Gregory A. Peters.
10.3		Letter Agreement, dated March 13, 2002, between Registrant and Robert Gionesi.

*

Incorporated by reference to designated exhibit to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2001.

(b): Reports on Form 8-K:

None.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 13th day of May, 2002.

		INTERNAP NETWORK SERVICES CORPORATION (Registrant)
		By:		/s/ JOHN M. SCANLON John M. Scanlon Chief Financial Officer and Vice President of Finance and Administration (Principal Financial and Accounting Officer)

QuickLinks

TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INTERNAP NETWORK SERVICES CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited, in thousands)
INTERNAP NETWORK SERVICES CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited, in thousands, except per share amounts)
INTERNAP NETWORK SERVICES CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited, in thousands)
INTERNAP NETWORK SERVICES CORPORATION CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS THREE-MONTH PERIOD ENDED MARCH 31, 2002 (Unaudited, in thousands)
INTERNAP NETWORK SERVICES CORPORATION 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

SIGNATURES

Positive
Negative
Uncertain
Constraining
Legalese
Litigious
Readability	H.S. freshman Avg

Internap (INAPQ) 10-Q2002 Q1 Quarterly report

Content analysis