<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    Form 10-Q

[Mark One]

        [X]  Quarterly report under Section 13 or 15(d) of the Securities
             Exchange Act of 1934 for the quarterly period ended September 30,
             2000.

                                       OR

        [ ]  Transition report pursuant to Section 13 or 15(d) of the
             Securities Exchange Act of 1934 for the transition period from
             __________ to __________.

                          Commission File No. 333-35402

                                   CORIO, INC.
           (Exact name of the Registrant as specified in its charter)

<TABLE>
<S>                                      <C>
            DELAWARE                                    77-0492528
 (State or other jurisdiction of         (I.R.S. Employer Identification Number)
  incorporation or organization
</TABLE>

<TABLE>
<S>                                                           <C>
          959 Skyway Road, Suite 100
            San Carlos, California                              94070
   (Address of principal executive offices)                   (Zip Code)
</TABLE>

                                  650-232-3000
            (The 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 [X] NO [ ]

As of October 31, 2000, there were 49,681,907 shares of the Registrant's common
stock outstanding.



<PAGE>   2

                                   CORIO, INC.

     QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2000

                                      Index

                          PART I. FINANCIAL INFORMATION


<TABLE>
<CAPTION>
                                                                                        PAGE NO.
                                                                                        --------
<S>         <C>                                                                         <C>
Item 1.     Condensed Financial Statements (Unaudited):

            Condensed Balance Sheets
              September 30, 2000 and December 31, 1999................................      3

            Condensed Statements of Operations
              Three Months Ended September 30, 2000 and 1999 and the Nine Months
              Ended September 30, 2000 and 1999.......................................      4

            Condensed Statements of Cash Flows
              Nine Months Ended September 30, 2000 and 1999...........................      5

            Notes to Condensed Financial Statements...................................      6

Item 2.     Management's Discussion And Analysis Of Financial Condition And Results
            Of Operations.............................................................     10

Item 3.     Quantitative And Qualitative Disclosures About Market Risk................     25

                            PART II OTHER INFORMATION

Item 1.     Legal Proceedings.........................................................     25

Item 2.     Change in Securities and Use of Proceeds..................................     25

Item 3.     Defaults Upon Senior Securities...........................................     25

Item 4.     Submission of Matters to a Vote of Security Holders.......................     25

Item 5.     Other Information.........................................................     26

Item 6.     Exhibits..................................................................     26

            Signatures................................................................     27
</TABLE>



                                       2
<PAGE>   3

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED FINANCIAL STATEMENTS

                                   CORIO, INC.

                            CONDENSED BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)


<TABLE>
<CAPTION>
                                                                          SEPTEMBER 30,    DECEMBER 31,
                                                                               2000          1999(1)
                                                                          ------------     -----------
                                                                           (UNAUDITED)
<S>                                                                       <C>              <C>
ASSETS
Current assets:
  Cash and cash equivalents ..........................................      $ 155,245       $  37,177
  Accounts receivable, net of allowance of $1,131 and $233 at
    September 30, 2000 and December 31, 1999, respectively ...........          7,754           2,941
  Prepaid expenses and other current assets ..........................          1,675           2,107
                                                                            ---------       ---------
    Total current assets .............................................        164,674          42,225
Property and equipment, net ..........................................         26,062          14,380
Intangibles, net .....................................................          1,945           3,647
Other assets .........................................................          4,449           1,344
                                                                            ---------       ---------
    Total assets .....................................................      $ 197,130       $  61,596
                                                                            =========       =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable ...................................................      $  10,112       $   5,017
  Accrued liabilities ................................................         12,833           8,163
  Deferred revenue ...................................................          3,046           1,888
  Current portion of debt obligations ................................          6,454           2,709
                                                                            ---------       ---------
    Total current liabilities ........................................         32,445          17,777
Long-term debt, less current portion .................................          9,145           7,335
                                                                            ---------       ---------
    Total liabilities ................................................         41,590          25,112
Commitments
Stockholders' equity:
  Preferred stock:  $0.001 par value; 44,127,000 shares
    authorized; 29,964,795 shares issued and outstanding at
    December 31, 1999 (liquidation value: $73,210) ...................             --              30
  Common stock:  $0.001 par value; 138,000,000 shares
    authorized; 49,609,498 and 1,574,584 shares issued and
    outstanding at September 30, 2000 and December 31, 1999,
    respectively .....................................................             50               2
  Additional paid-in capital .........................................        300,416          99,649
  Note receivable from stockholder ...................................             --             (15)
  Deferred stock-based compensation ..................................        (15,880)        (14,981)
  Accumulated deficit ................................................       (129,046)        (48,201)
                                                                            ---------       ---------
Total stockholders' equity ...........................................        155,540          36,484
                                                                            ---------       ---------
   Total liabilities and stockholders' equity ........................      $ 197,130       $  61,596
                                                                            =========       =========
</TABLE>


(1) Derived from audited financial statements.


See accompanying notes to condensed financial statements.



                                       3
<PAGE>   4

                                   CORIO, INC.

                       CONDENSED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                       THREE MONTHS ENDED             NINE MONTHS ENDED
                                                          SEPTEMBER 30,                  SEPTEMBER 30,
                                                   -------------------------       -------------------------
                                                      2000            1999            2000           1999
                                                   ---------       ---------       ---------       ---------
<S>                                                <C>             <C>             <C>             <C>
REVENUES:
  Application management services ...........      $   4,310       $     128       $   8,227       $     213
  Professional services and other ...........          9,519             898          21,275           2,828
                                                   ---------       ---------       ---------       ---------
    Total revenues ..........................         13,829           1,026          29,502           3,041
COSTS AND EXPENSES:
  Application management services ...........          8,425           1,446          22,518           3,466
  Professional services and other ...........          7,161           2,288          19,843           4,230
  Research and development ..................          3,559             894           8,829           1,590
  Sales and marketing .......................          8,209           4,150          28,619           6,001
  General and administrative ................          6,862           2,703          17,645           6,644
  Amortization of stock based
    compensation ............................          3,391           3,218          12,625           3,986
  Amortization of intangible assets .........            533             548           1,705           1,642
                                                   ---------       ---------       ---------       ---------
    Total operating expenses ................         38,140          15,247         111,784          27,559
                                                   ---------       ---------       ---------       ---------
Loss from operations ........................        (24,311)        (14,221)        (82,282)        (24,518)
Interest and other income ...................          2,019             109           3,019             287
Interest and other expense ..................           (896)           (285)         (1,582)           (693)
                                                   ---------       ---------       ---------       ---------
Net loss ....................................      $ (23,188)      $ (14,397)      $ (80,845)      $ (24,924)
Series E beneficial conversion
    charge ..................................        (20,158)             --         (20,158)             --
                                                   ---------       ---------       ---------       ---------
Net loss attributable to
    common stockholders .....................      $ (43,346)      $ (14,397)      $(101,003)      $ (24,924)
                                                   =========       =========       =========       =========
Basic and diluted net loss per
    share ...................................      $   (1.14)      $  (13.58)      $   (7.17)      $  (23.23)
                                                   =========       =========       =========       =========
Shares used in computation - basic and
    diluted .................................         38,187           1,060          14,096           1,073
                                                   =========       =========       =========       =========
</TABLE>


See accompanying notes to condensed financial statements.



                                       4
<PAGE>   5

                                   CORIO, INC.

                       CONDENSED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                        NINE MONTHS ENDED
                                                                                           SEPTEMBER 30,
                                                                                    -------------------------
                                                                                       2000            1999
                                                                                    ---------       ---------
<S>                                                                                 <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss ...................................................................      $ (80,845)      $ (24,924)
  Adjustments to reconcile net loss to net cash used in
    operating activities:
    Depreciation and amortization ............................................          6,205           3,218
    Amortization of intangibles ..............................................          1,705           1,642
    Amortization of deferred stock-based compensation ........................         12,625           3,986
    Compensation for grants of stock, options and warrants in
      exchange for services ..................................................          3,193           1,132
    Changes in operating assets and liabilities:
      Accounts receivable ....................................................         (4,813)           (403)
      Prepaid expenses and other current assets ..............................            827            (583)
      Accounts payable .......................................................          5,095           1,690
      Accrued liabilities ....................................................          4,670           5,300
      Deferred revenue .......................................................          1,158             384
      Other liabilities ......................................................            482            (336)
                                                                                    ---------       ---------
        Net cash used in operating activities ................................        (49,698)         (8,894)
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property and equipment .........................................         (9,889)        (10,522)
  Other assets ...............................................................         (3,532)            230
                                                                                    ---------       ---------
        Net cash used in investing activities ................................        (13,421)        (10,292)
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from issuance of preferred stock, net .............................         54,450          20,979
  Proceeds from sale of common stock and exercise of stock
    options, net .............................................................        129,648              37
  Proceeds from note receivable from stockholder .............................             15              --
  Payments on debt obligations ...............................................         (2,926)         (1,230)
  Borrowings on notes payable ................................................             --           3,000
                                                                                    ---------       ---------
        Net cash provided by financing activities ............................        181,187          22,786
                                                                                    ---------       ---------
Net increase in cash and cash equivalents ....................................        118,068           3,600
Cash and cash equivalents, beginning of period ...............................         37,177           1,019
                                                                                    ---------       ---------
Cash and cash equivalents, end of period .....................................      $ 155,245       $   4,619
                                                                                    =========       =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid for interest .....................................................      $     946       $     819
                                                                                    =========       =========
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
  Acquisition of property and equipment under capital leases .................      $   7,999       $   2,397
                                                                                    =========       =========
  Issuance of preferred stock and common stock warrants ......................      $   1,061       $     477
                                                                                    =========       =========
  Issuance of preferred stock in exchange for notes payable -
    related party ............................................................      $      --       $     254
                                                                                    =========       =========

  Conversion of preferred stock to common stock ..............................      $  54,455       $      --
                                                                                    =========       =========

  Deferred stock-based compensation ..........................................      $  13,425       $  20,968
                                                                                    =========       =========
  Issuance of note receivable to related party ...............................      $      --       $      30
                                                                                    =========       =========
</TABLE>



See accompanying notes to condensed financial statements.



                                       5
<PAGE>   6

                                   CORIO, INC.

                     NOTES TO CONDENSED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

        The accompanying unaudited condensed financial statements have been
prepared by Corio, Inc. ("Corio" or the "Company") and reflect all adjustments
which are, in the opinion of management, necessary for a fair presentation of
the interim periods presented. Such adjustments are of a normal recurring
nature. The results of operations for the interim periods presented are not
necessarily indicative of the results for any future interim period or for the
entire fiscal year. Certain information and footnote disclosures normally
included in annual financial statements prepared in accordance with generally
accepted accounting principles have been omitted, although the Company believes
that the disclosures included are adequate to make the information presented not
misleading. The unaudited condensed financial statements and notes included
herein should be read in conjunction with the audited financial statements and
notes for the fiscal year ended December 31, 1999.

NET LOSS PER SHARE

        Basic net loss per share is computed by dividing the net loss for the
period by the weighted average number of shares of common stock outstanding
during the period (excluding shares subject to repurchase). Diluted net loss per
share is computed by dividing the net loss for the period by the weighted
average number of shares of common stock and potentially dilutive common
securities outstanding during the period. Potentially dilutive common shares are
excluded from the computation in loss periods as their effect would be
antidilutive.

        The following table sets forth potential shares of common stock that are
not included in the diluted net loss per share calculation as their effect would
have been antidilutive for the periods indicated (in thousands):


<TABLE>
<CAPTION>
                                           SEPTEMBER 30,
                                        ------------------
                                         2000        1999
                                        ------      ------
<S>                                     <C>         <C>
Preferred stock ..................          --      22,860
Preferred stock warrants .........       1,054         681
Common stock subject to repurchase         440          32
Common stock options and warrants       11,833       8,523
</TABLE>

RECENT ACCOUNTING PRONOUNCEMENTS

        In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 established new standards of
accounting and reporting for derivative instruments and hedging activities. In
July 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133." SFAS No. 137 deferred the effective date of SFAS No. 133 until fiscal
years beginning after June 15, 2000. The Company will adopt SFAS No. 133 during
its year ending December 31, 2001. To date, the Company has not engaged in any
derivative or hedging activities.

        In December 1999, the Securities and Exchange Commission, or SEC, issued
Staff Accounting Bulletin, or SAB, No. 101. SAB No. 101 summarized certain of
the SEC Staff's views in applying generally accepted accounting principles to
revenue recognition in financial statements. SAB No. 101, and any resulting
change in accounting principles that a registrant would have to report, is
effective no later than our fourth fiscal quarter in 2000. We do not expect the
application of SAB No. 101 to have a material effect on our financial position
or results of operations.

        In March 2000, the Financial Accounting Standards Board ("FASB") issued
interpretation No. 44 ("FIN 44"), Accounting for Certain Transactions Involving
Stock Compensation -- an interpretation of Accounting Principles Board ("APB")
Opinion No. 25". FIN 44 clarifies the application of APB 25 and is effective
July 1, 2000. The Company believes that the adoption of FIN 44 did not have a
material effect on the Company's financial position or results of operations.



                                       6
<PAGE>   7

NOTE 2 - ACCOUNTS RECEIVABLE

        The Company records accounts receivable when amounts are billed in
accordance with the contract terms or as services are performed under
non-cancelable contractual services arrangements. Included in accounts
receivable at September 30, 2000 and December 31, 1999 were $805,000 and
$401,000, respectively, of unbilled receivables under various professional
services contracts.

NOTE 3 - DEBT

        In April 2000, the Company entered into an equipment lease line of
credit agreement to purchase up to an aggregate of $5.0 million. In connection
with the agreement, the Company issued the lender a warrant to purchase up to
$100,000 of the Company's common stock at 90% of the price per share offered in
the Company's initial public offering of its common stock. The fair value of
these warrants was determined to be $83,585, calculated using the Black-Scholes
option pricing model using the following assumptions: no dividends, contractual
term five years; risk free interest rate of 7% and expected volatility of 100%.
The fair value of the warrants has been recorded as additional capital and is
being amortized to interest expense over the term of the lease agreements.

NOTE 4 - STOCKHOLDERS' EQUITY

        In April 2000, the Company amended its certificate of incorporation to
provide for total authorized capital of 138,000,000 shares of common stock and
44,127,000 shares of preferred stock.

INITIAL PUBLIC OFFERING

        In July 2000, the Company completed its initial public offering ("IPO")
of 10 million shares of its common stock, for net proceeds to the Company after
deducting underwriters' discount and other offering expenses of approximately
$128 million. Upon the completion of the IPO, all outstanding shares of
preferred stock of the Company converted into approximately 35.3 million
shares of common stock.

PREFERRED STOCK

        In April 2000, the Company issued 5,450,000 shares of senior series E
mandatorily redeemable preferred stock at $10.00 per share, for aggregate gross
proceeds of approximately $54.5 million. The senior series E mandatorily
redeemable preferred stock converted into 5,332,681 shares of common stock upon
the completion of the Company's initial public offering in July 2000. The
Company has recorded a $20.2 million charge for the beneficial conversion
feature inherent in this transaction, which increases net loss to derive net
loss attributable to common stockholders. The effect of the beneficial
conversion feature was to increase net loss per share by $0.53 and $1.43 for the
three and nine months ended September 30, 2000 respectively.

WARRANTS

        In April 2000, the Company agreed to issue to Ernst & Young L.L.P.
("EY"), on behalf of its consulting division, EY Consulting, four warrants to
purchase an aggregate of up to 7,000,000 shares of the Company's common stock at
an exercise price of $6.50 per share under the terms of a strategic alliance
arrangement. In May 2000, EY completed a sale of substantially all of the
business of E&Y Consulting to Cap Gemini, S.A. Upon the completion of this sale,
E&Y Consulting assigned to Cap Gemini, S.A. all of its rights and obligations
pursuant to its strategic alliance with the Company, including the right to
execute the warrants the Company issued to EY on behalf of E&Y Consulting. The
consulting business previously conducted by E&Y Consulting is now being carried
on by Cap Gemini Ernst & Young U.S., L.L.C. ("CGEY"). Under the April 2000
agreement, CGEY was permitted to exercise the first of these warrants to acquire
4,666,666 shares of common stock during the 90 day period following the
Company's July 20, 2000 IPO. The second, third and fourth warrants become
exercisable based upon the achievement of target volume revenues resulting from
referrals of CGEY in each of the Company's 2000, 2001 and 2002 fiscal years. The
second, third and fourth warrants may be exercised to acquire up to 933,333,
933,333 and 466,667 shares of common stock, respectively. The warrants are
subject to cancellation or repurchase in whole or part under certain
circumstances, such as if CGEY breaches a material provision of the agreement.
The agreement itself may be terminated prior to the end of the seven-year term
by consent of the parties or unilaterally by a party in the event the other
party defaults in the performance of a material provision of the agreement,
subject to a cure period.



                                       7
<PAGE>   8

        On September 27, 2000 CGEY exercised its right to convert 2,333,333
warrants from the initial warrant grant into 960,810 shares of common stock
through a cashless exercise.

        At September 30, 2000, 2,333,333 of the initial warrant remained issued
and outstanding. The exercise period has been extended to December 31, 2001
(Note 6). The fair value of this warrant was calculated using the Black-Scholes
option pricing model, using $7.66 as the fair value of the underlying common
stock and the following weighted-average assumptions: no dividends; contractual
life of 1.5 years; risk-free interest rate of 7%; and expected volatility of
100%. The fair value of the remaining unexercised initial warrant was $9.5
million at September 30, 2000. Amortization expense of $168,000 was recorded as
a sales and marketing expense in the quarter ended September 30, 2000.

STOCK-BASED COMPENSATION

        In connection with stock options granted to employees to purchase common
stock, the Company recorded deferred charges for stock-based compensation of
$13.4 million and $21.0 million for the nine months ended September 30, 2000 and
1999, respectively. Such amounts represent, for employee stock options, the
difference at the grant date between the exercise price of each stock option
granted and the fair value of the underlying common stock. The deferred charges
for employee options are being amortized to expenses using the graded vesting
approach through fiscal year 2005. Amortization of deferred stock-based
compensation expense was $12.6 million and $4.0 for the nine months ended
September 30, 2000 and 1999, respectively.

NOTE 5 - SIGNIFICANT CUSTOMER INFORMATION AND SEGMENT REPORTING INFORMATION

        The Company's operations have been classified into two operating
segments (i) application management services and (ii) professional services.
Corporate expenses, including those for sales and marketing, general and
administrative and research and development, are not allocated to operating
segments.

        Disaggregated information is as follows (in thousands):

<TABLE>
<CAPTION>
                                 APPLICATION
                                  MANAGEMENT    PROFESSIONAL
                                   SERVICES       SERVICES      UNALLOCATED      TOTAL
                                 -----------    ------------    -----------     --------
<S>                              <C>            <C>             <C>             <C>
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2000
Revenues                           $  4,310       $  9,519       $     --       $ 13,829
Depreciation and amortization      $    807       $     70       $  1,552       $  2,429
Segment profit (loss)              $ (4,116)      $  2,359       $(21,431)      $(23,188)

FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1999
Revenues                           $    128       $    898       $     --       $  1,026
Depreciation and amortization      $    323       $     32       $    838       $  1,193
Segment loss                       $ (1,317)      $ (1,561)      $(11,519)      $(14,397)


FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000
Revenues                           $  8,227       $ 21,275       $     --       $ 29,502
Depreciation and amortization      $  2,033       $    178       $  3,994       $  6,205
Segment profit (loss)              $(14,291)      $  1,433       $(67,987)      $(80,845)

FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999
Revenues                           $    213       $  2,828       $     --       $  3,041
Depreciation and amortization      $    788       $     75       $  2,355       $  3,218
Segment loss                       $ (3,252)      $ (1,573)      $(20,099)      $(24,924)
</TABLE>

        The Company does not allocate all assets to its operating segments, nor
does it allocate interest income or interest expense. In addition, the Company
has no foreign operations.

        For the nine months ended September 30, 2000, one customer accounted for
10% of total revenues. For the nine month period ended September 30, 1999, one
customer accounted for 24% of total revenues.

        At September 30, 2000, one customer represented 15% of total accounts
receivable. As of December 31, 1999, one customer represented 35% of total
accounts receivable.

NOTE 6 - SUBSEQUENT EVENT

        On October 14, 2000, we entered into an agreement to amend the Warrant
Rights Agreement dated April 20, 2000 with Ernst & Young on behalf of its
consulting division, E&Y consulting, which subsequently was sold to Cap Gemini,
S.A. The amendment extends the exercise period for the remaining issued and
outstanding initial warrant to December 31, 2001.



                                       8
<PAGE>   9

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

        The following management's discussion and analysis of our financial
condition and results of operations should be read together with our condensed
financial statements and related notes included in this report, and with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and related financial information contained in the Company's
Registration Statement on Form S-1/A (File No. 333-35402).

THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION
27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT
OF 1934, INCLUDING, WITHOUT LIMITATION, STATEMENTS REGARDING THE COMPANY'S
EXPECTATIONS, BELIEFS, INTENTIONS OR FUTURE STRATEGIES THAT ARE SIGNIFIED BY THE
WORDS "EXPECTS", "ANTICIPATES", "INTENDS", "BELIEVES", OR SIMILAR LANGUAGE. ALL
FORWARD-LOOKING STATEMENTS INCLUDED IN THIS DOCUMENT ARE BASED ON INFORMATION
AVAILABLE TO THE COMPANY ON THE DATE HEREOF, AND THE COMPANY ASSUMES NO
OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS AFTER THE DATE HEREOF.
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE
FORWARD-LOOKING STATEMENTS AS A RESULT OF MANY FACTORS, INCLUDING BUT NOT
LIMITED TO THOSE SET FORTH UNDER "ADDITIONAL FACTORS THAT MAY AFFECT FUTURE
RESULTS" HEREIN. IN EVALUATING THE COMPANY'S BUSINESS, PROSPECTIVE INVESTORS
SHOULD CAREFULLY CONSIDER THE INFORMATION SET FORTH BELOW UNDER THE CAPTION
"ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS" IN ADDITION TO THE OTHER
INFORMATION SET FORTH HEREIN. THE COMPANY CAUTIONS INVESTORS THAT ITS BUSINESS
AND FINANCIAL PERFORMANCE ARE SUBJECT TO SUBSTANTIAL RISKS AND UNCERTAINTIES.

OVERVIEW

        We are a leading enterprise application service provider, or ASP. We
provide to our customers application implementation, integration, management and
various upgrade services and related hardware and network infrastructure. We
implement, integrate and manage the Corio Intelligent Enterprise, a suite of
enterprise software applications from leading vendors. Following the rapid
implementation of software applications, usually performed for a fixed fee, our
customers pay a predictable monthly service fee based largely on the number of
applications used and total users.

RECENT EVENTS

INITIAL PUBLIC OFFERING

        In July 2000, the Company completed its initial public offering ("IPO")
of 10 million shares of its common stock, for net proceeds to the Company after
deducting underwriters' discount and other offering expenses of approximately
$128 million. Upon the completion of the IPO, all outstanding shares of
preferred stock of the Company converted into approximately 35.3 million shares
of common stock.

RESULTS OF OPERATIONS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999

        REVENUES

        Total revenues increased to $13.8 million for the three months ended
September 30, 2000 from $1.0 million for the three months ended September 30,
1999. For the three months ended September 30, 2000, one customer accounted for
14% of total revenues. For the three months ended September 30, 1999, one
customer accounted for 37% total revenues. Total revenues increased to $29.5
million for the nine months ended September 30, 2000 from $3.0 million for the
nine months ended September 30, 1999. At September 30, 2000, the Company's total
number of customers was approximately 75, compared to 16 at September 30, 1999.
For the nine months ended September 30, 2000, one customer accounted for 10% of
total revenues. For the nine months ended September 30, 1999, one customer
accounted for 24% of total revenues.

        APPLICATION MANAGEMENT SERVICES REVENUES. Revenues from our application
management services were $4.3 million for the three months ended September 30,
2000 and $128,000 for the three months ended September 30, 1999. Revenues from



                                       9
<PAGE>   10

our application management services were $8.2 million for the nine months ended
September 30, 2000 and $213,000 for the nine months ended September 30, 1999. At
September 30, 2000, the Company had approximately 120 application management
contracts, compared with 24 at September 30, 1999, and, during the same periods,
increased the number of application publishers from 1 to 8. At September 30,
2000, the Company had a balance of $1.1 million for deferred application
management services revenues primarily from a customer who prepaid a portion of
their contract. These deferred revenues will be recognized as the related
services are provided over the life of the contract.

        PROFESSIONAL SERVICES AND OTHER REVENUES. Our professional services and
other revenues were $9.5 million for the three months ended September 30, 2000
and $898,000 for the three months ended September 30, 1999. Our professional
services and other revenues were $21.3 million for the nine months ended
September 30, 2000 and $2.8 million for the nine months ended September 30,
1999. The increase in professional services revenues from 1999 to 2000 was
primarily due to the increased number of customers and customer contracts. At
September 30, 2000, we had a balance of $1.8 million for deferred professional
services revenues resulting from customer payments that we required in advance
of commencing our professional services work.

        COSTS AND EXPENSES

        APPLICATION MANAGEMENT SERVICES EXPENSES. Application management
services expenses were $8.4 million for the three months ended September 30,
2000 and $1.4 million for the three months ended September 30, 1999. Application
management services expenses were $22.5 million for the nine months ended
September 30, 2000 and $3.5 million for the nine months ended September 30,
1999. The largest component of the increase was the growth in personnel costs.
Other significant components of the increase included costs for third-party
license and support fees, costs of our data center and network providers,
facilities expenses and depreciation and lease costs for equipment.

         PROFESSIONAL SERVICES AND OTHER EXPENSES. Professional services and
other expenses were $7.2 million for the three months ended September 30, 2000
and $2.3 million for the three months ended September 30, 1999. Professional
services and other expenses were $19.8 million for the nine months ended
September 30, 2000 and $4.2 million for the nine months ended September 30,
1999. The largest component of the increase was attributable to the growth in
personnel costs. Other significant components of the increase included costs for
subcontractors to perform services under professional services engagements and
for facilities related expenses. For the three months ended September 30, 2000,
we achieved a service margin for our professional services organization of
approximately 25%. We anticipate that professional services revenue and the
associated margins will fluctuate significantly from period to period depending
on the timing and size of projects, the amount of such work completed by
independent third party integrators, ongoing efforts to expand the Company's
professional services infrastructure, and other factors.

        RESEARCH AND DEVELOPMENT. Research and development expenses were $3.6
million for the three months ended September 30, 2000 and $894,000 for the three
months ended September 30, 1999. Research and development expenses as a
percentage of total revenues were 26% for the three months ended September 30,
2000 and 87% for the three months ended September 30, 1999. Research and
development expenses were $8.8 million for the nine months ended September 30,
2000 and $1.6 million for the nine months ended September 30, 1999. Research and
development expenses as a percentage of total revenues were 30% for the nine
months ended September 30, 2000 and 52% for the nine months ended September 30,
1999. The largest components of the increase were attributable to the growth in
personnel costs and facilities expense.

        SALES AND MARKETING EXPENSES. Sales and marketing expenses were $8.2
million for the three months ended September 30, 2000 and $4.2 million for the
three months ended September 30, 1999. Sales and marketing expenses as a
percentage of total revenues were 59% for the three months ended September 30,
2000 and 405% for the three months ended September 30, 1999. Sales and marketing
expenses were $28.6 million for the nine months ended September 30, 2000 and
$6.0 million for the nine months ended September 30, 1999. Sales and marketing
expenses as a percentage of total revenues were 97% for the nine months ended
September 30, 2000 and 197% for the nine months ended September 30, 1999. The
largest component of the increase was the growth in personnel costs. Other
significant components of the increase included spending on new customer lead
generation activities, advertising and tradeshows, and on market research and
collateral items. Sales and marketing expenses also include amortization of
costs associated with warrants issued to a software vendor and Cap Gemini Ernst
& Young of $168,000 and $1.7 million for the three and nine months ended
September 30, 2000, respectively. There were no similar amortization costs
during the comparable periods in 1999.

        GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
were $6.9 million for the three months ended September 30, 2000 and $2.7 million
for the three months ended September 30, 1999. General and administrative
expenses as a percentage of total revenues were 50% for the three months ended
September 30, 2000 and 264% for the three months ended September 30, 1999.
General and administrative expenses were $17.6 million for the nine months ended
September 30, 2000 and $6.6 million for the nine months ended September 30,
1999. General and administrative expenses as a percentage of total revenues were



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<PAGE>   11

60% for the nine months ended September 30, 2000 and 219% for the nine months
ended September 30, 1999. The largest component of the increase was attributable
to the growth in personnel costs, professional services and facility related
costs.

        AMORTIZATION OF STOCK-BASED COMPENSATION. Amortization of deferred
stock-based compensation was $3.4 million for the three months ended September
30, 2000 and $3.2 for the three months ended September 30, 1999. Amortization of
deferred stock-based compensation was $12.6 million for the nine months ended
September 30, 2000 and $4.0 for the nine months ended September 30, 1999. The
increase in amortization resulted from amortization of deferred stock-based
compensation related to stock options granted through June 30, 2000. For the
three months ended September 30, 2000, all options granted were granted at fair
value; consequently there was no deferred stock-based compensation for the
quarter compared to the three months ended September 30, 1999, when $16.3
million in deferred compensation was recorded. For the nine months ended
September 30, 2000, we recorded deferred stock-based compensation of $13.4
million compared to $21.0 million for the nine months ended September 30, 1999.

        INTEREST AND OTHER INCOME AND EXPENSE. Net interest and other income was
$1.1 million for the three months ended September 30, 2000 and net interest and
other expense was $(176,000) for the three months ended September 30, 1999. Net
interest and other income was $1.4 million for the nine months ended September
30, 2000 and net interest and other expense was $(406,000) for the nine months
ended September 30, 1999. The increase in net interest income was due primarily
to higher average cash and investment balances at September 30, 2000, as a
result of our IPO.

        INCOME TAXES. Since inception, we have incurred net losses for federal
and state tax purposes, and anticipate losses for the foreseeable future. We
have therefore not recognized any material tax provision or benefit of income
taxes for the three and nine months ended September 30, 2000 and 1999.

LIQUIDITY AND CAPITAL RESOURCES

        As of September 30, 2000, we had cash and cash equivalents of $155
million, an increase of $118 million from December 31, 1999. The increase was
primarily a result of cash generated by financing activities, principally from
the net proceeds of our initial public offering and our issuance of senior
series E mandatorily redeemable preferred stock offset primarily by cash used in
operating activities.

        Net cash used in operating activities was $51.6 million for the nine
months ended September 30, 2000, an increase of $42.7 million from the $8.9
million used in the nine month ended September 30, 1999. The increase was
primarily due to the increase in our net loss of $55.9 million, and increases in
accounts receivable of $4.4 million offset by increases in, accounts payable and
accruals of $4.2 million, amortization of deferred stock compensation of $8.1
million, and depreciation and amortization of $3.3 million.

        Net cash used in investing activities was $12.8 million for the nine
months ended September 30, 2000. Investing activities consisted primarily of
purchases of computer equipment of $4.9 million, furniture and fixtures of $1.5
million and leasehold improvements of $1.6 million for the completion of our new
headquarters facility in San Carlos, California. In addition, net cash used in
investing activities included an increase in other assets of $3.5 million. Net
cash used in investing activities was $10.3 million for the nine months ended
September 30, 1999. Investing activities consisted primarily of purchases of
computer software and equipment of $10.5 million, offset by a decrease in other
assets of $0.2 million.

        Net cash provided by financing activities was $181.2 million and $22.8
million for the nine months ended September 30, 2000 and 1999, respectively.
Financing activities consisted primarily of the proceeds from the issuance of
preferred stock, loans and exercise of stock options offset by repayments of
loans and capital leases. In 2000, we raised $54.5 million in gross proceeds
through the private sale of our senior series E mandatorily redeemable preferred
stock, and raised approximately $128 million in our initial public offering and
in 1999, we raised $21.0 million in proceeds through the private sale of our
series B preferred stock.

        We have executed a ten-year build-to-suit lease for a facility in San
Carlos, California that will require minimum payments of $2.2 million in 2000
and $3.5 million in 2001. Total minimum payments under the lease term are $37.9
million.

        As we execute our strategy, we expect significant increases in our
operating expenses, especially in application management services, professional
services, sales and marketing and research and development. We expect that our
current cash balances and existing debt arrangements will be sufficient to meet
our cash requirements for the next 12 months. We expect that we will need or
desire to raise additional funds in order to support more rapid expansion,
develop new or enhanced services or technologies, respond to competitive
pressures, acquire complementary businesses or respond to unanticipated
requirements. We cannot be sure that additional funding, if needed, will be
available on acceptable terms or at all. If adequate funds



                                       11
<PAGE>   12

are not available, we may be required to curtail significantly or defer one or
more of our operating goals or programs. If we succeed in raising additional
funds through the issuance of equity securities, the issuance could result in
substantial dilution to existing stockholders. If we raise additional funds
through the issuance of debt securities or preferred stock, these new securities
would have rights, preferences and privileges senior to those of the holders of
our common stock. The terms of these securities could also impose restrictions
on our operations.

ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS

                          RISKS RELATED TO OUR BUSINESS

WE HAVE A HISTORY OF LOSSES AND, BECAUSE FOR THE FORESEEABLE FUTURE WE EXPECT TO
INCREASE OUR INVESTMENT IN OUR BUSINESS FASTER THAN WE ANTICIPATE GROWTH IN OUR
REVENUES, WE EXPECT THAT WE WILL CONTINUE TO INCUR SIGNIFICANT OPERATING LOSSES
AND NEGATIVE CASH FLOW AND MAY NEVER BE PROFITABLE.

        We have spent significant funds to date to develop and refine our
current services, to create an operations organization, consisting of
application management and customer support services personnel, to build a
professional services organization and to develop our sales and marketing
resources. We have incurred significant operating and net losses and negative
cash flow and have not achieved profitability. As of September 30, 2000, we had
an accumulated deficit of $129 million.

        We expect to continue to invest significantly in our operations
organization and in research and development to enhance current services and
expand our service offerings. We also plan to continue to grow our professional
services organization and sales force and to spend significant funds to promote
our company and our services. We expect to continue to hire additional people in
all other areas of our company in order to support our growing business. In
addition, we expect to continue to incur significant fixed and other costs
associated with customer acquisitions and with the implementation and
configuration of software applications for customers. As a result of all of
these factors, to achieve operating profitability, excluding non-cash charges,
we will need to increase our customer base, to decrease our overall costs of
providing services, including the costs of our licensed technology and the costs
of customer acquisitions, and to increase our number of users and revenues per
customer. We cannot assure you that we will be able to increase our revenues or
increase our operating efficiencies in this manner. Moreover, because we expect
to continue to increase our investment in our business faster than we anticipate
growth in our revenues, we expect that we will continue to incur significant
operating losses and negative cash flow for the foreseeable future and we may
never be profitable.

WE EXPECT TO INCUR SUBSTANTIAL ACCOUNTING CHARGES AS A RESULT OF WARRANTS HELD
BY CAP GEMINI ERNST & YOUNG WHICH WILL LIKELY RESULT IN SIGNIFICANT OPERATING
LOSSES OVER THE NEXT SEVERAL YEARS.

        Even if we are able to generate revenues that exceed our operating
costs, we expect to incur substantial accounting charges over the next seven
years associated with warrants held by Cap Gemini Ernst & Young U.S. LLC, or
CGEY. Under the terms of a strategic alliance agreement with CGEY, CGEY holds
four warrants to purchase up to approximately 2.3 million shares of our common
stock at an exercise price of $6.50 per share, exercisable through December 31,
2001, and up to 2.3 million shares based on specific performance metrics
achieved by CGEY over the next three years. These warrants and other expenses
related to our strategic alliance with CGEY are likely to result in substantial
expenses and operating losses for us over the term of our agreement with them.
Because of the accounting policies applicable to these warrants, the charges
associated with these warrants are being measured and recorded each fiscal
quarter in part using the trading price of our common stock. Significant
increases in our stock price could result in non-cash accounting charges
amounting to hundreds of millions of dollars.


OUR LIMITED HISTORY OF OFFERING ASP SERVICES TO CUSTOMERS AND THE FACT THAT WE
OPERATE IN A NEW INDUSTRY FOR APPLICATION SERVICES EXPOSE US TO RISKS THAT
AFFECT OUR ABILITY TO EXECUTE OUR BUSINESS MODEL.

        We have offered our services for a relatively short period of time, and
our industry is new. Prior to September 1998, our predecessor company, DSCI,
carried on a different business. Accordingly, we have a limited operating
history as a provider of ASP services. We have a limited number of customers,
have implemented our services a limited number of times and only a portion of
our customers are operating on our system. Because our business model is new, it
continues to evolve. In the future, we may revise our pricing model for
different services, and our cost model for our license of third-party software
applications and other third-party



                                       12
<PAGE>   13

services may also evolve. Changes in our anticipated business and financial
model could materially impact our ability to become profitable in the future. An
investor in our common stock must consider these facts as well as the risks,
uncertainties, expenses and difficulties frequently encountered by companies in
their early stages of development, particularly companies in new and rapidly
evolving markets such as the market for Internet-based software application
services. Some of the risks and difficulties relate to our potential inability
to:

        -    acquire new customers;

        -    reduce costs associated with the delivery of services to our
             customers;

        -    expand and maintain our pipeline of sales prospects in order to
             promote greater predictability in our period-to-period sales
             levels;

        -    acquire or license third-party software applications at a
             reasonable cost or at a cost structure beneficial to us;

        -    complete successful implementations of our software applications in
             a manner that is repeatable and scalable;

        -    integrate successfully software applications we manage with each
             other and with our customers' existing systems;

        -    continue to offer new services that complement our existing
             offerings;

        -    increase awareness of our brand; and

        -    maintain our current, and develop new, strategic relationships.

        We cannot assure you that we will successfully address these risks or
difficulties. If we fail to address any of these risks or difficulties
adequately, we will likely be unable to execute our business model.

BECAUSE WE PLAN TO EXPEND SIGNIFICANT SUMS TO GROW OUR BUSINESS, WE MAY BE
UNABLE TO ADJUST SPENDING TO OFFSET ANY FUTURE REVENUE SHORTFALL, WHICH COULD
CAUSE OUR QUARTERLY OPERATING RESULTS TO FLUCTUATE AND OUR STOCK PRICE TO FALL.

        In order to promote future growth, we expect to continue to expend
significant sums in all areas of our business, particularly in our operations,
professional services, research and development and sales and marketing
organizations. Because the expenses associated with these activities are
relatively fixed in the short-term, we may be unable to adjust spending quickly
enough to offset any unexpected shortfall in revenue growth or any decrease in
revenue levels. As our quarterly results fluctuate, they may fall short of the
expectations of public market analysts or investors. If this occurs, the price
of our common stock may fall.

OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE DUE TO THE NATURE OF OUR ASP
BUSINESS AND OTHER FACTORS AFFECTING OUR REVENUES AND COSTS, WHICH COULD CAUSE
OUR STOCK PRICE TO FALL.

        Our financial results will vary over time as our ASP business matures.
For each individual customer, in the early months of our engagement we typically
recognize professional services revenues associated with implementation of our
applications. We then recognize monthly fees from the customer, consisting of
application management services revenues, over the balance of the contractual
relationship. As a result, for each customer we have a high proportion of up
front professional services revenues associated with implementation. Since we
have only offered ASP services since September 1998 and our customer base has
grown rapidly, professional services revenues associated with implementation
have been relatively high compared to monthly fees. We expect that our financial
results will continue to vary over time as monthly fees increase as a proportion
of total revenue. Changes in our revenue mix from professional services revenues
to application management services revenues could be difficult to predict and
could cause our quarterly results and stock price to fluctuate.

        Other important factors that could cause our quarterly results and stock
price to fluctuate materially include:

        -    the timing of obtaining, implementing and establishing connectivity
             with individual customers;

        -    the loss of or change in our relationship with important customers;



                                       13
<PAGE>   14

        -    the timing and magnitude of expanding our operations and of other
             capital expenditures;

        -    costs, including license fees, relating to the software
             applications we use;

        -    changes in our pricing policies or those of our competitors;

        -    potential changes in the accounting standards associated with
             accounting for stock or warrant issuances and for revenue
             recognition; and

        -    accounting charges associated with the warrants held by CGEY and a
             software vendor, as well as potential accounting charges we may
             incur in the future relating to stock or warrant issuances to
             future strategic partners.

OUR FINANCIAL RESULTS COULD VARY OVER TIME AS OUR BUSINESS MODEL EVOLVES, WHICH
COULD CAUSE OUR STOCK PRICE TO FALL.

        Our financial results could vary over time as our business and financial
model evolves. For example, we have historically included a broad range of
customer support in our fixed monthly fees but have decided to bill certain
customers for support services in excess of specified limits in certain
circumstances. As another example, we may decide to unbundle from our fixed
monthly fee the cost of software licenses and to require our customers to obtain
licenses to applications directly from third-party software providers. Any such
changes to our business or financial model would likely cause financial results
to vary, which could cause our stock price to fall.

        In this regard, from time to time we negotiate with some of our major
third-party software vendors to modify the pricing and other terms currently in
place with these vendors. We may agree to restructure our current pricing
arrangements with some of our third-party software providers to, for example,
pay more to the provider up-front in return for a pricing structure that we
believe is more beneficial to us overall. Any such new pricing structures may
not in fact be more beneficial to us and may ultimately hinder our ability to
become profitable.

WE DEPEND ON SOFTWARE VENDORS TO SUPPLY US WITH THE SOFTWARE NECESSARY TO
PROVIDE OUR SERVICES, AND THE LOSS OF ACCESS TO THIS SOFTWARE OR ANY DECLINE OR
OBSOLESCENCE IN ITS FUNCTIONALITY COULD CAUSE OUR CUSTOMERS' BUSINESSES TO
SUFFER, WHICH, IN TURN, COULD HARM OUR REVENUES AND INCREASE OUR COSTS.

        We offer our customers software applications from third parties, such as
BroadVision, Commerce One, PeopleSoft, SAP and Siebel Systems, that we in turn
incorporate into the services we provide to customers. Our agreements with
third-party software vendors are non-exclusive, are for limited terms ranging
from two to five years and typically permit termination in the event of our
breach of the agreements. If we lose the right to use the software that we
license from third-parties, if the cost of licensing the software applications
becomes prohibitive, or if we change the vendors from whom we currently license
software, our customers' businesses could be significantly disrupted, which
could harm our revenues and increase our costs. Our financial results may also
be harmed if the cost structure we negotiate with the third-party software
vendors changes in a manner that is less beneficial to us compared to our
current cost structure with software vendors. We cannot assure you that our
services will continue to support the software of our third-party vendors, or
that we will be able to adapt our own offerings to changes in third-party
software. In addition, if our vendors were to experience financial or other
difficulties, it could adversely affect the availability of their software. It
is also possible that improvements in software by third-parties with whom we
have no relationship could render the software we offer to our customers less
compelling or obsolete.

OUR LICENSES FOR THE THIRD-PARTY SOFTWARE WE USE TO DELIVER OUR SERVICES CONTAIN
LIMITS ON OUR ABILITY TO USE THEM THAT COULD IMPAIR OUR GROWTH AND OPERATING
RESULTS.

        The licenses we have for the third-party software we use to deliver our
services typically restrict our ability to sell our services in specified
countries and to customers with revenue above or below specified revenue levels.
For example, some of our licenses restrict us from selling our services to
customers with annual revenues greater than various levels between $250 million
and $1 billion, and several of our licenses restrict our ability to sell to
customers outside of North America. In addition, some of these licenses contain
limits on our ability to sell our services to certain types of customers. For
example, our contract with BroadVision restricts our ability to sell our
BroadVision offerings to specified banking institutions. Moreover, as we
negotiate with some of our major third-party software vendors to modify terms of
existing agreements, we may agree to additional restrictions on our ability to
sell our services to



                                       14
<PAGE>   15

customers as part of an agreement that we believe is more beneficial to us
overall. Our operating results and ability to grow could be harmed to the extent
these licenses prohibit us from selling our services to customers to which we
would otherwise sell our services, or in countries in which we would otherwise
sell our services.

POOR PERFORMANCE OF THE SOFTWARE WE DELIVER TO OUR CUSTOMERS OR DISRUPTIONS IN
OUR BUSINESS-CRITICAL SERVICES COULD HARM OUR REPUTATION, DELAY MARKET
ACCEPTANCE OF OUR SERVICES AND SUBJECT US TO LIABILITIES.

        Our customers depend on our hosted software applications for their
critical systems and business functions, including enterprise resource planning,
customer relationship management, e-commerce and business intelligence. Our
customers' businesses could be seriously harmed if the applications we provide
to them work improperly or fail, even if only temporarily. Accordingly, if the
software that we license from our vendors or our implementation of such software
performs poorly, experiences errors or defects or is otherwise unreliable, our
customers would likely be extremely dissatisfied, which could cause our
reputation to suffer, force us to divert research and development and management
resources, cause a loss of revenues or hinder market acceptance of our services.
It is also possible that any customer disruptions resulting from failures in our
applications could force us to refund all or a portion of the fees customers
have paid for our services or result in other significant liabilities to our
customers.

WE MAY FAIL TO IMPLEMENT, HOST OR MANAGE ENTERPRISE SOFTWARE APPLICATIONS
SUCCESSFULLY DUE TO THE COMPLICATED NATURE OF THE SERVICES WE PROVIDE AND OUR
LIMITED EXPERIENCE IN PROVIDING THESE SERVICES, WHICH WOULD HARM OUR REPUTATION
AND SALES.

        Implementations of integrated enterprise software applications can be
complicated and we have limited experience to date completing implementations of
integrated software applications for our customers. We cannot assure you that we
will develop the requisite expertise or that we can convince customers that we
have the expertise required to implement, host or manage these applications. In
addition, because PeopleSoft software applications were our first application
offerings, our customers to date have primarily implemented our PeopleSoft
application offerings. We have limited experience installing many of the
applications we offer, particularly some of the applications we have recently
begun to offer. Our reputation will be harmed and sales of our services would
decline significantly if we are not able to complete successfully repeated
implementations of our enterprise software applications, including those
applications with which we have limited or no implementation, hosting or
management experience to date.

WE HAVE ONLY IMPLEMENTED OUR ORION TECHNOLOGY PLATFORM FOR A SMALL NUMBER OF
CUSTOMERS, AND IT MAY NOT ACHIEVE MARKET ACCEPTANCE, PROVIDE THE PERFORMANCE WE
ANTICIPATE OR GENERATE SIGNIFICANT REVENUE FOR US.

        We have only implemented Orion, our technology platform, for a small
number of customers and it may not be an effective means to integrate
applications. In addition, we are investing resources to continue to develop and
improve this platform. We cannot assure you that our Orion platform will achieve
market acceptance or will work in the manner we expect or that we will be able
to achieve a return on our investment.



                                       15
<PAGE>   16

IF OUR STRATEGIC ALLIANCE WITH CAP GEMINI ERNST & YOUNG DOES NOT GENERATE THE
BENEFITS WE EXPECT, WE MAY NOT BE ABLE TO GROW OUR BUSINESS AS EFFECTIVELY AS WE
ANTICIPATE AND MAY HAVE DIFFICULTY PROVIDING SYSTEMS INTEGRATION SERVICES TO OUR
CUSTOMERS.

        Our agreement with Cap Gemini Ernst & Young U.S. LLC, or CGEY, provides
for exclusive client referrals from CGEY for emerging high-growth and
middle-market clients in the Americas. These limitations on exclusivity may
limit our ability to benefit from the marketing alliance. This strategic
alliance will not be considered a success if it does not generate a large number
of customers for us and does not grow our business. Moreover, this alliance may
adversely affect our ability to generate new customers through relationships
with other systems integration and consulting firms. Finally, it is possible
that we may become dependent on CGEY for implementation of our services and, if
our relationship with CGEY terminates, we may not be able to find systems
integrators to replace the services CGEY is expected to provide us.

OUR RELATIONSHIP WITH CGEY MAY CHANGE IN A MANNER ADVERSE TO OUR BUSINESS
THROUGH CIRCUMSTANCES BEYOND OUR CONTROL.

        In April 2000, we entered into a strategic alliance with Ernst & Young
on behalf of its consulting division, E&Y Consulting. In May 2000, Ernst & Young
completed a sale of substantially all of E&Y Consulting to Cap Gemini. At the
time of completion of this sale, E&Y Consulting assigned to Cap Gemini all of
its rights and obligations pursuant to its strategic alliance with us. We cannot
assure you that CGEY, the combined company, will consider the relationship with
us as strategic as E&Y Consulting did, or that the incentives we negotiated with
E&Y Consulting will be appropriate for CGEY. Accordingly, it is possible that
CGEY will fail to devote substantial resources towards generating referrals to
us and engaging in joint marketing and sales activities. If CGEY fails to do so,
we may be forced to terminate our agreement and cancel some of the warrants held
by CGEY. Under these scenarios, we would again fail to realize the benefits we
expect from this alliance. Additionally, as the personal relationships between
the professional staff at E&Y Consulting and the auditing group of Ernst & Young
LLP change over time as a result of E&Y Consulting's acquisition by Cap Gemini,
we may lose some benefit from referrals from Ernst & Young LLP. As a result of
all of the foregoing, E&Y Consulting's acquisition by Cap Gemini could result in
our relationship with CGEY providing fewer benefits to us than we initially
anticipated, and the benefits as a whole may not be substantial.

ANY INABILITY TO EXPAND SUFFICIENTLY OUR ENTERPRISE SOFTWARE IMPLEMENTATION AND
SYSTEMS CONSULTING CAPABILITIES COULD HARM OUR ABILITY TO SERVICE OUR CUSTOMERS
EFFECTIVELY AND COULD HINDER OUR GROWTH.

        A failure to maintain and expand relationships with third-party systems
integrators that we use to implement our services could harm our ability to
service our customers effectively. Because of our relationship with CGEY, we may
have difficulty retaining the services of other systems integrators, which we
may need if our alliance with CGEY terminates or if CGEY performs services in a
manner below our customers' expectations. In addition, if sales increase rapidly
or if we were to agree to undertake client relationships requiring particularly
large or complex implementations, our internal professional services personnel
may be unable to meet the demand for implementation services. In that case, if
we are unable to retain or hire highly-trained third-party systems integrators
and consultants to implement our services, we would be unable to meet customer
demands for our implementation and consulting services, which could hinder our
ability to grow our business. In addition, we frequently contract with our
customers for implementation on a fixed price basis. As a result, unexpected
complexities in implementing software applications for our customers could
result in unexpected losses for us or increases in losses. Our business and
reputation could also be seriously harmed if third party systems integrators
were unable to perform their services for our customers in a manner that meets
customer expectations.

INCREASED DEMAND FOR CUSTOMIZATION OF OUR SERVICES BEYOND WHAT WE CURRENTLY
PROVIDE OR ANTICIPATE COULD REDUCE THE SCALABILITY AND PROFITABILITY OF OUR
BUSINESS.

        Companies may prefer more customized applications and services than our
business model contemplates. Most of our customers have required some level of
customization of our services, and our customers may continue to require
customization in the future, perhaps to a greater extent than we currently
provide or anticipate. If we do not offer the desired customization, there may
be less demand for our services. Conversely, providing customization of our
services increases our costs and reduces our flexibility to provide similar
services to many customers. Accordingly, increased demand for customization of
our services could reduce the scalability and profitability of our business and
increase risks associated with completing software upgrades.



                                       16
<PAGE>   17

CONTINUED RAPID GROWTH WOULD STRAIN OUR OPERATIONS AND WOULD REQUIRE US TO INCUR
COSTS TO UPGRADE OUR INFRASTRUCTURE AND EXPAND OUR PERSONNEL.

        We have rapidly expanded our operations since our current business
started in September 1998. The number of our employees increased from 58 at
December 31, 1998, to 108 at June 30, 1999, to 279 at December 31, 1999, and to
542 at June 30, 2000. Although headcount decreased to 529 at September 30, 2000,
we expect our business to continue to grow in terms of headcount, geographic
scope, number of customers and the number of services we offer. We cannot be
sure that we will successfully manage our growth. In order to manage our growth
successfully, we must:

        -    improve our management, financial and information systems and
             controls;

        -    maintain a high level of customer service and support;

        -    expand our implementation and consulting resources internally and
             with third-parties; and

        -    expand, train, manage and integrate our employee base effectively.

        There will be additional demands on our customer service support,
research and development, sales and marketing and administrative resources as we
try to increase our service offerings and expand our target markets. The strains
imposed by these demands are magnified by our limited operating history. Any
delay in the implementation of, or disruption in the transition to, new or
enhanced systems and controls could harm our ability to accurately forecast
demand for our services, manage our sales cycle and implementation services and
record and report management and financial information on a timely and accurate
basis. Moreover, any inability to expand our service offerings and employee base
commensurate with the demand for our services could cause our revenues to
decline.

WE WILL NEED TO PERFORM SOFTWARE UPGRADES FOR OUR CUSTOMERS, AND ANY INABILITY
TO SUCCESSFULLY PERFORM THESE UPGRADES COULD CAUSE INTERRUPTIONS OR ERRORS IN
OUR CUSTOMERS' SOFTWARE APPLICATIONS, WHICH COULD INCREASE OUR COSTS AND DELAY
MARKET ACCEPTANCE OF OUR SERVICES.

        Our software vendors from time to time will upgrade their software
applications, and at such time we will be required to implement these software
upgrades for our customers. For example, PeopleSoft, from whom we license a
substantial amount of software applications and represents more than half of our
applications management services revenue, has recently released a new version of
its software. Implementing software upgrades can be a complicated and costly
process, particularly implementation of an upgrade simultaneously across
multiple customers, and we have not performed a software upgrade to date.
Accordingly, we cannot assure you that we will be able to perform these upgrades
successfully or at a reasonable cost. We may also experience difficulty
implementing software upgrades to a large number of customers, particularly if
different software vendors release upgrades simultaneously. If we are unable to
perform software upgrades successfully and to a large customer base, our
customers could be subject to increased risk of interruptions or errors in their
business-critical software, our reputation and business would likely suffer and
the market would likely delay the acceptance of our services. It will also be
difficult for us to predict the timing of these upgrades, the cost to us of
these upgrades and the additional resources that we may need to implement these
upgrades. Additionally, if we evolve our business model to charge customers for
the cost of software upgrades, we may lose prospective customers who choose not
to pay for these upgrades. Therefore, any such upgrades could strain our
development and engineering resources, require significant unexpected expenses
and cause us to miss our financial forecasts or those of securities analysts.
Any of these problems could impair our customer relations and our reputation and
subject us to litigation.

SECURITY RISKS AND CONCERNS MAY DECREASE THE DEMAND FOR OUR SERVICES, AND
SECURITY BREACHES WITH RESPECT TO OUR SYSTEMS MAY DISRUPT OUR SERVICES OR MAKE
THEM INACCESSIBLE TO OUR CUSTOMERS.

        Our services involve the storage and transmission of business-critical,
proprietary information, and security breaches could expose us to a risk of loss
of this information, litigation and possible liability. Anyone who circumvents
our security measures could misappropriate business-critical proprietary
information or cause interruptions in our services or operations. In addition,
computer "hackers" could introduce computer viruses into our systems or those of
our customers, which could disrupt our services or make them inaccessible to
customers. We may be required to expend significant capital and other resources
to protect against the threat of



                                       17
<PAGE>   18

security breaches or to alleviate problems caused by breaches. Our security
measures may be inadequate to prevent security breaches, and our business and
reputation would be harmed if we do not prevent them.

IF WE ARE UNABLE TO ADAPT OUR SERVICES TO RAPIDLY CHANGING TECHNOLOGY, OUR
REPUTATION AND OUR ABILITY TO GROW OUR REVENUES COULD BE HARMED.

        The markets we serve are characterized by rapidly changing technology,
evolving industry standards, emerging competition and the frequent introduction
of new services, software and other products. We cannot assure you that we will
be able to enhance existing or develop new services that meet changing customer
needs in a timely and cost-effective manner. For example, as software
application architecture changes, the software for which we have licenses could
become out of date or obsolete and we may be forced to upgrade or replace our
technology. For example, this is of particular concern with regard to our
enterprise resource planning, or ERP, software, including PeopleSoft and SAP.
The architecture of the software we currently use for ERP applications is not
designed to be hosted. We believe that future software will be written to be
hosted. Our existing software application providers may face competition from
new vendors who have written hostable software. It may be difficult for us to
acquire hostable ERP software from these new vendors and for our software
application providers to develop this software quickly or successfully. In
either event, the services we offer would likely become less attractive to our
customers, which could cause us to lose revenue and market share. Performing
upgrades may also require substantial time and expense and even then we cannot
be sure that we will succeed in adapting our business to these technological
developments. Prolonged delays resulting from our efforts to adapt to rapid
technological change, even if ultimately successful, could harm our reputation
within our industry and our ability to grow our revenues.

THE EMERGING HIGH-GROWTH AND MIDDLE-MARKET COMPANIES THAT CURRENTLY COMPRISE OUR
CUSTOMER BASE MAY BE VOLATILE, WHICH COULD RESULT IN GREATER THAN EXPECTED
CUSTOMER LOSS OR AN INABILITY TO COLLECT FEES IN A TIMELY MANNER OR AT ALL.

        Substantially all of our current customer base consists of emerging
high-growth and middle-market companies and is comprised primarily of e-commerce
and "dot-com" companies. These companies may be more likely to be acquired,
experience financial difficulties or cease operations than other companies. In
particular, these companies may experience difficulties in raising capital
needed to fund their operations when required or at all. For example, we are
terminating our agreements with a number of customers who appear unable or
unwilling to continue their financial obligations to us. As a result, our client
base will likely be more volatile than that of competitors whose customers
consist of more mature and established companies. If we continue to experience
greater than expected customer loss or an inability to collect fees from our
customers in a timely manner because of this volatility, our operating results
could be seriously harmed.

OUR APPLICATION MANAGEMENT AGREEMENTS ARE TYPICALLY LONG-TERM, FIXED-PRICE
CONTRACTS, WHICH MAY HINDER OUR ABILITY TO BECOME PROFITABLE.

        We enter into agreements with our customers to provide application
management services for long periods, typically three to five years. Most of
these agreements are in the form of fixed-price contracts that do not provide
for price adjustments to reflect any cost overruns associated with providing our
services, such as potential increases in the costs of software applications we
license from third parties, the costs of upgrades or inflation. Furthermore, we
may be required to bundle implementation and application management services for
some of our customers for competitive reasons. As a result, unless we are able
to provide our services in a more cost-effective manner than we do today and
unless the number of users at individual customers increases to provide us
higher revenue levels per customer, we may never achieve profitability for a
particular customer. In addition, customers may not be able to pay us or may
cancel our services before becoming profitable for us.

OUR LONG-TERM, FIXED-PRICE APPLICATION MANAGEMENT CONTRACTS MAY HINDER OUR
ABILITY TO EVOLVE OUR BUSINESS AND TO ULTIMATELY BECOME PROFITABLE.

        Our business is new and, accordingly, our business and financial models
may evolve as the understanding of our business evolves. We may be unable to
adjust our pricing or cost structure with respect to our current customers in
response to changes we make in our business or financial model due to the
long-term, fixed price nature of the application management agreements we have
with our customers. This potential inflexibility may result in our inability to
become profitable as rapidly as we would like or at all.

IF WE DO NOT MEET THE SERVICE LEVELS PROVIDED FOR IN OUR CONTRACTS WITH
CUSTOMERS, WE MAY BE REQUIRED TO GIVE OUR CUSTOMERS CREDIT FOR FREE SERVICE, AND
OUR CUSTOMERS MAY BE ENTITLED TO



                                       18
<PAGE>   19

CANCEL THEIR SERVICE CONTRACTS, WHICH COULD ADVERSELY AFFECT OUR REPUTATION AND
HINDER OUR ABILITY TO GROW OUR REVENUES.

        Our application management services contracts contain service level
guarantees that obligate us to provide our applications at a guaranteed level of
performance. If we fail to meet those service levels, we may be contractually
obligated to provide our customers credit for free service. If we were to
continue to fail to meet these service levels, our customers would then have the
right to cancel their contracts with us. These credits or cancellations could
harm our reputation and hinder our ability to grow our revenues.

IF WE CANNOT OBTAIN ADDITIONAL SOFTWARE APPLICATIONS THAT MEET THE EVOLVING
BUSINESS NEEDS OF OUR CUSTOMERS, THE MARKET FOR OUR SERVICES WILL NOT GROW AND
MAY DECLINE, AND SALES OF OUR SERVICES WILL SUFFER.

        Part of our strategy is to expand our services by offering our customers
additional software applications that address their evolving business needs. We
cannot be sure, however, that we will be able to license these applications at a
commercially viable cost or at all or that we will be able to cost-effectively
develop the applications in-house. If we cannot obtain these applications on a
cost-effective basis and, as a result, cannot expand the range of our service
offerings, the market for our services will not grow and may decline, and sales
of our services will suffer.

WE HAVE MANY COMPETITORS AND EXPECT NEW COMPETITORS TO ENTER OUR MARKET, WHICH
COULD ADVERSELY AFFECT OUR ABILITY TO INCREASE REVENUES, MAINTAIN OUR MARGINS OR
GROW OUR MARKET SHARE.

        The market for our services is extremely competitive and the barriers to
entry in our market are relatively low. We currently have no patented technology
that would bar competitors from our market.

        Our current and potential competitors primarily include:

        -    application service providers and business process outsourcers,
             such as Applicast, AristaSoft, Breakaway Solutions, Interliant,
             NaviSite, Qwest Cyber.Solutions, ReSourcePhoenix.com and
             USinternetworking;

        -    systems integrators, such as Andersen Consulting, Electronic Data
             Systems and PricewaterhouseCoopers;

        -    Internet service providers and web hosting providers, such as
             Concentric Network, DIGEX, Exodus Communications, Frontier
             Corporation, Genuity, Worldcom and PSINet;

        -    software vendors, such as J.D. Edwards, Microsoft, Oracle,
             PeopleSoft, SAP and Siebel Systems;

        -    major technology providers, such as Cisco Systems, IBM, Intel and
             Nortel Networks;

        -    Internet portals, such as AOL, Excite@Home and Yahoo; and

        -    telecommunications companies.

        Many of our competitors and potential competitors have substantially
greater financial, customer support, technical and marketing resources, larger
customer bases, longer operating histories, greater name recognition and more
established relationships in the industry than we do. We cannot be sure that we
will have the resources or expertise to compete successfully in the future. Our
competitors may be able to:

        -    develop and expand their network infrastructures and service
             offerings more quickly;

        -    adapt to new or emerging technologies and changing customer needs
             faster;

        -    take advantage of acquisitions and other opportunities more
             readily;

        -    negotiate more favorable licensing agreements with software
             application vendors;



                                       19
<PAGE>   20

        -    devote greater resources to the marketing and sale of their
             products; and

        -    address customers' service-related issues more effectively.

        Some of our competitors may also be able to provide customers with
additional benefits at lower overall costs or to reduce their application
service charges aggressively in an effort to increase market share. We cannot be
sure that we will be able to match cost reductions by our competitors.

        Our competitors and other companies may form strategic relationships
with each other to compete with us. These relationships may take the form of
strategic investments, joint-marketing agreements, licenses or other contractual
arrangements, which arrangements may increase our competitors' ability to
address customer needs with their product and service offerings. We believe that
there is likely to be consolidation in our markets, which could lead to
increased price competition and other forms of competition that could cause our
business to suffer.


WE MAY BE UNABLE TO DELIVER EFFECTIVELY OUR SERVICES IF OUR DATA CENTER
MANAGEMENT SERVICES PROVIDERS, COMPUTER HARDWARE SUPPLIERS OR SOFTWARE PROVIDERS
DO NOT PROVIDE US WITH KEY COMPONENTS OF OUR TECHNOLOGY INFRASTRUCTURE IN A
TIMELY, CONSISTENT AND COST-EFFECTIVE MANNER.

        We depend on third-parties, such as Concentric Network, for our data
center management services and for key components of our network infrastructure.
Our contracts with these data center and network infrastructure providers are
for a fixed term and for a specified amount of services, which may be
insufficient to meet our needs as our business grows. We depend on suppliers
such as Sun Microsystems for our computer hardware and Active Software and
Netegrity for our software technology platform. If any of these relationships
fail to provide needed products or services in a timely and consistent manner or
at an acceptable cost, we may be unable to deliver effectively our services to
customers. Some of the key components of our infrastructure are available only
from sole or limited sources in the quantity and quality we demand. We do not
carry significant inventories of those components that we obtain from
third-parties and have no guaranteed supply arrangements for some of these
components.

SYSTEM FAILURES CAUSED BY US OR FACTORS OUTSIDE OF OUR CONTROL COULD CAUSE US TO
LOSE OUR CUSTOMERS AND SUBJECT US TO LIABILITY.

        Our operations depend upon our ability and the ability of our
third-party data center and network services providers to maintain and protect
the computer systems on which we host our customers' applications. Any loss of
customer data or an inability to provide service for a period of time could
cause us to lose our customers and subject us to significant potential
liabilities. We currently use two data centers to house our hardware and to
provide network services, but each of our customers is serviced at a single
site. While our data center and network providers maintain back-up systems, a
natural disaster or similar disruption at their site could impair our ability to
provide our services to our customers until the site is repaired or back-up
systems become operable. Each of our data center providers, as well as our
corporate headquarters, is located in Northern California, near known earthquake
fault zones. Our systems and the data centers are also vulnerable to damage from
fire, flood, power loss, telecommunications failures and similar events.

IF WE ARE UNABLE TO RETAIN OUR EXECUTIVE OFFICERS AND KEY PERSONNEL, OR TO
INTEGRATE NEW MEMBERS OF OUR SENIOR MANAGEMENT THAT ARE CRITICAL TO OUR
BUSINESS, WE MAY NOT BE ABLE TO SUCCESSFULLY MANAGE OUR BUSINESS OR ACHIEVE OUR
OBJECTIVES.

        Our future success depends upon the continued service of our executive
officers and other key personnel. None of our executive officers or key
employees is bound by an employment agreement for any specific term. If we lose
the services of one or more of our executive officers or key employees, or if
one or more of them decides to join a competitor or otherwise compete directly
or indirectly with us, we may not be able to successfully manage our business or
achieve our business objectives.

        In addition, most of the members of our senior management joined us in
the second half of 1999 and the beginning of 2000, including our Chief Executive
Officer and Chief Financial Officer. If our senior management is unable to
successfully become integrated and work together, our ability to manage our
business could be seriously harmed.

IF WE ARE UNABLE TO HIRE AND RETAIN SUFFICIENT SALES, MARKETING, TECHNICAL AND
OPERATIONS PERSONNEL, WE MAY BE UNABLE TO GROW OUR BUSINESS OR TO SERVICE OUR
CUSTOMERS EFFECTIVELY.



                                       20
<PAGE>   21

        We need to expand substantially our sales operations and marketing
efforts, both domestically and internationally, in order to try to increase
market awareness and sales of our services. We will also need to increase our
technical staff in order to service customers and perform research and
development. Competition for qualified sales, marketing, technical and
operations personnel is intense as these personnel are in limited supply and in
high demand, particularly in Northern California, and we might not be able to
hire and retain sufficient numbers of these personnel to grow our business or to
service our customers effectively.

ANY FUTURE ACQUISITIONS OF BUSINESSES, TECHNOLOGIES OR SERVICES MAY RESULT IN
DISTRACTION OF OUR MANAGEMENT AND DISRUPTIONS TO OUR BUSINESS.

        We expect significant consolidation in our industry to occur. We may
acquire or make investments in complementary businesses, technologies or
services if appropriate opportunities arise. From time to time we may engage in
discussions and negotiations with companies regarding acquiring or investing in
their businesses, technologies or services. We cannot make assurances that we
will be able to identify suitable acquisition or investment candidates, or that
if we do identify suitable candidates, we will be able to make the acquisitions
or investments on commercially acceptable terms or at all. If we acquire or
invest in another company, we could have difficulty assimilating that company's
personnel, operations, technology or products and service offerings. In
addition, the key personnel of the acquired company may decide not to work for
us. These difficulties could disrupt our ongoing business, distract our
management and employees, increase our expenses and adversely affect our results
of operations. Furthermore, we may incur indebtedness or issue equity securities
to pay for any future acquisitions. The issuance of equity or convertible debt
securities could be dilutive to our existing stockholders.

ANY INABILITY TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS COULD REDUCE OUR
COMPETITIVE ADVANTAGE, DIVERT MANAGEMENT ATTENTION, REQUIRE ADDITIONAL
INTELLECTUAL PROPERTY TO BE DEVELOPED OR CAUSE US TO INCUR EXPENSES TO ENFORCE
OUR RIGHTS.

        We cannot assure you that we will be able to protect or maintain our
intellectual property from infringement or misappropriation from others. In
particular, our business would be harmed if we were unable to protect our Orion
technology platform, our trademarks or our other software and confidential and
proprietary information. Agreements on which we rely to protect our intellectual
property rights and the trade secret, copyright and other laws on which we rely
may only afford limited protection to these rights. In addition, we currently
have no patents and no patent applications pending, which limits significantly
our ability to protect our proprietary rights in the event they are infringed.
Any infringement or misappropriation of our intellectual property could reduce
our competitive advantage, divert management attention, require us to develop
technology and cause us to incur expenses to enforce our rights.

ANY INFRINGEMENT CLAIMS INVOLVING OUR TECHNOLOGY OR THE APPLICATIONS WE OFFER
COULD COST A SIGNIFICANT AMOUNT OF MONEY AND COULD DIVERT MANAGEMENT'S ATTENTION
AWAY FROM OUR BUSINESS.

        As the number of software applications used by our customers increases
and the functionality of these products further overlaps and integrates,
software industry participants may become increasingly subject to infringement
claims. In addition, we have agreed, and may agree in the future, to indemnify
some of our customers against claims that our services infringe upon the
intellectual property rights of others. Someone may claim that our technology or
the applications we offer infringes their proprietary rights. Any infringement
claims, even if without merit, can be time consuming and expensive to defend,
may divert management's attention and resources and could cause service delays.
Such claims could require us to enter into costly royalty or licensing
agreements. If successful, a claim of infringement against us and our inability
to modify or license the infringed or similar technology could adversely affect
our business. In addition, if our software vendors cease to offer their software
applications to us because of infringement claims against them, we would be
forced to license different software applications to our customers that may not
meet our customers' needs. This could result in a loss of customers and a
decline in our revenues.

                          RISKS RELATED TO OUR INDUSTRY

WE CANNOT ASSURE YOU THAT THE ASP MARKET WILL BECOME VIABLE OR GROW AT A RATE
THAT WILL ALLOW US TO ACHIEVE PROFITABILITY.

        Growth in demand for and acceptance of ASPs and their hosted business
software applications is highly uncertain. We cannot assure you that this market
will become viable or, if it becomes viable, that it will grow at a rate that
will allow us to achieve profitability. The market for Internet services,
private network management solutions and widely distributed Internet-enabled



                                       21
<PAGE>   22

application software has only recently begun to develop and is now evolving
rapidly. We believe that many of our potential customers are not fully aware of
the benefits of hosted and managed solutions. It is possible that these
solutions will never achieve market acceptance. It is also possible that
potential customers will decide that the risks associated with hiring ASPs to
implement and manage their critical systems and business functions outweigh the
efficiencies associated with the products and services we provide. Concerns over
transaction security and user privacy, inadequate network infrastructure for the
entire Internet and inconsistent performance of the Internet could also limit
the growth of Internet-based business software solutions.

INCREASING GOVERNMENT REGULATION COULD LIMIT THE MARKET FOR, OR IMPOSE SALES AND
OTHER TAXES ON THE SALE OF, OUR SERVICES, WHICH COULD CAUSE OUR REVENUES TO
DECLINE OR INCREASE OUR EXPENSES.

        We offer our suite of software applications over networks, which
subjects us to government regulation concerning Internet usage and electronic
commerce. We expect that state, federal and foreign agencies will adopt and
modify regulations covering issues such as user and data privacy, pricing,
taxation of goods and services provided over the Internet, the use and export of
cryptographic technology and content and quality of products and services. It is
possible that legislation could expose us and other companies involved in
electronic commerce to liability or require permits or other authorizations,
which could limit the growth of electronic commerce generally. Legislation could
dampen the growth in Internet usage and decrease its acceptance as a
communications and commercial medium. If enacted, these laws, rules or
regulations could limit the market for or make it more difficult to offer our
services.

        The taxation of commerce activities in connection with the Internet has
not been established, may change in the future and may vary from jurisdiction to
jurisdiction. One or more states or countries may seek to impose sales or other
taxes on companies that engage in or facilitate electronic commerce. A number of
proposals have been made at the local, state, national and international levels
that would impose additional taxes on the sale of products and services over the
Internet. These proposals, if adopted, could substantially impair the growth of
electronic commerce and could subject us to taxation relating to our use of the
Internet as a means of delivering our services. Moreover, if any state or
country were to assert successfully that we should collect sales or other taxes
on the exchange of products and services over the Internet, our customers may
refuse to continue using our services, which could cause our revenues to decline
significantly.

AS WE EXPAND OUR BUSINESS OUTSIDE THE UNITED STATES WE WILL BE SUBJECT TO
UNFAVORABLE INTERNATIONAL CONDITIONS AND REGULATIONS THAT COULD CAUSE OUR
INTERNATIONAL BUSINESS TO FAIL.

        We plan to expand our business outside of the United States in the
foreseeable future and are presently exploring international expansion
opportunities. Conducting our business in international markets is subject to
complexities associated with foreign operations and to additional risks related
to our business, including the possibility that the scarcity of cost-effective,
high-speed Internet access and the slow pace of future improvements in access to
the Internet will limit the market for hosting software applications over the
Internet or adversely affect the delivery of our services to customers.
Additionally, some countries outside of the United States do not permit hosting
applications on behalf of companies. The European Union has adopted a privacy
directive that regulates the collection and use of information. This directive
may inhibit or prohibit the collection and sharing of personal information in
ways that could harm us. The globalization of Internet commerce may be harmed by
these and similar regulations since the European Union privacy directive
prohibits transmission of personal information outside the European Union unless
the receiving country has enacted individual privacy protection laws at least as
strong as those enacted by the European Union privacy directive. The United
States and the European Union have not yet resolved this matter and they may not
ever do so in a manner favorable to our customers or us.

CHANGES IN ACCOUNTING STANDARDS COULD ADVERSELY AFFECT THE CALCULATION OF OUR
FUTURE OPERATING RESULTS.

        The ASP industry is new, and we anticipate the ASP business model is
likely to evolve over time. As a result, the application of accounting standards
to the ASP industry is also likely to change. Changes in the application of
accounting standards could force us to defer revenue recognition over a longer
period of time than is our current practice, result in large write-offs or cause
us to modify our customer contracts. For example, the Securities and Exchange
Commission has recently requested that the Emerging Issues Task Force of the
Financial Accounting Standards Board address issues of accounting for
multiple-element revenue arrangements. We currently recognize revenue for
professional services as the services are performed. If accounting standards
were modified to require deferral of professional services revenue and
recognition of that revenue over the life of the application management services
contract,



                                       22
<PAGE>   23

our reported revenues would be substantially reduced. These changes could
adversely affect our operating results or require us to restate our financial
statements.

MARKET PRICES OF INTERNET AND TECHNOLOGY COMPANIES HAVE BEEN HIGHLY VOLATILE,
AND THE MARKET FOR OUR STOCK MAY BE VOLATILE AS WELL.

        The stock market has experienced significant price and trading volume
fluctuations, and the market prices of technology companies generally, and
Internet-related software companies particularly, have been extremely volatile.
Many technology companies have experienced exceptional share price and trading
volume changes in the first weeks after their initial public offering. In the
past, following periods of volatility in the market price of a public company's
securities, securities class action litigation has often been instituted against
that company. Such litigation could result in substantial costs to us and a
diversion of our management's attention and resources.


THE LARGE NUMBER OF OUR SHARES ELIGIBLE FOR PUBLIC SALE COULD CAUSE OUR STOCK
PRICE TO DECLINE.

        The market price of our common stock could decline as a result of sales
by our existing stockholders of a large number of shares of our common stock in
the market or the perception that such sales could occur. As of October 31,
2000, we had 49,681,907 shares of our common stock outstanding, which number
excludes exercise of options outstanding as of October 31, 2000. All of the
shares sold in our initial public offering may be resold in the public market
immediately. Another 23,859,572 shares are subject to lock-up agreements and
will become available for resale in the public market beginning 180 days after
the effective date of our IPO. In specified circumstances, the 180 day
restriction will terminate as to 15% of the shares subject to the restriction
after 90 days and 20% of such shares after 120 days. As restrictions on resale
end, our stock price could drop significantly if the holders of these restricted
shares sell them or are perceived by the market as intending to sell them. These
sales also might make it more difficult for us to sell equity securities in the
future at a time and at a price that we deem appropriate.

MANY SIGNIFICANT CORPORATE ACTIONS ARE CONTROLLED BY OUR OFFICERS, DIRECTORS AND
AFFILIATED ENTITIES REGARDLESS OF THE OPPOSITION OF OTHER INVESTORS OR THE
DESIRE OF OTHER INVESTORS TO PURSUE AN ALTERNATIVE CAUSE OF ACTION.

        Our executive officers, directors and entities affiliated with them, in
the aggregate, beneficially own approximately 53.6% of our common stock. If they
were to act together, these stockholders would be able to exercise control over
most matters requiring approval by our stockholders, including the election of
directors and approval of significant corporate transactions. This concentration
of ownership may also have the effect of delaying or preventing a change in
control of our company, which could cause our stock price to drop. These actions
may be taken even if they are opposed by the other investors, including those
who purchase shares in this offering.

DELAWARE LAW AND OUR CHARTER, BYLAWS AND CONTRACTS PROVIDE ANTI-TAKEOVER
DEFENSES THAT COULD DELAY OR PREVENT AN ACQUISITION OF US, EVEN IF AN
ACQUISITION WOULD BE BENEFICIAL TO OUR STOCKHOLDERS.

        Provisions of our certificate of incorporation, bylaws and contracts and
of Delaware law could delay, defer or prevent an acquisition or change of
control of us, even if an acquisition would be beneficial to our stockholders,
and this could adversely affect the price of our common stock.

        -    Our bylaws limit the ability of our stockholders to call a special
             meeting and do not permit stockholders to act by written consent.

        -    We are subject to the anti-takeover provisions of Section 203 of
             the Delaware General Corporation Law, which prohibits us from
             engaging in a "business combination" with an "interested
             stockholder" for a period of three years after the date of the
             transaction in which the person became an interested stockholder,
             unless the business combination is approved in a prescribed manner.

        -    Several members of our senior management have contracts with us
             that provide for the acceleration of the vesting of their stock
             options upon termination following a change of control.



                                       23
<PAGE>   24

        -    Our certificate of incorporation permits our board to issue shares
             of preferred stock without stockholder approval. In addition to
             delaying or preventing an acquisition, the issuance of a
             substantial number of shares of preferred stock could adversely
             affect the price of the common stock.

        -    Additional provisions of our certificate of incorporation that may
             serve to delay or prevent an acquisition include a staggered board,
             advance notice procedures for stockholders to nominate candidates
             for election as directors, authorization of our board to alter the
             number of directors without stockholder approval and lack of
             cumulative voting.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        We develop and market our services primarily in the United States. As we
expand our operations outside of the United States, our financial results could
be affected by factors such as changes in foreign currency rates or weak
economic conditions in foreign markets. Because all of our services are
currently denominated in U.S. dollars, a strengthening of the dollar could make
our services less competitive in international markets.


        We have an investment portfolio of money market funds. In view of the
nature and mix of our total portfolio, a 10% movement in market interest rates
would not have a significant impact on the total value of our portfolio as of
September 30, 2000. Our interest expense is not sensitive to changes in the
general level of U.S. interest rates because all of our debt arrangements are
based on fixed interest rates.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

        None.

ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS

        (c) With the closing of the initial public offering, all outstanding
shares of Company's preferred stock automatically converted into 35,297,476
shares of common stock. The issuance of common stock upon automatic conversion
of the Company's previously outstanding preferred stock upon consummation of the
initial public offer was made in reliance on Section 3 (a) (9) of the Securities
Act.

        (d) On July 20, 2000, the Company effected an initial public offering
(the "IPO"), of 10,000,000 shares of its Common Stock at $14.00 per share,
pursuant to a registration statement (No. 333-35402) declared effective by the
Securities and Exchange Commission on July 20, 2000. The IPO has been
terminated, and all shares have been sold. The managing underwriters for the
IPO were Goldman, Sachs & Co., Merrill Lynch & Co., Robertson Stephens and
Epoch Partners. Aggregate proceeds from the IPO were $140,000,000.

        The Company incurred the following expenses in connection with the IPO:
underwriters' discounts and commissions of $9,800,000 and approximately
$2,000,000 in other expenses, for a total expense of $11,800,000. No payments
constituted direct or indirect payments to directors, officers or general
partners of the Company or their associates, to persons owning 10% or more of
any class of equity securities of the Company, or to any affiliates of the
Company.

        After deducting expenses of the IPO, the net offering proceeds to the
Company were approximately $128,200,000. From July 20, 2000, the effective date
of the Registration Statement, to September 30, 2000, the ending date of the
reporting period, the approximate amount of net offering proceeds used were
$1.0 million to repay outstanding debt and approximately $25 million to fund
operations. The remaining net proceeds were invested in short-term financial
instruments.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

        None.

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



                                       24
<PAGE>   25

        No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, for the quarter ended September 30, 2000.

ITEM 5. OTHER INFORMATION

        None.

ITEM 6. EXHIBITS

<TABLE>
<S>          <C>
    10.15    First Warrant Amendment Agreement dated October 14, 2000,
             between Registrant and Cap Gemini Ernest & Young U.S. LLC.

    10.16    Amended First Warrant to Purchase Common Stock dated October 14,
             2000, between Registrant and Cap Gemini Ernest & Young U.S. LLC.

    27.1     Financial Data Schedule
</TABLE>


                                       25
<PAGE>   26

                                   SIGNATURES

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

        Dated: November 13, 2000

                                       CORIO, INC.
                                       (Registrant)

                                       By    /s/ George Kadifa
                                         -------------------------------------
                                         George Kadifa
                                         President and Chief Executive Officer

                                       By    /s/ Eric J. Keller
                                         -------------------------------------
                                         Eric J. Keller
                                         Executive Vice President, Finance and
                                         Chief Financial Officer











                                       26
<PAGE>   27

                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT #      DESCRIPTION
---------      -----------
<S>            <C>
   10.15       First Warrant Amendment Agreement dated October 14, 2000,
               between Registrant and Cap Gemini Ernest & Young U.S. LLC.

   10.16       Amended First Warrant to Purchase Common Stock dated October 14,
               2000, between Registrant and Cap Gemini Ernest & Young U.S. LLC.

   27.1        Financial Data Schedule
</TABLE>












                                       27