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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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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 March 31, 2003.



OR



| |  ̈ |  | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | 
| | - |  | ---------------------------------------------------------------------------------------- | 



For the transition period from _____________ to _____________.



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Commission File No. 000-31003



CORIO, INC.

(Exact name of the Registrant as specified in its charter)



|DELAWARE (State or other jurisdiction of Incorporation or
organization |  | 77-0492528 (I.R.S. Employer Identification
Number)
|---------------------------------------------------------------------- |  | --------------------------------------------------





|959 Skyway Road, Suite 100 San Carlos, California (Address of principal
executive offices) |  | 94070 (Zip Code)
|------------------------------------------------------------------------------------------ |  | ----------------



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 ̈



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



As of April 30, 2003, there were 57,269,974
shares of the Registrants common stock outstanding.



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##### Table of Contents



CORIO, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2003



INDEX



|        |  |                                                                                       |  | Page No.
|------- |  | ------------------------------------------------------------------------------------- |  | --------
|       
|        |  | PART I.    FINANCIAL INFORMATION                                                      |  | 3       
|       
|Item 1. |  | Condensed Financial Statements (Unaudited):                                           |  | 3       
|       
|        |  | Condensed Balance Sheets March 31, 2003 and December 31, 2002                         |  | 3       
|       
|        |  | Condensed Statements of Operations Three Months Ended March 31, 2003 and 2002         |  | 4       
|       
|        |  | Condensed Statements of Cash Flows Three Months Ended March 31, 2003 and 2002         |  | 5       
|       
|        |  | Notes to Condensed Financial Statements                                               |  | 6       
|       
|Item 2. |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 9       
|       
|Item 3. |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 26      
|       
|Item 4. |  | Controls and Procedures                                                               |  | 26      
|       
|        |  | PART II.    OTHER INFORMATION                                                         |  | 26      
|       
|Item 1. |  | Legal Proceedings                                                                     |  | 26      
|       
|Item 2. |  | Change in Securities and Use of Proceeds                                              |  | 26      
|       
|Item 3. |  | Defaults upon Senior Securities                                                       |  | 26      
|       
|Item 4. |  | Submission of Matters to a Vote of Security Holders                                   |  | 27      
|       
|Item 5. |  | Other Information                                                                     |  | 27      
|       
|Item 6. |  | Exhibits and Reports on Form 8-K                                                      |  | 27      
|       
|        |  | Signatures                                                                            |  | 28      
|       
|        |  | Certifications                                                                        |  | 29      





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PART I.    FINANCIAL INFORMATION



ITEM 1.    CONDENSED FINANCIAL STATEMENTS



CORIO, INC.



CONDENSED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

(UNAUDITED)



|                                                                                                                                                                             |  | MARCH 31, 2003 |          |   | DECEMBER 31, 2002 |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | -------- | - | ----------------- | -
|ASSETS                                                                                                                                                                       |  |                |          |   |                   |  
|Current assets:                                                                                                                                                              |  |                |          |   |                   |  
|Cash and cash equivalents                                                                                                                                                    |  | $              | 17,146   |   |                   | $
|Short-term investments                                                                                                                                                       |  |                | 24,298   |   |                   |  
|Accounts receivable, net of allowance of $274 and $403 at March 31, 2003 and December
31, 2002, respectively                                                                 |  |                | 4,086    |   |                   |  
|Prepaid expenses and other current assets                                                                                                                                    |  |                | 3,276    |   |                   |  
|                                                                                                                                                                             |  |                |          |   |                   |  
|Total current assets                                                                                                                                                         |  |                | 48,806   |   |                   |  
|Restricted cash                                                                                                                                                              |  |                | 7,717    |   |                   |  
|Property and equipment, net                                                                                                                                                  |  |                | 13,988   |   |                   |  
|Other assets                                                                                                                                                                 |  |                | 2,373    |   |                   |  
|                                                                                                                                                                             |  |                |          |   |                   |  
|Total assets                                                                                                                                                                 |  | $              | 72,884   |   |                   | $
|                                                                                                                                                                             |  |                |          |   |                   |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                         |  |                |          |   |                   |  
|Current liabilities:                                                                                                                                                         |  |                |          |   |                   |  
|Accounts payable                                                                                                                                                             |  | $              | 8,588    |   |                   | $
|Accrued liabilities                                                                                                                                                          |  |                | 6,506    |   |                   |  
|Accrued restructuring                                                                                                                                                        |  |                | 1,091    |   |                   |  
|Deferred revenue                                                                                                                                                             |  |                | 2,865    |   |                   |  
|Current portion of notes payable                                                                                                                                             |  |                | 144      |   |                   |  
|Current portion of capital lease obligations                                                                                                                                 |  |                | 2,842    |   |                   |  
|                                                                                                                                                                             |  |                |          |   |                   |  
|Total current liabilities                                                                                                                                                    |  |                | 22,036   |   |                   |  
|Capital lease obligations less current portion                                                                                                                               |  |                | 196      |   |                   |  
|Accrued restructuring                                                                                                                                                        |  |                | 4,577    |   |                   |  
|Other liabilities                                                                                                                                                            |  |                | 1,206    |   |                   |  
|                                                                                                                                                                             |  |                |          |   |                   |  
|Total liabilities                                                                                                                                                            |  |                | 28,015   |   |                   |  
|                                                                                                                                                                             |  |                |          |   |                   |  
|Commitments and contingencies                                                                                                                                                |  |                |          |   |                   |  
|                                                                                                                                                                            
|Stockholders equity:                                                                                                                                                        |  |                |          |   |                   |  
|Preferred stock: $0.001 par value; 10,000,000 shares authorized, none issued and
outstanding                                                                                 |  |                |         |   |                   |  
|Common stock: $0.001 par value; 200,000,000 shares authorized; 57,221,552 and 56,516,435
shares issued and outstanding at March 31, 2003 and December 31, 2002, respectively |  |                | 57       |   |                   |  
|Additional paid-in capital                                                                                                                                                   |  |                | 296,923  |   |                   |  
|Accumulated other comprehensive income                                                                                                                                       |  |                | 77       |   |                   |  
|Deferred stock-based compensation                                                                                                                                            |  |                | (333     | ) |                   |  
|Accumulated deficit                                                                                                                                                          |  |                | (251,855 | ) |                   |  
|                                                                                                                                                                             |  |                |          |   |                   |  
|Total stockholders equity                                                                                                                                                   |  |                | 44,869   |   |                   |  
|                                                                                                                                                                             |  |                |          |   |                   |  
|Total liabilities and stockholders equity                                                                                                                                   |  | $              | 72,884   |   |                   | $
|                                                                                                                                                                             |  |                |          |   |                   |  



See
accompanying notes to condensed financial statements.



3



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CORIO, INC.



CONDENSED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)



|                                                                              |  | THREE MONTHS ENDED MARCH 31, |       
|----------------------------------------------------------------------------- |  | ---------------------------- | ------
|                                                                              |  | 2003                         |       
|REVENUES:                                                                     |  |                              |       
|Application management services                                               |  | $                            | 16,629
|Professional services and other                                               |  |                              | 2,374 
|                                                                              |  |                              |       
|Total revenues                                                                |  |                              | 19,003
|COSTS AND EXPENSES:                                                           |  |                              |       
|Application management services *                                             |  |                              | 13,214
|Professional services and other *                                             |  |                              | 2,013 
|Research and development *                                                    |  |                              | 1,350 
|Sales and marketing *                                                         |  |                              | 2,205 
|General and administrative *                                                  |  |                              | 2,390 
|Restructuring charges                                                         |  |                              | 2,334 
|Amortization of stock based compensation                                      |  |                              | 272   
|Amortization of intangible assets                                             |  |                              | 453   
|                                                                              |  |                              |       
|Total operating expenses                                                      |  |                              | 24,231
|                                                                              |  |                              |       
|Loss from operations                                                          |  |                              | (5,228
|Interest and other income                                                     |  |                              | 200   
|Interest and other expense                                                    |  |                              | (127  
|                                                                              |  |                              |       
|Net loss                                                                      |  | $                            | (5,155
|                                                                              |  |                              |       
|Basic and diluted net loss per share                                          |  | $                            | (0.09 
|                                                                              |  |                              |       
|Shares used in computationbasic and diluted                                  |  |                              | 54,955
|                                                                              |  |                              |       
|                                                                             
|*  Amortization of stock-based compensation not included in expense line
item |  |                              |       
|Application management services                                               |  | $                            | 36    
|Professional services and other                                               |  |                              |      
|Research and development                                                      |  |                              | (14   
|Sales and marketing                                                           |  |                              | 98    
|General and administrative                                                    |  |                              | 152   
|                                                                              |  |                              |       
|Total amortization of stock-based compensation                                |  | $                            | 272   
|                                                                              |  |                              |       



See
accompanying notes to condensed financial statements.



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CORIO, INC.



CONDENSED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)



|                                                                                |  | THREE MONTHS ENDED MARCH 31, |        
|------------------------------------------------------------------------------- |  | ---------------------------- | -------
|                                                                                |  | 2003                         |        
|CASH FLOWS FROM OPERATING ACTIVITIES:                                           |  |                              |        
|Net loss                                                                        |  | $                            | (5,155 
|Adjustments to reconcile net loss to net cash used in operating
activities:     |  |                              |        
|Depreciation                                                                    |  |                              | 3,210  
|Amortization of intangibles                                                     |  |                              | 453    
|Amortization of deferred stock-based compensation                               |  |                              | 272    
|Compensation for grants of stock, options and warrants in exchange for
services |  |                              | 89     
|Changes in assets and liabilities:                                              |  |                              |        
|Accounts receivable                                                             |  |                              | 1,988  
|Prepaid expenses and other current assets                                       |  |                              | 145    
|Accounts payable                                                                |  |                              | (784   
|Accrued liabilities                                                             |  |                              | (1,883 
|Deferred revenue                                                                |  |                              | 229    
|Other liabilities                                                               |  |                              | 2,157  
|                                                                                |  |                              |        
|Net cash provided by (used in) operating activities                             |  |                              | 721    
|                                                                               
|CASH FLOWS FROM INVESTING ACTIVITIES:                                           |  |                              |        
|Purchases of short-term investments                                             |  |                              | (15,020
|Sales of short-term investments                                                 |  |                              | 7,732  
|Purchase of property and equipment                                              |  |                              | (1,011 
|Other assets                                                                    |  |                              | 2      
|Additional cash paid for acquisition                                            |  |                              | (516   
|                                                                                |  |                              |        
|Net cash (used in) provided by investing activities                             |  |                              | (8,813 
|                                                                               
|CASH FLOWS FROM FINANCING ACTIVITIES:                                           |  |                              |        
|Proceeds from sale of common stock and exercise of stock options                |  |                              | 279    
|Payments on debt obligations                                                    |  |                              | (128   
|Payments on capital lease obligations                                           |  |                              | (1,821 
|                                                                                |  |                              |        
|Net cash used in financing activities                                           |  |                              | (1,670 
|                                                                                |  |                              |        
|Net decrease in cash and cash equivalents                                       |  |                              | (9,762 
|Cash and cash equivalents, beginning of period                                  |  |                              | 26,908 
|                                                                                |  |                              |        
|Cash and cash equivalents, end of period                                        |  | $                            | 17,146 
|                                                                                |  |                              |        
|                                                                               
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                               |  |                              |        
|Cash paid for interest                                                          |  | $                            | 120    
|                                                                                |  |                              |        
|                                                                               
|SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:                       |  |                              |        
|Acquisition of property and equipment under capital leases                      |  | $                            |       
|                                                                                |  |                              |        
|Deferred stock-based compensation / forfeitures, net                            |  | $                            | 254    
|                                                                                |  |                              |        
|Unrealized loss on investments                                                  |  | $                            | (21    
|                                                                                |  |                              |        



See
accompanying notes to condensed financial statements.



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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 that 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 accompanying notes included in the Companys Annual Report on Form 10-K for
the year ended December 31, 2002.



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 except weighted average exercise price):



|                                   |  | MARCH 31, 2003                  |      | MARCH 31, 2002
|---------------------------------- |  | ------------------------------- | ---- | --------------
|                                   |  | WEIGHTED AVERAGE EXERCISE PRICE |      | SHARES        
|Preferred stock warrants           |  | $                               | 1.70 |               
|Common stock subject to repurchase |  | $                               | 0.01 |               
|Common stock options and warrants  |  | $                               | 1.82 |               



STOCK-BASED
COMPENSATION



The Company accounts for
stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, Financial Accounting Standards Board Interpretation
No. 44, Accounting for Certain Transactions Involving Stock Compensationan Interpretation of APB No. 25 (FIN No. 44) and complies with the disclosure provisions of Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based Compensation. Under APB No. 25, compensation expense is based on the difference, if any, on the date of the grant between the fair value of the Companys stock and the exercise price
of the underlying option. Deferred compensation is amortized and expensed in accordance with the graded vesting approach provided for in Financial Accounting Standards Board (FASB) Interpretation No. 28.



The Company accounts for stock issued to non-employees in
accordance with the provisions of SFAS No. 123 and FASB Emerging Issues Task Force Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.
The Company uses the Black-Scholes option pricing model to value options granted to non-employees. The related expense is recorded over the period in which the related services are received.



If compensation cost for the Companys stock-based
compensation plans had been determined based on the fair value at the grant dates for the awards under a method prescribed by SFAS No. 123, the Companys net loss would have been increased to the pro forma amounts indicated below (in thousands,
except per share data):



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|                                                                                                                       |  | Three Months Ended March 31 |       
|---------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ------
|                                                                                                                       |  | 2003                        |       
|Net loss as reported                                                                                                   |  | $                           | (5,155
|Add stock-based employee compensation expense included in reported net loss, net of
tax                                |  |                             | 272   
|Deduct total stock-based employee compensation determined under the fair-value-based
method for all awards, net of tax |  |                             | (1,926
|                                                                                                                       |  |                             |       
|Pro forma net loss                                                                                                     |  | $                           | (6,809
|                                                                                                                       |  |                             |       
|Basic and diluted net loss per share:                                                                                  |  |                             |       
|As reported                                                                                                            |  | $                           | (0.09 
|Pro forma                                                                                                              |  | $                           | (0.12 



The
Company calculated the fair value of each option granted under the Companys stock option plans on the date of grant using the Black-Scholes option pricing model and calculated amortization using the graded vesting approach with the following
weighted-average assumptions: no dividends; expected option term of four years; risk free interest rates of 2.38% for the three months ended March 31, 2003 and 4.00% for the three months ended March 31, 2002; and expected volatility of 105% for the
three months ended March 31, 2003 and 2002.



Weighted-average fair values per share of options granted under the Companys stock option plans during the three months ended March 31, 2003 and 2002 were:



|Three months ended March 31, 2003 |  | $ | 0.56
|--------------------------------- |  | - | ----
|Three months ended March 31, 2002 |  | $ | 0.97



The
Company calculated the fair value of each option granted under the Companys employee stock purchase plan on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: no dividends; expected
option term of 0.5 to 2 years; risk free interest rates of 1.71% for the three months ended March 31, 2003 and 3.45% for the three months ended March 31, 2002; and expected volatility of 105% for the three months ended March 31, 2003 and 2002.



Weighted-average fair values per share of
options granted under the Companys employee stock purchase plan during the three months ended March 31, 2003 and 2002 were:



|Three months ended March 31, 2003 |  | $ | 0.54
|--------------------------------- |  | - | ----
|Three months ended March 31, 2002 |  | $ | 0.31



RESTRICTED CASH



In connection with two facility leases, the
Company is required to provide letters of credit as security for the leases. The letters of credit are available for a period of one year with automatic one year renewals. The letters of credit are collateralized by a $7.7 million cash deposit which
is recorded as restricted cash on the accompanying condensed balance sheet.



RECLASSIFICATIONS



Certain reclassifications have been made to prior period amounts to be consistent with current year presentation.



RECENT ACCOUNTING PRONOUNCEMENTS



In April 2002, the FASB issued SFAS No. 145, Recision of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections Under Statement 4, pursuant to which all gains and losses from extinguishments of debt were required to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. This statement
eliminates Statement 4 and, thus, the exception to applying Opinion 30 to all gains and losses related to extinguishments of debt. The adoption of SFAS No. 145 did not have a material impact on the Companys financial position or operating
results.



In June 2002, the FASB issued SFAS No.
146, Accounting for Exit or Disposal Activities. SFAS No. 146 addresses significant issues regarding the recognition, measurement and reporting of costs that are associated with exit and disposal activities, including restructuring activities
that are currently accounted for pursuant to the guidance of Emerging Issues Task Force (EITF) Issue No. 94-3,Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring). The adoption of SFAS No. 146 did not have a material impact on the Companys financial results.



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In November
2002, the EITF reached a consensus on Issue 00-21, Revenue Arrangements with Multiple Deliverables, addressing how to account for arrangements that involve the delivery or performance of multiple products, services, and/or rights to use
assets. Revenue arrangements with multiple deliverables are divided into separate units of accounting if the deliverables in the arrangement meet the following criteria: (1) the delivered item has value to the customer on a standalone basis; (2)
there is objective and reliable evidence of the fair value of undelivered items; and (3) delivery of any undelivered item is probable. Arrangement consideration should be allocated among the separate units of accounting based on their relative fair
values, with the amount allocated to the delivered item being limited to the amount that is not contingent on the delivery of additional items or meeting other specified performance conditions. The final consensus will be applicable to agreements
entered into in fiscal periods beginning after June 15, 2003 with early adoption permitted. The provisions of this consensus are not expected to have a significant effect on the Companys financial position or operating results.



In November 2002, the FASB issued Interpretation No. 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others, an interpretation of FASB Statements No. 5, 57 and 107 and a rescission of FASB Interpretation No. 34. This
interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees issued. This interpretation also clarifies that a guarantor is required to recognize, at
inception of a guarantee, a liability for the fair value of the obligation undertaken. The initial recognition and measurement provisions of the interpretation are applicable to guarantees issued or modified after December 31, 2002 and did not have
a material effect on the Companys position or operating results.



In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based CompensationTransition and Disclosure. This statement amends SFAS No. 123, Stock-Based Compensation, to provide alternative
methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The disclosure provisions of this standard are effective for fiscal years ending
after December 15, 2002 and have been incorporated into these condensed financial statements and accompanying footnotes.



In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, an interpretation of ARB No.
51. This interpretation addresses the consolidation by business enterprises of variable interest entities as defined in the interpretation. The interpretation applies immediately to variable interests in variable interest entities created after
January 31, 2003, and to variable interests in variable interest entities obtained after January 31, 2003. For public enterprises with a variable interest in a variable interest entity created before February 1, 2003, the interpretation applies to
that enterprise no later than the beginning of the first interim or annual reporting period beginning after June 15, 2003. The application of this interpretation did not have a material effect on the Companys financial statements.



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. At March 31, 2003 and December 31, 2002, the Company had outstanding invoices of $3,402,000 and $3,844,000 related to
customers which the Company deemed as credit risks. Since the revenue related to the collection of these invoices is recognized on a cash basis, these amounts have not been included in the accounts receivable balances. Included in accounts
receivable at March 31, 2003 and December 31, 2002 was $674,000 and $1,443,000, respectively, of unbilled receivables under various professional services contracts.



NOTE 3WARRANTS



On September 27, 2000, Cap Gemini Ernst & Young U.S., L.L.C exercised its right to convert a portion of its initial warrant
representing 2,333,333 shares into 960,810 shares of common stock through a cashless exercise. As these shares outstanding are repurchaseable under certain circumstances, the fair value of these shares subject to repurchase will be remeasured each
period until May 2003, when the repurchase rights lapse. Amortization expense of $79,000 and $229,000 was recorded in sales and marketing expense for the three months ended March 31, 2003 and 2002, respectively related to these shares.



NOTE 4STOCK-BASED COMPENSATION



In connection with stock options granted to employees to
purchase common stock, the Company recorded reductions in deferred stock-based compensation of $254,000 and $2.1 million for the three months ended March 31, 2003 and 2002, respectively. Such amounts represent unamortized deferred stock compensation
for unvested options that are forfeited upon severance. The deferred charges for employee options are being amortized to expenses using the graded vesting approach, prescribed by FASB Interpretation No. 28, through 2004. Amortization of deferred
stock-based compensation expense was $272,000 and $141,000 for the three months ended March 31, 2003 and 2002, respectively, net of stock options forfeited.



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NOTE 5SIGNIFICANT
CUSTOMER INFORMATION AND SEGMENT REPORTING INFORMATION



The Companys operations have been classified into two reportable 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 reportable segments.



Disaggregated information is as follows (in thousands):



|                                          |  | APPLICATION MANAGEMENT SERVICES |        | PROFESSIONAL SERVICES |   |       | UNALLOCATED |  |   | TOTAL  |  
|----------------------------------------- |  | ------------------------------- | ------ | --------------------- | - | ----- | ----------- |  | - | ------ | -
|FOR THE THREE MONTHS ENDED MARCH 31, 2003 |  |                                 |        |                       |   |       |             |  |   |        |  
|Revenues                                  |  | $                               | 16,629 |                       | $ | 2,374 |             |  | $ |       |  
|Depreciation                              |  | $                               | 2,687  |                       | $ | 9     |             |  | $ | 514    |  
|Segment profit (loss)                     |  | $                               | 2,962  |                       | $ | 361   |             |  | $ | (8,478 | )
|                                         
|FOR THE THREE MONTHS ENDED MARCH 31, 2002 |  |                                 |        |                       |   |       |             |  |   |        |  
|Revenues                                  |  | $                               | 10,025 |                       | $ | 3,066 |             |  | $ |       |  
|Depreciation                              |  | $                               | 2,147  |                       | $ | 15    |             |  | $ | 677    |  
|Segment profit (loss)                     |  | $                               | 985    |                       | $ | (656  | )           |  | $ | (8,339 | )



The
Company does not allocate all assets to its reportable segments, nor does it allocate interest income or interest expense.



For the three months ended March 31, 2003, no one single customer accounted for 10% or more of total revenues. For the three months ended
March 31, 2002, one customer accounted for 10% of total revenues.



At March 31, 2003, two customers represented 25% of total accounts receivable. As of December 31, 2002, one customer accounted for 11% of total accounts receivable.



NOTE 6RESTRUCTURING ACCRUAL



The following table sets forth the charges taken against the
restructuring and impairment accrual in the three months ended March 31, 2003 and the remaining restructuring and impairment accrual balance at March 31, 2003 (in thousands):



|                         |  | DECEMBER 31, 2002 |       | ADDITIONS/ ADJUSTMENTS |   |       | CASH PAID |  |   | MARCH 31, 2003
|------------------------ |  | ----------------- | ----- | ---------------------- | - | ----- | --------- |  | - | --------------
|Office lease obligations |  | $                 | 3,355 |                        | $ | 2,473 |           |  | $ | (220          
|Employee severance       |  |                   | 440   |                        |   |      |           |  |   | (440          
|Asset abandonments       |  |                   | 434   |                        |   | (139  | )         |  |   | (235          
|                         |  |                   |       |                        |   |       |           |  |   |               
|                         |  | $                 | 4,229 |                        | $ | 2,334 |           |  | $ | (895          
|                         |  |                   |       |                        |   |       |           |  |   |               



Effective May 5, 2003, we signed an agreement to sublease the vacated portion of our headquarters facility through the end of our lease, which is March 2010. We adjusted our estimated loss related to the vacated space and recorded an
additional restructuring charge of $2.5 million to reflect the terms of this new sublease agreement. The impact of this charge was partially offset by the favorable resolution of our liability with respect to various capital leases which resulted in
a reduction of $139,000 to reduce the previously established restructuring reserve.



NOTE 7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 tax provision or benefit for income taxes for the three months
ended March 31, 2003 and 2002.



NOTE 8SUBSEQUENT EVENTS



Effective May 5, 2003, we signed an
agreement to sublease the vacated portion of our headquarters facility through the end of our lease, which is April 2010. Due to this agreement, we adjusted our estimated loss related to the vacated space and recorded an additional restructuring
charge of $2.5 million (Note 6).



|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 in conjunction with the unaudited condensed financial statements and notes thereto included in Part IItem 1 of this Quarterly Report and the audited financial statements and
notes thereto and Managements Discussion and Analysis in the Companys 2002 Annual Financial Report to Stockholders.



THIS REPORT ON FORM 10-Q 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, AND THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, INCLUDING, WITHOUT



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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 implement, integrate and manage a suite of enterprise software applications from leading vendors offered to our customers over a secure network. This suite of applications is designed to accommodate the requirements of medium to large,
public, private, non-profit and public sector companies. We enable our customers to avoid many of the significant and unpredictable ongoing application management challenges and costs. Following the implementation of software applications by our
partners or us, our customers pay a monthly service fee based largely on the number of applications used, total users, the level of service required and other factors. By providing application implementation, integration, management and various
upgrade services and related hardware and network infrastructure, we reduce the information technology, or IT, burdens of our customers, enabling them to focus on their core businesses and react quickly to dynamic market conditions.



CRITICAL ACCOUNTING POLICIES



Managements Discussion and Analysis of Financial
Condition and Results of Operations are based on our condensed financial statements. The preparation of our condensed financial statements and related disclosures requires management to make judgments, assumptions and estimates that affect the
amounts reported in the condensed financial statements and accompanying notes.



Estimates are used for, but not limited to, the accounting for revenue recognition, the allowance for doubtful accounts, contingencies, restructuring costs and other special charges. Actual results
could differ from these estimates. We review these accounting policies we use in reporting our financial results on a regular basis. In addition, our senior management has reviewed these critical accounting policies and related disclosures with our
Audit Committee. We have identified the policies below as critical to our business operations and the understanding of our financial condition and results of operations:



| |  |  | Cash basis customers
| | - |  | --------------------



| |  |  | Allowance for doubtful accounts
| | - |  | -------------------------------



| |  |  | Loss contingencies
| | - |  | ------------------



| |  |  | Valuation allowance
| | - |  | -------------------



Cash Basis Customers



We recognize revenue from application management services as the services are provided to our customers provided that collection of the
receivable is probable. We regularly monitor the payment activity and credit worthiness of our customers. If we determine that collection of revenue from a particular customer or contract is no longer probable, we revert to recognizing revenue as
payment for services is received and we designate those customers as cash basis customers. Revenues recognized from cash basis customers were $6.3 million and $4.1 million for the quarters ended March 31, 2003 and 2002, respectively. At
March 31, 2003 and December 31, 2002, we had outstanding invoices of $3.4 million and $3.8 million, respectively, related to services provided to cash basis customers. Since revenue related to these invoices is recognized on a cash basis, these
amounts have not been included in our accounts receivable balances. Our revenue in the future could fluctuate significantly due to the timing and amount of payments received from cash basis customers as well as the change in composition of these
customers.



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Allowance
For Doubtful Accounts



The allowance for
doubtful accounts is based on our assessment of the collectibility of specific customer accounts and the aging of the accounts receivable. If there is a deterioration in a major customers credit worthiness or actual defaults are higher than
our historical experience, our estimates of the recoverability of amounts due us could be adversely affected. We regularly review the adequacy of our allowance for doubtful accounts through identification of specific receivables where it is expected
that payment will not be received in addition to establishing an unallocated reserve that is applied to all amounts that are not specifically identified. In determining specific receivables where collection may not be received, we review past due
receivables and give consideration to prior collection history, changes in the customers overall business condition and the potential risk associated with the customers industry among other factors. An unallocated reserve is established
for all amounts which have not been specifically identified, based on applying a graduated percentage to each invoices relative aging category. The allowance for doubtful accounts reflects our best estimate as of the reporting dates. Changes
may occur in the future, which may make us reassess the collectibility of amounts and at which time we may need to provide additional allowances in excess of that currently provided. At March 31, 2003 and December 31, 2002, our allowance for
doubtful accounts was $274,000 and $403,000, respectively. The decrease was due to a corresponding decrease in accounts receivable.



Loss Contingencies



We are subject to the possibility of various loss contingencies such as the risks associated with estimates included in both our
restructuring liability and our professional services fixed fee contracts. We consider the likelihood of the loss or the incurrence of a liability as well as our ability to reasonably estimate the amount of loss in determining loss contingencies. An
estimated loss contingency is accrued when it is probable that a liability has been incurred or an asset has been impaired and the amount of loss can be reasonably estimated.



For our restructuring liability, we estimate the amounts for employee severances, impaired assets and vacated
office space. We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison
of the carrying amount of any asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of
the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. For our office lease restructuring liability, our estimate is based on our assessment of our
predicted sublease income over the remaining lease term. We adjusted our office lease restructuring liability in the first quarter of 2003 due to the sublease agreement which was effective May 5, 2003.



In addition, since we perform some of our professional
services on a fixed fee basis, if we incur more costs than estimated, our profitability will suffer. Our process for tracking our progress to completion on such arrangements is through individual detailed project plans and the regular review of
labor hours incurred compared to estimated hours to complete the project. We believe this process results in a reasonable estimate of our progress to completion. When estimates of costs to complete the project indicate that a loss will be incurred,
these losses are estimated and recognized immediately. We regularly evaluate current information available to us to determine whether such recorded losses should be adjusted.



Valuation Allowance



We provided a valuation allowance against our entire net deferred tax asset, primarily consisting of net
operating loss carryforwards as of December 31, 2002. The valuation allowance was recorded given the losses we incurred through December 31, 2002, and our uncertainties regarding future operating profitability and taxable income. If we do not
achieve profitability, we will not fully realize the deferred tax benefits.



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Selected
Financial Data



The following table sets
forth, for the periods presented, certain data from our statements of operations as percentages of total revenues.



|                                         |  | THREE MONTHS ENDED MARCH 31, 2003 |        |   | THREE MONTHS ENDED MARCH 31, 2002 |     |   | THREE MONTHS ENDED MARCH 31, 2003 VERSUS MARCH 31, 2002 |  
|---------------------------------------- |  | --------------------------------- | ------ | - | --------------------------------- | --- | - | ------------------------------------------------------- | -
|                                         |  | AMOUNT                            |        |   | PERCENTAGE OF TOTAL REVENUES      |     |   | AMOUNT                                                  |  
|REVENUES:                                |  |                                   |        |   |                                   |     |   |                                                         |  
|Application management services          |  | $                                 | 16,629 |   |                                   | 88  | % |                                                         | $
|Professional services and other          |  |                                   | 2,374  |   |                                   | 12  | % |                                                         |  
|                                         |  |                                   |        |   |                                   |     |   |                                                         |  
|Total revenues                           |  |                                   | 19,003 |   |                                   | 100 | % |                                                         |  
|                                        
|COSTS AND EXPENSES:                      |  |                                   |        |   |                                   |     |   |                                                         |  
|Application management services          |  |                                   | 13,214 |   |                                   | 70  | % |                                                         |  
|Professional services and other          |  |                                   | 2,013  |   |                                   | 11  | % |                                                         |  
|Research and development                 |  |                                   | 1,350  |   |                                   | 7   | % |                                                         |  
|Sales and marketing                      |  |                                   | 2,205  |   |                                   | 12  | % |                                                         |  
|General and administrative               |  |                                   | 2,390  |   |                                   | 13  | % |                                                         |  
|Restructuring charges                    |  |                                   | 2,334  |   |                                   | 12  | % |                                                         |  
|Amortization of stock based compensation |  |                                   | 272    |   |                                   | 1   | % |                                                         |  
|Amortization of intangible assets        |  |                                   | 453    |   |                                   | 2   | % |                                                         |  
|                                         |  |                                   |        |   |                                   |     |   |                                                         |  
|Total operating expenses                 |  |                                   | 24,231 |   |                                   | 128 | % |                                                         |  
|                                         |  |                                   |        |   |                                   |     |   |                                                         |  
|Loss from operations                     |  |                                   | (5,228 | ) |                                   | -28 | % |                                                         |  
|Interest and other income                |  |                                   | 200    |   |                                   | 1   | % |                                                         |  
|Interest and other expense               |  |                                   | (127   | ) |                                   | -1  | % |                                                         |  
|                                         |  |                                   |        |   |                                   |     |   |                                                         |  
|Net loss                                 |  | $                                 | (5,155 | ) |                                   | -27 | % |                                                         | $
|                                         |  |                                   |        |   |                                   |     |   |                                                         |  



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RESULTS OF OPERATIONS



THREE MONTHS ENDED MARCH 31, 2003 and 2002



REVENUES



Total revenues increased to $19.0 million for the three
months ended March 31, 2003 from $13.1 million for the three months ended March 31, 2002. For the three months ended March 31, 2003, no one single customer accounted for 10% or more of total revenues. For the three months ended March 31, 2002, one
customer accounted for 10% of total revenues.



In
the ordinary course of business, for the three months ended March 31, 2003, we recorded no revenue from transactions with companies with which we have directors in common. In addition, at March 31, 2003, we had no accounts receivables arising from
such transactions. For the three months ended March 31, 2002, we recorded revenue of $1.3 million arising from transactions with four companies with which we had directors in common. At March 31, 2002, accounts receivable included $405,000 arising
from such transactions.



APPLICATION
MANAGEMENT SERVICES REVENUES.Revenues from our application management services were $16.6 million for the three months ended March 31, 2003, including $514,000 in non-recurring revenues from customer contract
terminations. Included in the March 31, 2003 revenues of $16.6 million is $5.9 million recognized as a result of payments from cash basis customers. For the three months ended March 31, 2002, our revenues of $10.0 million included approximately $1.1
million in non-recurring revenues from customer contract terminations. Included in the March 31, 2002 revenues of $10.0 million was $3.9 million recognized as a result of payments from cash basis customers. The increase in application management
services revenues was primarily due to the additional customer revenue acquired as a result of our September 2002 acquisition of Qwest Cyber.Solutions (QCS). Moreover, one of our customers represented 11% of total revenues in fiscal 2002 and its
contract expires in May 2003. We do not expect this customer to renew its contract and so we expect to lose the revenue from this customer starting in June 2003. At March 31, 2003, the Company had a balance of $2.5 million for deferred application
management services revenues primarily from several customers 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 $2.4 million and $3.1 million dollars for the three months ended March 31, 2003 and March 31, 2002, respectively. For the three months ended March 31, 2003 and
2002, we recognized $390,000 and $193,000, respectively, as a result of payments from cash basis customers. The decrease in professional services revenues was primarily due to the decreased number of new customer implementations. At March 31, 2003
and December 31, 2002, we had balances of $397,000 and 647,000, respectively, for deferred professional services revenues resulting from customer payments that we required in advance of providing our professional services work.



COSTS AND EXPENSES



APPLICATION MANAGEMENT SERVICES
EXPENSES.    Application management services expenses, excluding non-cash stock based compensation of $36,000 and $93,000 for the three months ended March 31, 2003 and 2002, respectively, were $13.2 million for the three
months ended March 31, 2003 and $9.0 million for the three months ended March 31, 2002. The $4.2 million increase in application management services expenses was mainly attributable to the additional costs associated with integrating and
administering the customers acquired from QCS in September 2002. The increase in expenses consisted of a $1.8 million increase in data center fees, a $1.0 million increase in payroll expenses, a $362,000 increase in outside contractor expenses, a
$540,000 increase in depreciation expense, a $304,000 increase in software maintenance expense and a $245,000 increase in equipment repairs and maintenance expense.



PROFESSIONAL SERVICES AND OTHER EXPENSES.    Professional services and other
expenses were $2.0 million for the three months ended March 31, 2003 and $3.7 million for three months ended March 31, 2002. There were no professional services stock based compensation charges for the three months ended March 31, 2003 or 2002. The
decrease in expenses was attributable to the reduction in the number of contracts in process which resulted in a reduction of $916,000 in personnel costs due to lower headcount and a $330,000 decrease in outside contractor expenses. The remaining
difference was primarily attributable to an expense recorded in the quarter ended March 31, 2002 to increase our provision for contract losses related to our professional services fixed-fee implementations. No adjustment to our provision for
contract losses was recorded in the quarter ended March 31, 2003.



RESEARCH AND DEVELOPMENT.    Research and development expenses, excluding non-cash stock based compensation (credits) charges of ($14,000) and $30,000 for the three months ended March 31, 2003 and
2002, respectively, were $1.4 million for the three months ended March 31, 2003 and $2.0 million for the three months ended March 31, 2002. Research and development expenses as a percentage of total revenues were 7% for the three months ended March
31, 2003 and 16% for the three months ended March 31, 2002. The $691,000 decrease was mainly attributable to a $497,000 reduction in personnel costs due to lower headcount and a $139,000 reduction in outside contractor expenses.



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SALES AND
MARKETING EXPENSES.Sales and marketing expenses, excluding non-cash stock based compensation of $98,000 and $357,000 for the three months ended March 31, 2003 and 2002, respectively, were $2.2 million for the three months
ended March 31, 2003 and $3.4 million for the three months ended March 31, 2002. Sales and marketing expenses as a percentage of total revenues were 12% for the three months ended March 31, 2003 and 26% for the three months ended March 31, 2002. The
$1.2 million decrease in sales and marketing expenses reflects a $447,000 decrease in payroll related costs due to lower headcount and a $419,000 decrease in the amortization expense associated with a marketing alliance cost that was fully amortized
in April 2002. In addition, sales and marketing expenses also include amortization of costs associated with repurchasable shares issued to Cap Gemini Ernst & Young of $79,000 and $229,000 for the three months ended March 31, 2003 and 2002,
respectively.



GENERAL AND ADMINISTRATIVE
EXPENSES.    General and administrative expenses, excluding non-cash stock based compensation charges (credits) of $152,000 and ($339,000) for the three months ended March 31, 2003 and 2002, respectively, were $2.4 million
for the three months ended March 31, 2003 and $3.0 million for the three months ended March 31, 2002. General and administrative expenses as a percentage of total revenues were 13% for the three months ended March 31, 2003 and 23% for the three
months ended March 31, 2002. The $643,000 decrease was due to a $301,000 decrease in personnel costs mainly due to a lower headcount and a $188,000 decrease in rent expense mainly due to vacating a portion of our headquarters facility related to
restructuring activities initiated in the third quarter of 2002.



RESTRUCTURING CHARGES.Effective May 5, 2003, we signed an agreement to sublease the vacated portion of our headquarters facility through the end of our lease, which is March 2010. We adjusted our
estimated loss related to the vacated space and recorded an additional restructuring charge of $2.5 million to reflect the terms of this new sublease agreement. The impact of this charge was partially offset by the favorable resolution of our
liability with respect to various capital leases which resulted in a reduction of $139,000 to reduce the previously established restructuring reserve.



AMORTIZATION OF STOCK-BASED COMPENSATION.    Amortization of deferred stock-based compensation was $272,000 for
the three months ended March 31, 2003 and $141,000 for the three months ended March 31, 2002. The deferred charges for employee options are being amortized to expense using the graded vesting approach prescribed by FASB Interpretation No. 28. The
increase in amortization of stock based compensation amortization was due primarily to significant forfeitures during the three months ended March 31, 2002, partially offset by lower amortization during the three months ended March 31, 2003 due to
the graded vesting approach.



AMORTIZATION OF
OTHER INTANGIBLES.Related to our Qwest Cyber.Solutions (QCS) acquisition, we recorded an intangible asset for our acquired customer contracts of $2.7 million, which is included in other assets in the accompanying
balance sheet. This intangible asset is being amortized over an estimated life of 18 months. Amortization of the intangible asset was $453,000 for the three months ended March 31, 2003. No amortization expense related to the QCS acquired customer
contracts was recognized for the three months ended March 31, 2002 as the acquisition occurred in September 2002.



INTEREST AND OTHER INCOME AND EXPENSE.Net interest and other income and expense was $73,000 for the three
months ended March 31, 2003 and $270,000 for the three months ended March 31, 2002. The decrease in net interest income was due primarily to lower average cash and investment balances as well as lower interest rates at March 31, 2003 and was offset,
in part, by a decrease in interest expense due to lower average debt balances.



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 for income taxes for the three months ended March 31, 2003 and 2002.



LIQUIDITY AND CAPITAL RESOURCES



As of March 31, 2003, we had cash and cash equivalents, short-term investments and restricted cash of $49.2 million, a decrease of $2.5
million from December 31, 2002. The decrease was primarily the result of $1.7 million used in financing activities, $1.0 million for purchases of equipment and $516,000 for the payment of Qwest Cyber.Solutions acquisition-related expenses, and was
offset, in part, by $721,000 provided by operating activities.



Net cash provided by operating activities was $721,000 for the three months ended March 31, 2003, compared to $5.2 million used in operating activities for the three months ended March 31, 2002. The net change was primarily due to a
significant decrease in the net loss.



Net cash
used in investing activities was $8.8 million for the three months ended March 31, 2003 compared to $470,000 provided by investing activities for the three months ended March 31, 2002. For the three months ended March 31, 2003, investing activities
consisted primarily of purchases of equipment of $1.0 million and $7.3 million of net purchases of short-term investments. For the three months ended March 31, 2002, investing activities consisted primarily of $795,000 of net sales of short-term
investments and was offset, in part, by $495,000 of purchases of equipment.



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Net cash used
by financing activities was $1.7 million and $1.4 million for the three months ended March 31, 2003 and 2002, respectively. Financing activities consisted primarily of the proceeds from the issuance of common stock and exercise of stock options,
offset by repayments of loans and capital leases.



Except for equipment operating leases, we have no off balance sheet financing arrangements.



We expect that our current cash balances and existing debt arrangements will be sufficient to meet our cash requirements for at least the
next 12 months. However, any major change in the nature of the Companys business, or a significant reduction in demand for its services, the acquisition of products, the need for significant new capital expenditures or the acquisition of an
existing business, could further utilize the Companys cash reserves. To the extent the Company requires additional cash, there can be no assurances that the Company will be able to obtain such financing on terms favorable to the Company, or at
all.



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ADDITIONAL FACTORS THAT MAY
AFFECT FUTURE RESULTS



RISK FACTORS



Risks Related to Our Business



We have a history of losses and expect that we will
continue to incur 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 and run our operations organization, to build and run a professional services organization and to develop
and run our sales and marketing resources. We have incurred significant operating and net losses and negative cash flow and have not achieved profitability. As of March 31, 2003, we had an accumulated deficit of $252 million.



We expect to continue to invest significantly in our
organization to provide services, enhance current services and expand our service offerings. We also may hire additional people in certain areas of our company in order to support our business and promote and sell our services. 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 on a consistent basis, 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, our operations and the costs of
customer acquisitions, and to increase our number of customers. We cannot assure you that we will be able to increase our revenues or increase our operating efficiencies in this manner. Also, because we may continue to invest in our business faster
than we anticipate growth in our revenues, we may continue to incur significant losses and negative cash flow for the foreseeable future and we may never be profitable.



The emerging high-growth and middle-market companies that currently comprise a significant portion of our revenue base may
be volatile, which could continue to result in greater than expected customer loss and continued difficulty in collecting fees from some customers, and uncertainty regarding the stability of the economy in general could continue to adversely affect
demand for our services.



A significant
portion of our current revenue consists of revenue from middle-market companies, e-commerce trading exchanges and other technology companies. These companies are more likely to be acquired, experience financial difficulties or cease operations than
other companies that are larger and better established or are in more stable industries. In particular, these companies may experience difficulties in raising capital needed to fund their operations. In the past we have terminated our agreements
with a substantial number of customers who were unable or unwilling to continue to meet their financial obligations to us and we expect to terminate additional customers in the future. As a result, our client base will likely be more volatile than
those companies whose customers consist of more mature and established entities. 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. In addition, uncertainty regarding the stability of the economy in general could continue to diminish and delay demand for our services. Also, as we move up market and away from high-growth and middle
market companies, revenue from termination fees resulting from high-growth and middle market companies may diminish. Moreover, one of our customers represented 11% of total revenues in fiscal 2002 and its contract expires in May 2003. We do not
expect this customer to renew its contract and so we expect to lose the revenue from this customer starting in June 2003. The loss of this and any other significant customers may adversely affect our business.



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 relatively 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. Because our business model is relatively new, it continues to evolve. In the future, we may revise our
pricing model for different services, and our model for our customers to gain access to third-party software applications and other third-party services is evolving. Changes in our anticipated business and financial model could materially impact our
ability to become profitable in the future. Additionally, especially as we move up-market to larger, more established customers, the demand for our services is uncertain and the sales process takes longer than with smaller potential customers. 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:



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| |  |  | acquire and retain customers, particularly larger, more established companies required to create a stable revenue and customer base;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  |  | acquire new customers at a rate sufficient to create growth taking into account loss of 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 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 may spend significant sums to run our business and to try 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.



Although we are monitoring our spending, in order to promote future growth, we expect we may continue to expend significant sums in our business, 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 individual customers, we may recognize professional services revenues associated with the implementation of our applications during the early months
of our engagement. We then recognize monthly fees from the customer, consisting primarily of application management services revenues, over the balance of the contractual relationship. As a result, for some customers we have a high proportion of
up-front professional services revenues associated with implementation. We expect that our financial results may continue to vary over time as monthly fees increase as a portion of total revenue. Third parties also provide professional services for
some of our application management services customers, and whether professional services will be provided by us or by third parties may be difficult to predict. 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 and our ability or inability to collect termination fees from terminating customers;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | any decrease in termination fees paid in a quarter versus other quarters;
| | - |  | -------------------------------------------------------------------------



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



| |  |  | the timing and amount of payments received from cash basis customers as well as the change in composition of these customers
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



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



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



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



| |  |  | accounting charges associated with the warrants currently held by third parties, as well as potential accounting charges we may incur in the future relating to stock
or warrant issuances to future parties.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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 historically included a broad
range of customer support in our fixed monthly fees but now bill certain customers for support services in excess of specified limits in certain circumstances. As another example, we are increasingly unbundling from our fixed monthly fee the cost of
software licenses and currently require our customers to obtain licenses to enterprise software 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 arrangements with
some of our third-party software providers. For example, we are migrating customers, and currently plan to eventually migrate all customers, from a model whereby some rent enterprise application licenses from us to a model whereby they all purchase
the licenses directly from independent software vendors. Such pricing structures or business models 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 application services for
applications from third parties such as PeopleSoft, Oracle, SAP and Siebel Systems. We have agreements in place with certain of our third-party software vendors, and our agreements with third-party software vendors are non-exclusive, are for limited
terms and typically permit termination in the event of our breach of the agreements. Additionally, as we move more to host-only relationships, whereby our customers must obtain licenses directly from independent software vendors such as
PeopleSoft and Siebel, we rely on the independent software vendors to consent to allow us to access the software to provide our services. If we lose the right to use the software that we host 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 for which we provide hosting or application management 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 such as $1 billion, and some 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. 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 and e-commerce. 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 or ongoing management 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



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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 and management of enterprise software
applications can be very complex. We cannot assure you that we can convince customers that we have the requisite expertise required to implement, host or manage these applications. 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 or if we are not able to successfully manage enterprise applications, including those applications with which we have
limited or no implementation, hosting or management experience to date.



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. As we seek to provide applications management services for larger, more established customers, they may frequently
utilize the systems integration and consulting services of independent, third-party systems integrators rather than Corio. In such cases, we may receive only modest revenue for implementation and integration services if any. 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.



Growth
could strain our operations and require us to incur costs to upgrade our infrastructure and expand our personnel.



If our customer base grows significantly, we cannot be sure that we will successfully manage our growth. In order to manage any such
growth successfully, we must:



| |  |  | expand our management team, financial and information systems and controls and operations team;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | 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 retain our employee base effectively.
| | - |  | ---------------------------------------------------------------



If our customer base grows significantly, 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. 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 billing of customers, 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 any increase in 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.



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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 certain of our customers. Implementing software upgrades can be a complicated and costly process,
particularly implementation of an upgrade simultaneously across multiple customers. 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, as we continue to 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 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 provide services 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, Oracle and SAP. The architecture of the software we currently use for ERP applications is not
designed to be hosted. We believe that future software may 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.



We may incur substantial accounting charges as a result of repurchasable common stock held by Cap Gemini Ernst & Young
which may result in significant operating losses.



On September 27, 2000, Cap Gemini Ernst & Young U.S., L.L.C (CGEY), exercised its right to convert a portion of its initial warrant representing 2,333,333 shares into 960,810 shares of common stock through a cashless exercise.
Even if we are able to generate revenues that exceed our operating costs, we may incur substantial accounting charges through May 2003 associated with these shares held by CGEY. These shares and other expenses related to our strategic alliance with
CGEY may result in expenses and operating losses for us over the term of our agreement with them. Because of the accounting policies applicable to these shares, any charges associated with these shares will be 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 significant non-cash accounting charges.



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 two to three 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



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license from third parties, the costs of upgrades or inflation. 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 relatively 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 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 may not grow and may decline, and sales of our services may suffer.



Part of our strategy may be 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 may not grow and may decline, and sales of our services may 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 Bluestar Solutions, CSC, Electronic Data Systems, Hewlett-Packard, IBM Global Services,
Surebridge and USinternetworking;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | systems integrators, such as Accenture, Bearing Point;
| | - |  | ------------------------------------------------------



| |  |  | software vendors, such as Oracle, PeopleSoft, Commerce One, SAP and Siebel Systems; and
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | major technology providers, such as Microsoft.
| | - |  | ----------------------------------------------



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 agreements with software application vendors;
| | - |  | ----------------------------------------------------------------------



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



| |  |  | address customers service-related issues more effectively.
| | - |  | -----------------------------------------------------------



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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 XO Communications, Qwest and (i) Structure, 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. The services we provide could be materially disrupted by any disruption in the services provided by our data center management service providers to us.
We depend on suppliers such as Sun Microsystems for our computer hardware and WebMethods and Netegrity and others 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. Additionally, some of our service and product providers have recently experienced
financial difficulty, and financial problems they experience may cause disruptions in our service, loss of customers and expose us to additional costs.



System failures caused by us or factors outside of our control could cause us to lose our customers and subject us to liability and increased expenses.



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 three 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 and we have disaster recovery processes, a natural disaster or other 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. Some of our data center providers, as well as our corporate headquarters, are 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, terrorist attacks 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. Key personnel may voluntarily terminate
due to various reasons such as the 10% salary decrease which we implemented in January 2003. 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.



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.



In the
future, we may expand our sales operations and marketing efforts, both domestically and internationally, in order to try to increase market awareness and sales of our services. We may also need to increase our technical staff in order to service
customers and perform research and development. There is competition for qualified and effective sales, marketing, technical and operations personnel as these personnel are in limited supply and in high demand 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. Also, recent reductions in our workforce, although designed to not affect service levels and demand generation, may adversely affect these
areas of our business.



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Any acquisitions of
businesses, technologies or services may result in distraction of our management and disruptions to our business and additional costs.



In September 2002, we consummated the acquisition of the ASP assets of Qwest Cyber.Solutions LLC, or QCS, and we expect that further
consolidation in our industry may occur. We may acquire or make investments in additional 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, customers, 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, cause customer loss, 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. The integration of the ASP assets of QCS into our business is ongoing, and we may experience disruption and distraction related thereto and unexpected costs associated therewith.



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 technology platform and processes, 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 issued, 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 or other lawsuits could cost a significant amount of money and could divert managements attention away from our business.



If the number of software applications used by us and 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 or services we offer infringes their proprietary rights. Someone may
also claim that we do not have adequate licenses to perform the services we offer. 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 us or 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. Also, a securities class action lawsuit against Corio is currently pending in the U.S. District Court for the Southern District of New York. This
lawsuit may be time consuming and expensive to defend and may divert managements attention and may be costly to Corio.



We may not be able to continue to meet the continued listing criteria for The Nasdaq National Market, which would materially adversely affect our
business and financial condition.



Continued
listing on The Nasdaq National Market requires that the minimum bid price of our common stock not fall below $1.00 for a period of time prescribed by Nasdaq rules. As of May 13, 2003, the closing bid price of our stock has been above $1.00 for 10
consecutive trading days and so we expect that we are fully compliant with Nasdaqs minimum bid price requirements but this is subject to some discretion at Nasdaq. Our stockholders have approved a reverse stock split and, if necessary to come
into compliance with Nasdaqs requirements, we intend to effect the reverse stock split.



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In the
unlikely event we are unable to continue to list our common stock for trading on The Nasdaq National Market, this would materially adversely affect business, including, among other things:



| |  |  | Our ability to raise additional financing to fund our operations;
| | - |  | -----------------------------------------------------------------



| |  |  | Our ability to attract and retain customers and distributors; and
| | - |  | -----------------------------------------------------------------



| |  |  | Our ability to attract and retain personnel, including management personnel.
| | - |  | ----------------------------------------------------------------------------



In addition, if we were unable to list our common stock for trading on The Nasdaq National Market, many
institutional investors would no longer be able to retain their interests in and/or make further investments in our common stock because of their internal rules and protocols. If institutional shareholders liquidated their holdings in our common
stock and/or did not continue to make investments in our common stock, this would decrease the trading volume of our shares and would likely result in a lower price for our common stock. Also, as mentioned above, to come into compliance with
Nasdaqs minimum bid price requirement, we may effect a reverse stock split which could adversely affect our stock price.



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. This is especially true given the current uncertain macroeconomic environment. Companies in the ASP industry, such as Pandesic and Red Gorilla and others, have ceased operations. Other companies in
the ASP industry, such as USinternetworking, have filed for bankruptcy. 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 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 in general (or smaller
ASPs in particular) 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 and the financial viability of ASPs 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 subject 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.



If we expand our business outside the United States we may be subject to
unfavorable international conditions and regulations that could cause our international business to fail.



We have customers with international operations and may expand our business outside of the United States in the future. 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



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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.



General political and economic conditions may reduce our revenues and harm our business.



Because of the economic downturn and political environment, many industries have delayed or reduced technology expenditures. If this trend
continues, we may fall short of our revenue expectations, and ultimately may fail to achieve profitability. Moreover, weakness in the technology sector as a whole could negatively affect the cash flow of some of our customers, which in turn could
impact their ability to meet their obligations to us as they come due. This could increase our credit risk exposure and harm our overall financial position.



In addition, global and domestic political conditions, terrorist acts, or acts of war (wherever located in the world) may damage or
disrupt global and domestic markets and negatively affect our business, employees, customers, and suppliers, which in turn could have an adverse effect on our operations and our overall profitability.



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.
The market prices of technology companies generally, and technology service companies in particular have been subject to significant downward pressure. 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.



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 44% of our common stock at March 31, 2003. 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 purchased shares in the initial public 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 Delaware law, our certificate
of incorporation, bylaws and contracts 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.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT FINANCIAL 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 revenues are currently denominated in U.S. dollars, a strengthening of the dollar could make our
services less competitive in international markets.



Interest
Rate Risk



Our exposure to market rate risk
for changes in interest rates relates primarily to our investment portfolio. We do not use derivative financial instruments in our investment portfolio. We manage our interest rate risk by maintaining an investment portfolio primarily consisting of
debt instruments with high credit quality and relatively short average maturities in accordance with the Companys investment policy. The policy also limits the amount of credit exposure to any one issuer. Notwithstanding our efforts to manage
interest rate risks, there can be no assurances that we will be adequately protected against the risks associated with interest rate fluctuations.



ITEM 4.    CONTROLS AND PROCEDURES



Within 90 days prior to the date of this report, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of
the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective in
timely alerting them to material information required to be included in our periodic SEC reports. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there
can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.



In addition, we reviewed our internal controls, and there have been no significant changes in our internal controls or in other factors
that could significantly affect those controls subsequent to the date of their last evaluation.



PART II.    OTHER INFORMATION



ITEM 1.    LEGAL PROCEEDINGS



In November 2001, a securities class action lawsuit was filed in the U.S. District Court for the Southern District of New York against Corio, certain of its officers and certain of the underwriters
involved in Corios initial public offering. This is one of approximately 300 similar lawsuits in a coordinated proceeding sometimes referred to as IPO allocation lawsuits or laddering lawsuits. The plaintiffs generally
allege that the underwriters engaged in undisclosed improper practices by giving favorable allocations of IPO shares to certain investors in exchange for excessive brokerage commissions and/or agreements for those investors to purchase additional
shares in the aftermarket at predetermined higher prices. The plaintiffs seek an unspecified amount of damages.



ITEM 2.    CHANGE IN SECURITIES AND USE OF PROCEEDS



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 March 31, 2003,
the ending date of the reporting period, the approximate amount of net offering proceeds used were $20.7 million to repay outstanding debt, $68.8 million to fund operations and $14 million to purchase substantially all of the assets of Qwest
Cyber.Solutions. The remaining net proceeds are invested in short-term financial instruments.



ITEM 3.    DEFAULTS UPON SENIOR SECURITIES



None



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



No matter was submitted to a vote of the stockholders, through the solicitation of proxies or otherwise, during the quarter ended March
31, 2003.



ITEM 5.    OTHER INFORMATION



None



ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K



| | (a) |  | Exhibits
| | --- |  | --------



|99.1 |  | Certification of Chief Executive Officer
|---- |  | ----------------------------------------
|    
|99.2 |  | Certification of Chief Financial Officer



| | (b) |  | On February 11, 2003, the Company filed a Current Report on Form 8-K in connection with Nasdaqs proposed rule change to considerably lengthen the grace
period to regain compliance with the $1.00 minimum bid price continued listing requirement.
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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SIGNATURES



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



|Dated: |  | May 15, 2003
|------ |  | ------------



| |  |  |  | CORIO, INC.
| |  |  |  | -----------
|
| |  |  |  |            
| |  |  |  |            





|
|
|
|



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CERTIFICATIONS



I, George Kadifa,
certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Corio, Inc.
|-- |  | -----------------------------------------------------------------



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



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



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



| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report
(the Evaluation Date); and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation
Date;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



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





|                  
|------------------
|Date: May 15, 2003
|                  



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CERTIFICATIONS



I, Brett White, certify
that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Corio, Inc.
|-- |  | -----------------------------------------------------------------



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



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



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



| | a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report
(the Evaluation Date); and
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | c) |  | presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation
Date;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| | a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



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





|                  
|------------------
|Date: May 15, 2003
|                  



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EXHIBIT INDEX



|Exhibit Number |  | Description                             
|-------------- |  | ----------------------------------------
|99.1           |  | Certification of Chief Executive Officer
|              
|99.2           |  | Certification of Chief Financial Officer